Tag Archives: Superannuation

Investing in ETFs

By Robert Wright /November 16,2018/

An ETF is an investment fund that holds a basket of securities – such as shares or bonds that tracks a specified index – and is itself a listed share, traded on a stock exchange.

ETFs are low-cost, simple vehicles that can offer exposure to a wide range of Australian and global asset classes, indices and sectors, currencies and commodities, as well as a variety of investment strategies.

Investors can gain cost-effective, fast exposure to different markets that were once only accessible to institutional investors, including asset classes and strategies through a single investment by buying an ETF. As ETFs are listed, the investment is liquid, and therefore tradable at any time, however like shares, liquidity is dependent on market volumes and during time of significant market stress, liquidity (the ability to buy and sell) could decrease.

The appeal of ETFs

Typically, ETFs tend to be much cheaper in their annual management costs compared to traditional managed funds. They have no entry or exit fees – investors pay normal brokerage when buying or selling in the same way an investor trades shares.

The attraction of ETFs is that they are very flexible investment tools, which allow investors to easily improve their portfolio’s diversification; or to easily implement an investment view; or to use investment strategies that were once too complicated or expensive for them to consider. An investor can use ETFs for their entire asset allocation, or they can act as a low-cost complement, or alternative, to existing investments with active fund managers.

Understanding the risks

Investments carry risk, and ETFs are no exception to this rule. While there is the obvious risk of gain or loss of value depending on market activity, there are other risks to appreciate.

These range from risks specific to the assets the ETF is invested in, to the liquidity of the underlying investments, currency changes should some of the assets be international or even counterparty risk that is the risk the issuer of the ETF will be unable to fulfil the duties of managing the ETF.

Using ETFs in investments

The simplest way in which investors use ETFs is to establish – or diversify – an investment portfolio. For example, an investor who does not own any shares can simply buy an Australian share ETF, giving them a holding in hundreds of Australian shares, in a vehicle that aims to replicate the annual performance of the Australian share market index (give or take some differences in returns due to challenges of copying the index exactly). Adding a global shares ETF to your portfolio can widen this exposure to an international shares allocation; this might add thousands of shares to the portfolio depending on the particular ETF, picking up the world’s top companies (and brands), and tapping into the global revenue streams these generate.

This same investor can then very simply extend the diversification of their portfolio into other asset classes.

ETFs can also be used to gain exposure to a specific investment ‘theme’, as part of a tactical asset allocation process. For example, an investor who believes that the resources sector is poised to out-perform the rest of the Australian share market can tilt their portfolio toward over-weighting the resources industry by buying a relevant ETF. This tilt can be short-term or long-term. Alternatively, an investor who believes that the European economy will grow more strongly than the other developed-world economies could ‘play’ that view by buying a broad European share ETF.

Similarly, an investor who believes that the emerging markets will outperform the developed-world markets could bring an emerging markets ETF into their portfolio, and hold it as long as they believe this outperformance will prevail. Alternatively, this strategy could involve a view on a particular industry: an investor who believes that global spending on healthcare will increase as populations in many countries age – both in the developed and developing worlds – can tap into this theme by buying a global healthcare ETF.

To find out more about ETFs, please contact us.

 

Source: BT Financial Group, 2018

Make sure your super goes to your loved ones

By Robert Wright /November 16,2018/

While a Will states how you would like your hard-earned assets to be distributed, it doesn’t automatically include your super. That’s because, unlike directly owned property or shares, super doesn’t necessarily form a part of your estate. The super fund trustee will distribute it in accordance with super law and the fund’s trust deed and those decisions may not be what you had in mind.

That’s why it’s important to let your super fund know your wishes. Creating a valid binding death benefit nomination will bind the trustee to pay the death benefit according to your wishes.

A binding death benefit nomination is one of a variety of nominations – outlined below – which legally allows you to advise or bind the trustee to pay your super benefit to who you want when you die, provided the nominees meet certain eligibility criteria.

1. No nomination

If there is no nomination, the trustee has discretion and often pays the super benefit to the estate. In this situation there is a chance your super benefits could go to someone you didn’t intend them to go to.

2. Non-binding death benefit nomination

When there is a non-binding death benefit nomination you can tell the trustee who you want your super benefits to go to. It will be considered by the trustee, but is not binding.  The trustee can still exercise discretion which may suit you if your situation has changed. Ultimately, the trustee will make the decision as to who to pay your super benefits to.

3. Binding death benefit nomination

With a binding death benefit nomination the trustee must pay super benefits to the nominated dependants and in the proportions you set out. However your nomination must be renewed every three years to remain valid.

Who can you nominate as a beneficiary?

There are government regulations around who can receive a superannuation benefit – it’s not whoever you wish. The beneficiary must be a ‘dependant’.

A dependant is:

• a spouse or de facto spouse
• children of any age, including step-children, adopted or children from previous relationships
• someone who is financially dependent on you
• someone in an interdependency relationship with you, such as a close living arrangement where one or both provides the financial, domestic, and personal support of the other.

In a situation where there is no nomination made, either binding or non-binding, then the super fund trustee will distribute your benefit in accordance with super law and the trust deed. In practice, this generally means the member’s spouse or other dependants such as their children. In cases where the member doesn’t have any dependants then it will most likely be paid to your personal legal representative.

 

Source: IOOF

Retire on your own terms

By Robert Wright /August 28,2018/

As the novelist C. S. Lewis once observed, “You are never too old to set another goal or to dream a new dream.”

Retirement should be the start of a new chapter in your life – perhaps the most exciting of all. The big question, of course, is how you pay for it without a regular pay cheque. A simple way to think about retirement income is by splitting your needs into two parts:

Regular income – the money you will need each month to pay regular living expenses, like your housing, food and health care costs.

Discretionary income – your pocket money to spend on the good things in life, like travel, restaurants and trips to the theatre. These funds also cover life’s nasty surprises, like car repairs, blocked pipes and leaking roofs (hopefully not at the same time).

Let’s use this framework to look at the retirement income options you have.

Regular income requirements

These are the sorts of expenses you are already paying every month – unfortunately most of them will continue when you retire. Council rates, utility bills, groceries, health care and phone bills all fit into this category. When you’re working you cover these sorts of expenses with your employment income, but what happens when you retire? The answer lies in generating a regular retirement income stream. Here are some options to consider:

Account-based Pensions

Once eligible, you can transfer all or part of your super to an account-based pension and choose how much you receive as regular income payments. There are compelling tax benefits because investment earnings on your assets supporting this income stay within the super system. This means they are tax free, and for most people aged 60 or above, the income payments you receive are also free of tax.

Annuities

An annuity is a product you can buy from an insurance company using your super or other savings. Annuities give you a set income for a defined period or for the rest of your life, depending on the product you choose. If you use your super to buy an annuity, income payments receive the same tax treatment as an account-based pension. Another advantage is reliability – you receive a guaranteed payment regardless of market performance or interest rate changes. On the downside, you have less control because you cannot choose where your money is invested, and you don’t have the flexibility to withdraw if you need extra cash.

Part-time work

Many of our clients love their work and choose to reduce their hours, or work part-time, in the early stages of retirement. Continuing work helps you to stay active mentally and continue to socialise with colleagues – but there are also financial advantages. You will receive income payments every month – money you can rely on for regular expenses. When you are still earning a salary you can continue to contribute to your super, rather than having to draw down on the balance. This could make a big difference to the value of your nest egg when you eventually retire.

The pocket money you deserve

So you’ve taken care of life’s essential expenses with a retirement (or semi-retirement) income stream. What about extra money to treat yourself to the finer things in life?  The secret to retirement pocket money is quick access to cash. The financial term for this is liquidity – cash is the most liquid asset while investments like real estate are considered illiquid, as it is very hard to sell just one room of a house.

Term deposits

With a term deposit, your money is invested for a fixed period and you receive an agreed rate of interest for the term of your investment. It’s a popular way to earn money for life’s pleasures – and emergencies – because the cash you receive is easy to access, it’s liquid. Another benefit is the safety of a term deposit because your original investment is returned at the end of the term.

Dividend investing

When you buy shares in a company you are entitled to a share in the company’s profits or earnings. Companies pay a dividend to shareholders as a way of sharing profits – usually twice a year. You can use these cash dividends as pocket money for discretionary spending in retirement. By holding the shares for a length of time, the value of your underlying investment is also likely to grow.

The potential for better returns through share investing comes with additional risk. It is important to spread risk by diversifying your investments – across industries and also beyond our borders to global markets.

Bringing it all together

There is no shortage of options for your retirement income – the secret is in combining the best of them in a tax effective way based on your individual circumstances. We strongly recommend you start thinking about your retirement income now and seek financial advice early. You’ve spent your life building your nest egg – don’t let it fall from the tree.

 

Source: Perpetual

New rules to benefit those downsizing for retirement

By Robert Wright /August 28,2018/

Australians aged 65 and over who are downsizing for retirement can now contribute the proceeds from the sale of their main residence (up to $300,000) into super.

We take a look at what this could mean for you, bearing in mind that like with all important financial decisions, it’s a good idea to get financial advice before deciding what’s right for you.

Super benefits for downsizers

Usually, people aged 65 to 74 need to satisfy a work test to make voluntary super contributions, while people aged 75 and over are generally unable to contribute to their super.

However, that changed on 1 July 2018, with those aged 65 and over now able to make a non-concessional contribution to their super of up to $300,000 using the proceeds from the sale of their main residence – regardless of their work status, superannuation balance, or contribution history.

For couples, both spouses are able to take advantage of this opportunity, which means up to $600,000 per couple can be contributed toward super.

How does it work?

Proceeds from the sale of your main residence that are contributed into super as part of this initiative can be made in addition to any other before-tax or after-tax contributions you’re eligible to make. The government says the aim is to encourage older Australians, where appropriate, to free up homes that no longer meet their needs and make room for younger growing families.

To qualify:

• The contracts for sale must be exchanged on or after 1 July 2018
• The property that’s sold needs to have been your (or your spouse’s) main place of residence at some point in time
• You need to have owned the home for at least 10 years
• The property that’s sold must be in Australia and excludes caravans, mobile homes and houseboats.

‘Downsizing’ contributions are not tax deductible and can be made regardless of super caps and restrictions that otherwise apply when making super contributions.

Things to note

No special Centrelink means test exemptions apply to the downsizing contribution. Due to this, there may be means testing implications as a result of downsizing, which need to be considered.

Meanwhile, additional rules may apply to your situation, so make sure you do your research before making any decisions.

 

Source: AMP