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Posts by The Investment Collective

Retirees looking over sunset

Aged Care – What’s the cost?

2020 has been an unconventional year, in which we have been faced with a once in a lifetime global health pandemic and our first recession in 20 years. A hot topic of late is the quality and safety of our aged care system, with the federal governments Aged Care Royal Commission well underway.

However, regardless of any flaws in our aged care system, it is still a key consideration for every Australian retiree and something that needs to be addressed as we get on with age and the need for ongoing care escalates. Below is a breakdown of the costs that you should expect if you are considering a move into an aged care facility.

Basic daily fee:

  • Payable by all residents as a contribution for day to day living costs such as meals, cleaning, laundry, heating and cooling.
  • Equivalent to 85% of the basic single person Age Pension.
  • Currently $52.25per day (residents in designated remote areas may pay $1.06 per day more).

Accommodation payment or contribution:

  • Cost of accommodation which may be payable depending on assets and income as well as choice of room. Also known as the applicable room fees, this can be negotiated with the aged care provider.
  • Payable by residents not eligible for government subsidy in respect of cost of accommodation, however, partial subsidy may be required depending on asset/income assessment.
  • Can be payable in either a fully refundable lump sum (RAD) or a daily accommodation payment (DAP) or a combination of both.

Means-tested care fee:

  • Contribution towards cost of care which may be payable depending on assets and income.
  • Income Component Thresholds – $27,840.80 per annum for singles and $27,320.80 (each) for a couple who are separated by illness. In a nutshell this means the tested fee will only apply to you if you earn above these income thresholds.
  • Asset Component Thresholds – There are three levels of asset thresholds which determine if you are low means, moderate means or high means. The asset free threshold for low means is $50,500, moderate means is $171,535.20 and anything above $413,605.60 is high means.
  • Subject to annual and lifetime caps with a current annual capping on fees of $28,087.41 and a lifetime capping of $67,409.85
  • Currently the maximum means-tested care fee payable is $256.44 per day.

Additional charges / Extra services fee:

  • Any other amounts agreed between the resident and the residential care facility.
  • Includes additional care or lifestyle options.

Furthermore, you will need to consider whether to keep or sell the family home and for couples a key consideration is to decide if you move into care together or become separated by illness. It is a very complicated process and every scenario needs to be assessed based on its unique circumstances.

Please contact one of our financial advisers if you need advice in this area.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

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What is the Commonwealth Seniors Health Card?

The federal government has introduced a wide range of stimulus measures in the aftermath of COVID-19, but one group that appears to be overlooked is self-funded retirees. However, if they know the way the system works, there is still one strategy that may be well worth pursuing. That is to apply for a Commonwealth Seniors Health Card (CSHC).

The criteria are simple. You must be of age pension age but not eligible to claim an age pension, and you must pass an income test. There is no asset test. The income test is $55,808 per annum for a single and $89,290 per annum combined for a couple. Thanks to the changes in the deeming rates, a couple with almost $4 million in financial assets could be eligible for the CSHC and all the benefits that go with it. These are the amounts you can have across all your financial assets, such as superannuation, bank accounts, shares, and managed funds.

The obvious question is whether the CSHC is worth having. It varies somewhat from state to state, but one benefit to all holders is that medicines listed on the Pharmaceutical Benefits Scheme (PBS) are supplied at the concessional rate. Once you reach the PBS safety net, you will usually be supplied further PBS prescriptions without charge for the remainder of the calendar year. It may also be possible to save on your medical consultations, if your doctors are happy to bulk bill. Also, depending on where you live, there could be a regional travel card and rebate on your energy costs.

It’s been a tough year for retirees, with dividends slashed or suspended, stock markets around the world up and down, and rents vanishing if you are a landlord. This is why any assistance you can get is worth going for. Depending on your situation, the CSHC could be worth over $6,000 to you.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

 

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Ethical investing is becoming more popular

Ethical Investing

Over the past few years, conversations I’ve had with clients regarding ethical investments have changed. Those interested in investing ethically are no longer a fringe minority, with a number of our clients displaying genuine interest in sustainable and ethical investments. Clients are looking for ways that they can invest their savings into causes important to them whilst also outlining industries they would like to avoid. These discussions have made clients aware that returns are not the only consequence of their investment choice.

What I’ve found is that each client has a different set of values when it comes to deciding whether or not an investment is ethical. I have some very passionate clients and there will be a level of scrutiny where all companies appear to be inappropriate investments.

Listed companies in Australia have aligned with the Environmental, Social, Governance (ESG) standards and improved their ESG reporting over the last few years. This level of transparency allows fund managers using a sustainable and responsible investment approach to better compare the sustainability and environmental impact of companies.

At The Investment Collective, our investment philosophy allows us to take a ‘hands on approach’ to position clients’ portfolios in stocks that we believe show the most promise and brightest future prospects.

Finding the right investments can be a complicated and timely process. A portion of managed funds claiming to be ‘sustainable’ fail to meet the most basic client expectations for a responsible or ethical investment. Ethics is more than just adding ‘sustainable’ to the name of the fund. We continue to actively look for new investments that provide a point of difference and have a renewed focus on finding responsible investment managers that align with our investment philosophy.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

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Perspective throughout the COVID-19 crisis

Last week the Victorian Government introduced Stage 4 restrictions in an attempt to mitigate the spread of the COVID-19 virus throughout the community. Never before has the state experienced such a level of disruption to business, communities, and individuals. In this situation, and given the circumstances which contributed to it, a level of disquiet, frustration, and anger are absolutely understandable. Whether this lockdown strategy will be successful or indeed worth the price, remains to be seen.

That said, with all the negativity abounds, it’s important to be mindful of focusing on what we can individually and collectively control. What we can actually control comes down to what we think and what we do (including how we choose to react to events). That’s it! How we think will inform the priorities we choose and in turn, will impact on the choices we make.

The outcome of this will also depend on our perspective. Denying, or arguing against the reality of our situation may help us to ‘let off steam,’ however, it may also serve to hinder acceptance of a reality that individually we can’t control.

Life’s difficult, and at the moment it seems more difficult. However, accepting that life is difficult allows you to move towards opportunities for growth, learning and gratitude. The other aspect of perspective is a heightened sense of gratitude. Sure, freedoms that we may have previously taken for granted have been suspended, however, I had a good night’s sleep, warm and safe in my bed and in the morning had a warm shower and a full breakfast!

The final aspect of perspective is to know that all things end, and this certainly will also. It can be difficult to see this ending whilst we’re still very much in the middle of it, but it will end.

In the meantime, look for opportunities for growth and learn to remain optimistic knowing that we will get to the ‘the other side of this bridge’.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

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Return expectations in times of low-growth

The June quarter inflation numbers were printed this week and as expected, it was not good!

The chart below depicts the current situation we find ourselves in thanks to COVID-19.

As you can see, the cost of living dropped an unprecedented (have we had enough of hearing that word lately?) 1.9% over the past three months to June resulting in the annual rate of inflation coming in at -0.3%.

Since 1949, this is only the third time inflation in Australia has been negative!

In a nutshell, this means people are not spending money.  Since people aren’t, or more correctly, haven’t been able to spend money due to the restrictions brought on by COVID-19, company profits will be lower and if profits are lower so will dividends.  As to what extent, we’ll find out in August.

A low inflation rate impacts interest rates and this is not good for term deposit holders. If inflation is low, so are interest rates to encourage spending. However, it’s just not happening. In these times return expectations from our investments need to be adjusted to align with the environment we are in, which is low-growth. This looks like remaining for some time and it is a global phenomenon.

To counter this in the United States, this is how they’re addressing the issue there:

For now, adjust your return expectations from your investments and strap yourselves in, there’s a long way to go!

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

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Electronic Signatures

A measure that has been introduced in some states since the COVID-19 pandemic, is the temporary ability for deeds to be executed electronically.

The legislation enables documents including deeds, to be signed and witnessed electronically, via an audio-visual link. There are varying requirements, from state to state, to ensure the validity of the electronic signings and these all need to be carefully considered, including that these are completed before the legislation expires. In some states, no such legislation has been enacted, and those that have done so will see the legislation expire before the end of the calendar year.

It leaves me wondering how these electronically-signed documents will be treated in the future, years after our current pandemic is ‘forgotten’? Will they be acceptable in a court of law, when our memories of this current event and the relaxation measures allowed, have dimmed?

Another recent interesting case is that of a discretionary trust, where the original trust deed could not be located and only photocopies of the deed could be found. This case was taken to court after a bank proceeded to freeze a trust bank account until the original could be produced. The court ruled that the photocopy was ‘overwhelmingly likely’ to be a copy of the original which could not now be found.

It’s perhaps a timely reminder that we need to retain original signed trust deeds, such as that for a discretionary trust as in this case, or the trust deed for a self-managed superannuation fund as another example. Keeping them until the trust is finally wound up is prudent, and may just save you a trip to court if you can’t locate the original.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

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Investment quotes to embrace during a crisis

Investing can be frustrating and depressing at times, particularly if you don’t understand how markets work and don’t have the right mindset. This is especially true given the rollercoaster ride we are currently experiencing due to the COVID-19 pandemic. The following investment quotes are extremely relevant and provide a great foundation which stays true regardless of market volatilities and uncertainties.

“If you fail to plan, you plan to fail.” – Benjamin Franklin

Having a clear understanding of your investment goals and a plan on how to get there when saving for a home, retirement or generating income to live on is critical. If you don’t have a clear plan you will be subject to all sort of distractions which can impact where you want to get with your investments. Having a financial adviser assist in setting up a plan and ensuring that you stay on track is a great way to help you achieve your financial aspirations!

“If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.” -John Bogle

Successful investing is all about knowing yourself. Smart investors have an awareness of their weaknesses and seek to manage them. One way to do this is to take a long-term approach. If you want to trade day to day then you need to recognise that this requires a lot of effort, a rigorous process and a willingness to go against the crowd. Having an understanding of your own tolerance to risk and aligning your investments to that risk level ensures that you don’t get lost in all the noise and stay confident in your long term financial decisions.

“Be fearful when others are greedy and greedy when others are fearful” – Warren Buffett

Beware of the herd! Buffet warns of buying irrespective of prices during a bull market and selling out of fear during downturns. When others are greedy, prices typically boil over, and one should be cautious lest they overpay for an asset that subsequently leads to anemic returns. When others are fearful, it may present a good value buying opportunity. Prime examples of substantial returns include; post Global Financial Crisis (GFC) in 2008/09 and the recent market recovery post the March COVID-19 sell-off. It is often emotionally difficult to make these decisions and act in contrary to the broader market which is why having guidance from a professional adviser can assist in making the tough yet profitable decisions in the long run.

If you can truly understand and take the above investment philosophies to heart then you should have no problem sticking to our own investment strategies, embrace risk and invest in alignment to our own risk appetites and last of all take advantage of short term market mispricing by going against the crowd which would have the greatest chance of securing fruitful returns in the long run.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

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HomeBuilder – Federal Government Stimulus

A lot has changed since the start of the COVID-19 pandemic and life is slowly getting back to normal as social restrictions are eased at a different pace, state by state. All levels of Government are now shifting their focus to targeted economic stimulus.

HomeBuilder is the latest Federal Government stimulus targeted at the residential renovation and new home construction market. The Government is offering a grant of $25,000 to build a new home or substantially renovate an existing home, where a contract is signed between 4 June 2020 and 31 December 2020.

To be eligible, you must be an Australian citizen and an owner-occupier over the age of 18. You will need to earn less than $125,000 per annum for an individual or $200,000 per annum for a couple (based on 2018-19 tax return).

If you choose to renovate, the cost of the renovation contract will need to be between $150,000 and $750,000. The value of your property must not exceed $1.5 million pre-renovation.

If you choose to build a new home, your property value must not exceed $750,000. Construction for the new build or renovation will need to commence within three months of the contract date.

The State and Territory governments will distribute the HomeBuilding grant when the builder you employ seeks permits and submits appropriate applications. First home buyers are still eligible for the respective State or Territory Government grants on top of the HomeBuilder grant.

HomeBuilder might just be the extra money needed to build your first home, complete that major renovation or build your new home.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

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Changes to Super – Aligning with Age Pension Age

In what seems to be the ever-changing world of superannuation, the Commonwealth Government has amended the regulations that result in closer alignment to the age pension age, which is a good thing.

The eligibility for the government age pension was increased from 65 in line with the following table:

Soon enough, the eligibility for the age pension will be upon turning 67, however, this is out of whack with the superannuation rules, which principally revolve around turning 65.

Under the current superannuation rules, once you turn 65 the only way you can make a voluntary contribution into super is if you satisfy the work test. This involves working at least 40 hours in a consecutive 30-day period in the financial year the contribution is made.

The current system disadvantages those retirees who have turned 65 as they are not yet eligible to apply for the age pension, however, unless they work, they are restricted from being able to make a voluntary contribution into super.  If an asset was realised or they acquire the winning lottery ticket a voluntary contribution into super is not an option.

It’s highly undesirable to expect a retiree to have to go back to work in order to be able to make a contribution into super hence, quite rightly, this mismatch in the system has been removed.

From the 2020/21 financial year people aged 65 and 66 will be permitted to make a voluntary contribution into super without having to satisfy the work test.  This will permit a ‘non-concessional’ contribution to be made up to the $100K maximum limit.

Similarly, the age at which the ‘bring-forward’ rule for non-concessional contributions is before parliament to be increased from 65 to 67.  The bring-forward rule permits two future years of non-concessional contributions to be brought-forward resulting in a maximum of $300K that can be voluntarily contributed into super instead of $100K.

These are positive steps to alleviate gaps in the retirement system that make it fairer for everyone.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

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Go ahead, ZOOM me!

Isn’t it interesting how life forces you to adapt?

Over the last several months, the  COVD-19 situation has spun off many examples of how we’ve been obliged to adapt. However, the one example that I’m specifically thinking of is adapting to ‘virtual meetings’ with clients using ZOOM.

Now, I’ve been aware of ZOOM for some time. I’ve occasionally participated in a ZOOM meeting (organised by someone else), and I have thought to myself, every now and again, ‘I really must find out more about this ZOOM thing…some day.’

Well, that day arrived with a thud in mid-March when, following Government direction, we went from having zero staff working remotely to having 90% of staff working remotely. That presented us with a challenge. A significant aspect of our value proposition to clients involves meeting with them on a regular basis to review their circumstances and preferences and to make any adjustments to their strategy as may be required. These sorts of meetings are best held in person. In the first week or so I tried to replicate these meetings via telephone calls. But of course, now you can’t see your client and you can’t share written reports or data with them.

Then I started watching YouTube videos about ZOOM, and they helped, a little. I only really started to make progress in my understanding of, and comfort with, ZOOM by just trying different things and asking work colleagues lots of ‘dumb’ questions.

So now only a few weeks later I’m feeling pretty proficient at using it. I can now readily organise meetings, adjust the security settings, share a screen, as well as recording the meeting. I particularly enjoy personalising my virtual background (my favourite is the standard beach back-drop.)

And clients love ZOOM! In fact, I look after some clients whom I think we might never see in our offices again. They can get all they need out of our meetings without ever leaving the comfort and safety of their home. Of course, as I mentioned above, sometimes you just need to sit across the table from someone, but going forward I really do think that ZOOM meetings are going to represent a significant part of our interaction with clients.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

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2020