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Posts by The Investment Collective

Upside with protection

We’ve seen global markets correct as global growth wanes under pressure of protectionist political policies and an escalating trade war with China and the United States. The fear of a global recession pushed our Australian stock market lower.

Has this market volatility scared you?

Rewind a few weeks and the Standard and Poor’s (S&P) Australian Stock Exchange (ASX) 200 closed at a fresh record high surpassing the closing price reached on 1 November, 2007. Our asset allocation strategy provides our clients with the comfort of knowing that a vast majority of their investments are not exposed to the Australian stock market.

Firstly, we assess our clients’ risk tolerance and understanding of the risks associated with investing, then allocate a risk profile (such as Balanced) based on this assessment. Each risk profile divides our clients’ money up between defensive and growth asset classes to produce a diversified portfolio. Defensive investments include cash, term deposits and fixed interest investments (government and corporate bonds). Growth investments include Australian shares, international shares, property and infrastructure.

Effective asset allocation not only provides protection when markets correct but also offers opportunity to maximise returns. I often say to my clients that defensive investments can be compared to shock absorbers of a car as they smooth out the bumps in the road.

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Navigating the finances of aged care

As a financial adviser I have yet to come across anyone who actually wants to move into aged care.

The prospect of moving out of the family home and leaving behind the comfort and familiarity of one’s home is truly daunting. It’s always a step closer to ‘the end’ as no one ever moves from aged care back to home. As a result, many people simply do not wish to discuss the subject…until they have to.

Many of the conversations I have had regarding the finances of an elder family member follow an ‘incident’, such as ‘Dad falling over in the bathroom’. It then becomes glaringly obvious that the individual simply cannot remain in the family home.

In such a scenario, planning how to fund the upfront and ongoing costs associated with moving into aged care is often ‘done on the run’, which is unfortunate because it’s a ‘financial labyrinth’.

Typically, people tend to only plan for upfront costs (which usually range anywhere between $300,000 to $1,000,000). However, there is a myriad of ongoing costs that can run into the tens of thousands of dollars per year as well as the ever-increasing costs associated with moving into aged care.

As you may be aware, a Royal Commission into Aged Care was commissioned in October last year and is currently hearing submissions. Some of these are truly heartbreaking. The Commission is due to hand down its recommendations early in 2020 and if the recent Hayne Commission into financial planning is any guide, regulation and compliance in the sector will increase, followed closely by expenses.

I’d encourage people to have the conversations about aged care and if necessary, speak to your Investment Collective adviser. We can help.

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When should I seek financial advice?

When should I seek a financial planner?

Who should see a financial planner?

  • “I don’t have any money to invest so there is no point in my seeing a financial adviser.”
  • “We manage our own finances so we don’t need to see a financial planner.”
  • “We struggle to make ends meet so we haven’t got any spare income to do anything else so we won’t be seeing a financial adviser.”
  • “I’m only in my 20s, 30s, I don’t need to see a financial adviser.”
  • “It’s too late for me to see a financial adviser as I’m retiring in 6 months’ time.”

All of these thoughts are far from the truth.

When should I seek financial advice?

There is a general perception that financial planning is only for people who have money to invest. That if I don’t have any spare cash and I’m having difficulty in making ends meet, financial planning is not for me. Having a personally tailored financial plan will assist you in every facet of your financial lives regardless of your current financial situation.  In fact, your financial plan will help you achieve other personal goals simply because these goals are planned for.

Your financial adviser will fully assess your current financial situation. This means that the adviser will be obtaining information on your earnings, what it costs you to live, the value of all your assets including superannuation, and of course, what you owe.  The adviser will also assist you in identifying what you want to achieve, both now and into the future.  We consider your life risk requirements so that your family and wealth are protected in the case of death, serious injury or illness.

Once the data has been collected and analysed, the adviser will write your financial plan.  The plan will include a summary of the current situation and this in itself can be an eye-opener for the client because many of us do not take stock of our overall financial picture.  Taking into account your goals and objectives and the things that have been identified during the collection and analysis step, the adviser will make recommendations to improve your situation and to help you to meet the goals you have identified.

Sometimes the recommended strategies can be confronting, but always valuable.  For example, if cashflow is a problem for you, the plan will include budgeting advice and strategies.  If you have surplus funds for investment, the plan will include recommendations as to how those funds should be invested.  If you are nearing retirement, the plan will address streamlining and consolidating your financial affairs ahead of retirement and strategies to maximise potential Centrelink payments.

If your superannuation investment option does not match the risk profile identified during discussions, there will be recommendations to adjust the investment option. If you have debt, there will be advice as to how best to manage that debt and if a restructure is required, the plan will address that point.  If your life risk protection is inadequate, we will include recommendations to bring this protection to the correct level.

Your financial plan will also contain information on any ongoing costs you may incur if you accept the proposals, and there will be comparisons and projections between the current situation and the recommended strategies, including current and future costs.

To answer the question posed above as to when you should see a financial adviser – the answer is – as soon as possible!

For young people, a tailored financial plan will set them on a path to growing their wealth, perhaps via a savings plan.  For pre-retirees, it is essential that you consult with a planner to ensure that what you have worked a lifetime for will support you in the way you want during retirement.  Centrelink payments and health care cards are very important and this is a major part of the planning for those either in or nearing retirement.

If our recommendations are accepted and you proceed with the plan, we manage the implementation of the plan and if there is an ongoing component, this activates. Centrelink management is part of the ongoing work and it can be invaluable to retiree clients to have this onerous task managed.

Beginning the process of seeking financial advice is very simple.  It is a matter of contacting either our Rockhampton or Melbourne offices with a request to see an adviser.  Your meeting confirmation includes a list of things to bring with you to your meeting and from there the adviser will lead and guide you through the process.

What are you waiting for?

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Presenting ‘Financial Planning 101’

I’ve been a financial adviser for about twenty years now. I still get a ‘buzz’ out of making a positive difference in people’s lives by helping them achieve what’s important to them. The foundation blocks of my own understanding of financial planning were taught to me by my parents. They didn’t call it financial planning of course. It was just about how they conducted their own lives and the advice they would give to my siblings and I. Advice that was underscored by their own actions. They worked hard, they never spent more than they earned and they invested for the longer term in ‘real assets’ that they understood. Perhaps not all that ‘sexy’, but it worked for them. I assumed all parents were like mine, teaching their kids the basics of financial planning. Of course, many parents were like that. But not all. And if kids weren’t learning it from their parents, they certainly weren’t learning it at school.

Last year I had the opportunity to revisit my old secondary school, Mazenod College in Mulgrave, Melbourne. It had been decades since I was last there and the facilities the current students body enjoys are far and away better than in my day. Instead of a footy field that turned into a quagmire during winter, the boys make use of a ‘synthetic’ footy field. There’s state of the art cooking facilities to rival the MasterChef set to teach the boys how to cook. However, what doesn’t seem to have changed much is the curriculum. Financial planning 101 still doesn’t get taught.

I think this is a material shortcoming in the education we’re providing to our children. We teach them a trade or a professional, but we provide them with virtually no tools to help them manage their own money and achieve financial independence.

So, in the last few months I started doing my little bit to remedy this situation.  I’ve started seeking out opportunities to present my version of ‘Financial Planning 101’ to secondary school students. To date I’ve presented to students at Huntingtower School and St Michael’s Grammar, both in Melbourne. My version of ‘Financial Planning 101’ includes the financial process as we deliver it here at the Investment Collective; a consideration of what really drives residential property prices; basic investment principles, as well as ‘4 easy steps to becoming a millionaire’. This last topic garnered particular attention.

I reckon that if one or two kids comes away with a heightened curiosity and an interest in their own financial planning, I’ve achieved something!  I get a lot of personal satisfaction out of it, and am keen to continue, so if you’d like me to present to your school, please drop me a line at robert_syben@investmentcollective.com.au.

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How To Pay Off Your Home Loan ASAP

If one of your new financial year’s resolutions is to start paying off your home loan as quickly as possible, here’s a few tips to get you on your way.

1. Interest rates are at record lows due to the consecutive RBA cuts in June and July. Most lenders have passed on the reduction in their home loan rates.  One strategy to pay off your home loan faster would be to maintain the repayments which applied before your lender reduced their rates in June and July.

2. If your lender didn’t pass on the full rate reductions, contact us to refinance with an alternate provider with a lower rate/ongoing fees than your current loan. Some of the lenders on our panel are offering owner/occupier principal and interest rates as low as 3.29%.  If you are not considering refinancing, at a minimum, you can ask your lender if they will match the rate, or reduce your home loan interest rate and/or fees.  Your bank may be willing to reduce your home loan rate and ongoing costs as an alternative to losing your loan to another lender.

3. On a principal and interest loan, in the first five or so years, most of your payments go towards paying off the interest. If you are able to make additional payments during this period, or at any time during the loan term, this will reduce the interest payable, and decrease the lifespan of the loan.   If you receive a bonus payment from your employment, or a tax refund, resist the temptation to splurge and put it to work for you by making an additional repayment on your mortgage.  If you are able to increase your regular repayments, this will save you thousands over the life of your home loan.  For example, by paying an extra $100 a month, a typical $400,000 home loan could be reduced by nearly 3 years, with a saving of almost $30,000.  Before making additional repayments, check if there are any conditions or limits on extra payments.

4. One of the quickest ways to save on your home loan is to make more frequent payments. If your home loan is on monthly repayment, switch to a fortnightly repayment.  Split your existing monthly repayment in two, and make these payments on a fortnightly frequency.  You won’t notice the difference in your cash flow, but it will save you time and money on your loan.  Repaying your home loan on a fortnightly basis means you are effectively making 13 monthly payments every year.

5. If you have an offset account with your home loan, ensure that your savings and ongoing salary are deposited into the account. An offset account can accelerate paying out your debt as the balance will reduce the interest payable on your home loan.

6. Be disciplined with your discretionary spending! Every dollar you save by cutting back on some of your luxuries can be put to work by making additional repayments on your mortgage, and saving you more in interest repayments over the life of the loan.  I’m not suggesting that you adopt a monastic existence and abandon all of your pleasures, but as an example, if you reduce your daily take away coffee consumption by 1 cup a day, you will easily achieve the previously mentioned saving of almost 3 years and $30,000 on a $400,000 mortgage!

Please note this article provides general advice only and has not taken your personal or financial circumstances into consideration. Please contact us today for a confidential, cost and obligation free discussion about your lending needs.  We would also be happy for you to refer your family or friends so we can also assist them to locate a cost-effective home loan which suits their needs.

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Claiming Travel Expenses

One of the hot topics from the ATO during this busy tax season is travel expenses claims for individuals and businesses.  As an individual, you are entitled to claim any work-related travel expenses you incurred during the financial year.  This can include accommodation, incidental expenses, air, bus and taxi fares, road tolls, parking fees, car hire charges and meals (if your travel is overnight).  The exception to this is you are not able to claim the travel between your home and work.  If you have to travel between different work sites or offices you are able to claim that.  It is vital you keep receipts to justify your claim and if you are travelling overnight a travel diary is recommended.

For a business, the travel expense debate can be more complicated.  In order to establish if a business can claim the travel expense, you need to understand whether the travel was necessary to earn an income.  For a business, this means there must be a direct link between the travel and the earning of business income.  Again, documentation is the key.  There need to be accurate records of what meetings were attended and what was discussed.  You can do this by keeping a diary entry of the meeting or even a follow-up email with the person you had the meeting detailing the points discussed.  The three main items that can be claimed are travel, accommodation and food.  Speak with your tax professional but it may be a better option for business owners who are also employees to be paid a travel allowance.  This allowance is then tax-deductible and the employee are able to claim a tax deduction against the allowance.

It is also important that only the business-related expenses are claimed if the business owner combines the travel with a holiday.  Say for example the owner attends meetings that will mean they are away from home for three days but they decided to extend that stay for a further two days as leisure it is only the expenses relating to the first three days that will be claimable for the business.  In this case, the travel to and from will need to be apportioned as business and personal.

The ATO publishes a list of reasonable amounts that can be paid for the travel allowance based on where the employee is travelling.  This list will include those three main components of travel, accommodation, meals and incidentals.  This list is based on what the employee would earn and where they are travelling to.  It is also accompanied by a list of high-cost country centres, also tier 2 country centres and cost categories for overseas travel.

The overwhelming message from the ATO is record keeping is vital in making any claim as an individual or a business.  Always talk to your tax professional about what records you need to keep and try and do this before 30 June each year so you are not missing out on deductions you may not have kept receipts for but have incurred.

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 You Need To Know About Your Credit Score

As of 1st July 2018, under Comprehensive Credit Reporting (CCR) it is mandatory for credit providers to provide positive credit data to credit reporting agencies.  Prior to July 2018, credit reporting agencies only obtained negative data such as defaults with utility providers, bankruptcies, and court judgements in order to compile your credit report, and determine your credit score.  CCR will ensure that additional information such as the type of credit applied for, amount of credit applied for and repayment history for the last two years will be included in your credit report.

Lenders use your credit score to assist in the assessment of a loan application or credit card.  Your credit score will help a lender decide the potential risk of lending to an applicant, and the likelihood of being repaid on time based on your credit history.   The higher the score, the better the credit risk you are to a provider.

Some of the key factors that impact your credit score include:

  • Your total debt.
  • Personal details.  Your score will take into account your age, time at current address and length of employment.
  • Types/size of credit accounts and relationships, eg. Home loan, personal loan or credit card.  Mortgages have a different level of risk when compared to a credit card.
  • If you have credit relationships with specialty finance providers such as debt collection agencies or payday lenders.
  • The date your credit file was established.  A newer file may present a higher level of risk when compared to an older file.
  • The number of credit enquiries made on your file.  This may have an impact on your score as credit enquiries remain on your file for up to 5 years.  If you’ve shopped around for credit and applied with several providers, you are seen as a higher risk.
  • Late payments, defaults, serious credit infringements, court judgements and bankruptcies.

There are a number of ways you may be able to improve your credit score:

  • Firstly, obtain a copy of your credit score.  You may be able to get a copy by opening an account via several providers such as:
  • Once you have obtained the score, check which range your credit score falls under.  Typically your score will range from below average to excellent.  If you have a low score, consider reducing your credit card limits, and check for any incorrect negative listings.  You may be able to apply to remove an incorrect negative listing from your credit file.
  • If you have multiple personal loans &/or credit cards, consider consolidating the debt under one loan.
  • If you have overdue accounts >$150, pay them off as soon as possible.
  • Limit the number of credit applications you make.
  • Ensure that your loan repayments are always made on time.

Checking your score and getting your finances back on track will be an important step to improving your chances of being approved for a loan.  If you have a low credit score and you are looking to borrow, a rejected application will further reduce your score.

Please note this article provides general advice only and has not taken your personal or financial circumstances into consideration. If you would like more tailored credit advice, please contact us today for a confidential, cost and obligation free discussion about your lending needs.  We would also be happy for you to refer your family or friends so we can also assist them to locate a cost-effective home loan which suits their needs.

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Developing Saving Habits

You can’t teach an old dog new tricks, or can you?

Who we are today is a reflection of our past experiences and as we age we become more set in our ways. Our habits, what we enjoy and how we respect the people and material things we have rub off on those around us, especially children. What financial habits are you teaching your children?

Adolescence and teenagers are not taught how to manage money at school and it is left to parents to provide them with the knowledge and skills to be good money managers.

I remember at school buying my lunch from the canteen on a rare occasion, the lunch was something of a treat and not the norm. It’s not like my parents couldn’t afford it and at times I felt angry that my friends always bought lunch and I couldn’t.

On reflection, I now understand what my parents were unknowingly teaching me. Preparing my lunches the night before school was a habit they taught me and preparing my lunches has continued into my working life. However, now my wife and I prepare lunches on Sundays for the working week, we eat more nutritious food and avoid the costly takeaway lunch expense.

The $15 to $20 daily work lunch and coffee might not seem like a lot but, preparing our meals saves us thousands each year. Thank you, Mum and Dad, for teaching me how to make good financial decisions on a daily basis.

This is only one example of how my parents taught me to respect and spend money. The only way to save is to spend less than you earn and a bit of frugality is key. What financial habits will you teach your children?

Please note this article provides general advice and has not taken your personal or financial circumstances into consideration. If you would like more tailored financial advice, please contact us today. One of our advisers would be delighted to speak with you.

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EOFY Checklist: What A Year It’s Been!

And we’re not even halfway through it…

It’s certainly been an interesting few months, with the threat of potential changes to the financial planning landscape that would probably have occurred if the federal election result had gone the other way.

As the great Ronald Dale Barrassi once said, “The only constant in life is change.” It’s fair to say everyone in our industry; from clients to those earning a living in it, are looking forward to some stability for the time being.

With the election now a thing of the past and the end of the financial year upon us, it’s time to review some of the strategies that assist with our wealth accumulation objectives.

1. Give your super a free kick

Now is a good time of the year to make additional contributions into super, especially if you intend to claim those contributions as a tax deduction.

Any surplus cash you have sitting in a bank account earning the current abysmal rate of interest can be contributed into super before June 30 as a ‘personal’ contribution and claimed as a tax deduction.

Providing you haven’t exhausted your $25K concessional contribution cap, that increased tax deduction will most likely result in you obtaining an increased refund from the ATO.

The benefits are twofold; you get an increased tax refund which can be directed however you wish whilst also increasing the wealth you have accumulating in super.

2. Utilising unused concessional contributions

From 1 July 2018, if you have a total superannuation balance of less than $500K as at 30 June the previous financial year, you will be able to contribute more than the general $25K concessional contributions cap for that year by topping up the contribution with the ‘unused’ concessional cap from prior years.

Here’s how it will work:

In the table above, this individual in the 2019-20 year could potentially make a concessional contribution of up to $47K because they had used $3K in the prior year thereby having an ‘unused’ balance of $22K that can be carried forward into the next year.

In the 2020-21 year, because the balance of their super was above $500K on 30 June 2020, the concessional contributions cap is limited to the yearly amount of $25K.  In the subsequent year, 2021-22, the ball game has really opened up due to the super balance dropping below $500K at 30 June 2021 which has provided an opportunity to contribute up to $94K in that year.

This potentially allows for realised capital gains to be ‘transferred’ into super and be taxed at the 15% contribution rate, as opposed to a higher marginal tax rate because the concessional contribution can be claimed as a tax deduction.

This is a strategy to keep in mind over the coming years especially if you’re approaching retirement and have a sizeable amount invested outside the super environment that has significant unrealised capital gains.

3. Check in on your goals

It’s a good time of the year to check in on your life and financial goals to see if you’re on target to making your dreams become a reality.  Similarly, expectations may need to be revised to take account of changes to your circumstances over the last 12 months that have impacted on your wealth accumulation strategies.

At the end of the day, your super is your money and you are ultimately responsible for how it performs and grows.  You need to ensure it is being invested wisely and in line with the timeframe you intend to access it.

Here’s hoping for more stability and certainty on the financial planning front over the next 12 months, at least!

Please note this article provides general advice only and has not taken your personal or financial circumstances into consideration. If you would like more tailored financial or superannuation advice, please contact us today. One of our advisers would be delighted to speak with you.

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Quintessentially Australian

It was 2006, Grade 12 English and the latest assignment was a 10-minute speech on something that was ‘quintessentially Australian’. I remember being told that there was no right or wrong answer, but we had to show cause and enlighten the audience as to who or what made Australia iconic. There were about thirty of us in the class and only a few that I still remember, so I guess they got something right.

For example, one of my classmates gave a 10-minute history lesson on the Melbourne Cup and how the ‘race that stops the nation’ is the single greatest horse race in the world. All Australians come to a complete standstill on the first Tuesday in November at 3 pm. The entire nation watches the 3-minute race, why? Because we love an underdog. Phar Lap, Makybe Diva, can it get any more iconic than that?

Now I must admit, I felt pretty clever at the time and I thought my topic was unique, but still represented Australia. I don’t remember much of the speech, but it went a little like this… Remember, I was 17 at the time so don’t judge too harshly!

What is it to be Australian? Is it a lifestyle, a destination, a feeling or a thing? Something that is so ingrained in our daily life, that we overlook it, and don’t even give it a second thought. Our history is what makes us who we are and we often forget that our currency tells a story. The $50 note depicts Edith Cowan, Australian first female parliamentarian. AB “Banjo” Paterson is a feature on the $10 note, arguably Australia’s most famous poet. The Man from Snowy River appears in small text in the top left-hand corner. The $20 note, or Redback as it is affectionately known, has a portrait of Reverend John Flynn. He pioneered the world’s first aerial medical service, now known as the Royal Flying Doctor Service.

Illustrated on our coins are native Australian animals, such as the echidna, lyrebird and platypus. Our national emblem, which includes the Australian Coat of Arms, Australian floral emblem (The Wattle) and native kangaroo and emu are depicted on the 50-cent coin. The $2 coin features a traditional Aboriginal tribal elder, the Southern Cross and Australian flora.

I did manage to prattle on for 10 minutes about our bank notes and the different icon Australians depicted on each one. I still stand by my initial argument, that our history makes us who we are. I wonder as we move into a digital age, how do we keep our history alive? We are moving away from physical money and into an era where you can pay for groceries on your watch. Do we have a sentimental attachment to currency, because it is part of our national history and culture? With so many different currencies all over the world, wouldn’t it be easier to be completely paperless? But then, what daily reminder will we have of where we come from and who shaped this great nation?

If you are interested in tailored financial advice, please contact us today. One of our advisers would be delighted to speak with you.

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