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Archives for Robert Syben

Why You Need To Know How Much You’re Spending

In any review of a client’s circumstances and strategy, as their adviser, I am invariably going to ask the following question, ‘how much are you spending’? What I’m trying to confirm is whether a client has enough money coming in to pay for what they tell me is important to them, now and into the future.

You may find this strange, but most people don’t really know how much they are spending. Sure, most will have an idea (often the wrong idea), and some (the minority) will have detailed out on a spreadsheet.

However, an accurate and truthful answer to the question is critical. Without it, we have no real way of knowing how successful, or otherwise, the strategies we’ve put in place are likely to be. We also have no real way of identifying additional resources that may be applied to help to achieve outcomes we’re looking for.

So, what’s the best way of working it out? Well, as noted above, some people maintain detailed and meticulously spreadsheets. This is fine, but generally more than required. A simple review of monthly credit card and bank account statements (over say a 6 month period), will give most people a sense of where the money is going. Personally, I use Quicken software in which I record all credit cards and banking transactions to help me monitor the cash flows of my little household (my wife hates this!).

Knowing where the money’s going, may not sound particularly exciting; however, it’s absolutely a fundamental part of planning for your financial future.

If you would like to learn more about our personal financial planning services, please contact us today. One of our advisers would be delighted to speak with you.

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Scams: A Very Helpful Gentleman

“What’s the matter Joe, you look upset?” I asked. Joe is a longstanding client of The Investment Collective. He’s a sharp minded, sprightly nonagenarian who still lives in his own home and is fiercely independent.

“Well,” Joe said forlornly, “I recently received a letter telling me that the NBN was coming down my street. I was trying to work out what I needed to do, when a very helpful gentleman from ‘Telstra Platinum’ service called me. He told me that he could have me connected to the NBN in about 30 minutes. All he needed was remote access to my computer, and I gave it to him.”

Within 30 minutes $9,000 had been withdrawn from Joe’s bank account. He’d fallen foul of a telephone scammer. Joe managed to get down to his bank on the same day. They closed his bank account and assured him he would receive his $9,000 back.

Joe isn’t out of pocket, however, his confidence has been severely shaken. He’d asked himself, how could he, of all people, have been so gullible as to unquestionably pass over control of his computer to a ‘voice’ on the other end of the telephone line?

That ‘voice’ was friendly, courteous, helpful, and beguiling. It was able to disarm Joe’s otherwise critical faculties. Also, it belonged to a person that had no qualms whatsoever in stealing from Joe. If it can happen to Joe, it can happen to me, it can happen to you.

Be careful!

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Changes to Centrelink’s Age Pension

Centrelink’s Age Pension rates are currently as follows:
Per fortnight Single Couple each Couple combined
Maximum basic rate $826.20 $622.80 $1,245.60
Maximum Pension Supplement $67.30 $50.70 $101.40
Energy Supplement $14.10 $10.60 $21.20
Total $907.60 $684.10 $1,368.20
From 20 March 2018, Centrelink’s Age Pension starts reducing when your assessable assets are more than the amounts below:
If you’re: Homeowner Non-homeowner
Single $253,750 $456,750
Member of a couple, combined $380,500 $583,500
And the Pension ceases altogether when your assessable assets are more than the following amounts
If you’re: Homeowner Non-homeowner
Single $556,500 $759,500
Member of a couple, combined $837,000 $1,040,000

What’s the message that the Government’s sending people here?

Well, let’s take an example to illustrate. Say we have one retiree couple, Albert and Betty. They have assessable assets of $380,500, just on the lower asset test threshold. As a result, they receive the full Centrelink age pension and supplements. They receive the following annual income:

  • $19,025 – Investment income of 5.0% (assumed) per year on their $380,500 diversified investment portfolio
  • $35,573 – Combined Centrelink age pension and supplements
  • $54,598 – Total combined annual income

Now let’s take a second retiree couple, Charlie and Deb. They have assessable assets of $837,000, just on the upper asset test threshold. As a result, they receive no Centrelink age pension and supplements. They receive the following annual income:

  • $41,850 – Investment income of 5.0% (assumed) per year on their $837,000 diversified investment portfolio
  • $0 – Combined Centrelink age pension and supplements
  • $41,850 – Total combined annual income

Charlie and Deb are entirely self-funded retirees. They receive no taxpayer-funded benefits from Centrelink, and assume the full investment risk associated with generating $41,850 in annual investment income. However, their combined income is $12,748 per year lower than Albert and Betty who have less than half their assets!

What message is the Government sending to Charlie and Deb? I’d suggest that the message they’re hearing from the Government is ‘Spend your money. Go on that overseas holiday. Buy that new car. We’ll look after you’. And seeing that they are worse off than Albert and Betty even though they have a lot more investments, Charlie and Deb might think that spending their money is the logical and rational thing to do.

But of course, discouraging people from self-reliance is entirely the wrong message. However, as more and more people like Charlie and Deb hear that message, and as the population ages, the current social security structure will come under increasing pressure, and painful consequences will follow. It’s only a matter of time.

Please note that the above is provided as general advice. It has not taken into account your personal or financial circumstances. If you would like more tailored advice, please contact us today. One of our advisers would be delighted to speak with you.

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Our Business Growth

Last month The Investment Collective participated in a course organised by the Australian Centre for Business Growth (ACBG), which is part of the University of South Australia. The course is designed to help businesses develop soundly structured business plans designed to achieve outstanding growth results. The first module of the course was in February. There are a further two modules in May and October of this year. Attendance at the course is by invitation only and followed a one day course that David attended late last year. Based on that, the ACBG must have thought it was worth spending their time on us!

Over the last few years, our business has been performing well. However, we’ve arrived at a point where further meaningful growth requires some changes in how we go about things. We do want to significantly grow our business, and our attendance at this particular course is not a ‘trial run’. It’s the real thing.

The course was also attended by five other businesses, all as keen as us to learn of and adopt effective means to significantly grow their businesses. Also, attending the course were a number of management consultants. Individuals who’ve been ‘around the block’ in building businesses and who, as a result, had a wealth of experience and insights to share.

On day three of the February module, each of the six participating businesses had to present their broad 3-year growth plan, together with a 90-day action plan.

There was one prize: ‘Most Ambitious Goals at Module 1’, which was, by unanimous vote, awarded to The Investment Collective. That was the easy part. Now we have to deliver!

  

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Is Bitcoin Really An Investment?

I’ve known ‘Joe’ for about a year. He’s a barista at one of my favourite local coffee shops. Most mornings our conversation doesn’t progress past the weather. However, last week, as he’s handing me my extra-shot cappuccino, Joe suddenly asks me, ‘Robert, I want to invest in Bitcoin. My mate bought some last year and quadrupled his money. What do you think, good idea?’
‘Joe’ I said, ‘Buy it if you want mate, but don’t call it an investment. Call it what it is, a punt.’

Bitcoin is like the money in your wallet, except it’s digital. It’s ‘digital money’. Encryption techniques are used to regulate the generation of new units as well as verify transactions. Nobody controls it and nobody’s responsible for it.

Now, although I don’t really understand how Bitcoin works, I’m pretty sure that at some point in the future, we’ll all be using some form of ‘digital money’ to buy things. However, I don’t know whether that digital money will be Bitcoin or something else.

But here’s what I do know. When my barista starts asking me about buying Bitcoin as an investment, red flags start going off in the back of my head.

The price of this ‘investment’ has just exploded over the last few months, as Joe’s mate and thousands of others like him, started buying Bitcoin aided by the numerous means by which they can now do so. And of course, the mainstream and social media are now awash with reports of how individuals have struck it rich trading Bitcoin. Meanwhile, all this excitement is being fanned by ‘market analysts’ predicting that having just breached the $20,000 valuation, Bitcoin is on its way to $1 million by 2020.

I also know that the associated volatility in price of these ‘digital currencies’ is simply stomach churning. For Joe and his mates, that’s perhaps exactly what they’re seeking; an ‘investment’ that will pay off big time within a short time. They don’t know how it works, and probably care less. They’re not interested in a steady, reliable income stream over the longer term. Everyone else seems to making big money, and they just want in on that action.

So, what do I know? It sounds like a punt, and if that’s your thing, good luck! Just don’t call it an investment.

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Spring Into A New Financial Year!

Happy New Financial Year! To celebrate the new financial year, here’s a tip: Tax planning doesn’t start in June. If you want to increase the likelihood of a ‘good tax year’ this year, tax planning starts, well…now.

Here’s a few things to keep in mind:
1. Contribute as much as you can to your retirement nest-egg. In addition to the 9.5% your employer puts into superannuation, think about adding to this (up to a total of $25,000). Starting now, you probably won’t miss the money, and you could save tax.
2. Have a place to store your tax deductible receipts. There’s nothing that wastes your time more than hunting down all your receipts for the financial year in June!
3. Buy tax deductible assets earlier in the financial year. This is because the amount you can claim for these assets depends on how long you’ve held the assets. Buying a new computer on 29 June doesn’t give you much of a tax deduction.
4. Don’t buy or invest in anything just for the tax deduction. It’s the wrong reason.
5. Get a good accountant, and, of course, a good financial advisor (you know where to find a good one!)

Good luck!

Please note this advice is prepared as general advice only. It has not taken into account your personal financial objectives, current situation or future financial needs. If you would like more tips or specialised advice, or to hear about how the above advice could apply to you, please contact one of our skilled and friendly financial advisers today.

 

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Cash Flow is King!

As a financial adviser for The Investment Collective, I need to know a lot of information about a client before being in a position to make appropriate recommendations. One of the key pieces of information I need to know is what cash inflows (or income), and what cash outflows (or expenses) they have.

What’s interesting is that pretty much everyone knows what their income is. They can easily identify their fortnightly or monthly income from their bank statements. However, a surprising number of people can only guess at their expenditures.

This information is fundamental to any recommendation, be it debt reduction or wealth accumulation.

For example, say you have $60,000 of income per year (after tax). Say, you make an educated ‘guess’ that your expenditures are about $48,000 per year. On paper at least, that would suggest that there is a cash flow surplus of $12,000 per year that can be ‘captured’ and applied to debt reduction or investment. However, what if actual expenditures are not $48,000 per year but more like $60,000 per year? You can see the problem here.

In the planning process, we need to do better than ‘guess’ at expenditures. We need to be pretty confident that cash inflow, as well as the cash outflow have been ‘road-tested’ and are reasonably close to reality.

How do you best get a handle on the amount of your expenditures? Well, there are plenty of online budget programs available. If you don’t feel the need to get down to that level of detail, a simple review of your credit card and bank account statements will give you a good sense of your cash outflows. Use a reasonable period, perhaps the last 12 months, and simply tally up all the cash outflows. Remember, in the planning process, cash flow is king!

If you would like to know more about what The Investment Collective can do to help you with your finances, contact one of our friendly advisers today.

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Yes, There Is A Santa Claus … Rally

Human beings, generally speaking, are creatures of habit. We like, and gravitate towards, things that we know (or think we know), and feel comfortable with. No surprise then that we can observe this in all sorts of areas.

Yale Hirsch, an American stock market analyst, observed this in the share market.  In 1968 he published the inaugural ‘Stock Trader’s Almanac & Record’ in which he noted many stock market patterns and cycles, including one that he observed which seemed to take place around Christmas time.

Specifically, he noted that in the days between Christmas and New Year the US share market seemed to rise more often than it fell. In last year’s publication, it was noted that the US share market rose 34 of the last 45 years by an average of 1.4%. Stretching back over 120 years, there was a rise in the market in 77% of years for an average rise of 1.7%. The popular press, always on the lookout for a ‘feel good’ story, has attributed what it dubbed the ‘Santa Claus Rally’, to pretty much any increase in the share market starting from late November.

Why is it so? Well, you could probably take your pick of reasons, including fund managers ‘window dressing’ their investment performance before the end of the year by bidding up shares or simply the reflection of a positive mood leading up to the festive season.

So, do we here at Capricorn Investment Partners and the Pentad Group consider the ‘Santa Claus Rally’ when we review your investment portfolio? No, we do not. We consider a wide range of factors, including the quality of a company’s revenue, the dividends it pays and the competency and transparency of its management. If anything the ‘Santa Claus’ rally, while it exists, only underscores the notion that the market is comprised of human beings, who generally speaking, are creatures of habit.

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Concessional Superannuation Contribution Caps for the 2017 Financial Year

Concessional superannuation contributions are contributions made by (or on behalf of) a person that is included in the assessable income of the fund.

As such, they attract tax of up to 15%. However, for those individuals’ earning more than $300,000 per year, the applicable tax rate is 30%.

The term ‘concessional’ reflects the fact that someone is claiming a tax deduction or tax ‘concession’. That is either the employer or the individual, depending on the type of contribution being made.

Paying tax at 15% (or 30%) may be a ‘concession’ if the individual’s marginal tax rate is higher than this. For example, if you’re earning over $37,000 per year, your marginal tax rate is 32.5%. For every $1 you salary sacrifice to superannuation (salary sacrifice is a type of concessional contribution), this will save you 17.5 cents in tax. Of course the money is inside superannuation now and you may not be able to access it until retirement (over the age of 60). Compulsory preservation is, if you like, the ‘price’ of the tax concession.

In view of these tax concessions, the Government places a cap, or limit, on the amount that can be contributed to superannuation on this basis.

For the current 2017 financial year (ending 30 June 2017), the concessional superannuation caps are as follows:

Under age 49 as at 30 June in previous financial year Age 49+ as at 30 June in previous financial year
2016/17 $30,000 $35,000

Coming into the end of the 2017 financial year, you may wish to consider optimising the amount you contribute to superannuation on a concessional basis. Particularly in view of the fact that from 1 July 2017 (that is, the start of the 2018 financial year), the concessional contribution cap will reduce to a flat $25,000 regardless of age.

Please note, this article is for general advice purposes only. It has not taken into account your personal circumstances or financial goals. If you wish to access more personalised advice tailored to your circumstances and financial objectives, please contact our friendly staff today.

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Buying A Business Property In A SMSF

Many small business owners rent their premises and pay rent to a landlord.

However, since 1998 self-managed superannuation funds (SMSF) have been permitted to invest in business real property, and since 2008, they’ve been able to borrow money to do so.

Many small business owners don’t like paying rent, and if they could, would much prefer to buy their business premises and pay it off.

Assets they may have built up in their superannuation accounts can now be used to help fund the purchase of their business property. However, this would need to be structured through a self-managed superannuation fund.

And if you need to borrow funds to purchase the property in your SMSF, the 9.5% compulsory super you pay yourself as an employee together with the rent your business pays your SMSF can help pay it off.

At retirement you’ll have additional options. For example, you could sell your business but your SMSF could retain the business premises, continuing to collect rent from the new business owner. The rent could be tax free provided you’re over age 60.

Alternatively, if you retire after the age of 60 your SMSF could sell the business property free of capital gains tax.

While the strategy holds lots of appeal, there are many issues to consider, particularly in terms of ensuring that the arrangement makes sense and is properly structured. It’s definitely something worth seeking professional advice on.

If you are a small business owner or know someone who is currently renting their business space, contact us today toll free on 1800 679 000 for our Rockhampton office and 1800 804 431 for our Melbourne office.  We would be delighted to speak with you about self-managed super funds.

The information provided in this article is general advice only. It is prepared without taking into account your objectives, financial situation or needs. Before acting on the advice in this article, please consider the appropriateness of the advice, whether the advice is appropriate to you, your objectives, financial situation and/or needs, before following this advice.

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