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Archives for Robert Syben

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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Let’s Agree On Risk

When a couple presents for financial planning advice, one of the first things I’ll ask them to do for me is a risk profile questionnaire.

This is a multiple choice questionnaire designed to get a gauge of an individual’s attitude to risk. That is, how do they feel and react with movements, sometimes large movements, in the value of their investments. The answers to the questionnaire generate a score, and with this score we can, in broad terms, attribute to the individual a higher or lower tolerance for risk.

There’s no ‘right’ or ‘wrong’ in completing this questionnaire. A low or a high score isn’t good or bad, better or worse. However, it is a vital input when we come to prepare our investment recommendations.

And, it’s very important that each member of a couple completes their own questionnaire. Why? Because if there is a difference in how each member of a couple think and feel about risk, we’d want to identify this, discuss it and agree on the risk we’re prepared to accept in respect of what are, after all, investments that they have a common interest in (even though the assets themselves may be held in different names).

What might happen if we don’t consider each member of couple’s individual risk profile?

Say one member of a couple may have a high tolerance for risk. We might call them a ‘growth’ investor, comfortable with a higher level of exposure to growth assets like shares and property. The other member may have a lower tolerance for risk. We might call them a ‘conservative’ investor, more comfortable with a higher level of exposure to defensive assets like fixed interest.

Ignoring their differences on risk, and simply investing on the basis of ‘growth’ is likely to create all sorts of problems in the future. For example, say after 6 months the growth portfolio, which was constructed taking into account only the ‘growth’ investor’s preferences, drops 20%. The ‘growth’ investor won’t like it. However, he or she may be reasonably comfortable with the situation knowing perhaps that it’s a longer term investment in quality investments and is likely to recover in due course.

Their spouse, on the other hand, may well be fraught with concern and anxiety.

Having each of them complete their own risk profile questionnaire would have provided an opportunity at the beginning of the process to identify their differences on this point; discuss them and agree on an investment approach that met and managed both their expectations. It’s important to agree on risk.

Are you interested in a free initial consultation with one of our friendly advisers to know if your investments are invested for the right amount of risk? Contact us today, one of our friendly advisers would be delighted to speak with you.

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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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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From An Adviser’s Perspective

I’ve been a financial adviser for about 17 years, and have met with quite literally hundreds of clients. I’ve always found it fascinating to learn how people think and act in respect of their wealth. The conversations I have with clients tend to have common themes.

The financial planning process itself is pretty straightforward. At the initial meeting, I aim to understand the client; their current situation, objectives and preferences. After all, it’s all about them. Thereafter, I prepare recommendations in respect of appropriate strategies, structures and investments that will help increase the chances of them achieving their objectives.

As such, for me, it’s the interaction with clients that I find interesting. Listening to a client, and confirming back to them my understanding of their objectives and preferences is, of course, paramount in this process. This process can be straightforward or lengthy, as many clients are unclear as to exactly what their objectives are, and what they may need to do in order to achieve them.

My discussions with clients often come down to the same following points:

  1. Spend less than you earn
  2. Invest surplus income in quality assets that generate income
  3. Review your investment portfolio on a regular basis
  4. Structure your financial affairs as simply as possible, but no simpler
  5. And when it comes to the investments themselves:
    • I don’t, and can’t, promise to ‘shoot out the lights’ on investment returns (Quite frankly, if I could do that on a consistent long term basis I wouldn’t need a day job!)
    • Risk, or the volatility in the value of your investments, always, ALWAYS, equals return
    • A risk is not necessarily a bad thing or something to be avoided (If you avoid all risk that the value of your investments would decline, all you’d be left with are bank deposits paying 1.75% per year.

So don’t avoid all risks, however, make sure that you understand the risks and receive an appropriate level of compensation for assuming them.

My aim is always to place my client in a position from which to make an informed decision. The decision is always theirs to make. I’m simply looking to provide constructive input to assist them.

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

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