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Archives for Sue Dunne

Superannuation Through Your Life

Superannuation is not something that you should ignore. It’s important that you engage with it throughout your working life.

First job

When you begin your first job, your employer is likely to direct your compulsory superannuation guarantee contributions into the fund that they use as a default. If you are a casual employee, over 18 and earning more than $450 per month before tax is taken out, it is compulsory for the employer to pay 9.5% of your ordinary salary into super.  The same applies if you are under 18 and work more than 30 hours in a week.

It’s a good idea to make sure that the employer is actually paying super for you when you meet these criteria – over 18, earning more than $450/month before tax or under 18 and working more than 30 hours in a week.

In your 20s, 30’s and 40’s

It’s still a long time before you can access this money, but remember that it is accumulating for your retirement and you should monitor what is happening.

Make sure that you have all your contributions going into the one fund – when you commence a new job you need to advise your employer of the details of your fund so that contributions continue to go into that one.  In most cases you will have a choice as to where your contributions are paid, but possibly not if you are a government or university employee.

Check your statement each year:

  • How much have you paid in administration and other fees?
  • What has the performance been and can you compare it to another fund to see if it is keeping up?
  • Is the chosen investment option still the right one for you?
  • Are you paying premiums for insurance?
  • Is the insurance sufficient or should you be adding other insurance possibly outside superannuation?

This period in your life is likely to be the most financially challenging – marriage, children, mortgages and your career. For women, there is often a lengthy period out of the workforce while raising children.

These things mean that you may not be able to add to your superannuation from your own resources and paying down your mortgage will be the highest priority, but you should attempt to allocate an extra amount to super from your salary each pay period.  Settle on a small amount that you really won’t miss to begin with, even if it is $10 each week.  As you age, try to increase this amount for example if you get a pay rise, add extra to your super contributions.  The most tax-effective way to contribute is via salary sacrifice – pre-tax salary, but you can also add from your own resources.

You might consider seeing a qualified professional to review your financial situation and to help you to reach your future goals.

In your 50’s and 60’s

By now, your financial situation should be a little easier. Perhaps the kids have finished uni and left home, your mortgage is well under control. Your super balance too will be looking healthy, and guess what, retirement isn’t so far away any more.

If you haven’t already consulted a qualified professional now is a good time to set some financial strategies in place so that your future needs can be met.

You might be thinking of some things you would like to do when you have more time and travel may be on top of the list.

Now is the time where you need to be contributing as much as you can spare and that you won’t be needing before you reach ‘preservation age’ – the age at which you can begin to draw from super. For most people that is age 60.

Using salary sacrifice now will be a strategy that will work well for you – part of your pre-tax salary is contributed to super, and your take-home pay and the tax you pay personally will be reduced. There are other strategies for higher income earners, perhaps with a non-working spouse.  These include spouse contributions and contribution splitting.

In retirement

Now you have retired and you are living off a pension drawn from superannuation. Once commenced, you must draw a minimum percentage from super each year – at 65 this is 5% of your balance, but you may need to draw a greater amount.

It is vital that you manage your super, or have it managed by a qualified professional, so that what you have will last you for at least your life expectancy.  A male at age 65 can expect another 18.5 years so, you will need to watch and plan your spending.  At the time of writing, a couple wanting to live a comfortable lifestyle will need about $60K per year. This means that you will need to have accumulated nearly $700K to meet this need – and that takes you to your life expectancy.

What happens if you live longer than your life expectancy? What happens if you need aged care?

These things mean that you will need to accumulate a greater amount of savings through your working life so that these needs in later life can be met comfortably and without placing stress on yourself or your family. Taking care of your superannuation through your working life will benefit you at the time that it is most needed.

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.

Read more articles in our Financial Literacy series. 

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All About Superannuation

Superannuation is simply money paid into a long-term savings and investment account to provide for your retirement in the future.  It was introduced in Australia in 1991 and it is compulsory for employers to pay 9.5% of your salary into your chosen superannuation account.

Your superannuation is referred to as being in ‘accumulation’ phase during your working lifetime – accumulating retirement benefits.  It is locked until you reach ‘preservation age’ – at the moment that is age 60, and you can begin drawing from it then under certain circumstances.

Employees mostly have a choice as to which fund their contributions are paid. Some government employees don’t have this choice as their contributions will be paid to the government fund.

When starting a new job, it is important that you provide your accumulation account details to your employer with a request to have contributions paid into that fund. If you do not nominate a fund, the employer will pay it to the fund that they use as default and over time and job changes, you will end up with multiple accounts.

This is not a good idea as you will be paying extra fees and you will likely also be paying insurance premiums in each of the funds.

When you join a fund, you have the option of selecting life, total and permanent disablement and/or income protection insurance as part of your membership. The fund will disclose the premiums that you will pay from the balance of your account. If you have multiple funds, you may be paying for more insurance than is needed, on top of the extra administration fees – these things all reduce the amount that is available when you retire.

Selecting some insurance is important, depending on your age and stage of life and you should seek some advice from a qualified person in this regard.

While your benefits are accumulating, your chosen fund manages the investment of your benefit, which is pooled with the benefits of many others.  You should select an investment option that you are comfortable with – your money is invested in shares, property and fixed interest and is therefore subject to stock market, interest rate and property market fluctuations. You need to be comfortable with the profile that you choose throughout any period of weakness in these markets.  If your profile is too aggressive or risky, you won’t sleep at night.  If you choose a profile that is too conservative, your benefit may experience much less growth over time and could fall short of what is needed.

It is a good idea to contribute a little extra to your accumulation account when you are in a position to do so. This can be part of your salary after you have paid tax on it, or it could be pre-tax salary.  Contributing pre-tax salary to superannuation is called ‘salary sacrifice’ or ‘personal deductible contributions’ and can assist with reducing how much tax you pay.  These pre-tax contributions will help higher income earners and are not really effective for those on lower rates.

After tax contributions don’t lower your personal tax and they need to be made from money that you don’t really need because you can’t touch it before age 60, but if you add $10 from every weekly pay from when you begin working, you will accumulate quite a large amount over your working life.

Even though superannuation money is not available to you for many years, you should always take an interest in it.  It is real money and it will really matter in later life when you have finished work. When you do stop working, you can commence drawing a pension – convert your accumulation account into ‘pension phase’. Once you get to here, you will be pleased that you have nurtured your account throughout your working life for this will be funding your retirement dreams.

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.

Read more articles in our Financial Literacy series. 

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Failed Investments

“$16m Goldsky fund ‘Ponzi Scheme’ ensnares high-profile sports stars” – this was the headline of the weekend Courier Mail.

What it is about us that makes us risk our hard-earned cash when someone sells us a good story?

There have been any number of so-called Ponzi schemes uncovered over the years and we haven’t seen the last of them.  A Ponzi scheme is a type of fraud that pays profits to its investors from funds invested by newer investors. The ‘success’ of a Ponzi scheme relies on a continued flow of funds into the scheme and little in the way of withdrawal requests. There is often no underlying investment made in spite of the reporting that is provided to investors.

These schemes are usually operated by people who excel at sales, people with the gift of the gab and a great personality, who are able to convince people to invest with them and then convince the investors that the investment is performing outstandingly well – until it crashes. Someone eventually twigs that things aren’t as they should be, with the result that a lot of people lose a lot of money.

Why would anyone invest in one of these things, or at least invest in something that could be less than what it purports to be?

We are suckers for the ‘get rich quick’ type of line that these operators will use and that level of greed will make us – for greed is what it is, will make us take the risk.

A simple portfolio of good quality ASX-listed shares that will appreciate over time and produce a sustainable income just doesn’t cut it when compared to the promises made by our dodgy operators.

Remember the old fable about the tortoise and the hare? This is equally true of investing. Here at The Investment Collective, we subscribe to the theory that a properly constructed portfolio of shares, fixed interest and International managed funds will achieve your objectives over time – safely. This type of portfolio will also give you transparency so that you know what you own, you know what you are invested in and you know the type of income that it will generate for you.

Why would anyone think that the ‘get rich quick brigade’ have a better idea?

Call The Investment Collective if you would like further information on how to invest safely and transparently.

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

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Will I Run Out Of Money?

What if I run out of money?

“I read in the paper on the weekend that more and more retirees are actually running out of money. I am really worried that this will happen to me.”

There are many factors involved in answering the implied question. We know that:

  • Life expectancy for our population is rising every year – we are living longer.
  • Centrelink thresholds have changed and therefore excluded many retirees from receiving a benefit payment.
  • Interest rates are at all-time lows.

We know the stockmarket is volatile and we are only 10 years on from the Global Financial Crisis (GFC) that had a major impact on wealth. We are still nervous about putting our money into this environment because of the risk of losing it.

So instead of that, we are putting our money into the bank.  Did you know that the average term deposit rate since 2004 (all terms, all institutions: source RBA) is 3.45%?

Looking at an average Balanced portfolio of investments, the annual compounded return since inception in 2004 has been 6.62%.  This period includes the GFC-affected years.

This means that if you had invested $50,000 into a Balanced portfolio of investments, reinvested dividends and other earnings, and did not take anything out of it apart from portfolio management fees, you would now be sitting on about $126,000.

If you had taken the same amount and invested it in a Term Deposit at the same time, drawing nothing and not paying any management fees on it, you would now have just under $81,000.

Tell me which of those clients is going to run out of money first if they began drawing a payment from it?

We forget that one of the greatest risks we can take is that our money is simply not earning enough to allow it to support the lifestyle we desire. They have replaced what they see as investment risk with risk of another kind – the risk of running out of money.

There is no question in my mind that we should be properly investing our money in a portfolio that best suits our risk tolerance, rather than sitting it in a term deposit, if we wish to mitigate the risk of running out of money.

 

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

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When To Seek Financial Advice

Who should see a financial adviser?

“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 adviser.”

“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 you don’t have any spare cash and are having difficulty in making ends meet, financial planning isn’t for you.

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 assess your entire current financial situation. This means 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 cash flow 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.

There will be recommendations to adjust the investment option in your superannuation if it does not match the risk profile identified during discussion. If you have debt, there will be advice as to how best to manage that debt and if a restructure is required. 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.

So, 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 an adviser 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. From there the adviser will lead and guide you through the process.

What are you waiting for?

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Are You Prepared For Retirement?

I have just read my Super statement…

I am turning 65 in about 3 months’ time and I plan to retire the week after my birthday, but I have just received my super statement and I am not sure if I have enough money to last me.  I have $175,000 in my accumulation account and I plan to take out enough for an overseas holiday next year and to buy a new car.  I’m going to apply for the age pension and then I want to draw enough from my super account to give me the same kind of income I’ve been getting from work.  I need the same income because I still owe some money on my home and my wife doesn’t work.

Does this scenario sound a bit far-fetched?

Do you think that everyone plans their retirement for years ahead?  We find that some people do, but many don’t give that matter much thought until the time comes to quit their job.  This conversation is one that happens with frightening frequency and it means that many people are unable to live the life that they have dreamed of in their later years.

What can I do now so that I am prepared for my retirement?

Like everything that we do, planning and preparation are key factors.  Seeing a financial adviser is a good starting place, as an adviser will be able to advise you on the most appropriate path.  Sooner is better, so that there is time to make changes that will make a difference well ahead of your planned retirement date.  Setting proper goals and objectives is vital.

It is really never too early to take this step.  For example, small things put in place when you first begin to earn a salary will compound over time and place you in a much more substantial position than if you were to do nothing. A simple strategy such as saving a small amount from each and every pay will make a large difference to your retirement savings not only from what you have saved, but from the effect of compounding.  It’s a good idea to increase your savings every time you get a pay increase.

Don’t rely on a credit card to fund your living expenses, unless you pay it off in full every month so that you don’t incur any interest charges.  If you don’t have the cash available now, don’t buy it!  Save a little each pay period so that you can afford to pay cash for it.  You will have the added satisfaction of having earned something that you really wanted!

If you have a home loan, make sure you have your repayments scheduled at the most effective frequency – your adviser can assist with this.  Pay a bit more than your required minimum payment, and don’t decrease the amount that you pay because your interest rate has dropped.  They won’t always drop and it will be a real benefit to have made a big hole in your outstanding balance while rates are down.

Is it ever too late to seek financial advice?

No, not really, because there will always be advice that will benefit you.  It may well be too late to realise some of your dreams and aspirations, but careful advice and planning can help you to make the best of what you have.

Are you interested in planning for your retirement? Are you ready to retire now? Contact us today for your free initial consultation, one of our friendly advisers would be delighted to speak with you and help you plan for your retirement.

Please note: The information provided in this article is general advice only. It has been prepared without taking into account any person’s Individual objectives, financial situation or needs.  Before acting on anything in this article you should consider if it is appropriate for you, having regard to your objectives, financial situation and needs.

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Why Budgeting Is So Important

Are you managing your cash flow effectively?

A well-constructed budget is the key to good financial management.

Do you find it difficult to manage your money so that you have enough to pay your big bills when they are due?  Having a proper budget that you update regularly will make all the difference.

I hear you say ‘but I don’t know where to start’!

The first step is to find a tool to help, one you like using and find easy to use.  There are lots of free budgeting options available on the internet and the Money Smart website is a good place to begin.  Another really useful option are apps on your smartphone, there are many different options including; Pocketbook, YNAB (You Need A Budget), Mvelopes and Mint.

Find your last pay slip and record in your budget tracker the amount of each payment and the frequency that it comes in.  Record any other income and then begin on your expenses.  Start by identifying what are your needs and what are your wants.  Needs are things that just have to be paid e.g. rent, groceries, etc. and wants are the discretionary expenses like dining out, a morning coffee on the way to work.

Populate your spreadsheet with all of the needs for the current week and for the months ahead so that you know when the car registration bill is due and you can leave enough money to pay that bill when it arrives.  How much is left over each pay period after you have paid your necessary expenses?

That amount is all that you have left for the wants.

Do you want to plan for a holiday or a new car?

Identify what you want to do, how much it costs and when it is to be – say you have decided that you want to take a holiday that will cost you $2,000 and you want to go in 6 months’ time.  Look at your budget – you have allowed for the needs, and you know what is left after they have been paid.  Factor in an amount to save each pay as you are entering up your discretionary expenses, or wants. This will tell you if your savings expectation is achievable.  If it is not, then you have to adjust your budget – where can I trim something off the discretionary expenses so I can save what is needed, or do I have to wait longer for the holiday?

Once you are in the habit of watching and tracking what you spend, you will find a budget easy to work with and that you can achieve your goals because you have planned for them.

Please note the information provided in this article is general advice only. It has been prepared without taking into account any person’s individual objectives, financial situation or needs. Before acting on anything in this article you should consider its appropriateness to you, having regard to your objectives, financial situation and needs.

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The Costs of Aged Care: What You Need To Know

What are the aged care options?

  • Help at home

Subsidy is available from the government for home care services.   Your adviser will be able to provide you with further information about these services (they are not the subject of this article).

  • Care through an aged care facility

Residential aged care provides care on a permanent basis or for a short stay known as respite.  There are different levels of care available and range from a fairly independent lifestyle through to 24 hour nursing care.

What are the costs of entering an aged care facility?

You must first be assessed by an Aged Care Assessment Team (ACAT) to identify your eligibility to receive care and which services you will need.

The costs of entering and living in an aged care facility include:

  • Accommodation Contribution (Refundable Accommodation Deposit – “RAD”)
  • Daily Accommodation Payment (“DAP”)
  • Basic Daily Fee
  • Means Tested Care Fee

How much will I need to pay?

The facility will charge you an accommodation contribution, or if your income and assets are below the prevailing threshold, the government will pay your accommodation costs.

If you have been assessed as having the financial means to support your own aged care, the accommodation contribution may be paid by RAD or by DAP or a combination of the two.  Interest charges may apply for any outstanding accommodation payment and residents must be left with at least a minimum amount of assets.  As an example, if your accommodation payment is $300,000 you may pay this:

  • in full as by RAD; or
  • by DAP; or
  • a combination, say $150,000 by RAD and the remainder by DAP.

Every aged care resident will pay the same basic daily fee.  This is a fixed fee, indexed semi-annually for inflation.

The Means Tested Care fee applies only to residents whose assets exceed the asset threshold at the time and it is also paid at the maximum rate if the resident does not complete an annual Assets and Income Review with the Department of Human Services.

How can I get help to make my financial decision?

Contact an adviser at The Investment Collective to assist you in making your decision about aged care so that you have the best financial outcome.  Information is also available on the internet at https://www.myagedcare.gov.au/

Please note the information provided in this article is general in nature only. It has been prepared without taking into account your individual objectives, financial situation or needs. Before acting on anything in this article you should speak with your financial adviser to discuss whether it is appropriate to you in regard to your objectives, financial situation and current aged care needs. An adviser at The Investment Collective to assist you in making your decision about aged care so that you have the best financial outcome. Some of the details in this article may fluctuate from state to state and it is best to speak to an adviser about your specific circumstances before considering any of this information.

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Motherhood and Money

The birth of a child is one of the toughest occasions in anyone’s life, but also one of the most rewarding.  I will never forget the moment I realised that I was now responsible for the wellbeing of another human being who could not survive without my help, and that this responsibility remained through the rain, hail or shine regardless of my own state of health or mind on any given day.

The responsibility for having a child doesn’t end with the nurturing, but also extends to financing the child’s needs for many years after their birth.  This can be a very costly exercise, but like everything else, mothers take it in their stride and adjust their own financial and other needs to cater for the needs of the child.

The one thing that doesn’t cost anything in raising a child is the amount of love that you have available – it is limitless!  My children have brought me so much joy over the years and the rough patches are forgotten.  Also forgotten are the things we ‘did without’ in order to give our family a good education.  They simply don’t matter.

I am reflecting on motherhood as we near the annual celebration of Mother’s Day.  It now has an added significance for me because my daughter is also a mother, making me a grandmother.

Being a grandmother brings a whole new dimension to life.  Those little people make my heart sing!  The pride I feel as I see my daughter and her other young mother friends thoughtfully guiding their youngsters through childhood is immense.

I see these young mothers coping with exactly the same issues that I faced, and the financial struggle is just the same for them as it was for me.

The difference for me as a grandmother is that I don’t have to cope with sleepless nights, the school run, seemingly bottomless stomachs, the washing and so on. I can enjoy the laughter and the fun and games, and then I just go home and leave ‘em to it.

Having a budget in place will help you manage the expenses during your children’s early days and through their education years.  The costs are significant and having a plan for managing expenses will mean that you keep on top of the costs in an organised way.

There are many tools available, such as those on ASIC’s MoneySmart website that will assist you in establishing your budget. There are also apps that allow you to track expenses so you can see where your money is being spent.  Every one of these tools will assist in making ends meet and I suggest that you take advantage of these.  My budget lets me help my kids financially every once in a while because I know what they are experiencing.

 

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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I want to be able to help my kids financially

Can I give my kids some money?

I hear this question quite often from my clients.  There are several answers to the question.  Underlying it all is the normal parental need to be able to assist our family while they are juggling the usual expenses of home and children, from an income that doesn’t always stretch quite as far as they would like.

The first part of the question is – can I afford it, and your answer to that may be that you think you can.

The next part of the question is – are there consequences for me?

There may be – for instance if you receive a Centrelink age pension there is a limit as to how much you can gift to your children.  The current limit is $10,000 per year up to a maximum of $30,000 over a three year period.

If you are a fully self-funded retiree the consequence could be that your ability to maintain your own lifestyle in retirement is compromised, so it is a question that needs careful thought.  It is recommended that you seek advice from your advisor.

Is giving cash the best way to help?

It is debatable as to whether straight out cash gifts are really the best way to help – you can’t direct where the cash is spent, and it may not be put to its best use.  What if we paid an essential expense instead?  Examples might be to contribute to the grandchildren’s school fees or to pay the life insurance premium for your son or daughter?

Paying a life/TPD (total and permanent disablement) insurance premium for an adult child may mean the difference between them being properly insured, or having little or no life or TPD insurance.  This not only protects your child and his/her family, but it protects you too, as you may be called upon for support should your child become ill or disabled.

I would like to start an investment for my child/grandchild.

This is also an excellent way to give your family a helping hand as it is a long-term solution that will provide some passive income and capital growth in the future.

A small investment in the Capricorn Diversified Investment Fund, with distributions set to be reinvested, is one way you can achieve this, and it is even better if you add extra contributions from time to time.  By the time the newest grandchild is old enough to attend university or wants to buy a car for example, there will be a tidy little nest egg they can draw from.  You can view details of the Fund here or contact us for information and assistance.

Want to learn more about helping out your children/ grandchildren? For your free initial consultation with one of our friendly advisers, contact us today! One of our advisers would be delighted to assist 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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