Christmas is a time to be savvy!

The November and December months are a time when our wallets are an endless money pit, credit cards are in high demand as we try to keep up with the Joneses. The next few months of unconscious spending can set us up with a significant financial burden well into the New Year.

What can you do to avoid the Christmas expense blues?

1. Create a list

Get organised and make a list of all the people you need to buy presents for. Creating a list allows you to jot down some ideas and start looking online where you can find a bargain. Purchasing multiple gifts from one retail site will reduce your cost of postage.

2. Create a budget

This could be for each gift or the total amount you want to spend on all the gifts you want to buy. A budget will prevent you from buying gifts you don’t need or spending more than you want to.

3. Gift an experience

The manufacturing of cheap, quickly disposable trends are cluttering our lives and sending us broke with a mirage of happiness. Experiencing nature or organising an adventure will create a memorable journey that will last a lifetime.

These simple tips and suggestions will help you avoid overspending, which you’ll reap rewards for well into the New Year.

Please note this article only 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 to you.

Recently, I did something I haven’t done in 40 years. I went back to my old high school – Mazenod College in Mulgrave, Melbourne. I’d received an invitation from the ‘Mazenod Old Collegians Association’ to join a tour of the school. For the most part, I had fond memories of my years at Mazenod College and decided it was about time I went back and have a look at how it had changed.

And boy had it changed! I was truly amazed at the range of facilities now in place at the school. An enormous indoor basketball stadium stood on the spot where there once stood a yellow portable classroom which our class occupied for a couple of dreary months during the winter of 1974. Gone was the uneven, muddy footy field, replaced by immaculate looking synthetic grass. Apparently it ‘only cost $1 million’…gulp! There was a state of the art library, including a 300 seat theatre complex. There was even a building dedicated to providing students with cooking classes, which looked like a set from MasterChef.

I asked, Sean, our tour guide (an ‘old boy’ himself) whether the curriculum itself had also changed. Sean proceeded to rattle off a range of subjects. ’Is Financial Planning 101 on the curriculum, Sean?’, I asked. Sean looked at me, paused for a few seconds and replied, ‘well no, not as such, but we do offer Accounting’.

That was my cue. I stepped onto my ‘soapbox’ and shared with him my experience of 20 years in financial planning. That many, many people are essentially ‘illiterate’ when it comes to their own financial planning. They leave school with a trade or a profession, but not the first clue about managing their own money and taking responsibility for achieving their financial goals. And the problem can be sourced back to their education. Many school curriculums include worthwhile and useful subjects (and quite a few useless ones). However, to my mind, we’re providing our children with a disservice if we don’t provide them with the knowledge and tools to manage their own money. Many people, after they’ve left school, recognise the gap and seek to redress it. And some of those find their way to financial planners, like The Investment Collective where the focus if not only on establishing a personalised financial plan and reviewing it on a regular basis but bringing people up ‘the learning curve’ in their understanding of personal finance and investments

Sean was pretty interested in all of this and asked me whether I’d be interested in speaking to some of the students on Financial Planning 101. ‘Absolutely’ I replied.

If you would like to learn more about personal financial planning or any of our other services, please contact us today.

Aged Care Who Cares? by Rachel Lane & Noel Whittaker

★★★★★

Book Review by Jodie Stewart

Plot

With the growth of the ageing population, aged care advice is needed today more than ever. The complexity surrounding aged care means it can sometimes be overwhelming and confusing for you and your loved ones. Aged Care Who Cares? is a guide for people looking to secure the best possible outcome for aged care. The information contained in the book helps you choose an option that not only meets your financial needs and objectives but also considers your emotional wellbeing.

Review

Aged Care Who Cares? is broken up into 4 different sections:

Care at Home, Retirement Communities, Residential Aged Care and Funding your Care.

Given around 75% of care provided is done so at home, I’ve decided to concentrate this review on Section 1, Care at Home.

Home Care Packages:

I found this to be the most interesting topic which probably stems from my own experience with aged care. My grandmother (70) still works full time and is only just beginning to consider retirement now. At present, she has no interest in moving into a retirement village or aged care facility and wants to stay in the family home as long as possible. Lane and Whittaker discuss the different types of home care available and the merit of each. These include; Home Care Packages (HCP), Commonwealth Home Support Programme (CHSP) Veterans’ Home Care (VHC) / Community Nursing and Private Care.

My grandmother’s doctor recently referred her for an Aged Care Assessment Team (ACAT) which is key to accessing most government-funded aged care services. The purpose of an ACAT assessment is to determine the level of care you need. The assessor will speak to you about your day to day activities, the things you are comfortable doing yourself and things you may need assistance with. ACAT assessments remain valid indefinitely unless a time restriction has been applied to it. As with any government service, there is a waiting period to receive an ACAT assessment. If you are lucky, you will be assessed relatively quickly; however, if it is during the season of Aged Care (typically November to April) the wait period can be quite extensive. During these months, family come to visit. They see the change or detrition in their loved ones and take action to get them assistance. This then creates a surge in the need for ACAT assessments and the waiting begins.

As highlighted by Lane and Whittaker, there are four levels of Home Care Packages. Level 1 offers support to people with basic care needs, while level 4 offers support to people with high care needs. Although my dear nan has been assessed and ACAT have determined her level of care required, she now needs to join the National Prioritisation Queue with over 100,000 other Australians who need home care. The queue basically works on a ‘get what you’re given’ basis. You can opt for a lower level package while waiting for your approved package level. That is, if you are assessed to be a Level 4, which is the highest Level of Care and a Level 1 Care Package is available next, you will be assigned a Level 1 Package. Think of it like having a broken leg in the emergency department. You wait and wait to receive some relief but all the nurse can offer you is a Panadol. You take it because that is all that is on offer. You still have a broken leg and you still aren’t getting the care you need. That is the unfortunate position 40,000 consumers are in.

Granny Flats:

I was surprised to learn that granny flat arrangements aren’t as straightforward as people think. What springs to mind is a small flat or self-contained unit built on your children’s property but that isn’t always the case. In the eyes of Centrelink, a granny flat interest or right is where you pay for the right to live in a specific home for life. You can’t be a legal owner of that home and it is not part of your estate when you die. So, a granny flat arrangement is any kind of dwelling such as a room or living area in an existing home, not just those typically referred to as granny flats.

Lane and Whittaker touch on a few key considerations when entering into a granny flat arrangement.

Generally speaking, the amount you pay for a granny flat right or life interest should be market value. This payment can be the exchange of assets, money or both assets and money.

For example, you could transfer:

• Ownership of your home but keep a lifelong right to live there or in another private property
• Assets, including money, in return for a lifelong right to live in a home

Centrelink has deemed that if you pay less than $207,000 under your granny flat arrangement then you are not a homeowner. You will receive rent assistance, but the granny flat will count towards your assets under the asset test. If you paid more than $207,000 you are a homeowner, no rent assistance is afforded but the asset is exempt from asset tests.

It is important to ensure that you do not pay too much or too little when entering into a granny flat arrangement. If you pay too much, you can invoke Centrelink’s gifting rules where you give away an asset without getting something of at least equal value in return. The extra amount you have paid for the granny flat then becomes a deprived asset which impacts on your entitlements.

Recommendation

Aged care can be very tricky to navigate but Lane and Whittaker have done well to simplify it as much as possible. There are a number of options available to retirees, each with their own complexities. I recommend this book for those who wish to explore Aged Care options for themselves or loved ones.

Please note that this article provides general advice and has not taken into consideration 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 to you.

You’ve no doubt heard the news that 3 of the ‘big 4’ banks have increased their variable home loan rates.  Westpac was the first to increase their rates, despite the RBA keeping rates on hold at 1.5% since August 2016.  Westpac announced on 30^th August that their variable home loan rates will increase by 0.14% effective 19^th September due to the increase of costs to source funding on the wholesale markets.

The major banks have been making the usual noises about absorbing these higher funding costs in the hope that they would ease over time, and the need to pass on these costs to customers.

ANZ and Commonwealth Bank followed suit on 6^th September by announcing that their variable home loan rates will also increase.  ANZ will increase its variable home loan interest rates by 0.16% effective 27^th September in both owner occupier and investment mortgages.  However, ANZ will exclude customers in drought declared areas of regional Australia.  CBA will increase its rates by 0.15% from 4^th October.

The headline rates for Westpac, ANZ, and CBA are as follows:

WBC

Standard variable Owner occupier Principal and Interest rate to increase to 5.38% p.a.

Standard variable Owner occupier Interest only rate to increase to 5.97% p.a.

Standard variable Residential Investment Principal & Interest rate to increase to 5.93% p.a.

Standard variable Residential Investment Interest only rate to increase to 6.44% p.a.

ANZ

Standard variable Owner occupier Principal and Interest rate to increase to 5.36% p.a.

Standard variable Owner occupier Interest only rate to increase to 5.91% p.a.

Standard variable Residential Investment Principal & Interest rate to increase to 5.96% p.a.

Standard variable Residential Investment Interest only rate to increase to 6.42% p.a.

CBA

Standard variable Owner occupier Principal and Interest rate to increase to 5.37% p.a.

Standard variable Owner occupier Interest only rate to increase to 5.92% p.a.

Standard variable Residential Investment Principal & Interest rate to increase to 5.95% p.a.

Standard variable Residential Investment Interest only rate to increase to 6.39% p.a.

NAB is yet to increase their rates, but many industry experts suggest that it is only a matter of time.

If you, or your friends or family have a home loan via one of the major banks, it would be well and truly worth the time spent to review your arrangements to ensure that the loan offers a competitive rate with low fees.

Banks traditionally rely on “inertia” in the event of raising home loan rates.  It is estimated that approximately 80% of home loan customers won’t do anything and will continue to pay the higher repayments.  This is simply a ‘Lazy Tax.’  For example, the ANZ rate increases will add about $40 a month to a $400,000 home loan.

Just to provide an indication of the rates available via some of our lenders, here are some comparisons for you to consider:

Standard variable Owner occupier Principal and Interest rate 3.68% p.a.

Standard variable Owner occupier Interest only rate 3.99% p.a.

Standard variable Residential Investment Principal & Interest rate 3.97% p.a.

Standard variable Residential Investment Interest only rate 4.29% p.a.

These reduced rates could save you THOUSANDS of dollars over the life of your home loan.

Please contact us today for a confidential, cost and obligation free discussion about your home loan.  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.

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

This recent article in the Australian Financial Review provided an insight into how some retail and industry super funds are marketing their products as “Balanced” when in reality the profile of the funds looks more like a “Growth” product.

This is misleading in the extreme and something worthy of exploring given a “growth” portfolio carries more risk but will, all things being equal, outperform a “balanced” alternative over the investment horizon more often than not, yet “growth” is marketed as “balanced”.  This has escaped media attention…until now.

The article further supports a fact one of our advisors established earlier this year when a client questioned the performance of the balanced portfolio we constructed and managed with the returns of a “balanced” super fund, which were superior.  Some investigative work revealed the “balanced” super fund was indeed “growth” oriented and more appropriate for the risk tolerant investor.  It was hardly comparing “apples with apples”.

In the low interest rate environment that seems like has been around forever, the returns investors are able to generate from the defensive asset class have been front & centre as a topic for discussion.  The income investors have been able to generate from this asset class has been belted, which has seen an increase of flows into “passive” or index-based investments as investors chase better returns.  However, this “passive” index-based investing artificially inflates the share price of a company whose fundamentals otherwise might suggest they are not performing quite so well.  When global interest rates normalise as has started to happen, all things being equal, companies with poor fundamentals will get sold off, and quickly.  To quote one of the greatest investors in history, “only when the tide goes out do you discover who’s been swimming naked”.

Back on the article…it lists the top 60 performing super funds with an asset allocation of 61-80% into growth assets i.e.; Australian & international equities, commercial property and infrastructure assets.  Some of the funds listed are designed to “hug” the index to keep administration costs down.  Fees are an emotional issue and under the spotlight given the revelations provided at the ongoing Royal Commission.

The problem with index hugging is it involves no active stock picking but rather, capital is deployed into each company comprising the index in line with their weighting thereof.  As indicated above, this can artificially inflate the share price of a poor company you might otherwise not invest in.

The returns shown in the article are net of investment fees & tax but before administration fees and are provided over 1, 5 & 10 years.  The median return of those top 60 “growth” super funds over 10 years is 6.6%, before admin fees.

I thought that was an interesting number as the portfolios I’ve seen since I started with The Investment Collective stacked up very well against that 6.6% median return for “growth”.

Digging into PAS, our portfolio management system, the first growth profile I randomly selected has achieved a return net of fees since inception of 11.26%, the second 7.68%, the third 13.58%, the fourth 7.89%, the fifth 7.54%, the sixth 8.31%, and the seventh 13.96%.

I then wanted to “compare the pair” with how some of our truly balanced portfolios have performed since inception.  The first portfolio has returned 6.18% net of fees, the second 7.35%, the third 7.27%, the fourth 7.25%, the fifth 6.47%, the sixth 6.82%, and the seventh 6.55%.

Whilst the social agenda these days in this instantaneous world concentrates on the “here & now”, with investing, long-term returns are what matter most.  The effect of compounding returns on wealth accumulation over time warrants the need to take a long-term view.

We actively manage client portfolios as many of you already know.  Whilst we don’t get it right 100% of the time, I’ll let you make your mind up on “comparing the pair”…especially so given we provide full transparency around what we do and how we do it.

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

There are strategies to ensure your children get the maximum benefits.

Since its inception, many baby boomers have accumulated big super balances. In some cases, their super balances may be approaching, or even exceed, the value of the family home. But unlike the home, which is free of death taxes, super’s 17% death benefit tax applies to adult children. There are, however, strategies to reduce its impact. First, you need to understand;

• Which beneficiaries will be taxed;
• How they will be taxed; and
• What you can do about it.

Basically, no tax is payable on super death benefits directed to your spouse, including de facto, someone financially dependent on you, a child under 18 (or older if a financially dependent student) or someone you have an interdependency relationship with. The rest get taxed.

When your money goes into super, it is broken down into a taxable component and a tax-free component. The taxable component is comprised of all pre-tax contributions (i.e. your employer’s super guarantee, salary sacrifice or any contributions you have claimed a tax deduction on) and the earnings generated on the taxable component. The only proportion that is tax-free is your after-tax non-concessional contributions.

Death benefits tax will only apply to money in the taxable component of super. Tax payable on the taxable component is 15% plus the 2% Medicare levy. The Medicare levy can be avoided if the death benefit is paid through the deceased estate.

One common strategy to minimise the tax is to withdraw an amount from super and recontribute it as a non-concessional contribution. By doing so you, you are converting the taxable component into a tax-free component. The rules are complex so it’s recommended you seek advice. It all comes down to whether you are eligible to take out a lump sum and then whether you are eligible to recontribute it.

Other strategies involve pulling money out of super and into your personal bank account. It is then paid out to the beneficiaries as per the distribution of the Will and there is no tax. This option can be useful especially if you have been diagnosed with a terminal illness. Again, be careful, as there can be tax consequences of pulling large amounts of money out of super and leaving it in your own name.

Given the complexity of the rules, it is vital you get professional advice first.

Please note the above is provided as general advice, it has not taken your personal or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

Previously, I highlighted the findings of the Australian Securities and Investment Commission (ASIC) report after reviewing 250 self-managed super funds (SMSF). ASIC does not regulate SMSFs, the Australian Tax Office does and trustees are held directly accountable.

At The Investment Collective, we assess the appropriateness of an SMSF, provide tailored written advice in the form of a Statement of Advice and present the recommendation where you are encouraged to ask questions to better your understanding.

Why should you set up at SMSF?

A client of mine established an SMSF to take back control of their superannuation by removing any influence from large financial institutions and unions. They wanted more investment choices and to be involved when choosing the underlying investments that are appropriate for their risk profile. Both members are now benefiting from the additional income from franking credits.

Another client established their SMSF once we conducted a fee analysis of their previous super fund provider. We highlighted all the fees and additional transaction, operational, borrowing and property costs they were paying. With their new SMSF the client has a very transparent fee structure and is now saving thousands each year. This client had a share portfolio in their name that we were able to directly transfer to their SMSF, increasing their superannuation benefit. We managed their capital gains over a few financial years and transaction costs were cheaper than going through a share broker.

In many instances, our clients’ are surprised how stress-free maintaining their SMSF is. We assist clients to look after and oversee almost all of the administrative tasks. We also connect our clients’ to professional SMSF administrators to complete the annual compliance obligations.

As you can see, there might be benefits to establishing an SMSF depending on your circumstances. The Investment Collective can assist you in an analysis of your current superannuation provider. Please contact us to arrange a review.

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

Teaching your kids about money and how to manage it can be daunting. Between internet banking, cards, and pay wave – money doesn’t really exist. Approximately 68% of Australian parents show some reluctance to talk to their children about money and believe that digital money is making it harder for kids to understand. Open up the conversation, encourage them to save, teach them about cash, savings and budgeting. Here are 5 tips to get started:

1. Start with a piggy bank or money box

Encourage your children to save their money until the money box is full! Whether the money comes from helping around the house, birthdays or even finding spare change. Once the money box is full, go to the bank together and open up a savings account. Then encourage them to start all over again!

2. Savings goals

When your kids really want that new toy or game or whatever it might be, encourage them to save up for it. Use a separate jar/money box to save up for that specific thing. Whenever they find or earn money they can decide how much of it to contribute to their savings goal or their regular money box so that they learn to make a choice as to whether to spend or save.

3. Keep track of their money

Make a savings goal chart. A good place to start is the price of whatever they’re saving for or a general goal, ask them how much they want to save. Then as they add money to their money boxes and savings jars, they can update the chart. Together, you will know how much they’ve saved and it will encourage them to see progress.

4. Talk to them about money

Have an open discussion about money and savings. Explain the benefits and disadvantages to cash, the difference between bank cards and credit cards, the variance between a salary and wages. Talk about how much products and services cost, about the average wage and how they can save. This type of open dialogue will help their understanding. Actually encourage your children to use their money to pay for something they want. This will help them learn how to count out the money required for the purchase and remind them to check their change.

5. Look for good deals together

It might be comparing prices at different stores and online for what you or they are looking to buy. Or maybe comparing brands and sizes for prices at the grocery store. Encouraging your children to look for good deals and specials is something fun for them to do, but also a good lesson on not spending money unnecessarily.

Please note, this article is for general advice purposes only. It has not taken into account your personal circumstances or financial goals. If you would like to learn more about how The Investment Collective can help you, please contact us today.

Australian Securities and Investments Commission (ASIC) recently released a report after reviewing 250 self-managed super funds (SMSF) files. These SMSFs were randomly selected based on Australian Taxation Office (ATO) data.

The report highlighted a poor standard of advice provided on SMSFs. They found 91% of the files reviewed were non-compliant. Non-compliant advice included process failures, poor record keeping and increased risk of financial loss for lack of investment diversification mainly due to a single investment property.

An SMSF allows a member to purchase property within the superannuation environment and I am often asked about how to facilitate this. However, what most clients do not realise is that property is capital intensive, costly to maintain and tends to offer a very low income. An SMSFs sole purpose is to provide retirement benefits for the members or their dependents. Therefore I have to ask my clients, is property appropriate for your retirement when you need to draw an income?

At The Investment Collective, we assess the appropriateness of an SMSF for every client.  We look at many factors and alternatives and then provide a detailed analysis for our clients’ to make an informed decision. If you have thought about establishing an SMSF you should consider the following:

• The balance of your superannuation
• Costs involved to set up and running an SMSF
  • According to ASIC a starting balance below $200,000 the setup and operating cost are unlikely to be competitive with other options
• Willingness and ability to manage the SMSF and meet trustee obligations
• An investment strategy that suits the needs of members
• Members Insurance needs
• Lack of government compensation available for SMSFs

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

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 it 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 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.

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.