Viewing posts from: April 2018

How Might the weather affect your investments?

All / 26.04.2018

The disastrous weather we’ve witnessed in recent years has many people wondering what to expect next. The seemingly end-to-end storms, bushfires, floods, and other devastating weather events prove to us that nobody can be 100% sure of how things will turn out over the coming years, let alone the coming weeks.

The climate change debate is always heightened by these events but regardless of your view on this matter, the weather can play a major part in investing.

For example, many industries may be forced to make expensive modifications to business practices to meet new standards, and scores of individual businesses may perish if they cannot adjust. At the same time, changes in consumer demands and sources of economic value can provide new opportunities.

For both professional and individual investors it is crucial to recognise the various impacts of the climate on the companies or funds that they are invested in or will potentially invest in. For example:

Energy sources and the price of coal

Coal has been a cheap way to generate electricity, but many argue that this won’t be the case once the ‘real’ cost is taken into account (ie. the environmental impact of burning coal). As new technology is increasingly taken up across the world, more companies are specialising in wind, solar and geothermal energy. With the cost of coal-fired power being shared among less users, and hence consumers consistently seeing their electricity bills rising, they may be further inclined to seek more energy-efficient methods.

Impact of drought on the agricultural sector

Drought is a way of life for many Australians on the land so we should never get complacent about water supply. Water scarcity leads to lower crop yields and/or higher prices for food products. Farmers are responding through demand for technologies that enhance their yields or enable better water usage and recycling.

Rising sea levels

Higher global temperatures and the consequent rise in sea levels will most obviously impact on the lifestyles of coastal communities. As a result, we could see new demands for infrastructure that is suitable for the ‘new environment’. The effects on fisheries and various ecosystems may lead to increased opportunities in farming and, again, technologies that enable these ecosystems to adapt.

Extreme weather and the effect on insurers

Insurance companies aim to be adequately compensated (via premiums paid by policyholders) for the risks they are taking. The increasing claims over recent years have affected premiums, particularly in regional areas, which may create opportunities for improved building standards and materials as consumers seek to better weather-proof their properties.

One thing that won’t change is the fundamentals of good investment decisions. The changing climate will result in many winners and many losers, and the prudent investor will be seeking to choose the right place to invest.

So the next time you’re chatting to your adviser about the weather, ask them how it could affect your portfolio.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.


Disclaimer

Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.

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How much do you know about investing? Take our quiz to discover the basics of investing and some often misunderstood terms.

All / 19.04.2018

Investing is normally a topic that conjures up images of pin-striped executives and sophisticated financial markets.

But, in reality, the act of investing is part-and-parcel of our daily lives; all of us are doing it throughout the day, though we might not consciously stop to think about it.

By exercising and pursuing good eating habits, we invest in our health; taking good care of our families and looking out for friends is an investment in our relationships; and, commitment to education is an investment in our future.

These are but a few examples and many more can be found. The point is that – as a way of life – we consistently invest time, effort and other resources in matters that are important to us.

The largest investment for most of us is the countless hours spent on earning a living; a substantial part of our lifetime is absorbed by working to make ends meet.

 

Consider this basic truth: there are only two ways to earn a living – you must work for your money, or your money must work for you.

It’s important that our money works hard for us; both, on the way to financial independence, and thereafter, so that we can comfortably maintain the quality of life that we have become accustomed to.

So how does your financial savvy stack up right now? Try this quick quiz to find out.

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Should I pay off my mortgage or contribute to super?

All / 12.04.2018

Should I pay off my mortgage or contribute to super?

One of the most popular questions we are asked by our clients is whether it’s best to pay off their mortgage first or salary sacrifice money into their super fund – or can they do both? The answer to this question is never the same considering that everyone’s needs are completely different, but we thought we’d provide an explanation with some examples to give you an idea of how both options work.

It’s not really a sacrifice

Salary sacrifice means arranging for your employer to pay part of your salary into superannuation instead of paying it to you in cash. It can be tax-effective because most of the personal income tax rates are higher than the 15% superannuation tax rate.

To explain, the table shows the difference for three people who invested $10,000. The top line is for someone on the highest tax rate. They would have $3,200 extra invested – a whopping 60% more by using salary sacrifice. The other lines show people on lower tax rates – you can see they both will have more invested by “sacrificing”.

IncomeMarginal tax rateInvested after taxInvested by salary sacrifice Difference 
$190,00047.00%$5,300$8,500$3,20060%
$90,00039.00%$6,100$8,500$2,40039%
$60,00034.50%$6,550$8,500$1,95030%

Salary sacrifice is made even more attractive as superannuation payouts for people aged 60 and over are tax-free.
If your employer allows salary sacrificing, talk to us before implementing an arrangement. You need to be sure you will still have sufficient income for everyday living; you won’t need that money before you retire; and other employment conditions are not adversely affected.

Should I pay off the mortgage or pay more into super?

The easiest way to show the difference is by using a case study.

Consider Christine who earns $100,000 a year. She is aged 50 and plans to retire at age 60. Christine is worried about paying off her $175,000 mortgage. The mortgage interest rate is 4.5% and she is paying $21,764 a year so it will be paid off in ten years.

An alternative strategy is to pay interest only on the loan and salary sacrifice into superannuation so her disposable income remains the same. Christine’s accumulation in super will grow faster and she can pay the loan off when she retires. The table compares the cash flows of the two strategies.

 Pay mortgage Maximise super
Income$100,000$100,000
Salary sacrifice$0$15,500
Taxable income$100,000$84,500
Tax and Medicare$26,632$20,700
After tax income$73,368$63,800
Mortgage payments$21,764$7,875
Disposable income$51,604$55,925

With her current strategy she pays tax of $26,632 and has $51,604 left over after paying the mortgage.

Christine has an upper limit of $25,000 on the amount of concessional contributions she can make into super. This includes the total of her employer’s Superannuation Guarantee contributions and any salary sacrifice amount.

Assuming Christine’s SG contributions are $9,500pa and she sacrifices an additional $15,500 from her salary, which is within the maximum allowed amount, and pays interest only on the mortgage, this is what she will achieve:

  • She will have $4,321 more disposable income and will pay $5,932 less tax.
  • She will have $15,500 extra per year going into superannuation.
  • The super fund will pay 15% tax so $13,175 will be invested. If the fund earns 7.5% per year after tax, her super will grow by an additional $213,000 in 10 years.
  • When Christine retires at age 60 she can cash out $175,000 from her super tax-free to pay off the loan and be more than $38,000 ahead of her current strategy.

It is important to note that the outcomes for different people will vary, and will depend on such factors as interest rates and investment returns. To find out what will work best for you, talk to your licensed financial adviser.

Note: all tax calculations include Medicare levy of 2%

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.

 

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Getting more out of income protection insurance

All / 05.04.2018

If you’re working and haven’t yet reached the point of financial independence, then income protection insurance should be on your radar. As the name implies, it can help you protect your greatest asset – the ability to earn an income.

At the heart of all income protection policies is the promise to pay the policy owner a regular benefit, usually 75% of their normal income, if they are unable to work due to accident or illness. Payments are made after an agreed waiting period and continue until either the policy owner is able to return to work, or until the end of the agreed benefit period.

Core and supplementary benefits

In addition to the core provision to pay a replacement income, most income protection policies also offer a wide range of supplementary benefits. These vary from policy to policy, but may include:

  • Rehabilitation benefits.
  • Travel and accommodation costs, for example to return you home if you are injured while overseas.
  • Childcare benefits.
  • Specified injury benefits that pay an additional amount if you suffer things like broken bones, loss of sight, paralysis or other stated conditions.
  • Bed confinement or nursing benefits.
  • Elective surgery benefits.
  • Family support benefit or accommodation benefit, payable if a family member needs to travel from their usual place of residence to be with you.
  • Total and permanent disability benefit.
  • Death benefits.

Adding supplementary benefits adds to the cost of cover, and the value of any supplementary benefit depends very much on individual circumstances. Someone with a good income, modest expenses and a working partner may be able to easily meet costs such as childcare, even if their income drops to 75% of its usual amount. For someone on a tighter budget, supplementary benefits may be a way of achieving greater cover at a reasonable cost.

Tailored cover

Supplementary benefits allow cover to be adjusted to suit individual needs. Take Kate. She’s a single, 29-year-old marketing manager who lives alone. Kate’s immediate family all live interstate and she regularly holidays overseas.

Not surprisingly, Kate sees no value in the childcare benefit. With no dependents she also doesn’t require death cover.  However, with no close family living near her, the family support benefit and bed confinement benefit do appeal to her. Given her frequent overseas travel she also opts for the travel and accommodation benefit.

The ability to select only the relevant supplementary benefits means that Kate is able to design an income protection solution that suits both her needs and her budget.

Design your policy

Income protection insurance is one of the key foundation stones of an effective financial plan. If your income needs protecting, talk to your financial planner about designing the policy that best suits you.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.


Disclaimer

Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.

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