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How an increase to super may result in a pay cut

All / 25.11.2021

How an increase to super may result in a pay cut

The super guarantee (SG) is the minimum percentage of ordinary earnings that employers must contribute to superannuation for their eligible employees.

After years being stuck at 9.5% the SG rate is on the move again. It increased from 9.5% to 10% on 1 July 2021, and will increase by a further 0.5% each year until it reaches 12% from July 2025.

More money into super to provide a more secure retirement? What’s not to like about that? Well, it depends on your employment contract as to whether you are in for a welcome bonus or a nasty surprise when each annual increase in the SG kicks in.

Salary plus super, or super included?

If you are paid a base rate plus super then your employer should increase your super contributions by 0.5% with no change to your take-home pay. This is the likely to be the most common (and the best) outcome. It’s possible some employers may take the increases in SG into account when negotiating future wage increases, but this is an indirect and by no means certain outcome.

It’s a different story if you are paid on the basis of a total package, including super. In this case, and provided it doesn’t drop your pay rate below award minimums or the minimum wage, your employer may deduct the additional SG from your take-home pay. Not such a desirable outcome.

What can you do about it?

Just because an employer can reduce take-home pay to make up for the higher SG doesn’t mean they will. Many employers will wear the cost, and if that’s the case with your employer, all well and good. Also bear in mind that employers may use both types of contract, so just because your colleague at the next desk is paid on a salary plus super arrangement, you may not be.

With the outcome entirely up to your employer it’s important to talk to them. Find out if you are affected, what they plan to do, and if necessary see if you can negotiate an appropriate increase to your total package. If you have union representation this may be helpful.

It will all come down to the strength of your bargaining position. Employers who want to keep good employees and avoid the cost of employee turnover may be more willing to carry the cost of the increase. It’s also possible for your employer to take one approach this year and another next year, depending on business conditions.

While the drop in take-home pay after the initial SG increase may be relatively small, by 2025 it will be a much greater amount. It’s important to have that conversation with your employer as soon as possible.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6626 3000.

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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Foundations of a wealthy lifestyle

All / 18.11.2021

Foundations of a wealthy lifestyle

A study conducted by the Australian Stock Exchange reported that nearly 25% of investors over the past two years were aged 18 to 24.

These young Australians were found to be knowledge seekers, keen to take on life and begin their journey towards financial security.

If this describes you, congratulations! You get it, you really do. You’re Next Generation Investors who know that building financial independence starts early.

However, according to the same study, Next Generation Investors, aware of their inexperience, are uncomfortable making financial decisions.

If this is also you, here are our tips for laying the foundations for a wealthy future!

Avoid unnecessary debt

If there’s one thing guaranteed to keep you awake at night it’s debt. Naturally, some debt can’t be avoided and is considered ‘good’ debt, like when you borrow to buy a house.

But ‘bad’ debt is sometimes unnecessary and often comes with high interest; best avoided where possible. You know we’re talking about credit cards, right?

Credit cards can fast-track you into debt-strife, particularly as tap-and-go transactions are just so quick and so easy.

Additionally, while those buy-now-pay-later schemes can be useful for emergencies if, say, your fridge packs up, they’re a trap if you don’t stay in control.

Sure, online shopping and bill-paying means using cards but you can avoid using credit.

Functioning the same as credit cards, debit cards use your money instead of the bank’s. They can be linked to your bank account, or loaded with cash which is handy for keeping track of your spending, as you can only spend as much as you’ve loaded.

If you do end up with debt, be accountable. Pretending it’s not there won’t make it go away. Further, unpaid bills can grow through late fees and penalties.

Read the fine print on contracts and understand what you’ve signed up for. Late payments and loan defaults can result in legal action, even bankruptcy, destroying your credit rating for years!

Pay down debt as soon as you can by:

  • making additional payments where possible.
  • paying above the minimum monthly amount.
  • consolidating debts, and negotiating a better deal.
  • prioritising debts with the highest interest rate.

Track spending

On the topic of spending, get into the habit of tracking yours. Using a simple spreadsheet, or an app from your bank, log your purchases and reconcile spending with receipts.

You’ll see exactly where your money is going and spot any areas of unnecessary spending, like those items you really don’t need but are the coolest ‘must-haves’.

Don’t fall for it; ‘must-have’ is a marketing term. True must-haves are basics like food, shelter, transport and medical – not the latest trends and gadgets.

We’re not saying don’t treat yourself occasionally, but to pause and consider whether the item is really worth burdening yourself.

Superannuation

Think you’re too young to worry about superannuation? Prefer to put your money toward something for now rather than later?

You may be right, but don’t dismiss super altogether. Here are some things you can do that won’t impact your current finances:

  • Ensure your employer is contributing the correct amount of super. If you are earning more than $450, pre-tax in any calendar month, your employer must contribute 10% to a super fund on your behalf. These contributions are Superannuation Guarantee Contributions (SGC) and they are compulsory.
  • Low-income earners may qualify for Government Co-contributions where the government contributes up to $500 to your super fund. When you lodge your tax return, your eligibility is automatically assessed, and if you qualify the government deposits directly into your super account.
  • Put unforeseen cash into super. Sure, you’re locking it away, but it’s money you weren’t expecting anyway! The longer it’s in super, the more it can potentially grow.

Save Vs Spend

You’re entitled to live, and you’re entitled to a social life. We’re not saying save or spend, we’re suggesting you can do a bit of both.

This is how it works:

 Scenario 1Scenario 2Scenario 3
Initial Deposit$1,000$1,000$1,000
Interest Rate2% PA2% PA2% PA
Regular DepositN/A$50 per month$100 per month

Each scenario is based on a $1,000 initial deposit with 2% PA interest calculated monthly. In Scenario 1 no further deposits are made. Scenario 2: shows $50 monthly deposits, and Scenario 3: $100 monthly deposits.

Adjust the figures to suit your personal budget and commit to saving a small amount each pay while still enjoying a life. Have the amount automatically deducted from your account and soon you won’t even miss it!

Regular savings accounts are available from banks and other financial institutions, and offer a variety of arrangements. For example:

  • Your initial deposit can be as little as $50.
  • Some pay bonus interest if no withdrawals are made in a month.
  • Some offer higher interest for 18 – 24 year olds.

Do your research, particularly websites providing independent product comparisons.

Seek advice

A professional financial planner can tailor a plan specifically for you. They will consider your debt, income, goals and much more, and work with you to structure a strategy for now, and into the future – you may even be surprised at how inexpensive good advice can be.

So, there you are! The future is laid before you and it’s loaded with potential; all you need to do now is get on with it.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6626 3000.

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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5 simple steps to correct your credit score

All / 11.11.2021

5 simple steps to correct your credit score

If you’ve ever had a mobile phone, a credit card or any kind of finance – including a gas or electricity account – you’ll have a credit score.

Lenders check your credit score when assessing loan applications – the better your score, the more likely they are to lend to you.

Your score is based on factors such as:

  • money borrowed,
  • accounts like phone, utilities, etc.,
  • on time/overdue payments,
  • past credit applications.

The higher your score the better; you’re more likely to have loan applications approved and may be able to bargain a better deal.

Conversely, a low score can influence a lender against you, making it difficult to secure a loan or credit.

Finding out your credit score is easy and free. The government’s MoneySmart website provides details for reputable companies that can supply you with a copy of your credit report.

What if you find out your credit score is not looking too good?

Here are five things you can do to improve it.

  1. Firstly, what’s the story? Get a copy of your credit report. It shows things like:
    • credit products and providers,
    • credit limits,
    • repayment history,
    • bankruptcy and debt arrangements.

Ensure your details are accurate and up-to-date and contact the reporting agency to have errors rectified.

Now, review the information. Are there trends? Perhaps you’re paying bills according to your wage cycle even if that means being a few days late?

  1. Consolidate multiple cards and/or loans into one and cancel cards where possible. Fewer loan facilities are more manageable, it also looks better on your report.

Avoid applying for credit increases as any increase will add to your total credit debt. Additionally, applications for credit, and credit increases, are included in credit score calculations.

  1. Consider a nil-interest balance transfer. This is where you transfer your outstanding credit card balance to a new card offering zero interest for a limited time. Schemes like these enable you to quickly pay down debt during the interest-free period, but make sure you’re clear about the terms and conditions as penalties can apply.
  2. Where possible, reduce your credit card limits. Pay the full balance each month, or pay more than the monthly minimum when you can. Even the smallest amount can make a difference.

With personal loans, mortgages and council rates, pay on time – every time – and make additional payments whenever possible. Always pay rent and mobile phone accounts on time – it’s a recurring theme, isn’t it!

If you struggle to pay utilities by the due date, contact your provider. Many offer plans called bill-smoothing, where you pay a set amount each month. Goodbye bill-shock!

  1. Create a realistic budget based on your income and expenses, and include the due dates of your debts. This will help you synch your pay cycle with financial obligations. It will also identify any savings that you can use to pay extra on loans and cards.

A poor credit rating is not the end of the world, but repairing it can take time and discipline. If you’re not sure where to start, seek professional advice. It’s all about managing debt, prioritising and making your credit score work for you.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6626 3000.

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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Managing CGT in a Self-Managed Super Fund

All / 05.11.2021

Managing CGT in a Self-Managed Super Fund

When you dispose of an asset and make a capital gain, you may be liable for extra tax. There is no separate tax rate for capital gains. Instead, some or all of the capital gain is added to your assessable income and taxed along with your other income at your marginal tax rate.

Capital Gains Tax (CGT) – generally speaking

The CGT system is very complex but in general terms, for individuals, the capital gain can be discounted by 50% if the asset is held for at least a year. This means the effective tax rate is 23.5% for those on the highest tax rate. There is no discount for assets held less than one year. For companies, there is no discount and the full capital gain is taxed up to the maximum company tax rate of 30%.

Tax on superannuation funds works in the same way as that applying to individuals. However, when a super fund disposes of an asset, it qualifies for a one-third discount if the asset was held for at least a year. Super funds are taxed at a flat rate of 15%, so this means the effective tax rate is 10%.

Minimising CGT

There are extra advantages in a Self-Managed Super Fund (SMSF).

The major benefit is that you can plan when to dispose of an asset taking into account the effective tax rate. This may mean, for example, that if you have invested in a share that has appreciated rapidly, you may hold it longer to qualify for the one-third discount.

Another advantage is that you can control the amount of capital gain made in a year and match it against capital losses to minimise the net capital gain.

The lower tax rates in super mean there is a lower “tax cost” of selling before a year has passed. The maximum tax rate will be 15% rather than 47% if the asset was held as an individual or 30% in a company.

Trustees of many SMSFs find that the lower tax rate in super helps them to focus on buying quality assets rather than worrying about how much tax may be payable.

Eliminating CGT

As stated, superannuation funds pay tax at 15%, however, once a super fund starts paying a pension or other income stream, the assets are not taxed at all. All income and capital gains are exempt from tax.

If your fund holds a large asset like a property, the capital gain may be significant and the potential tax cost could deter you from selling. In a SMSF, you control when you dispose of the asset. For example, disposal of the asset once a pension has started can eliminate capital gains tax.

Of course, tax is not the only issue when making investments but it can “add cream to the cake” if it can be reduced or legally eliminated. If appropriate to your personal circumstances, a SMSF may provide excellent opportunities to do just that.

The rules governing SMSFs are very strict, so always seek professional advice to determine if you might benefit from these or other opportunities within those rules.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6626 3000.

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 can we spend in retirement?

All / 28.10.2021

How much can we spend in retirement?

Having looked forward to retirement for years, it was difficult to accept that two people who had spent decades living happily together could spend so much of their time arguing over money.

“Enough,” I cried in frustration. “We need help from someone who can tell us just how much you can spend on a new car to tow the caravan and how much I can spend on updating a twenty-year-old kitchen without us running out of money,” I said.

Within days we were in the office of a local financial planner, who had no doubt heard it all before. The starting point, he said, was to determine just how much money we had saved for retirement and then determine if it was in the most tax-effective location – that being superannuation.

From there, he explained we needed to be proactive in our investment choices without taking on too much risk. For example, leaving our retirement funds in bank accounts earning next to nothing in interest might make us feel safe, but it would be a mistake long-term.

Then he set us some homework. First, we both had to go away and write down the ten most important financial goals we wanted to achieve in retirement without consulting each other.

At our second meeting with our financial planner, we were surprised to learn how similar our lists were. Top of both lists was the desire to not run out of money in retirement, to which our financial planner laughed.

This was easily done, he said. Just make sure you never spend more than the income being earnt by your investments. The best way to achieve this? Sit down with me each year, and we’ll go through how much money your investments have made and set your income for the year ahead accordingly.

It soon became obvious our biggest area of disagreement was that my husband wanted to leave a substantial legacy to our children, whereas I did not.

After much discussion, we finally agreed that we would both be happy as long as the children inherited the family home. If there were extra funds available to be left to them, well, that was all well and good, but we agreed it was not a priority.

Another key area of contention was what to do if we needed additional care as we grew older and, more importantly, what we would do if one or both of us needed to go into an aged care facility.

Again, our financial planner had talked many people through these issues, and we felt much more relaxed once we understood all our options. It seems lots of people face these same issues every day.

As our financial planner pointed out to us, the fact that we owned a substantial family home in a capital city was almost like a financial safety net for us, and we could always use the downsizer rules to boost our superannuation if needed.

Interestingly the areas that had been causing the most arguments were the easiest to solve. Once we worked out exactly how much money was in the kitty to support us in retirement, we both agreed to spend a bit less on the new kitchen and car to ensure we didn’t run out of money.

With our money dispute resolved, for now, and a plan in place for our future retirement spending, we were both relieved and thankful we’d put in the effort to seek expert advice from a financial adviser.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6626 3000.

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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The benefits of consolidating your super

All / 21.10.2021

The benefits of consolidating your super

What makes us change? Why do we resist making improvements in our lives? Often you know you should take some action but … but … there is always a reason not to.

Let’s take an example

You’ve had a few jobs over the years and been paid superannuation during each one. You have a number of super funds and you forget all about them until the annual statements arrive by mail or pop up in your inbox. Now you feel worried and confused. What does it all mean? Have I got them all? Is my money still safe? Am I paying for multiple insurance policies? What should I do with all this paperwork? And the worst one – am I paying too much in fees?

The usual option is to simply put them into your “too hard folder” and forget about it until next year… and then you go through all that confusion again!

But there is a better way and if you act now you can sort it all out and potentially save a lot of money!

Here is a five-step process to help you on your way:

Step 1 – collect all the superannuation statements you can find from your “bottom drawer” or print the latest from each of your online accounts.

Step 2 – make a time to meet with your financial adviser to go through the paperwork.

Step 3 – seek advice and select one superannuation fund that suits your needs.

Step 4 – sign transfer forms so your adviser can get the accounts rolled over to your chosen fund.

Step 5 – relax knowing that your super is all in one place.

Seriously, superannuation is too important to ignore. Getting your super under control can save you money in fees, cut down on paperwork, allow you to get an investment strategy in place, and help you keep track of your money.

The Australian Securities and Investment Commission reports that there are billions of dollars sitting in unclaimed or “lost” superannuation accounts with thousands more accounts added to the list each month. Inactive accounts with balances of less than $6,000 are transferred into the federal government’s consolidated revenue fund, so if you think you might have some old superannuation accounts that you haven’t touched in over 16 months, don’t hand it over to the government, claim it!

Visit the ATO website at www.gov.au for more information or check your MyGov account at www.my.gov.au.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6626 3000.

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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Investing in trends

All / 14.10.2021

Investing in trends

What are some of the big ideas, the themes, that are likely to influence the economy, both locally and globally, in coming years? How about Australia’s aging population? As we collectively grow older we should see increasing demand for assisted accommodation, leisure and entertainment services, escorted travel, pharmaceuticals, healthcare and more. Waste is a growing problem. What does this mean for the development of new recycling technologies and recycled products? Which is the next emerging market or technology set to grow at a spectacular rate?

Picking the right trend and investing at the right time can deliver quite a boost to a portfolio’s performance.

Traditionally, thematic investing has involved buying numerous shares in relevant companies or trying to find a typical managed fund that matches to some degree with the selected theme. But as more trends emerge an increasing number of exchange traded funds (ETFs) have appeared that precisely target a range themes.

ETF basics

As their name suggests, ETFs are managed investment funds that are traded on a stock exchange. Their units are bought and sold in the same way as shares so, unlike unlisted managed funds, it’s possible to enter or exit a position in a matter of minutes. Most ETFs follow a specific index or track a benchmark. For example, an S&P/ASX 200 index ETF will deliver the performance (less fees) of Australia’s 200 largest companies. With relatively low fees and transaction costs ETFs provide a convenient way to construct balanced and internally diversified share portfolios.

While ETFs have historically tracked the major indices (ASX200, S&P500, FTSE, etc) a growing number of ETFs now cater to more focused investing. Investors can now easily gain access to companies engaged in cloud computing, biotech, artificial intelligence, cybersecurity, climate change mitigation and many more niches.

Electric dreams

One investor taken with the thematic approach is James. He has heard that in the not-too-distant future a number of countries plan to phase out the sale of cars powered by fossil fuels. This, he believes, will massively increase demand for battery electric vehicles (EVs) and the components they are made from. James anticipates that this will see not only EV manufacturers, but also lithium miners and the companies that are developing new battery technologies experience massive growth and generate profits to match.

To back his conviction James could buy shares in a range of EV makers, lithium miners and battery companies. However this may create a mountain of paperwork and incur multiple brokerage charges on relatively small holdings.

Or he could make use of one or more of the growing number of exchange traded funds (ETFs) that cater to his interests.

James does some homework and discovers a battery technology and lithium ETF that invests in EV companies, lithium miners and battery technology companies – just what he was looking for.

A word of caution

There are no guarantees that thematic investing will deliver higher returns. The ‘tech wreck’ of 2000 provides one enduring lesson. So no matter how compelling any thematic story might be the basic rules of investment still apply, starting with ‘don’t put all your eggs in one basket’.

But if you want to add another dimension to your portfolio, keep an eye on the trends that are constantly emerging, decide which ones might be worth investing in, and ask your financial adviser for an objective opinion of your pet themes.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6626 3000.

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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Why financial advice may be your best investment

All / 07.10.2021

Why financial advice may be your best investment

It is commonly assumed that seeking financial advice is for the wealthy, and it only helps the rich become richer, yet financial advice can prove useful to anyone who wishes to better their financial future.

Financial advice is like getting a health check-up for your financial situation. Your financial adviser is like your personal trainer, assisting you in achieving your best possible financial health.

Seeking professional financial advice provides you with a clear path to achieve your financial goals, and that is an investment worth making.

Why invest in financial advice?

Imagine a couple in their early 30s who started investing in the share market in 2019 to save for their children’s private school fees over the next 10 years. Their shares dropped by 35% during the March 2020 market crash caused by the COVID-19 global pandemic. They panic and sell their shares, incurring a loss. However, a good financial adviser would explain the risks, provide examples from their experience and probably would have advised them to hold the course because theirs was a 10-year long term plan. Within a year, the share markets recovered and are now higher than ever.

Financial advice isn’t only about investing your money in the share market. Want to save to buy your first home? Want to protect your children in case of your death? Want to enjoy a comfortable retirement? Don’t understand what to do with your super or how to invest in the share market? Think of a financial adviser as a one-stop shop for the majority of your financial issues in life.

Come to think of it, be it your parents telling you to save money from your first job or an Instagram ‘finfluencer’ explaining the benefits of compound interest while dancing to a trendy song, these are all informal pieces of financial advice you receive throughout your lifetime.

However, a professional adviser can legally provide holistic advice by reviewing your entire financial situation and your risk-taking capacity to recommend an appropriate investment portfolio. Also, an adviser’s investment recommendations are based on research which can give you comfort over your decisions rather than constantly worrying about the investment you made based on your work colleague’s stock ‘tip’.

Is financial advice cost effective?

The financial advice industry has undergone a monumental transformation following the Financial Services Royal Commission of 2017-2019. As a result, new education and compliance requirements have been legislated to further protect the client’s best interests.

This has led to a drop in the number of financial advisers Australia-wide – from approximately 28,000 in 2018 to just 19,000 in 2021.

The silver lining here is that while there are fewer advisers to choose from, the quality of advice is deemed to improve exponentially.

As per Russell Investments “Value of an Adviser” report, advisers added a value of approximately 5.2 per cent to their client’s portfolios in the 2020 COVID-19 pandemic.

Still, the true value of financial advice is much more than comparing the fees you pay against the performance of your investments, or the tax saved on your income.

A financial adviser can be a sounding board for your financial ideas, a resource to answer the simplest or most complex of queries, provide research-backed recommendations, and guide you over the long term based on their experience.

Ready to make the investment?

Your day to day job may not allow you to focus on the financial aspect of your life. In contrast, your financial adviser’s primary daily responsibility is to help you handle your finances efficiently.

So, are you ready for your financial check-up? Take the first step and book an appointment with a financial adviser today.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6626 3000.

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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The art of dividend reinvestment

All / 30.09.2021

The art of dividend reinvestment

The real power of investment comes from compounding returns – the process of putting your investment income straight back to work so it can earn more income. To help their investors reap the rewards of compounding, many companies offer dividend reinvestment plans (DRPs).

The potential benefits of a DRP

Under a DRP, investors can choose to use some or all of their dividends to automatically purchase additional shares in the company. As a sweetener, investors avoid brokerage, and some companies even offer a discount on the share price. This means that dividend payments are working to earn new dividends rather than languishing in low-interest bank accounts.

Participants in DRPs can also benefit from dips in the market. When prices are down, a given dividend amount will buy more shares than when prices are high. However, be aware that it is entirely up to each individual company’s management to decide whether or not it will offer a DRP, and that the plan can be suspended or altered at any time.

Who might DRPs suit?

DRPs are suited to investors who do not need the income and who are seeking to maximise the growth of their portfolio. They can also be good for ‘lazy’ investors. Once the nomination to participate in the DRP is made it happens automatically with each dividend payment: no further action required.

That said, DRPs can generate a lot of paperwork. Each purchase is a separate event with its own cost base for capital gains tax (CGT) purposes, and its own start date for the CGT discount.

DRPs are not suited to retirees and people who are drawing down on their portfolios and dependent on all the income it can produce.

Don’t forget the tax

With a DRP the dividend never hits your bank account, but that doesn’t mean you haven’t earned it. It still needs to be declared as income on your tax return, along with its associated franking credits (the tax already paid by the company). Depending on your marginal tax rate, the franking credit may be sufficient to cover any tax payable on the dividend, or you may even receive a refund. If not, you will need to pay some additional tax, so be prepared for this.

Alternatives to DRPs

DRPs can be good for investors who have a positive view of the company they own shares in and are happy to increase their holding in it. Of course, if the company turns out to be a dud, partaking in a DRP will magnify the ultimate losses.

An alternative is to take cash dividends and regularly apply them to purchasing other assets. This can still provide the benefit of compounding while creating an opportunity to further diversify and rebalance the portfolio.

Dividend Reinvestment Plans can be an effective component of an investment growth strategy. The quality of the company offering the plan is paramount, but record keeping and income requirements also need to be managed. Your financial adviser will be able to further explain the potential pros and cons of DRPs and help you decide if they are right for you.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6626 3000.

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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You can borrow within your SMSF … but is it a good idea?

All / 23.09.2021

You can borrow within your SMSF … but is it a good idea?

Investing in property seems part of every Australian’s DNA. No matter where you buy, prices appear to be on a permanent skyward march with none of the unnerving fluctuations seen in other investments, such as the share market.

Ask anyone over the age of fifty what their best ever investment was, and inevitably they will answer, buying their own home. Their biggest regret? Not buying the house next door at the same time.

So where better to invest your precious retirement savings but in property?

For many, it’s the perfect set and forget strategy. Borrow funds to buy a property, rent it out to tenants, and let the rental income pay off the loan. Then in 20 years’ time, you have your own home-grown nest egg.

It sounds like a great strategy to help build your retirement savings, particularly if you can use your superannuation to make it happen. Yet as foolproof as this might seem, there are a number of traps to be aware of.

Firstly, the only way to buy a particular house or apartment using your superannuation savings is via a self-managed superannuation fund, a so-called DIY fund.

As the fund’s trustee, you will need to fully understand your responsibilities in running the fund and be able to demonstrate to the Australian Tax Office that you have thought through your decision to set the fund up.

Secondly, self-managed super funds can be expensive to establish. You will need to pay for an accountant to lodge a tax return for the fund each year and ensure all appropriate compliance and regulatory paperwork is up to date.

Finally, there are also strict diversification rules in place for all superannuation funds, so a substantial balance within your fund will be required to allow the purchase of a single property outright and still hold some cash within the fund.

Alternatively, you can arrange to borrow within your self-managed super fund to acquire a property, but again there are many traps for the unwary if you do decide to go down this path.

Loans used within self-managed super funds to finance a property acquisition are a very particular type of loan and are referred to as limited recourse borrowing arrangements.

Reflecting the complexities of these loans, borrowing within a self-managed super fund is much more expensive in terms of the interest rate charged and the amount able to be borrowed is usually restricted to 60 per cent of the property’s purchase price.

There is also a raft of other regulations governing buying property using superannuation savings, such as the need to establish a bare trust, for example, to hold the investment, or that you cannot, under any circumstance, rent the property yourself or rent to a family member.

When buying an investment property, the usual challenges should also be considered in terms of finding the right property, a good quality tenant, and ensuring the property itself is maintained and kept in a suitable condition.

None of these issues are insurmountable. They simply mean that for those looking to use their retirement savings to invest in property, good advice is critical to ensure it is done correctly.

This includes having a good accountant to make certain your superannuation fund is run appropriately, a great mortgage broker to find you the best limited recourse loan, and, of course, an astute real estate agent to find and manage the property.

Once you tick these boxes though, you can step back and be confident that you have made a well-informed and unrushed decision. Hopefully, as time passes, your property will not only be paying itself off but will be slowly increasing in value.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6626 3000.

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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