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How much do I need to start investing?

All / 24.12.2020

How much do I need to start investing?

Far from being the realm of the rich, building an investment portfolio is something that most people can do. It can start as a simple savings plan – a few dollars in the bank – before expanding into a diversified portfolio containing a range of asset classes.

Getting started may be easier than you think, so let’s look at some of the basics.

How do my goals influence investment choice?

Your goals have a big bearing on how you invest.

If you are saving for a specific purpose such as an overseas trip, a car or a home deposit, you’ll most likely have a relatively short investment time frame and will want your savings to grow in a predictable way. In this case an interest-bearing bank account or term deposits will provide the greatest certainty of meeting your savings goal. With no upfront costs you really can get started with a few dollars.

If you have a longer timeframe and the desire for your investments to deliver higher returns, you’ll be looking to include asset classes that can provide capital growth as well as income. These include shares and property. For small investors the most practical way to access property may be via a managed fund. Shares can also be purchased through managed funds, or directly via a share broker.

Taking into account minimum brokerage costs on shares and minimum investment amounts set by fund managers, you’ll probably want to have $1,000 to $2,000 available to make the move from ‘saver’ to ‘investor’.

What are the risks?

Shares, property and even fixed interest investments can all rise and fall in value. In other words, they carry greater risk than cash investments. Spreading your money across a range of asset classes and specific investments, and sticking to a long-term strategy decreases investment risk. But fluctuating markets also create opportunities. If you regularly contribute new funds to your portfolio, you’ll get more for your money during down times than you will when markets are booming.

What about costs?

Fund managers may charge entry fees, management fees and exit fees, and it’s important to be aware of all of the specific fees that apply to you. All other things being equal, the higher the fees the lower your investment returns. Tax can also be considered a cost, and depending on the complexity of your investments, you may also incur fees for accounting and financial advice.

Should I start with a lump sum or with a savings plan?

This depends entirely on you circumstances and desires. Receiving a lump sum such as an inheritance or a tax refund is often the catalyst for someone to start investing. But without such a windfall, it’s still possible to build a great portfolio. Many managed funds offer the option of starting with a relatively small initial deposit followed by regular or irregular additional contributions.

How do I start investing?

Over long time frames, decisions made now can make a big difference to the performance of your portfolio. If you’re new to the field one of the best investments may be to consult a financial adviser. An adviser can help you clarify your goals, understand the jargon and determine your tolerance of risk. They can also recommend specific investments and point out the potential tax implications of different investment choices.

Excited by the possibilities? Getting started is as easy as making a phone call.

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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Traps to avoid in retirement – carrying debt into retirement

All / 18.12.2020

Traps to avoid in retirement – carrying debt into retirement

Increased housing costs and low wage growth are seeing more Australians carry higher levels of debt into retirement. Repaying this debt can place a major drag on retirement cash flows and hinder the achievement of retirement goals. These may include maintaining an adequate quality of life through retirement, and leaving a benefit to the next generation that is unencumbered by outstanding debt.

Fortunately, there are a number of ways by which retirement debt can be avoided or managed.

  • If you’re still working, increase your debt repayments. It may also be worth considering delaying retirement. However, bear in mind that with increasing age comes the increasing likelihood of being forced into retirement by ill health.
  • Tackle high interest debt first. If you’re paying interest on credit card balances or personal loans and have the ability to redraw on a mortgage, pay off the higher interest debts from your mortgage account.
  • Already retired? Look at using your superannuation to pay off outstanding debt.
  • Down size your home. This may allow you to pay off debts and still have enough to purchase a smaller home. If this strategy frees up more money than you need to repay your debt, investigate the superannuation incentives available to ‘down-sizers’. Also be aware any surplus cash you pocket may reduce age pension payments.

As always, it’s important to take your personal situation into account. For example, if your mortgage interest rate is low, you have significant investments earning a good return, and you have a long life expectancy, carrying some debt into retirement may be worth considering.

For help in managing your debt in retirement talk to your 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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Season’s Greetings from TNR Wealth Management!

All / 14.12.2020

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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What to consider when withdrawing your super early

All / 10.12.2020

What to consider when withdrawing your super early

As the COVID-19 virus took a sledgehammer to the economy, the federal government rapidly introduced a range of initiatives to help individuals who lost income as a result of the measures taken to control the virus.

One of those initiatives was to allow qualifying individuals access to a portion of their superannuation to help them meet their living costs. Withdrawals are tax free and don’t need to be included in tax returns. Most people can withdraw up to $10,000 in the 2019/2020 financial year and up to a further $10,000 in the 2020/2021 financial year.

For many people this early access to super will prove to be a financial lifesaver, but for others the short-term gain may lead to a significant dip in wealth at retirement. And the younger you are, the greater that impact on retirement is likely to be.

Alexander provides an example that many people will be able to relate to. He’s a 30-year-old hospitality worker, and due to the casual nature of his recent employment he is not eligible for the JobKeeper allowance. He is eligible to apply for early release of his super under the COVID-19 provisions, however before going down this route he wants an idea of what the withdrawal will mean to his long term situation.

Taking the max

Much depends, of course, on the future performance of his superannuation fund. However, if Alexander withdraws $20,000 over the two financial years, and if his super fund delivers a modest 3% per annum net return (after fees, tax and inflation), then by age pension age (currently 67), Alexander will have $39,700 less in retirement savings than if he doesn’t make the withdrawal.

At a 4% net return, he will be $65,360 worse off if he makes the super withdrawal.

But that’s not the only disadvantage for Alexander. A smaller lump sum at retirement means a lower annual income. If Alexander draws down his super over a 20 year period, at a 3% net return, he will be around $2,670 worse off each year as a result of making the withdrawal. Over 20 years that adds up to a total loss of $53,375. At a 4% return, his youthful withdrawal will cost him over $96,000 by the time he reaches 87.

Reducing the risk

On the plus side, if Alexander is eligible for a part age pension when he retires, his smaller superannuation balance may see him receive a bigger age pension.

There are other things Alexander can do to reduce the financial consequences of accessing his super early. One is to only make the withdrawal if he absolutely has to. Or if he does make the withdrawal, to use the bare minimum and, when his employment situation improves, to contribute the remaining amount back to his super fund as a non-concessional contribution.

COVID-19 is adding further complexity to our financial lives, so before making decisions that may have a long-term impact, talk to your 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 rules governing gifts from SMSFs

All / 03.12.2020

The rules governing gifts from SMSFs

There are now almost 600,000 Self-Managed Superannuation Funds (SMSFs) in Australia where the members of the fund are also the trustees. These trustees are responsible for running the fund according to the superannuation rules. If they get it wrong, the consequences can be dire. Each year, SMSFs lose their concessional tax allowance because the trustees recklessly or persistently ignore the rules.

The superannuation rules aim to ensure that superannuation is for your retirement and is not used for other purposes or invested recklessly. One rule bans a fund from giving financial assistance to members of the fund or their relatives. Whilst this sounds simple, it pays to understand how the rule works.

Who counts as a relative?

The list of relatives in the rules is long and includes everyone you would expect including parents, grandparents, children, siblings, uncles and aunts and nephews and nieces.

The rules also prohibit schemes where financial assistance is provided to a non-relative who then provides support to a relative. Attempting a scheme like this is asking for trouble because it shows you knew the rules and were trying to get around them.

What is financial assistance?

Transactions that are banned by the rules include the following:

  • Gifts and loans;
  • Selling an asset to a member for less than its value;
  • Buying an asset from a member for more than its value;
  • Buying services that are unnecessary or at inflated prices;
  • Providing a guarantee or security using fund assets.

Some examples

  1. A SMSF holds works of art and the trustee gives a painting to his daughter as a birthday present. This obviously breaks the rules. If the trustee paid market value to the fund for the painting, he could then legally make the gift.
  2. A SMSF owns a workshop that is leased to a business run by a member of the fund. The business has cash flow problems and misses the monthly rent payment. No action is taken to recover the debt and the fund is therefore providing assistance to the member.
  3. A SMSF buys a printing machine and leases it to a business run by the members of the fund. When the lease expires, the business buys the machine from the fund at market value plus a margin to compensate the fund for the use of the money. This transaction is effectively a loan to the members and breaks the financial assistance rules.
  4. A SMSF owns a block of land and the trustee sells it to her son at the market price. The son arranges to pay for the land in 12 instalments. Apart from exposing the fund to the credit risk that the son may default on the loan, the transaction breaks the financial assistance rule.

These are only a few examples of what you can’t do as a trustee of a SMSF. To reduce the risk of making an honest mistake, most trustees work with professional advisers to ensure they legally enjoy the flexibility and control that a SMSF offers.

The rules are many so if you’re not sure, please make sure you consult your financial adviser or SMSF specialist before you do anything.

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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3 Things you may have forgotten to plan for in retirement

All / 26.11.2020

3 Things you may have forgotten to plan for in retirement

Retirement can be an exciting phase in your life. But all the recent changes to superannuation bring with them lifestyle and financial issues you need to be aware of as you plan your retirement.

Retirement means different things to different people. For some, it’s an opportunity to travel, to begin that project they’ve been putting off for years, or to just relax, spend time with the grandkids and dabble in their favourite hobbies. Retirement should be a time to relax and be free.

Plan smart for a stress-free retirement

Your retirement should be a time to free yourself from financial stress. Planning and good advice from a qualified financial adviser is the key to a trouble-free retirement.

If you’re considering retirement, there are issues you need to think about and plan for before you take the plunge. Here are 3 decisions retirees commonly miss in planning for their retirement:

1. Have a re-contributions strategy

Few prospective retirees have heard about a ‘re-contribution strategy’ but you do need to know what it is and how it works.

Your superannuation entitlements comprise both taxable and tax-fee components. A re-contribution strategy is one where you withdraw your money from your superannuation account and re-contribute that cash back into your fund.

Why a re-contributions strategy is important

Re-contributing all or part of your withdrawn funds back into your superannuation as a tax-free non-concessional contribution increases the level of tax-free funds in your superannuation account.

This reduces the tax payable on your superannuation pension if you dip into that pension while under 60 years of age. A re-contribution strategy can also lower the tax payable on benefits paid to your beneficiaries when you direct your superannuation benefit to your non-dependent beneficiaries following your death.

2. Death nominations

A lot of retirees often forget death benefits are payable to your dependents or your estate from your superannuation fund upon your death.

There are four forms of death nominations. You can make a binding death benefit nomination while you are alive. This is a written direction to your superannuation trustee establishing how you wish your superannuation death benefits to be distributed.

Secondly, a reversionary beneficiary is where a superannuation fund member receiving an income stream nominates a beneficiary to receive those payments upon their death.

Thirdly, you can make a non-binding death benefit nomination guiding how you wish some or all of your superannuation death benefits is be distributed following your death.

Lastly, you may make a non-lapsing binding death benefit nomination directing your superannuation trustee to distribute some or all of your superannuation death benefits. This nomination, if allowed by your fund trust deed, remains in place unless the member cancels or replaces it with a fresh nomination.

Why a Death Benefit Nomination is important

If you don’t dictate how your superannuation death funds are to be distributed, the trustee of your fund has discretion as to who should receive your superannuation death benefit in the event of your death.

3. Ensuring your money will last and maximising Centrelink

Australia’s social security system is means tested. It is designed to act as a safety net. So, the higher your income or assets you have on retirement, the lower your Age Pension entitlements may be.

If your income or assets exceed the set cut off limits, you will not be eligible to an Age Pension at all. Hence Australians are expected to use more of our own savings to fund our retirement.

Currently, for every $10,000 of assets above the allowable Age Pension threshold your pension drops by $390 per year each if you’re a couple or $780 per year for single.

Why ensuring your money lasts is important

The more heavy lifting your pension does, the less you’ll draw on your retirement savings. This is important as our increased life expectancies coupled with a turbulent investment environment make it challenging to ensure your retirement savings will go the distance.

Final observation

Planning your retirement can be complicated. As you can see from the above three issues, the various legislative frameworks are complex. While it pays to understand how retirement works, contact Adam Wade, your financial adviser to discuss your personal situation and retirement needs.

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 upside of a market downturn

All / 19.11.2020

The upside of a market downturn

Most people view share market downturns as unequivocally bad events. Suddenly, hard earned savings aren’t worth as much as they were yesterday. It seems as if our money is evaporating, and in the heat of the moment selling up can look like the best course of action.

The alternative view

But on the opposite side of each share sale is a buyer who thinks that they are getting a bargain. Instead of getting 10 shares to the dollar yesterday, they might pick up 12 or 15 to the dollar today. When the market recovers, the bargain hunters can book a tidy profit.

So why do share markets experience downturns, and what are the upsides?

A range of natural and man made events can trigger market selloffs:

  • Terrorist attacks.
  • Infectious disease outbreaks such as SARS and COVID-19.
  • Wars, the possibility of war, and geopolitical issues such as threats to oil supplies.
  • Economic upheavals, the bursting of speculative investment bubbles, and market ‘corrections’.

In short, anything that is likely to reduce the ability of a broad range of companies to make money is likely to trigger a market sell off.

The common thread that runs through the causes of downturns is uncertainty. In the immediate aftermath of the 9/11 attacks nobody knew what the size of the threat was and markets dropped. As the fear of further attacks receded, markets soon recovered.

However, the initial drop in market value occurred quite rapidly. By the time many investors got out of the market the damage was already done. Paper losses were converted to real losses, and spooked investors were no longer in a position to benefit from the upswing. After the initial sell off it took the ASX200 Accumulation Index just 36 days to completely recover from 9/11.

Other downturns and recoveries take longer. The Global Financial Crisis began in October 2007, and it wasn’t until nearly six years later that the ASX200 Accumulation Index recovered its lost ground. This caused real pain to investors who bought into the market at its pre-crash peak, but for anyone with cash to invest after the fall, this prolonged recovery represented years of bargain hunting opportunities.

If? Or when?

Of course much hinges on whether or not markets recover. While history isn’t always a reliable guide to the future it does reveal that, given time, major share market indices in stable countries usually do recover. It’s also important to remember that shares generally produce both capital returns and dividend income. Reinvesting dividends back into a recovering market can be an effective way of boosting returns.

Seek advice

Of course, it’s only natural for investors to be concerned about market downturns, but it’s crucial not to panic and sell at the worst possible time. The fact is that downturns are a regular feature of share markets. However, they are unpredictable, so it’s a good idea to keep some cash in reserve, to be able to make the most of the opportunities that arise whenever the share market does go on sale.

For advice on how to avoid the pitfalls and reap the benefits offered by market selloffs, talk to Adam Wade, our 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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Empowering Yourself to go above and beyond

All / 13.11.2020

Empowering Yourself to go above and beyond

“I’m thrilled to announce I’ve been appointed Mum’s Power of Attorney,” said no-one ever in the history of sibling rivalry.

While many of us end up saying that – well, perhaps not the thrilled part – how many of us know what to expect and why.

Addressing the what, a Power of Attorney (PoA) is a legal document through which one person, the principal, provides authority to another, to act on their behalf. It provides powers to make decisions about personal matters like, property, financial obligations, assets, investments, etc.

Imagine you’re in an accident rendering you unable to manage your affairs. You’d want someone trustworthy to manage those affairs with your best interests in mind, right? Well, that’s the why of it.

The various types of PoAs can differ from state to state, but chiefly they are:

  • General: You make financial and legal decisions for a set period of time, e.g. the principal is taking an overseas holiday and needs someone to manage their affairs at home. Subtext: you’re never too young to appoint a PoA!
  • Financial and Legal: You make financial and legal decisions for the principal who is unable to make such decisions for themselves due to being unconscious, mentally incapacitated, etc.
  • Medical: You make decisions around medical treatment the principal is subjected to, including surgery, health and where and how they live.
  • Guardianship: Provides a sense of security for a person who cannot make lifestyle, health or medical decisions for themselves.

These PoAs become invalid upon the death of the principal or after a specified time. However, the Enduring PoA extends indefinitely – dangerous if you were incapacitated but recovered.

Agreeing to become Mum’s PoA is a huge responsibility – you’re probably already Googling how to get out of it. But she trusts you above others. She thinks you’re dependable, honest and will faithfully represent her – is she wrong?

It’s a great honour. You don’t just want to tick the boxes, you want to prove she made the right decision, despite your siblings looking daggers at you.

In discharging your duties go above and beyond by remembering:

It’s not about you

You may not agree with what Mum wants, but you must be prepared to carry it out. Being a PoA means conscientiously representing her when she is unable to represent herself.

Be assertive

That’s assertive, not aggressive – easily confused when the pressure’s on. Communication is key. Be articulate, don’t waver, stumble or bargain, just be clear about what you’re doing and why.

Be decisive

Understanding your mum’s expectations means you’ll make confident decisions. Ditherers attract people eager to share their opinion and cause you to question Mum’s wishes. But she appointed you for a reason; you’re a big kid now, get on with it!

Sibling – or other – rivalry

Family or friends not named on the PoA might try to coerce you into making decisions you’re uncomfortable with. Be polite – family get-togethers can be tedious if no-one’s talking to you – and explain that it’s Mum’s wishes that count.

Conflicts of interest

If you’re emotional or prone to being influenced, you’ll find it difficult to carry-out your duties. Similarly, if you’re unmotivated or seriously disagree with your Mum’s wishes this probably isn’t the gig for you.

Your solicitor can help draw-up an appropriate PoA for your situation, ensuring it’s legal, specifies from when your powers take effect and what those duties are, including your mum’s wishes and expectations.

Representing someone as their PoA is a position of power not given lightly. The fact that someone has seen such admirable characteristics in you is something to be proud of.

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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What happens when interest rates increase?

All / 29.10.2020

What happens when interest rates increase?

It’s hard to imagine taking out a home loan with an interest rate of 17% per annum or higher, yet that was the reality for homebuyers in the late 1980s and early 1990s. And back then it would have been just as hard to imagine home loan interest rates of less than 3% p.a.

The point is, ultra-low interest rates are not the norm, and while it might be tempting to load up on debt when interest rates are very low, it’s important to understand what can happen to loan affordability when interest rates rise.

A (very) simple example

Sarah and Evan have just taken out a $500,000 variable rate owner occupied home loan at an interest rate of 3% p.a. With a 25-year term the repayments are $2,371 per month. But what happens if, overnight, their interest rate jumps to 8% p.a.? Those repayments would suddenly become $3,859, an increase of $1,488 per month.

Of course it’s extremely unlikely that interest rates would double or treble overnight, but even under a more realistic scenario the results are not vastly different.

Let’s look at Sarah and Evan’s situation if, on each anniversary of the establishment of the loan, the interest rate rises by 1%. After five years the interest rate has risen to 8% p.a., and if the loan repayments have been adjusted on each anniversary to maintain a repayment time of 25 years, Sarah and Evan will still have an outstanding loan balance of $442,490. It will take monthly repayments of $3,701 for them to pay this off within the original term.

This is $1,330 more than their original monthly repayments, or $15,961 per year. That’s enough to put a real strain on most household budgets.

Easing the immediate impact, but with a sting in the tail

When there are small, incremental increases in interest rates, lenders may not automatically increase monthly repayments. Rather, and usually with the agreement of the lender, they may increase the term of the loan. This takes the immediate strain off household finances, but may add many years to the term of the loan and thousands of dollars to the total interest bill.

The willingness of a lender to hold monthly repayments steady will depend on your repayment history, the level of equity you have built up in your home, and the size of the rate rise. In our first simple example, the interest component alone would exceed the initial repayments well before interest rates got to 8%. The loan balance would grow rather than decrease!

Stress test

This shows how important it is to ‘stress test’ a home loan, or any loan for that matter. Ask yourself: can I service this loan if interest rates increase by more than a particular amount? And what should that amount be? Many lenders use a buffer of 2.5%, so a 3% interest home loan would be stress tested at 5.5%. However, future movements in interest rates are notoriously difficult to predict and cautious borrows might want to use a higher interest rate in their stress test.

It isn’t just new borrowers who need to prepare for higher interest rates. It’s the same for those who are refinancing or borrowing for other purposes.

For advice on your debt management, or help with stress testing a loan, talk to your 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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Unlocking financial secrets for different phases of life

All / 22.10.2020

Unlocking financial secrets for different phases of life

One of the keys to financial success is to adopt the right strategy at the right time. As you move through the stages of life here are some tried and tested ‘secrets’ that will help you build and protect your wealth.

Teens and young adults

Time is on your side so get saving. Through the magic of compound interest, a little bit invested now can grow into a big amount over time. Most young people don’t want to think about life in 50 years time, but if a 15-year-old starts saving just $10 per week into an investment returning 5% pa (after fees and tax), when they turn 65 their total outlay of $26,000 will have grown to over $116,000. Contributing those savings to a tax-favoured vehicle such as superannuation may provide an even higher final return.

Single life

Saving is still a key strategy as careers are established, but usually with a shorter timeframe and a specific purpose in mind – buying a home, for example. This is a time when savings strategies can be brought undone by the allure of desirable things and the ease with which one can go into debt. Take care not to indulge in too many luxuries, and avoid taking on any high interest debt, such as credit cards. Rather, commit to the rather boring, but highly effective ‘secret’ of working out a budget and sticking to it.

Family focus

The time of kids and mortgages is also the time of peak responsibility. It’s likely that your most valuable asset is your ability to earn an income, and illness, disability or death could deprive you and your family of that income. The financial consequences of each of these possibilities can be managed with a blend of income protection, total and permanent disability, trauma and life insurances.

Preparing for retirement

With offspring launched into the world and earning capacity often at a peak, a wealth of opportunities open up for pre-retirees. By all means enjoy some lifestyle spending, but don’t forget to supercharge your super in anticipation of a long retirement. For additional tax benefits, look at making salary sacrifice contributions, perhaps combined with a transition to retirement strategy. In times of normal interest rates, using surplus income to pay off any outstanding home loan is often recommended. However, when interest rates are very low, investing spare income into super and leaving debt repayments until later may deliver a better outcome.

Golden years

Australians are up there with the leaders when it comes to enjoying long and healthy retirements. That means retirement savings need to last, so a): don’t go too hard too fast in spending your hard-earned super, and b): don’t invest too conservatively, particularly in times of ultra low interest rates. On the plus side, if you’ve employed the above secrets in each phase of life, you should be in good shape to enjoy a long, financially comfortable retirement.

Whatever your stage of life, there are many things you could be doing to secure your financial future. To find out more, talk to your 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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