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9 ways to manage investment risk – Info Graphic

All / 10.08.2018

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Buy now, pay later, manage carefully

All / 02.08.2018

Before heading off on an overseas holiday, Sam decided to buy an expensive new camera to document his travels. The camera store offered a ‘buy now, pay later’ option, and attracted by the ‘no interest’ promise of the credit provider, Sam signed up.

All was well to begin with. Sam had a great time on his trip – in fact, maybe a bit too much of a good time. On returning home he’d maxed out his regular credit card and, with insufficient savings, he was unable to maintain the required repayments on his separate camera debt. And while, true to the issuer’s promise, he didn’t have to pay interest on the overdue payments, he was charged late fees on the repayments he skipped. Along with the standard payment processing and account payment fees, Sam’s camera ended up costing a lot more than he anticipated.

Plenty of temptation

The number of ‘buy now, pay later’ services is increasing. Afterpay, Certegy and zipPay are three examples. Provided that payments are made on time, this type of service can be a great way to spread the cost of purchases over several months. Just make sure that the fixed fees aren’t too big a fraction of the total loan. For example, if you buy something for $1,000, and over the life of the loan, establishment and payment processing fees total $100, you’re paying 10% more than if you had paid in full at purchase.

Seeing a good opportunity, several banks now offer repayment plans on credit card purchases. These also operate more like a loan than regular credit cards, with a fixed repayment term and regular instalment amounts. Unlike the other ‘buy now, pay later’ operators they may charge interest, although initially this is usually at a much lower rate than the standard purchase rate. However, if any payments are missed and an outstanding balance remains at the end of the fixed term, interest may be charged at the purchase rate. This is often well over 20% per annum.

Sam’s options

Sam now faces a double whammy of a debt trap. While he’s meeting the minimum repayments on his credit card, the outstanding balance is accruing interest at 22% pa. Plus, his ‘buy now, pay later’ debt is accumulating ongoing late fees. What can he do?

The textbook method for managing this situation is to take out a personal loan at the lowest rate possible and use this to pay off the debts. While the camera loan may not have an interest rate as such, left too long the fixed fees can add up to a significant percentage of the outstanding loan amount. By consolidating the debts Sam is left with one regular payment, and with a much lower interest rate he can pay off the outstanding balance far more quickly.

But Sam had another idea. He rolled over his credit card balance to a new card with a zero per cent interest rate on balance transfers for 12 months. This meant all his repayments went towards reducing the balance and he was also able to afford normal repayments on his camera loan. Sam knew that if he didn’t clear the card debt during the interest-free period he would again be saddled with high interest rates, but now being more ‘debt aware’ he was able to get on top of things and was on track to be debt-free within the year.

Need help?

If you find yourself struggling with debt, have a chat with your financial adviser to help identify the best options to get back on track and be debt-free.

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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What is responsible lending and why does it matter?

All / 25.07.2018

Whether it’s due to over-enthusiastic lenders or desperate borrowers, failure to adhere to robust lending standards can land some borrowers in serious financial distress. In many cases the difficulties experienced by these borrowers could have been avoided if the lenders had complied with their responsible lending obligations.

In brief, this means inquiring into a borrower’s financial situation and requirements, verifying the information supplied, and making an assessment as to whether or not the credit contract is suitable for the borrower. Ideally, the lender should also consider the ability of the borrower to maintain loan payments if there is an increase in interest rates. This is a common pathway into mortgage stress – the situation where loan repayments take up too large a fraction of household income.

The Inquisition

In the past, lenders often relied on loose assumptions of household expenditure when estimating a borrower’s financial commitments. That’s no longer the case, so if you’re looking for a new loan or to refinance an existing one, be prepared to provide the following information and documents:

  • The amount and source of your income, and duration and type of employment. This will need to be documented via payslips or through bank statements and tax returns if you are self-employed.
  • Your fixed expenses such as rent, other loans, credit cards, child support, insurance premiums and school fees.
  • Your variable expenditure, including food, holidays and entertainment.
  • Your age and number of dependants.
  • Details of your assets with a focus on financial assets.
  • Information on any foreseeable changes such as retirement.

You can also expect your prospective lender to delve into your credit history.

If you are using the loan to buy an investment property make sure you disclose this. You will likely face a higher interest rate, but don’t be tempted to deceive the lender. They are adept at detecting so-called ‘occupancy fraud’. You may also need to come up with a bigger deposit on an investment property purchase. This will decrease the sum you can borrow, limiting the price range in which you can buy.

Age needn’t be a barrier to taking out a home loan. However, anyone borrowing with a likelihood of retiring before the loan is paid off needs to have an exit strategy. This could be paying off the loan with superannuation, downshifting to a cheaper home, or even taking out a reverse mortgage.

Tighter adherence to responsible lending practices could likely lead to a reduction in the amount that people can borrow. However, this reduction in the amount of money flowing into the housing market should dampen down growth in house prices. Overall, more responsible lending may not have a major impact on housing affordability, but preferably see a reduction in the number of households experiencing mortgage stress.

Prepare ahead

Having answers to all the questions and the right documentation will come in handy when it’s time to apply for a loan. If a new loan or refinancing an existing one is on your radar, ask your financial adviser to help you prepare ahead of time.

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 superannuation?

All / 18.07.2018

If you’re an Australian resident over 18 and earning more than $450 in a calendar month, you are probably contributing to superannuation.

In a nutshell, super is a strictly regulated, tax effective way of putting money aside for your retirement. The government sets a minimum compulsory contribution amount, which your employer calculates based on your income and pays into your nominated super fund. You are encouraged to contribute money to your super in addition to your employer’s payments.

Government policy, our changing lifestyles and extended life expectancies see the structure of superannuation and its supervisory guidelines being routinely revised. The result is a very confusing super system.

You probably have a basic understanding of how super works: you put money in and leave it there until you retire, right? But you also know it is more complex than that.

It’s your money after all, so take our quiz and find out exactly how much you know about building your retirement fund.

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Where does YOUR money go?

All / 18.07.2018

Please contact us on 02 6621 8544 to speak to a financial adviser if you have concerns about the amount you are saving, or would like assistance in saving enough.

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If I was 25 again I would… …buy a pre loved car.

All / 12.07.2018

If I was 25 again I would……buy a pre loved car.

As soon as you drive that shiny new car out of the showroom its value drops by thousands of dollars. You don’t notice it, but that’s real money down the drain. That’s why one of the great and often quoted financial tips is to buy the cheapest car your ego will allow you to.

Cars are now far more reliable than they used to be and the remainder of the new car warranty, which can be up to seven years, will often transfer to the new owner. Much of the loss in value on new cars – the depreciation – occurs in the first three years.

Going for something with a few k’s on the clock would save me thousands. I’d also check out the service costs of the car I was thinking of buying. They vary enormously with the make of the vehicle and can really add up over the years.

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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Downsize your home, Upsize your super

All / 12.07.2018

Downsize your home, Upsize your super

Over 65? Thinking of selling your home? From 1 July 2018 you may be able to contribute up to $300,000 ($600,000 for a couple) from the proceeds of the sale of your home to your superannuation fund.

This incentive, known as the ‘downsizer contribution’, is part of a federal government program to improve housing affordability. It offers a further opportunity for some home sellers to benefit from the tax advantages associated with superannuation. On the downside it may adversely affect eligibility for age pension.

Rules apply

Of course, it wouldn’t be a super contribution without lots of rules, and the main ones are:

  • You must be 65 or older when you make the contribution. This could affect decisions on the timing of a sale. For example, Anne (67) and Rod (63) are thinking of downsizing. As only Anne can make a downsizer contribution they may want to delay selling their home until Rod turns 65 so he can also make one.
  • You or your spouse must have owned the home for at least 10 years prior to sale; it must be your main residence; and cannot be a caravan, houseboat or mobile home.
  • You can only use this concession once. You can’t use it with subsequent home sales.
  • The contribution is limited to the lesser of $300,000 each or the total proceeds from the sale of the home. In the case of couples, contributions don’t need to be evenly split. Take Tom and Stephanie. They sold their house for $500,000. Rather than contribute $250,000 each, Stephanie contributes her $300,000 maximum. Tom’s downsizer contribution must then be no more than $200,000.
  • The contribution must be made within 90 days of receiving the proceeds, though an extension may be granted in limited cases.

Curiously, given the name of this initiative, you don’t need to physically downsize your home. If you have the funds available you could buy a bigger or more expensive abode. In fact, you don’t even need to buy a new home at all.

The effect on super

On the superannuation side, you can make a downsizer contribution if your total super balance exceeds $1.6 million. However, the contribution will count towards your transfer balance cap (i.e. the cap on the amount you can use to establish a tax-free superannuation pension). Even so, it may still be advantageous to hold these funds in the concessional (15%) tax environment applicable to the super accumulation phase.

And what about the age pension?

Anyone thinking of downsizing needs to consider the impact on eligibility for age pension. A main residence is exempt from the assets test, but if its sale frees up money – for example through buying a cheaper home or renting – those funds will be assessed under both the income and assets test even if they are used to make a downsizer contribution. This may result in a reduction or loss of age pension.

The extent to which you can benefit from making a downsizer contribution depends very much on your individual situation. And it isn’t just a financial issue; lifestyle considerations are also important. Before making a decision it’s important to consider all the angles, so talk to your financial adviser about whether a downsizer contribution is right for 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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If I was 25 again I would… …buy less stuff and pursue more experiences

All / 05.07.2018

If I was 25 again I would…buy less stuff and pursue more experiences

We all need to buy things, particularly in our 20s when setting ourselves up for life outside the family home. But the buzz that comes with buying stuff is often short-lived. Clothes go out of fashion.

New cars quickly become old cars. The latest electronic gadgets soon lose their appeal.

On the other hand, the warm glow of fondly remembered experiences can stay with us for a lifetime. That sunset in Santorini, the noise and excitement of the Grand Prix, or the magic of drifting silently in a hot air balloon over an iconic city. And experiences needn’t have a high price tag. How about being the first to catch a sunrise from a local peak or volunteering with a charity food van?

 

There are thousands of ways to create the memories that will sustain us every bit as much as our future savings and physical possessions will.

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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Beat the scammers at their own game

All / 28.06.2018

Beat the scammers at their own game

We’ve all seen media reports about ordinary Australians losing their entire savings after responding to a phone, email or mail offer that was impossible to resist. While some people may be naïve, scammers are also getting smarter.

Financial stings have become a serious threat to Australian consumers and businesses. According to the ACCC’s Scamwatch website, there were 161,582 reports of scam in 2017, for a total loss of more than $90 million!

All shapes and sizes

Identity theft scams involve someone stealing another person’s identity and can do anything with it from cleaning out bank accounts to taking out fake mortgages. But scams can come in many guises, including, but not limited to:

  • Online account and money transfer scams;
  • Health and medical scams;
  • Superannuation scams;
  • Get-rich-quick scams;
  • Lottery and competition scams.

If it sounds too good to be true…

Let’s look at the most damaging of all – investment scams.

Scammers know and use all sorts of tricks to entice the vulnerable but there are steps you can take to protect yourself.

Scammers usually make contact “out of the blue” with a blanket offer and use tactics to pressure you into the deal. These “professionals” try to make their offer look as genuine as possible and most will have any or all of the following features:

  • Quick, high returns and sometimes tax-free;
  • No risk for the investor;
  • Mention well-known companies or people (that are actually not involved);
  • Discounts for “early-bird” investors or special allocations not available through anyone else.

Investment scams can appear very professional on the surface. By the time the victim realises the offer was too good to be true, the scammer has disappeared with their money.

What should you do?

If you receive a call or email always check the validity of the offer and provider, by asking:

  1. What is your name and what company do you represent?
  2. Does your company have an Australian Financial Services licence and what is the licence number?
  3. What is your physical address?

If the caller can’t or won’t provide these details, it will be a scam. If they do answer, take down the details and check the Australian Securities and Investment Commission list on its MoneySmart website (www.moneysmart.gov.au) or the Australian Competition and Consumer Commission (ACCC) ‘Scamwatch’ site (www.scamwatch.gov.au).

Be proactive

Some scams aren’t as obvious so always protect your personal information. Never give out bank details or transfer money to anyone you don’t know or trust.

Always check your statements and report any suspicious transactions to your financial institutions. Make sure your computer and mobile devices are protected with strong passwords, anti-virus software and firewalls.

And beat the scammers at their own game – if you are contacted by one of these fraudsters, immediately report it to the ACCC via www.scamwatch.gov.au or phone 1300 795 995. Hopefully the scammer will end up the victim instead.

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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Super in your 60s. Its still not too late!

All / 21.06.2018

Super in your 60s. Its still not too late!

For most Australians, their 60s is the decade that marks retirement. For some this means a graceful slide into a fulfilling life of leisure, enjoying the fruits of a lifetime of hard work. However, for many it means a substantial drop in income and living standards. So how can you make the most of the last few years of work before taking that big step into retirement?

Are we there yet?

Allowing for future age pension entitlement the Association of Superannuation Funds of Australia (ASFA) calculates that a couple will need savings of $640,000 at retirement to maintain a ‘comfortable lifestyle’ .) ASFA equates ‘comfortable’ to an annual income of $60,264.)

How are we tracking as a nation?

In 2015-2016, 50% of men aged 60-64 had super balances of less than $110,000. For women the figure was a more alarming $36,000 – not even enough to provide a single person with a ‘modest’ lifestyle. (ASFA estimates that to upgrade from a ‘pension only’ to a ‘modest’ lifestyle would require a retirement nest egg of $70,000.)

Last minute lift

If your super is looking a little on the thin side, there are a few ways to give it a boost before retirement.

  • Make the most of your concessional contributions cap. Ask your employer if you can increase your employer contributions under a ‘salary sacrifice’ arrangement. Alternatively, you can claim a tax deduction for personal contributions you make. Total concessional contributions must not exceed $25,000 per year, although from July 2018 you may be able to carry forward any unused portion of this cap for up to five years.
  • Investigate the benefits of a ‘transition to retirement’ (TTR) income stream. This can be combined with a re-contribution strategy that, depending on your marginal tax rate, can give your retirement savings a significant boost.
  • Review your investment strategy. A common view is that as we near retirement our investments should be shifted to the conservative end of the risk and return spectrum. However, in an age of low returns and longer life expectancies, some growth assets may be required to provide the returns that will be necessary to support a long and comfortable retirement.
  • Make non-concessional contributions. If you have substantial funds outside of super it may be worthwhile transferring them into the concessionally taxed super environment. You can contribute up to $100,000 per year, or $300,000 within a three-year period. A work test applies if you are over 65.
  • The 60s is often a time for home downsizing. This can free up some cash to help with retirement. The ‘downsizer contribution’ allows a couple to jointly contribute up to $600,000 to superannuation without it counting towards their non-concessional contributions caps.

Bye-bye tax, hello aged pension?

One reward, just for turning 60, is that any withdrawals from your super account will be tax-free. This applies to both lump sum withdrawals and income stream payments. Depending on the preservation status of your funds you may need to meet a condition of release to access your superannuation.

Based on your date of birth, somewhere between age 65 and 67 you’ll reach age pension age. The age pension is subject to both an assets test and an income test and some advanced planning can boost your eligibility for the pension. For example, the family home is exempt from the assets test. Releasing cash by downsizing may reduce your eligibility for the age pension.

Get it right

This important decade is when you will make the key decisions that will determine your quality of life in retirement. Those decisions are both numerous and complex.

Quality, knowledgeable advice is critical, and wherever you are on your path to retirement, now is always the best time to talk to your licensed financial adviser.

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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