The really simple guide to Money - Issue 01 by Big Splash Media

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VOLUME 3 WIN: A FINANCIAL HEALTH CHECK + ADVICE FOR A YEAR

The really simple guide to

WAYS TO SAVE OVER

$5,000 TODAY

HOW TO FIND

THE RIGHT MONEY MENTOR

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Kochie

“LIBBY USED TO GIVE ME AN ALLOWANCE”

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Adviser Ratings is Australiaâ&#x20AC;&#x2122;s first and only independent rating and review service of 2 2 ,0 0 0

financial advisers. cial Itâ&#x20AC;&#x2122;s been said we are to finan to hotels. planners what Trip Advisor is

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David Koch Adviser Ratings Ambassador

Our Goal is to get more Australianâ&#x20AC;&#x2122;s seeking financial advice. 80% of Australians currently do not seek professional advice even though studies consistently indicate people are more confident and less anxious about their financial future when they have an adviser.

Our Mission with your help, is to make Adviser Ratings the most trusted place in Australia when connecting with a financial adviser by providing an easy to understand and transparent online platform filled with customer reviews and intelligence on Australiaâ&#x20AC;&#x2122;s financial advisers.

Empowering Australians by providing you with personalised financial information to help make this journey.

Chris Zinn Communications Director & Co-founder

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adviserratings.com.au

1/10/2015 2:46 pm

Welcome

WELCOME

to the guide that will change your view of money

BRAD FOX

ANGUS WOODS

OUR CONTRIBUTORS

Have you ever wondered how it is that some of the happiest people you know don’t seem to have much in the way of wealth, but every week we see stories in the media about wealthy people whose lives are falling apart? Happiness doesn’t depend on money, but research is now showing that happiness is affected by how “in control” we feel over our money. Great financial advice helps people discover their possibilities. It’s not just about money; it’s about people’s relationship with money, their dreams and aspirations, their fears and trepidations. Seeing an expert helps you gain the knowledge to make choices that have powerful and positive impacts on your life and this guide will start you in the right direction. But, like dieting, exercise programs, self-help apps and New Year resolutions, without someone to keep you on track it’s easy to stray off course, to lose interest and ultimately make little or no change at all. Many people need a personal “financial” trainer to achieve their goals. As you read this guide, be like a sponge – soak up the ideas and concepts that might apply to you. You can get more information and ideas from our new website www.yourbestinterests.com.au on topics like taking control of your debt, saving for your first home, preparing financially to have a child, getting ready for retirement or learning about downsizing your home. The Your Best Interests TV episodes are also great viewing and show the experiences of real people changing to get in control of their money. One final note: It doesn’t matter how much (or how little) money you have; it’s whether you are in control of the money or whether the money is in control of you. Be brave and take control. Chief Executive, Association of Financial Advisers

TERESA OOI

An experienced journalist, Teresa worked as a senior business writer for The Australian newspaper for 17 years. She is the editor of The Really Simple Guide to Self Managed Super and Asian Cruise Yearbook. She also writes for Cruise Passenger magazine.

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We at Adviser Ratings are delighted to bring you this Really Simple Guide to Money. We share core values. Like the guide, our services are all about empowering you around your finances. Despite years of experience in the finance industry, we were shocked to realise we didn’t know where to send our family and friends for trusted advice when they asked us about managing their money. That’s why we decided to create the Adviser Ratings website (adviserratings.com.au) – a site that makes choosing a financial adviser safe and easy or helps you determine whether your current financial adviser is right for you. More than 20,000 financial advisers across Australia have been rated on our site. That means you can harness the power of word-of-mouth to ensure you are choosing someone you can trust to help produce a plan for the financial future of you and your family. We know there are mountains of information out there on how to manage your money; it’s often very confusing and product focused. So we developed this publication, independent of any bank or financial services company, that acts as a “one-stop money shop” to provide you with information on who can help you and how you can help yourself. Money isn’t just about security; it can be about holidays and time spent with those you love. Ultimately, it’s about fulfilling your dreams. As someone who is becoming a father for the first time, my priorities around money have shifted significantly. I don’t want managing my affairs to feel like a burden on our family. Armed with the information in this publication, I’m seeking a financial adviser for the first time. I want someone who will feel like they are part of our family, our own team so to speak. After all, they will know our secrets and share our dreams! This publication is designed to help you on the same journey; it can be the most rewarding experience for you and your family. We know we can help. Chief Executive, Adviser Ratings

NICOLE PEDERSEN MCKINNON

A financial literacy campaigner and educator across newspapers, online, television, and in high schools around Australia. She is founder of TheMoneyMentorWay.com and developer of The 12-Step Prosperity Plan, a blueprint to take people from financial worry to well-being.

CHRISTOPHER ZINN

From Adviser Ratings is a director of campaigns and communications. A consumer public advocate, he is on a campaign to bring transparency to financial planning. He has worked for Choice and was a founding member of One Big Switch.

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Contents

Big Splash Media Suite 3, Level 2, 37 Bligh St Sydney 2000 www.bigsplashmedia.com.au Phone: +61 2 9231 3518 editor@reallysimplemoney.com.au

Publisher Peter Lynch

Sub-editor John Hampshire

Editor Teresa Ooi

Commercial Director Leisa Chell

Art Director Kerry Alice

Sales Executive Sophie Rieu

Contributors Nicole Pederson-McKinnon, Teresa Ooi, Jacqueline Fox, Chris Zinn, Deborah Kent of Integra Financial Services, Dianne Charman, Jeff Thurecht

Ages of Wealth team: Jenny Brown of JBS Financial Strategists, Matthew Ross of Roscow Independent Advisory, Eleanor Dartnall of Dartnall Advisers and Bill Bracey of Sydney Financial Planning Thanks to Brad Fox and Karen Tinnelly of the Association of Financial Advisers and Angus Woods and Rodney Lester of Adviser Ratings IMPORTANT INFORMATION: The Really Simple Guide to Money is copyright of Big Splash Media Pty Ltd. It has been prepared to provide you with general information only. It does not take the place of professional advice and you should not take action on specific issues in reliance of this information. Big Splash Media makes no warranties or representations of any kind concerning the accuracy or suitability of the information contained in this magazine for any purpose. The material provided is for research and information purposes only, and does not constitute advice or recommendations. The opinions and writings of all authors are merely an expression of the authors’ own thoughts, knowledge or information. Big Splash Media does not endorse such authors nor represent that their writings are accurate or suitable for any purpose whatsoever. In preparing this magazine, we could not take into account the investment objectives, financial or taxation situation or particular needs of any particular person. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances.

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CONTENTS 6 MEET MR & MRS AUSTRALIA We’re a lot better off than we think 8 SO HOW RICH ARE YOU? Find out what you’re really worth with our easy test 10 KOCHIE’S MONEY TIPS David Koch is an astute investor as well as a TV star. Learn his secrets 14 SAVE OVER $5,000 TODAY! Simple ways to start a new money regime and stop wasting cash 16 THE SIX AGES OF WEALTH Our expert panel charts the changes each decade makes, and tells you how to future-proof your life 30 THE FINAL LAP... Wills and estate planning explained 32 THE WATCHDOG Greg Medcraft, the boss of corporate watchdog ASIC, talks about protecting small investors 36 OUR FAVOURITES Where most Australians put their cash and why 40 YOUR MONEY PERSONALITY W hat type of investor are you?

46 SET YOUR TARGETS Taking charge of your finances can create enormous possibilities. Here’s how you can create realistic goals – and achieve them 54 WHERE TO GET HELP You’ll be surprised how easy it is to find a money mentor. We tell you how to find your perfect adviser – and what you should pay 66 SUPER OR SUPER CHARGED It will be your most enduring friend. Make sure it’s on track 68 YOUR RIGHTS What to do if things go wrong 71 A DIFFERENT RETURN They may not make you rich, but these investments can be fun 72 THE A-Z OF MONEY SPEAK Learn a little of the lingo to make sure you know what’s what

WIN A YEAR’S FREE FINANCIAL ADVICE SEE PAGE 81

COVER PIC:Justin Lloyd / NewspixCOPYRIGHT:© News Ltd

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Intro

WHY READING THIS GUIDE IS

THE MOST REWARDING THING YOU’LL DO TODAY

Peter Lynch Publisher The Really Simple Guides

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First, the good news: Australians really are a very lucky lot. Our personal wealth is among the highest in the world. Some say it is the highest! Second, even more good news: your best and most contented years are ahead of you. According to a recent report into happiness and wellbeing released by the Australian Institute of Family Studies, once a person hits their 60s moving into their 80s, life satisfaction reaches an all-time high. Senior Research Fellow Professor David de Vaus says the report, which tracked 27,000 Australians, points out those in the sample were more financially comfortable. And the reason for that was because they planned it that way. There are many areas where government helps the lives of ordinary families: health, education, the environment and an economic climate in which the majority can get a job. But strangely, planning a financial future isn’t one of them. Which is why we believe this guide is so important. The superannuation guarantee system, set up a quarter of a

century ago, was a bold step to try to ensure a safety net for all in their old age. But life on a state pension is hardly comfortable. And, as this guide will show, there are many financial hurdles to overcome before retirement – choosing the right job, marriage, buying a home, educating your children among them. So why isn’t providing Australians the knowledge and ability to take advantage of good financial planning a priority? We just don’t get it. Especially when governments have to pick up the tab when things go wrong. As you read these pages, which take you through your life stages and suggest quick and easy ways to make a big dollar difference, you’ll understand why we call it The Really Simple Guide to Money. It isn’t about day trading on the ASX or investing in emerging markets. It’s about simple, commonsense strategies that will help you lead a better life. The more we hear you’ve said “but that’s so obvious!” the better we’ll feel. There are few financial literacy schemes that reach a mass audience. One of the best – run by the Australian Securities and Investments Commission (ASIC) – recently lost its funding and was forced to halt some activities on its

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Intro

brilliant MoneySmart website. Federal governments have been woefully lax, shirking their responsibilities to create a regulatory system that keeps financial advisers honest, and failing to provide a compensation scheme that helps victims of misconduct or fraud. A series of scandals involving some of our biggest banks have amply demonstrated that the huge commissions once paid for selling financial products created conflicts. Yet legislation to properly police this area still isn’t in place. The result has been a major loss of faith. A recent survey by Investment Trends found the use of financial advisers among self-managed superannuation funds has plunged 16 per cent, while formal complaints to the Financial Planners Association have risen 36 per cent. Today, however, we are happy to report many green shoots. The government of Malcolm Turnbull is set to announce changes to the way the

Apt. Wealth Partners We are a national financial planning firm who are proud to deliver exceptional financial advice and personalised service. Our firm comprises over 30 advisers and support staff who look after 3,000 families and over $1 billion in client funds. With years of combined experience, our team is dedicated to providing informed and comprehensive advice.

Melbourne 03 8779 5254 ABN 49 159 583 847 AFSL NO. 436121

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These pages take you through your life stages and suggest quick and easy ways to make a big dollar difference community operates. And the financial planning community is committed to cultural change, moving away from an era where the idea was to sell clients products to one where it is all about the client’s interests. Our partners in this guide are organisations in the vanguard of these important changes. Adviser Ratings is a completely new company that has set up a site (adviserratings.com.au) designed to remove the mystique

around choosing a good financial adviser. Industry peers and clients can rate each individual and browsers can use their recommendations to find the perfect fit for their needs. And the Association of Financial Advisers has launched a video education program to help mentor and coach Australians on the money side of their lives. Your Best Interests features life-changing stories from those who sought and received help. See yourbestinterests.com.au We believe consulting a financial planner will, in almost every case, result in new perspectives on old problems and opportunities you probably would never have considered. If you accept you need a personal trainer to take off a few kilos of extra weight, why wouldn’t you find a mentor to manage your money. We hope our guide will help you take full advantage of a relationship that can set you up for the rest of your life.

Our Services Investing in your future means choosing the right strategy. Apt Wealth Partners offer a wide range of services including: • Superannuation and investments • Direct equities • Strategy and structure • Ongoing portfolio review • Retirement planning and redundancy • Cashflow management • Government entitlements and aged care • Estate planning.

Sydney 02 8262 4000

www.aptwealth.com.au

Geelong 03 5221 7557

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What You Are Worth

MEET MR & MRS AUSTRALIA

YOU’RE WEALTHIER THAN YOU THINK Australia, take a bow. You’re better off than you thought. According to the Australian Bureau of Statistics 2013-14, each Australian household has a net worth of $809,900 – making us one of the world’s richest nations. Welcome to our lives in numbers.

MONEY Household assets (property, appliances, car etc) $954,800 Household liabilities (mortgage, maintenance, loans) $144,900

WEEKLY EARNINGS $1,484 HOUSEHOLD INCOME $1,548 HOURS WORKED 32

Household net worth $809,900 Savings $99 per week Credit card debt $4,332

WE SPEND $780M A YEAR ON PETS

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What You Are Worth

Households have an average $177,000 in superannuation savings, but for people aged 55-64 it’s almost $500,000.

WE SPEND

LIFESTYLE We live for an average of 82.1 years Average number of kids: 2.1

$14.1BN A YEAR ON ALCOHOL

FAMILY OF FOUR WEEKLY EXPENSES

Housing $325 Fuel & power $43 Food & drink $279 Clothes & footwear $64 Medical $77 Alcohol $31 Transport $254 Recreation $208

Total $1,670 sources: Australian Bureau of Statistics, OECD, ASIC, AMP.NATSEM, Suncorp Bank, RBA/ASIC, World Bank FP_06-07_TheStats.indd 7

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Wealth Check

HOW RICH ARE YOU? Take the test to find out the true state of your financial health. You may be pleasantly surprised – and if not, just two simple fixes can change that, writes Nicole Pedersen-McKinnon Just like a doctor would perform a health check by looking at some vital signs, you can perform your own wealth check using a few key measures.

And even if the prognosis looks initially bad, you can remedy the situation with two simple lifestyle changes. But before we get into the

salves, let’s identify the source of any sickness. This three-step health-of-wealth test will tell you whether your finances are strong or sick.

START BY LISTING YOUR LIABILITIES.

STEP 1

LIST WHAT YOU OWE (THESE ARE CALLED YOUR LIABILITIES)

Mortgage.......................... Personal loans................... Credit cards....................... Store finance..................... Investment loans................ Other................................ TOTAL............................... OK, that may be confronting, but it’s only one element of your financial health. Now you need to look at your assets to diagnose how robust it really is.

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STEP 2

LIST WHAT YOU OWN (THESE ARE YOUR ASSETS) AND THEIR VALUE

Home............................... Car(s)............................... Savings............................ Shares.............................. Managed funds.................. Investment properties.......... Other................................ TOTAL...............................

STEP 3

YOUR HEALTH-OF-WEALTH TEST RESULTS (YOUR NET WORTH)

Total assets ....................... Total liabilities ................... ASSETS MINUS LIABILITIES Net worth..........................

The big question is whether your final number is positive, close to zero or negative.

Now for the moment of truth. Calculate your overall financial wellbeing.

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Wealth Check

POSITIVELY RICH Big kudos if it’s positive, meaning you owe less than you own. But is the number big enough to get you where you want to go? The idea over your lifetime is to grow net worth sufficiently to realise your hopes and dreams. But what equals “rich” these days? There’s a lot of talk about needing $1 million – or more – in superannuation to afford a comfy retirement. I believe “rich” means amassing enough money to hit the big life targets you’ve chosen, how and when you want to. These should include funding a nice retirement from money both in and out of super. That is true financial health and wellbeing.

POOR OUTLOOK If your health-of-wealth test results are negative, your finances need urgent rehabili tation. It’s possible you have a problem with debt that you need to make your top priority. It’s also possible you’ve made some

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dubious purchases. And you may have borrowed either for an asset that was immediately worth less than you paid for it, such as a car, or something experiential, such as a holiday. Avoid both, although the latter is much the worse transgression. Which brings me to my first prescription for good wealth:

Pay down debt to get ahead. Do this, and not only does your financial position get stronger each day but your requirement for income will also, eventually, fall dramatically. Besides, for any investment to work out better than simply paying off a mortgage, a higherrate taxpayer would need nearly a 10 per cent annual return. And you don’t do that without taking on a fair amount of risk. But what about a bit of “smart” investment debt? There can be valid arguments for a little “geared” investment. For higher-rate taxpayers in particular, it can be tax-effective and

a good way to make the most of your money. Never forget: borrowing magnifies both gains and losses. Irrespective of tax benefits, you should only ever invest in something that you believe is sound and will ultimately increase your overall financial health. There’s no question about personal debt: you need to ditch it fast, so you own outright growth assets and can redirect all the money spent servicing debts to securing your future wellbeing. But how can you manage this? The saying is, “don’t be writing cheques your body can’t cash”, and neither should you be writing cheques your bank balance can’t cash. The second and most powerful prescription for financial health and wellbeing is even simpler:

Live within your means. This should ensure that you live the life you want, how you want to live it, for as long as you live.

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The Interview

‘A GOOD ADVISER IS WORTH EVERY DOLLAR’ He’s half the face of Seven’s Sunrise, but David Koch also has a business background and appreciates the value of sound advice. By Teresa Ooi. Sunrise television presenter David Koch is lucky. His younger brother, Matt, is an investment banker and wealth adviser to seriously rich Australians. Not that David, whose enduring appeal is to Mr and Mrs Average, considers himself one of those. “I am a charity case for Matt – I am nowhere near the rich people he manages in his day-to-day job at Morgan Stanley,” Kochie tells us. “But my brother manages the equity component of my portfolio and I pay him for it.” The self-made small businessman turned chairman of a family business, Pinstripe Media, is considered one of the poster boys of financial success. He was once known for driving a 1967 Ford Mustang to work. He juggles TV appearances with a thriving business. How does he do it? He calls himself a conservative investor and is a firm believer in getting a good financial adviser – despite the cost. “People often ask me: what is the most important thing you need to do to achieve financial success? “My answer has always

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He calls himself a conservative investor and is a firm believer in getting a good financial adviser been the same – get good financial advice. Next is the hard bit: how to pick the right adviser? “By referrals from friends, relatives and business associates. And the financial adviser must be qualified and experienced for your age demographics. “That’s why I like Adviser Ratings – because it helps people find the right adviser.” Indeed, he likes the company so much he bought a stake in it. Kochie says many people complain about the high cost of financial advice. But if you don’t have the skills to do it yourself, then you have to get an expert to do it for you. He concedes that some advisers

can charge a high fee for their financial advice. “Some people may say fees are too much, but as an investor you have to make sure the cost of the financial advice is transparent and that you have all the information to make an informed decision on whether you’re getting value for money. The argument is not how much is charged, but how it is charged and whether it is transparent to you. “There are good, bad and indifferent advisers – just like there are good, bad and indifferent lawyers, journos and tradies. “A good adviser is worth every dollar they charge, because you are going to make money based on the advice.’’ However, Kochie strongly believes people must not surrender responsibility for investing their funds to an adviser. “You can delegate some of the decision-making, but you should never, ever surrender control of your investments.’’ Kochie, who started the Rich List in Britain while working for

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The Interview

Fairfax Media, describes himself as a conservative investor. With his wife of 37 years, Libby – herself a financial commentator in Sydney’s Daily Telegraph – they split financial responsibility for running their money lives. “Libby runs the day-to-day finances at home and I do the investments. “I am a massive believer that both partners should be across nances in the family and all fi business. So she pays me a living allowance and I do the investing. But we keep each other informed on what we’re doing. “Libby is very good at details, she does all the research and gets a buzz when she gets a good deal. She has recently changed our life insurance policies and got a really good deal – and I hope she still loves me (just joking!). “The best advice Libby has ever given me is: do the homework to get the best deal before making the purchase.” One cardinal rule for Kochie is keeping business risks separate from his personal assets. He has a mix of investments from high-yielding, blue-chip stocks in the top 200 companies, cash in US dollars because he felt the Australian dollar was overvalued, listed property trusts and syndicates and some in fintech start-up companies. He owns only the family house on Sydney’s northern beaches, which can accommodate his four children and grandchildren. Since the kids, three girls and a boy,

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have flown the coop, like most families they boomerang back to stay with Kochie and Libby when they need to. His son, AJ, now runs the family business, which includes a video-making arm; his daughter, Briana, has a young son and works three days a week at Pinstripe Media; eldest daughter Samantha runs the family business focusing on small business content in Hong Kong, where she lives with her husband, Toby, and their three young children. His third daughter, Georgie, lives in London and works in the music industry. She is the only one not involved in the family business. At 59, Kochie has no plans to retire anytime soon. “I don’t think I’ll ever retire. Right now, I enjoy everything I do. I am having fun, it’s diverse and I like working with people. “I tell my kids that 9.5 per cent of their salary goes to superannuation. If they change jobs, they should always consolidate all of their super into one. They should also make it a habit to save a little amount of their salary – 5 to 10 per cent – and put it into an investment account. It’s one of the most powerful and simple habits of building up wealth.’’ On bad financial advice, Kochie quoted US investment legend Warren Buffet: “If you don’t understand the investment, then don’t invest in it.’’

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The Interview

‘I GIVE DAVID A $200 A MONTH ALLOWANCE’

Libby Koch, wife of Sunrise television presenter David Koch, keeps her husband’s spending in check. According to Libby, Kochie is a bit of a spender, often buying books, nice wine or even a dress for his wife. “So I used to warn David: watch your spending,’’ she said. “He loves shopping, has a good eye and would always surprise me with a lovely dress or a piece of beautiful jewellery.’’ When Kochie started his first business venture very early in their married life, Libby managed the household finances and looked after the couple’s three young children. After paying all the bills, she used to give Kochie a spending allowance of only $200 a month. Over the years, as the family business grew Libby would do all the invoices, bookkeeping and staff superannuation

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payments – and made sure there was enough toilet paper in the office. Today, the qualified nurse has turned into something of a financial guru herself, advising families on household budgets. She also writes a Your Money column on home budgets for News Corp’s newspapers. “ When we first started, I was comfortable running the family’s finances just the way my mother used to,” Libby says. “We had kids very early, so I stayed home to look after our children and ran the family’s household budget, paying bills and making sure credit cards were paid on time to avoid fees.’’

While Libby keeps a beady eye on household budgets, including home and personal insurance, David looks after the bigger picture, such as investments and the couple’s self-managed superannuation fund and share portfolio. “Last year we hired a bookkeeper and accountant for the business, which freed me up from doing the invoices, and I took a management role. While I spend a lot of my time answering letters sent to David, I also look after our 18-month-old grandchild.” The cardinal rule she swears by is “live within your means and, when possible, pay your credit card bills so you don’t incur fees.’’

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Financial advisers are emotionally driven to make a positive difference to your life.

Find a financial adviser that shares your beliefs at www.yourbestinterests.com.au

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Simple Savings

10 WAYS

TO SAVE MONEY NOW! Most of us spend more than we need to on everything from credit cards to power bills and petrol. Nicole Pedersen-McKinnon has some simple tips that can save you over $5,000 right away Could you stretch your money further? For most, the answer is a resounding “yes”. Your so-called fixed costs are anything but fixed and your spending is a moveable, fluid feast. The fact is nearly every one of us wastes money. We buy takeaway rather than cook. We buy clothes at full price rather than waiting for the sales. We buy books rather than borrowing them from the library. We buy lunch rather than bringing it from home. The key to a buoyant (rather than bruised) bank account is to be clear on what you need to spend money on versus what you simply want to spend money on. And you’ll be pleased to hear there is a bunch of even easier ways to keep your hard-earned cash. Here are 10 tips, starting with where there’s money for the taking and ending with some simple ways to trim your spending.

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The fact is, nearly every one of us wastes money

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Simple Savings

CASH IN ON CARD COMPETITION If you carry over credit-card debt from month to month, and more than half of us do, STOP paying interest on it! Providers are falling over themselves to offer long interest-free periods on transferred balances – up to 24 months. This means every dollar you repay comes off your balance and gets you closer to freeing up a chunk of extra money each month. Just don’t spend anything new on balance-transfer cards as the rate will be sky high.

INVESTIGATE YOUR INSURANCES General and life insurance can be one of your biggest costs. Switch insurers and you could save up to 15 per cent. Jump online to see how much less you could pay. Just be sure that the cheaper policy is at least as good as the one you already have.

CHECK YOUR HEALTH COVER If you’ve had health cover for a while, I’ll venture you’re paying too much. You can find out at privatehealth.gov.au. Don’t forget to look at any cheap restrictedmembership fund you may be able to access due to your job or union membership. Make sure your policy is tailored to your current needs (unnecessary obstetrics can set you back $500 a year).

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POWER DOWN UTILITY BILLS The carbon tax roll-back was supposed to net us about $550 a year – right? In any case, big electricity savings are available: market researcher Energy Watch (energywatch.com.au) says a family can pocket an average of $400 a year by moving to a better offer. Similar savings could be on offer on every utility – check out switchwise.com.au.

CLEAN UP YOUR ACCOUNTS Speaking of banking products, you should be paying no fees – yes, none – unless you have an investor-style home-loan package. The benchmark is now no account-keeping fees and no transaction fees, unless you transgress (e.g. miss a credit card payment). Finally, think ahead to when you’ll need cash to avoid “foreign” ATM fees of up to $2.50.

TWEAK TELECOMMUNICATIONS The under-cutting in this industry is drastically underutilised, see whistleout.com.au to find new deals on mobile phones and plans, and broadband.

MILK YOUR MORTGAGE A home loan is likely to be your biggest monthly outlay and also where you could save the most money. The easiest way is to ask your lender for a discount. Treat the advertised standard variable rate merely as a starting point for negotiation. If they say no, don’t be scared to move to the best rate – often some 1.5 percentage points lower. On the average $357,500 home loan, that works out to $329 a month. And, if you can live without those “bonus” bucks and pay them onto your loan, you’ll turn this into a small fortune: more than $150,000.

FIGHT FUEL HIKES Fill-up your car on the cheapest day, now typically Thursdays. Then cut your consumption: get your car serviced regularly, keep tyres pumped, unload after each trip and try not to use the airconditioning around town.

CUT GROCERY COSTS Plan your meals for the week so you don’t overbuy; shop late when goods may be discounted for quick sale; buy in bulk; cook large amounts and freeze in portion sizes to help resist takeaway on busy weeknights.

EXERCISE FOR FREE Do you really need a gym membership? Instead, workout for free at home or in a park.

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Introduction

6 AGES

OF WEALTH AND HAPPINESS

Take the right steps and you and your family can enjoy financial security. But you must anticipate your changing needs. Our panel of experts tells you how to plan for each decade, and Teresa Ooi spoke to real-life couples

YOUR 40S It feels like you’ve finally got control over your finances. You have kids, a house, a car and a career. Life is coming along quite nicely. Crucial time for setting your super in order and checking insurances. Also consider an investment portfolio.

YOUR 20S With few worries – except, perhaps, a HECS debt and mum and dad ordering you to move out – you can live your life as it comes. A good time to lay the foundations of saving something for later. Avoid credit cards and buy-now-pay-later schemes.

30s R U O Y IN

YOUR 30S

20s R U O Y IN

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The money trouble years: stretching every dollar. Couples have children and discover day care costs, mortgage repayments, education as well as food, petrol – the list goes on. The 30s are a scary time and need planning.

0s 4 R U O IN Y

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Introduction

YOUR 60S Retirement is just months away but the federal government is increasing the pension age. There is a fear of leaving the workforce as it’s what you’ve done for your entire life. Your health is also something to consider, so you need a good plan and you need to stick to it.

50s R U O Y IN

70s R U O Y IN

YOUR 50S

OUR PANEL

Life is comfortable with the mortgage paid off, or close to it, and the kids on their way out. While this can be a great time of your life, there are often challenges. Divorce between 50-59 year-olds is increasing in Australia and it means the assets you’ve built as a couple may have to be split.

JENNY BROWN

is the founder and CEO of JBS Financial Strategists. She is also the 2013 AFA Financial Adviser of the Year and the 2013 FS Smileys Scholar of the Year. With more than 21 years’ experience, and as a Fellow Chartered Financial Practitioner, her philosophy is to know what’s important to her clients. She penned our portraits of the ages.

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YOUR 70S

60s R U O Y IN

MATTHEW ROSS

of Roskow Independent Advisory is a certified financial planner with over 17 years experience, and a Platinum Adviser at Adviser Ratings. Heb elieves the true value of financial planning is about empowering and educating clients about the options and helping clients select the option that makes the most sense.

ELEANOR DARTNALL

is the principal of Dartnall Advisers and 2014 AFA Financial Adviser of the Year. She has worked in the banking and finance sector for several decades. She believes she should educate clients in all aspects of managing their financial affairs, and she loves the client relationship that is built on trust.

You’re living the high life. No kids, no work, lots of money! How could things get any better? Making sure your money lasts is a major concern throughout your 70s, along with your health. You’ve been busy all your life – kids, property, mortgage, school – you’ve worked hard, so why not enjoy it?

BILL BRACEY

is the founder and principal of Sydney Financial Planning. With 27 years experience he has helped many clients to realise their financial dreams. He features in a television series Your Best Interests which is about financial advice and the difference it makes to the lives of ordinary Australians.

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Six Ages The 20s

20s Y

ou are going through a very exciting and full-on time in your life. You have no concerns and live life as it comes. This decade is party season! Many 20-somethings are living at home with their parents, if they can stand them, with no view to leaving. Once university is done you have life to contend with. Many 20-year-olds still have no idea what career they want, which can be challenging. Some feel real pressure around picking their career and therefore the rest of their lives; some thrive on it and jump straight into their dream job. Others extend their studies or take a “gap year”, travelling, maybe working to make some money to stay away from home and reality for a little longer.

PARTY TIME!

Then that first real job is here, and you’ve done your uni studies so you know it all and can do it all – but it doesn’t seem

If you’re not careful the list of positions on your resume can be a deterrent to work that way. The stuff taught at uni is kind of useful, but in reality it’s more about paperwork, processes and following orders. The invincible, know-it-all feeling can stick for a while, but inevitably your enthusiasm

drops as working life reality kicks in. Twenty-somethings these days rarely stay in a job for longer than two years, which can be attributed to an upbringing based in today’s instant society. Instant satisfaction is a must and if you’re not getting it, you move on. You may end up with a few jobs under your belt, but if you’re not careful the endless list of positions on your resume can be a deterrent for the job you’ve dreamt of having your whole life. Today’s 20-yearolds are very different to any before.

s 0 2 R U IN YO

SIX-POINT CHECK LIST

1SAVE HALF: You don’t

have many large outgoings, so save as much as you can. Rule of thumb – particularly if you’re living at home – is save at least half.

2 STAY AT HOME: More

and more people are staying

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at home longer to save for, say, a house deposit. But this only works if you are actually saving!

look at this while you have surplus cash flow.

3 START EARLY: The

don’t have to get it all right now. You don’t have to have all the answers.

federal government provides incentives for low-income earners to put money into super. So you might want to

4 NO PRESSURE: You

5 INSURANCE: You might

not need insurance yet, but at 27 or so you’ll get it as cheaply as it will ever be. For health cover, do it by 30.

6 TAKE ADVICE One thing many people say is “I wish I had listened to advice in my 20s”. Listen to others who have gone through it.

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Six Ages The 20s

CASE STUDY

A PLACE IN THE FUN

OUR PANEL’S ADVICE

ver since Christopher Reid started work at a bank as a fresh graduate, he was determined to own his first property. It took him six long years to save enough for a deposit and, at the age of 28, he and his partner, Danielle, moved into a stylish one-bedroom apartment in Paddington close to Centennial Park, just before Christmas last year. They paid $650,000 for the new apartment in a tiny block of 12 and jointly pay off the mortgage of $3,800 a month. “From the outset, when I started work I wanted to own my own property,’’ Reid said. “So I continued to stay at my parents home in Haberfield and saved whatever I could for a deposit on an apartment. There was no way I could move out, rent, meet all living expenses and save enough to buy a unit.’’

And he had to make sure it was not any old apartment in any old suburb. Christopher and Danielle wanted to live in Paddington on a nice street for lifestyle reasons, as the area offered lots of cafés, and is close to Bondi Beach and the SCG where he could watch his favourite sports – AFL, rugby and cricket. “The apartment ticked all the boxes. It took us a year to find after we lost out on some auctions, including

MATTHEW ROSS Having completed a trade or degree, we’re off and running in the rat race. It’s easy for money to slip through our hands at this stage, so the smartest thing you can do is to send $500 or $1,000 a month to, say, a lowcost managed fund. Search “Dan Solin + Google employees” and invest an hour in watching the video that comes up.

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a lovely Balmain unit – it was disheartening.’’ Like a good banker, and with a property in the bag, Christopher has now moved on to his next project – to build a diversified portfolio of blue-chip shares, currencies and cash. “I am a conservative investor. I do not need to take unnecessary risks. So I have a small share portfolio of the top ASX 200 companies, which deliver modest dividends but good returns down the track.”

ELEANOR DARTNALL Know the size of your HECS bill. If you earn less than $54,000pa this won’t show on your pay-slip yet and the amount can be a bit of a shock if you want a loan. Thinking about insurance? If you are over 27 now is a good time to lock in your premiums while they are relatively low. If you had part-time jobs while studying, consolidate your super funds.

Christopher also believes he is financially literate and savvy enough to manage his own personal finance. “I have a simple financial strategy – stick to low-risk financial opportunities. If you buy high-yielding, speculative stocks you have to watch them like a hawk. “Literature is an investor’s best friend – pick up a newspaper and read up on what’s happening. It’s all common sense. “I plan to keep to this strategy and build up my wealth portfolio until I am 35. I will then review my strategy and consider putting more money into superannuation.” For other 20-somethings, Christopher recommends their first priority is to save, do their own research and, if they can afford it, engage a financial adviser. “My goal is to upgrade and buy a house, but I want to hold on to our apartment as a long-term investment,’’ Christopher said.

BILL BRACEY Well lets face it, apart from having fun, there is nothing much that matters. Until one day mum and dad say: it’s time for you to move out! That’s a great time to start to get your money management in order. So step one is start a budget, work out what it’s going to cost to live, and get a job, or several jobs, to cover it.

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Six Ages The 30s

30s T

hese have become the baby-making years. In 2013, a total of 308,065 babies were born to women with a median age of 30.8 years. Having kids can be stressful. You’re not sure if you’re doing it right, and you’re getting endless advice on how to do it from all sorts of people. Yes, thanks, Mr Postman – I will look into signing my oneyear-old up to violin lessons. No, Mrs Neighbour, I wouldn’t ever think of co-sleeping with my baby. There are lots to think about and time absolutely flies. The 30s seem to be the money troubles times, mainly because we’re stretching every dollar. Time off work to have kids, then day care to go back to work costs so much you effectively work for less. Mortgage repayments;

BABY, IT’S COLD OUT THERE

savings; education costs; everyday things like food and petrol: the list goes on and on.

The 30s seem to be the money troubles times, mainly because we’re stretching every dollar This is also the time you’re most likely to be putting that big red SOLD sticker across a sign on the front of a house you just decided to live in. Which coincides with the time you signed up to having a very

large weight strapped to your back, otherwise known as a mortgage. This is a scary time in people’s lives as they usually have little knowledge of what they should be looking for in a lending provider or even loan itself. Fixed interest? Variable interest? Split loans? Fee or fee-free loans? Getting it wrong can be costly. So much stress. There’s a lot going on and a lot to plan for – and if you don’t stop to look at your life, you may wake one day and wonder where 10 years went.

0s 3 R U O IN Y

SIX-POINT CHECK LIST

1 DO A BUDGET: And stick to it. People hate to hear the word budget, but it doesn’t mean “miss out on things”, it just means track your money and be careful.

the house you want, the loan you need to get it, then work backwards. If your mortgage payment would be $650 pw and your rent is $400, you should be saving a minimum of $250 per week.

2 SAVE A HOME DEPOSIT 3 DON’T PLAN FOR KIDS If you’re renting, determine

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You’re never going to be

ready, so if you want kids and you are in reasonably good shape, go for it.

4 THINK SUPER By now

you may have had a few different jobs and may also have several super accounts. Review what you have and where’s best.

5 GET A WILL If you’ve got kids, getting a will in place is a minimum.

6 CHECK INSURANCES

You really need to see a financial planner to get this sorted. Mortgage insurance? It covers the bank, not you.

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Six Ages The 30s

CASE STUDY

HOMES BEAUTIFUL

OUR PANEL’S ADVICE

rett Kidman, a sales executive with Fuji Xerox, believes in taking one step at a time as far as his financial affairs are concerned. Right now, at 35, his most valuable asset is his house in East Melbourne, which he has just renovated and which will go to auction soon. He hopes to sell the fourbedroom, two bathroom, single-storey house for between $850,000 and $900,000. He spent about $70,000 renovating the house with the help of friends. He bought the property for about $500,000 four years ago and still has a mortgage, as he is making interestonly payments. Assuming the house will sell for at least $850,000, he will use the proceeds to reduce the mortgage with enough left over to put down a deposit for his next property – a bigger house and backyard to play footy

with his two-year-old son. He employed financial planner Scott Haywood of Haywood Financial Management eight years ago when he was 28. Unlike most 20-somethings more into parties, Kidman was already thinking of his financial affairs. “I wanted a share portfolio and needed my superannuation to be structured and my income protected. “Scott worked in the same building and I’ve

MATTHEW ROSS You’ve got a bit of life experience and know a lot more about what does and doesn’t make you happy. Chances are you’ll fall in love and have kids in this phase of life. The financial complexities start here. Putting in place a safety net for the family (life, TPD and trauma insurances) is a must and so is having a will. You must get a financial plan. A real one.

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known him for many years. As I became comfortable with Scott’s advice, I recommended him to my parents who just sold their house through him.’’ Once his house is sold, Kidman will sit down with Scott to work out his next financial move. “We will discuss my long-term financial goal. I will probably look more seriously about salary sacrifice and putting more money in superannuation. Shares can be volatile and

ELEANOR DARTNALL If you have young children and can cover the expense, get top family cover health insurance. Young children often have accidents and become ill. If you need hospital care it could erode your ability to meet mortgage costs. Trauma cover and income protection insurance are very important risk management strategies.

I prefer to build a property portfolio as houses and units are tangible assets and I like property.’’ He believes it is important to get good financial advice as early as possible and to start saving on a regular basis. Many people often leave it too late to plan for the future. Kidman sees his life in stages. As he is in the 30s age bracket, his next financial goal is to upgrade and buy a more comfortable family home, build up superannuation contributions and have a small share portfolio. Kidman is engaged to his Italian fiancée, Kathrin. They plan to marry next July in northern Italy and will celebrate the occasion with her family, relatives and close friends. Kathrin helps Kidman with his bookkeeping and has a small catering business, but spends most of her time looking after their young son.

BILL BRACEY People are either getting married or picking a partner, so this is the perfect time to start building your financial plan. Is it time to buy an investment property or a first home? Can we survive if we go to one income if we have children? It’s now time to decide what you really want to do in life and to start making it happen. It’s also time to effect a basic will.

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Six Ages The 40s

40s T

hey say life begins at 40, perhaps because many feel like they have made it – kids, house, nice car, nice career: it all seems to be coming along nicely. It’s almost like you’ve got life figured out. Many see this as halfway in life, which makes them think. Have I done enough? Should I be doing more? Will I get everything I want out of life? What did I miss out on? This sometimes results in a trade-in of your husband/ wife to someone tall, dark and handsome/young and blonde; or swapping the Holden for a flash red car. Mid-life crisis, people! You have your finances sorted (or at least your day-to-day finances) and you want to upgrade things to match your refined tastes – and your wallets can provide for it, on occasion.

HALFWAY THERE

A new car, a new couch. You’re looking to make your life more settled and in line with the vision of the life you want. It’s also a time to become wise, not worrying about what others think about you and being your own person.

This sometimes results in a trade-in of your partner. Mid‑Life Crisis, people! There’s signs that your body is starting to betray you, giving up when least expected and proving that you’re not invincible. Menopause is on its way and it’s not looking pretty. It’s just further proof your body is not your friend and is slowly turning on you. Oh, did I

mention wrinkles? Some consider changing career to something more fulfilling, as it seems that this is the last chance. Any later and you’re too old and may find it difficult to find anything at all, let alone the job you’ve always wanted.

s 0 4 R U IN YO

SIX-POINT CHECK LIST

DON’T FREAK OUT: While this is a time to reflect and be proud of what you’ve achieved, don’t start thinking about all the things you’ve missed out on. Looking backwards can mean you miss out on what’s ahead.

KEEP FIT: It’s time to

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think about exercise and diet. Keeping healthy prevents so many things: getting in early is your best chance.

DON’T OVERSPEND. If you can afford the Commodore you like, but you can’t afford the BMW, think about compromising. They’ll both get you to the same

place, but one will impact on your retirement.

SUPER. You haven’t really concentrated on super before and now’s the time to start doing something about it.

CONSIDER INVESTMENTS. Putting money

away in super for retirement sounds great but you also can’t access it until around age 65, so what if something happens in the meantime?

MAINTAIN INSURANCES. Insurance cover is not only to cover your mortgage, it will also replace income if you or your partner can’t work.

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Six Ages The 40s

CASE STUDY

FROM BAD TO WORTH

OUR PANEL’S ADVICE

or 11 years Trent Taylor ran a successful coaching business. Then, with the onset of the GFC in 2008, the business took a massive hit. Trent lost a lot of money and the company nearly went under. “My assets dwindled from $1.4 million to zero in 18 months,” he recalls. “After I split up with my business partners, things went really badly. My real estate assets dropped in value and I was almost wiped out – I was three months from bankruptcy. “I knew I needed financial help. Through a business friend I was introduced to Glen Killen of Strategy Financial Consulting. From the start, Glen struck me as a no-nonsense person. He was kind, calm and compassionate and did not make me feel like a loser. He told me to keep it simple and to start investing in

superannuation so I can set up my own SMSF. “He also helped me make the hard decision to sell our family house in Sawtell in northern NSW, which had dropped $70,000 in value.’’ Together with his accountant, Michael Osborne, Glen reworked Trent’s financial plan to keep it tax-effective and keep him on the straight and narrow as far as

MATTHEW ROSS This phase of life will go in the blink of an eye. You will be under more pressure at work, but be rewarded with more money for your efforts. Your health will be tested. Chances are your marriage will be, too. Options such as an investment property and other wealth-accumulation strategies are available to those people who planned ahead; rarely for those who haven’t.

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his investments were concerned. “Glen told me the first priority was to pare down my debt while beginning to invest, because compound growth is the eighth wonder of the world.” But the stress of the GFC took a toll on him and his family life. His wife, Sally – a teacher – and their three young children were worried because the 40-year-old Trent was under so much

ELEANOR DARTNALL Probably at the peak of your career, this decade often sees upsizing rather than downsizing your home as children grow older. It’s incredibly important to protect your income, your health and your home: make sure your insurances are up to date. Now might be a good time to talk to your risk adviser to see if level or stepped premiums would be best for you.

stress. Then he decided family life was more important. Trent sold up, cleared his debt, leased a caravan and, together with the family, travelled all round Australia. For the past 18 months the family has covered 60,000km from Broome to Alice Springs to Cooktown in Queensland. The children, aged 10, eight and six, were schooled at home and loved it. “We have seen enormous change in their confidence and they have developed a passion for learning. We have long-term plans to go to third-world countries and do philanthropic work. “My business is bringing in a steady income and I and the family are very happy. I plan to work until I am 80 as I love what I do and want to keep on evolving,’’ Trent said.

BILL BRACEY Are we on track with our financial plan? Do a full review, particularly looking at wealth creation, super/retirement and debt repayment strategies. If you’re not on track to meet your goals, effect immediate change. Is your insurance plan adequate re children, debt and divorce? Remember, half of all marriages fail. Do you have new goals that need to be added to your plan?

29/09/2015 3:58 pm

Six Ages The 50s

50s L

ife’s comfortable with the mortgage paid off, or close to it, kids on the way out or even gone and retirement to look forward to. While this can be a great time of your life – “me time” – there are often challenges to be faced in this decade. Divorce among 50- to 59-year-olds is increasing in Australia. This means the assets you’ve built as a couple are now divided and your lifestyle and income requirements change. It can be a highly emotional time that takes a toll and produces long-term effects, personally as well as financially. If you’re employed and happy at 50, you’re lucky. Some have been retrenched or lost jobs, then find it very hard to find alternative employment. You have a wealth of experience and

FOUNDATIONS FOR THE FUTURE

knowledge and could do the job with your hands tied, but employers want a young gun

Lining up at Centrelink wasn’t part of your long-term employment plan. straight out of uni as they’re cheaper and bring “fresh ideas”. Lining up at Centrelink wasn’t part of your long-term employment plan. For some, kids leaving home can be a good thing, with less

grumpiness and more space, time and money. For others, it can be a difficult time. Those parents who dedicated their lives to ensuring the children’s needs came first sometimes find the kids’ absence creates a vacuum. Statistics show that if you’re going to have an illness or injury that stops you working, it’s probably going to happen now. But there are preventive measures, strategies and options that can help avoid or even eliminate life’s speed humps.

0s 5 R U O IN Y

SIX-POINT CHECK LIST

1START THINKING ABOUT YOURSELF AND WHAT YOU WANT OUT OF LIFE: Ensure that the person by your side is the one who will be there through your golden years.

2 HAVE A PLAN FOR

THE CHILDREN: One big

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trap is that the kids stay … and stay. This is your time. Ensure you have the resources for the future.

3 PLAN YOUR

EMPLOYMENT: Will your current job be viable and fulfilling through to retirement?

4 SEE A FINANCIAL

ADVISER: With higher disposable income, you need qualified advice to find what you must do to achieve the retirement you want.

5 SUPERANNUATION

IS KEY: If you haven’t got

enough to retire on, you need to focus on it. Salary sacrificing is a great way to build wealth.

REVIEW INSURANCE COVER. The likelihood of claims rises as you age, but the need for cover usually falls.

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Six Ages The 50s

CASE STUDY

HATS OFF TO THE PLANNER

OUR PANEL’S ADVICE

welve years ago at the age of 40, chartered accountant Roy Wilkinson attended a financial planning seminar and was hooked. He immediately decided he needed a financial adviser to keep a tab on his personal finances. Despite working as the chief financial officer of the family-run Akubra hat business, and being well versed in accounting, Wilkinson still felt he preferred a specialist to handle his financial affairs. So he turned to financial planner Glen Killen zf Strategy Financial Consulting, who was already on Akubra’s books managing its portfolio. “Unless you keep upto-date with changes in government policy and new regulations affecting super and tax, it’s difficult to be on top of the game – not when you’re working fulltime with 85 employees on the payroll,’’ Wilkinson said.

His brief to Killen was twofold: his long-term goal was to grow the nest egg so he could retire at 60, and his short and mediumterm strategy is to reduce his mortgage payments to meet the education costs of three children. While his wife, Nerida, works as a childcare assistant, her income is spent on day-to-day living expenses. Wilkinson is the main financial provider. So they decided he would salary sacrifice up

MATTHEW ROSS You’ll be at the height of your earning capacity. A key role of your adviser is to show how much you can support your kids financially after school. If you’ve had a plan in place since your 30s, you’re in a position to ease your foot off the pedal. Asset allocation and estate planning become key issues to review and address.

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to 15 per cent of his pay into his self-managed superannuation fund and build a portfolio of mostly industrial shares from bluechip ASX 200 companies. They avoided more volatile mining stocks and stuck with shares that delivered consistent returns. Wilkinson is not keen on property investment, as houses are illiquid assets with high outgoings and average returns. They are still paying off the mortgage on their four-

ELEANOR DARTNALL Your children may need support with tertiary fees or leaving home, so budgeting is parmount. High on your to-do list will be salary-sacrifice strategies. Talk to your adviser about transiting to retirement pensions.This is also a decade when your parents might need aged care, so it’s important you understand the associated costs.

bedroom home in Port Macquarie: “We are close to owning the house – we’re on the last stretch.’’ He pays Killen $2,500 a year to manage his affairs, which is taxdeductible via the family’s SMSF. “It’s money well invested,” Wilkinson said. “I like Glen because he gives good service, independent advice and his fees are hourly. He is not linked to a bank or any financial products providers.” “I consider Glen more as a friend – he is very good at explaining complex issues in a simple way.” Wilkinson comes from a school that plans ahead: “Don’t leave things to the last minute. “Start planning for your retirement and the future as early as possible, preferably by the time you turn 40. “It is always less painful if you start saving early.”

BILL BRACEY Review the bedrock plan formed 20 years ago to see if it still matches your goals. Reprioritise and effect changes based on your priorities. Retirement is now a tangible thing: will you be debt free by then? If the kids move out, it might be time to think about downsizing and freeing up some CGT-free funds to shore up your wealth creation strategy.

29/09/2015 3:59 pm

Six Ages The 60s

60s S

o you’ve hit 60: who’s excited? Retirement is just moments away – although receding steadily for later retirees as the federal government pushes the pension age envelope. But many people have taken these steps. There’s the expected freak-out as you question if you have enough money for your future. All the experts are saying you need at least $1 million, and your $257,000 isn’t anywhere close. How will you survive? Should you work longer? Will your employer allow you to stay longer? Can you keep doing this work longer? Will you qualify for the age pension? It’s definitely a time for questions. There is also a fear of leaving the workforce. It’s what you’ve done all of your life, so to just finish can be daunting. Who you

FEELING THE BUZZ

are can easily be wrapped up in what you do: no longer working can leave a hole in people’s lives and identities.

Those in their 60s who have retired are thought of as free babysitters Another question many should ask before retirement is what you’ll actually do. Filling up the days can be a challenge. If you haven’t planned properly, you can quickly get bored, lonely or even feel like a burden to others. Partners who have formed their own lives in earlier

retirement may feel put-upon now their partner is home 24/7. Also, your kids are having kids – and with child care so expensive and hard to find, those in their 60s who have retired are thought of as “free babysitters who have nothing else to do”. Medical concerns arise at this age. Senior cards offer discounts on many things, but cheaper medications and health care usually come only from the federal government. There’s lots to think about: you need a good plan and to be

s 0 6 R U IN YO

SIX-POINT CHECK LIST

SEE YOUR FINANCIAL ADVISER: You need to check in again to see exactly when you can retire and how long your money will last. Don’t think 65 is the magic age.

2 SET A REALISTIC

RETIREMENT DATE: If you don’t want to retire, don’t. Just

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make sure you have enough money, as getting a job when you’re 75 might be tough.

START TO THINK WHAT YOU’LL DO IN RETIREMENT. Get a hobby, buy an old car to restore, plan holidays, book golf lessons. Just don’t try to do everything the first month.

DON’T FORGET RETIREMENT IS 20 YEARS‑PLUS. You shouldn’t automatically take all your money out of super once you retire, or put it all into cash. Keep pace with inflation.

MONEY IN PENSION ACCOUNTS CONVERTED

FROM SUPER – once you are over 60 – is held tax-free. This means there’s no tax on income earned in the fund or from growth in value.

THERE IS A MISCONCEPTION that, as you’ve paid taxes all your working life, you will get an age pension. Not in Australia.

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Six Ages The 60s

CASE STUDY

FIXING FINANCIAL WOES

OUR PANEL’S ADVICE

ike many small business owners, Bruce and Christine Gearing spent so much time on their business they hardly had any left to manage their personal finances. “It was all too hard for us,’’ said Christine, a nurseturned bookkeeper for her husband’s car compliance firm in Brisbane. “We bought shares and lost money. We also wanted to plan for our retirement and, specifically, for Bruce to cut his hours.” Eight years ago they resolved to get a financial adviser. They shortlisted four and quickly settled on Brendan O’Reilly, a planner with Bridges Financial Services, whom they met at a retirement exposition. “Unlike other advisers who wanted to charge us $1,000 and for us to go into high-risk investments by borrowing up to $1 million, Brendan listened to us and explained

patiently again what we needed to do,” Christine said. “He sorted out all our financial woes. Everything was transparent. He taught us how to budget, signed us up for Xero [accounting software] so we could see immediately how much we spent a month.” The Gearings also bought an investment property next to a golf course, which they intended to be their retirement home. In January this year, the Gearings sold their seven-

MATTHEW ROSS One of my clients, Dr Tony, told me: “Matt, 60 to 75 are the best years of your life.” Dr Tony’s argument was compelling. This decade will be the most rewarding of all if you’ve been smart with time and money. From a financial perspective, asset allocation and estate planning will continue to be important.

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bedroom family home in Brisbane, where they had been running a homestay for students, for $810,000. “The golf-course house was under four feet of water during the Queensland floods of 2011, but has been rebuilt by our insurer.” With O’Reilly’s help in managing their SMSF, plus the proceeds from the sale of their house, Bruce and Christine have accumulated enough to see them through to their old age. They pay O’Reilly $3,520

ELEANOR DARTNALL We now see parents in this decade helping children with the purchase of their first home. If you assist one child and not another, update your will to ensure you treat your children equally. Seek advice about super contribution rules: up to your 65th year you can contribute three years’ contributions in one year.

a year to advise on their SMSF and investment portfolio, which includes a yearly visit to reassess their strategy. Today, Bruce works four days a week and plays golf every Tuesday. It’s a far cry from the days when the Gearings’ business, which carries out compliance tests for imported cars and caravans, had up to six employees and Bruce worked 100 hours a week. Christine retired two years ago, when she turned 60. But she still does the books at home, when she is not looking after the grandchildren. “I also look after my Dad, who is 93 and in a retirement home,” she said. “I really enjoy being retired and taking turns to look after my grandchildren. “Bruce has promised that, come November 15, he will retire. But he has given me several retirement dates before, so we’ll just have to wait and see.”

BILL BRACEY Retirement is either upon you or near. This can be a fun time if you start moving out of employment and work part-time, using some super to fund your lifestyle. Importantly, you must be both debt-free and kid-free or this won’t work well. You may receive an inheritance. Can these funds help achieve some goals?

29/09/2015 4:00 pm

Six Ages The 70s & Beyond

70s Y

ou’re living the high life. No kids, no work, lots of money! How could things get any better? You’ve been in retirement for a little while now – and it’s not all it’s cracked up to be. There’s not much going on. If you don’t go on holiday once a year you’ll go mad, but it’s a balancing act between having money for a trip and making sure you don’t use too much. Making sure your money lasts is a major concern throughout your 70s, along with your health. You’ll find it deteriorates more now. Regular doctor’s visits are no longer a choice, they have become a necessity. Towards the end of your 70s your social calendar is starting to get booked up. Sadly, it’s no longer parties and pub crawls, but funerals and wakes. Keep

HAPPY DAYS

your black dress and suit handy! This is also the time where you start to see grandkids – or you may even be lucky enough to be

Life is pretty good, but why shouldn’t it be? Put your feet up, relax. getting yourself some greatgrandkids, which makes you sound old so you’d prefer to be called GG or “Greatpa”. Greatgrandkids are particularly good, as no one actually e xpects you to actively look after these little balls of energy. But they are cute and fun

when they come for a visit with their parents. You get to spoil them without consequence. It can also be a lonely time: maybe you don’t have a partner, your kids live far away, even friends may not visit as often. It would be nice if your kids visited more often. This is a time where life is pretty good, but why shouldn’t it be? You’ve been busy all your life. Kids, property, mortgage, school – you’ve worked hard, why not enjoy it? Put your feet up, relax. This is your time!

s 0 7 R U IN YO

SIX-POINT CHECK LIST

GET INVOLVED: Waiting for family to visit can be lonely. Find things you like to do and keep your mind active. Join a book club, play golf, volunteer.

YOU’RE ONLY AS OLD AS YOU THINK YOU ARE: Don’t be dictated to by your

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age. Just because you’re 70 doesn’t mean you have to act it.

3 MAKE SURE YOUR

ESTATE IS IN ORDER. It’s best to ensure that you have a watertight will: you don’t want a family break-up to be your legacy.

4 MAKE SURE YOU KNOW

HOW LONG YOUR MONEY IS EXPECTED TO LAST AND KEEP TRACK: Now more than ever you need to know, as it’s all you have.

APPLY FOR AND USE PENSION CARDS: You may qualify for an age pension; if

not, many states and territories have seniors cards that provide good discounts.

6 REVIEW CENTRELINK

ENTITLEMENTS REGULARLY: You may become entitled to extra benefits that will help to make for a more comfortable retirement.

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Six Ages The 70s & Beyond

CASE STUDY

MAN WITH A PLAN

OUR PANEL’S ADVICE

erry Rutledge is a 76-year-old retired bank manager who firmly believes in saving for a rainy day. He worked for National Australia Bank for 43 years and, in the final 14 years, he salary-sacrificed up to 40 per cent of his salary into super. He was then earning about $120,000 a year – a reasonable sum then. When he retired 18 years ago, he had accumulated $1.1 million in super – an amount that remains largely intact, despite having received more than $700,000 from it during his retirement. He also has a waterfront investment unit in Manly that he bought off the plan for $500,000 in 1991-92, which has benefited from the boom in Sydney housing prices. “It has been a nice little earner,’’ Terry said. He also has a share portfolio of blue-chip companies that

provide him with additional tax-effective income and owns his five-bedroom house in Port Macquarie. As a former banker he could have managed his own financial affairs on retirement, but in 2004 he chose Glen Killen of Strategy Financial Consulting in Port Macquarie to be his financial planner. “Unlike a car mechanic who fixes his own car or a builder who builds his own house, I knew I wanted someone else to do this

MATTHEW ROSS The fun will continue into our 70s for those who have had a financial plan in place for the past four decades. One of the many benefits is having a strong grip on what you can expect in future – greater certainty. Our health has a lot of impact on the personal and financial issues, as does leaving a legacy to the next generation for many of our clients.

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job – someone who is a specialist and does it for a living,’’ he said. Mr Rutledge is in a very comfortable space with liquid assets that will see him and his wife, Marlene, into their dotage – and leave something for their four children and eight grandchildren. His financial planner manages his share portfolio and widened the share mix to a spread of blue-chips, mainly from the top 200 ASX list.

ELEANOR DARTNALL The retirement years - a time to enjoy the results of all of your hard work. Health will be paramount, so make sure you have top health cover. Take time to understand if and how you can access Centrelink benefits. It’s a good time to appoint an attorney to manage your finances if you can’t do them yourself.

“The beauty of Glen Killen is that he gets to know his clients personally and knows what they want to achieve. We regard him as a personal friend. “Financial advisers who charge fees of up to $25,000 a year should be locked out of the industry. “My wife and I had enough of entertainment when I worked at the bank and we have done a bit of overseas travel. Last year out of the blue I had a triple bypass – I was fortunate I did not suffer a heart attack.’’ Today, Mr Rutledge goes for an hour’s daily walk by the beach. He has taken up photography and goes out with his mates into the bush for a spot of fishing. He has three cars, one for his wife, a four-wheel drive Suzuki and a sevenseater to accommodate the grandchildren. “It’s never too early to plan and start saving for your retirement,’’ he said.

BILL BRACEY The important thing is to enjoy yourself whilst still planning for the future, as your needs will change in time and you want the luxury of making your own decisions. Ensure your retirement plan will last. Review possible government age pensions and other benefits. Start an aged care plan so you’re not forced into it down the track.

1/10/2015 2:08 pm

Estate Planning and Care

THE LAST LAP

They are subjects many ignore to their cost. But leaving life with our affairs in order and ensuring we are cared for are important. By Jacqueline Fox

n the countdown to leaving this world, there are a number of tough decisions – one is how to distribute your assets. The purpose of Estate Planning is to ensure everything is in place to make your final days easier and what you value most will be passed on smoothly to your chosen beneficiaries. Everyone should have a last Will and Testament detailing how their assets should be disposed of. But many don’t. According to the Australian Securities and Investments Commission, around half of all Australians die without a will, meaning the State determines how their assets are divided. This means relatives they resent or are estranged from will inherit possessions not meant for them. Wills can cost between $30 for an online kit to a few hundred dollars. There are good resources online providing affordable and effective templates. But the best course of action is to consider estate planning as part of a package designed with a professional financial adviser. Another sensible course of action is to consider using a Power of Attorney document giving another

person the authority to make legally binding decisions on your behalf while you are alive but incapacitated. There are two types of power of attorney: general power of attorney – which is for defined periods such as if you are overseas - and enduring power of attorney, which is more practical for your later years. In most cases, power of attorney will be given to beneficiaries in your will, people who will care for you and those making decisions on your behalf. A realistic plan for the elderly should also include the possibility of full-time care. Often, people stay in the family home because they believe in leaving “something behind” for their children. They deny themselves the care they need, resisting selling the house so their children can have an inheritance. Others are able to stay in their homes and access a range of home and community care, some of it is subsidised by Federal and State Governments. Aged care need not necessarily be expensive. The amount you pay depends on your financial

situation, which is assessed by a Federal Government agency. After this assessment, you’ll be advised how much you have to pay towards accommodation costs. You can pay for this in a lump-sum bond or as a regular rental contribution. Most people believe they need to sell the family home to be able to pay for any care, but that is not necessarily the case. It is possible to rent out the family home and use the money to subsidise care. Doing this doesn’t always have a negative impact on your assessable tax. These are difficult and complex decisions best negotiated with the right professional advice. Good advice can save you and your loved ones time and money, making things as trouble-free as possible for all concerned.

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29/09/2015 4:02 pm

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BUYING A HOME “When buying a home, it is a good idea to speak with both a mortgage broker and a financial adviser,” Ms Milnes says. “A mortgage broker can put you in the right home loan for your needs, while a financial adviser can help to ensure you, your family and your expanding assets are protected.” STARTING A FAMILY While not everyone plans to have a family, for those who do Ms Milnes says quality advice can give your child the best start in life without compromising your financial security.

MANAGING A FULL LIFE Even if juggling financial priorities - older children, ageing parents, a successful career or business, paying down the mortgage - you still want to be able to enjoy life. A financial adviser can help protect what you have worked hard to build. PREPARING FOR RETIREMENT These days, retirement can span 20 or 30 years. Those who are not prepared may find themselves outliving their money. Ms Milnes says a financial adviser can help plan for retirement and manage your money once the payslips end.

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29/09/2015 4:02 pm 8/09/15 3:52 PM

The Watchdog

PIC: FAIRFAX

“The financial wellbeing of clients should be at the heart of how the sector operates.”

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29/09/2015 4:03 pm

The Watchdog

MY CRUSADE FOR AUSTRALIAN FAMILIES Greg Medcraft is chair of the corporate regulator, the Australian Securities and Investments Commission (ASIC). He is also a consumer champion, thanks to his passion for teaching Australians about their money. By Peter Lynch We meet Greg Medcraft at his Sydney HQ. The corporate regulator who makes the biggest business names quake is passionate about how ordinary Australian families are being protected from scammers. On the Australian Securities Exchange, shares are being ravaged thanks to a surprise fall in stocks in China. It is a sign of how much impor tance Mr Medcraft, a former banker and father of three, places on his role as consumer watchdog that he, his deputy and the head of the website MoneySmart agree to meet the team from The Really Simple Guide to Money despite the market turmoil. MoneySmart has tens of thousand of hits a month for its tools, which power household budgets and provide general advice. It is a powerful asset to improve financial literacy in Australia. And not one that has made Mr Medcraft popular with investment institutions. In producing this magazine, we have met with people from the major banks and financial

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institutions of Australia. We have concluded that few are prepared to do more than pay lip service to the idea of ensuring the consumer understands financial literacy. It is a problem Mr Medcraft is familiar with. Recently, govern ment funding to ASIC was cut. Mr Medcraft is keen to preserve MoneySmart’s role, and it is hard to fault his sincerity about ensuring Australians are shielded from financial misconduct. After our meeting, he agreed to answer questions by email.

You were quoted as saying you’re “shocked” that half of Australia’s investors couldn’t tell when something was too good to be true. ASIC’s MoneySmart website has recently updated content on “Investing smarter”. We are also in the process of developing an investment risk tool, to help people better understand key concepts around investment risk such as risk and return, diversification, and the impact of advertising and promotion of particular products. The tool will ask questions about these issues to allow people to test their

understanding of concepts.

How can they tell when something is “too good to be true”? Investment scams are often so professional, slick and believable that it’s hard to tell them apart from genuine investment opportunities. The promises are typically overhyped and some encourage you to use high-risk investment strategies To avoid being scammed, do your own research on the company and take the time to seek independent professional or legal advice. Don’t rely only on the operator’s information to make your decision, and don’t be pressured to make a quick decision you could regret later. If you’re worried you have invested in a scam, you should report it to ASIC and/or the Australian Competition and Consumer Commission’s SCAMwatch.

Given recent failures inside banks and other institutions, do you think there is anything more we can do to ensure the integrity of the financial adviser community?

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The industry needs to improve itself so investors can have trust and confidence in the sector. The financial wellbeing of clients should be at the heart of how the sector operates. Before deciding to work with any adviser, people should check the new Financial Adviser Register, which now has information on more than 24,000 advisers. The Register will help achieve good consumer outcomes directly by assisting consumers in their choice of adviser, and this will improve as more information is added to the register. From mid2015 the Register has contained information about an adviser’s qualifications, training and professional membership details. It will help ASIC and licensees to identify “bad apples” more quickly and reduce the problems they create.

You’ve mentioned the risks of a property bubble and “complex” products to beat low interest rates. Are there simple principles ordinary people can use to decide on where they should put their savings? A smart investor doesn’t rely on good luck. Instead, they take the time to consider their investment goals. Then they develop a plan and choose investments that align with their needs and objectives.

What advice would you give to a couple – say, in their 20s – about to have children and considering how they can make sure they are able to bring them up, own a home and end up in a secure old age? Talking about the changes

The Watchdog

that will happen to your family after you have a baby is really important and these conversations should include money. Some of the things to discuss should include how you want your family to function after your baby is born. For example, who is going to be the primary caregiver? Is the primary care-giver going to work? Answers to these questions will be informed by your own values and your current financial commitments.

A smart investor doesn’t rely on good luck. They take the time to consider their investment goals. Do you need to change how you manage your day-to-day spending and saving? Do you need to re-evaluate your goals and priorities, including your financial ones? Should you delay major purchases or try to reduce your debt?

What tips would you give your own family about securing a sound financial future? It’s never too early to start saving, no matter how small the amount you can put aside. Whatever your circumstances, once you start a regular savings plan you may surprise yourself with how much you can achieve once you put

your mind to it. Taking charge of your money, whether you have a little or a lot, will ease money stress and make you feel more secure and in control. The best way to take control of your finances is to do a budget. This is a simple tool that helps you understand the money going in and out of your household. A budget shows you if you are spending more or less than you can afford. It enables you to direct your money to where it matters most, so you can stay on top of bills and start putting money towards your future goals. ASIC’s MoneySmart Budget Planner is an effective tool that can assist you in working out where your money is going and where you could potentially make cutbacks to put towards your savings goal. Lastly, it’s never too early to plan for retirement. Good retirement planning is not just about immediate living expenses, but also the potential long-term costs. Mr Medcraft spelt out his personal investments in The Sydney Morning Herald. He rated his best investment as his houses in Paddington (inner Sydney), and his worst investment as a hedge fund in New York that lost everything in the crisis. He also described his personal philosophy: “I’m very much a glass half-full person. And I like my mother-in law’s attitude: ‘It’s better to wear out than to rust out.’”

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When Helen divorced, it was her teenage daughter, Lauren that urged her to seek financial help. Alone, with a home that needed renovating, a daughter to support and desire to travel, Helen couldn’t imagine how she’d ever be able to live the life she wanted. Watch how she managed to change that with realistic plans for a future she didn’t think possible.

www.yourbestinterests.com.au

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29/09/2015 4:03 pm

Our Favourite Investments

The 2011 Census shows 67 per cent of Australian households are owner-occupiers – down from about 70 per cent in 1966, but still very high.

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Our Favourite Investments

OUR LOVE AFFAIR WITH PROPERTY AND SHARES Australians are lucky to have an array of world-class investment options, Jacqueline Fox writes Talk about investments to an average Australian and the first thing they think about is property. Small wonder. There is no other asset that usually protects and grows your capital, while saving you money because you can live in it. But there are risks. Even property markets can go down. If you have an investment property, good tenants can sometimes be hard to find. Financial advisers will tell you it is better to diversify – in other words, don’t put all your eggs in one basket. There has been a flood of new investment products in recent years, from exchangetraded funds (EFTs) to listed retail bonds, where investors can essentially lend money to corporate Australia. While some of these new and sometimes exotic investments have attracted interest, the vast majority of people come back time and again to their two favourites: bricks and mortar; and shares in dividend-

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paying, blue-chip Aussie companies such as the Big Four banks, mining companies Rio Tinto and BHP and the national telecommunications carrier, Telstra. It all depends, of course, on what kind of investor you want to be. Most of us are not adrenaline-charged day traders, buying and selling stocks and scouring the list of new floats.

PROPERTY Much has been made of Australia’s so-called love affair with property. Despite the increasing difficulties facing first home buyers trying to enter the market, Australia has one of the highest levels of property ownership in the world. The 2011 Census shows 67 per cent of Australian households are owner-occupiers – down

from about 70 per cent in 1966, but still very high. The number of households that own their home outright has fallen since 1996 from 40.9 per cent to 32.1 per cent, while the number of households that own their home with a mortgage has risen from 25.5 per cent to 34.9 per cent. So while outright home ownership is going down, the continuing and steady march of property prices is still delivering on what remains, for most people, their most important investment. Given that the first generation of Australians who began their working life in the era of compulsory superannuation won’t begin to retire for a decade or two, the strategy around the family home remains one of the most critical investment issues people will face. The popularity of downsizing when the children have moved out and the “nest is empty” as retirement nears will most likely continue to be a key event for

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many people as they look to fund their retirements. And as long as rises in house prices continue to outpace inflation, this option will be attractive. Sydney’s median house price in 2003, for example, was $573,000 and in July 2015 moved through the $1 million barrier. Property is so popular that, apart from the family home, many people aspire to be property investors, if only on a small scale. This is helped along by the federal government’s negative gearing provisions, which allow tax deductions if the interest paid on a loan is greater than the rental revenue. The percentage of investment (non owner-occupied) loans for residential property has been rising over the years. According to June 2015 figures from the Australian Prudential Regulatory Authority (APRA), 39 per cent of outstanding housing finance is on investment property. To put this in some perspective, total residential home loans to Australian households are now at $1.33 trillion – about the same figure as the nation’s current

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Our Favourite Investments

total retirement pool in superannuation savings. And as we mention superannuation, the changing of super rules several years ago has made it possible for self-managed superannuation funds (SMSFs) to leverage and buy investment property, with restrictions. In a hot property market, such as we have seen over 2014 and 2015, investment property is particularly attractive. Its popularity has prompted predictions that – in the present low-interest environment – rampant property investment will trigger a housing market crash. While the jury is still out on that, several banks have introduced higher rates for nonresidential loans, largely under pressure from the Reserve Bank and APRA. Whether that dampens the enthusiasm for investment property remains to be seen.

GOOD FOR: Capital gains in the past 20 years BAD FOR: Times of high interest rates, or if you have borrowed more than 90 per cent of the purchase price

SHARES Blue-chip equities are hugely popular among Australian investors for two reasons: their capital gain over a long period; and their dividend stream. Take the Big Four banks, ANZ, CBA, NAB and Westpac. Their dividend stream in recent years has been at about five per cent or more before tax, meaning that as interest rates on term deposits have fallen shares are delivering some of the healthiest yields in the market. Not only are the revenue streams attractive, but there is also the capital growth. Bank shares have had a bit of a battering over 2015 as the market has slowed and investors have taken profits, but the growth in the past five years has been significant. In 2010, for example, CBA shares were about $50 each. They peaked at $96 at the beginning of 2015 before sliding to about their current level of $75. For long-term investors enjoying the dividends, this is a journey they are prepared to take. A popular strategy has been to sell some shares at the top of the market and keep the rest for the long haul and even buy more on the way down, especially if they can be bought at a discount

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Our Favourite Investments

to the market via rights issues. Another favourite stock has been Telstra, and here it’s the dividends that are more attractive than capital growth. Telstra shares first traded at $2.75 when they hit the market in 1997 and, nearly 20 years later, their growth remains unspectacular, with the stock now trading at $5.58. Telstra started delivering more back to its shareholders in 2014 and 2015’s fully franked shareholder payout is 30.5 cents, a return of better than five per cent. If you are investing for the long haul, it is little wonder that these investments are among Australia’s most popular and likely to stay that way well into the future.

GOOD FOR: Dividends BAD FOR: Market volatility that erodes capital gains

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MANAGED FUNDS Australia, because of its large and growing pool of retirement savings, has attracted a community of leading fund managers from around the world. For most of them, the objective is to manage money on behalf of the big super funds. But most also make their services available to retail investors and, of course, selfmanaged superannuation funds. The benefit of managed funds is that the investment strategy is determined by a professional, often with particularly specific expertise. If you believe the global bond market is an interesting place for your money to be, there will be a managed fund for you. Similarly, if you are interested in Asian shares, you’ll find you have several managed funds to choose from. All this enables you to get exposure to investments that, individually, would be hard to access. Naturally, managed funds attract fees and these should be closely monitored. And, like all investments, remain aware that the value of the fund can go down as easily as it goes up.

GOOD FOR: Exposure to investments normally difficult to access BAD FOR: Fees

TERM DEPOSITS

In the wake of the 2008 global financial crisis, interest rates on term deposits were up to about eight per cent as banks scrambled for funds. Many people who had seen their super balances slump during the GFC set up SMSFs, with most using term deposits as a defensive strategy. A few years on, term deposit interest rates are about two to three per cent. Generally, rates are higher for larger sums and if you are prepared to leave the money there long-term. But as other investments deliver better returns, term deposits have declined in popularity. Still, they remain the safest and most secure of all investments for the risk-averse.

GOOD FOR: Safety and certainty BAD FOR: Periods of low interest rates

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Your Money Personality

WHAT KIND OF INVESTOR ARE YOU? Are you more inclined to risk your cash for a big return or to stash it under a mattress? Nicole Pedersen-McKinnon helps you decide. Are you a slip, slop, slap or coconut oil kind of person? At a famous bungee jump, are you looking or leaping? Do sharks keep you on the beach – or does the extra rush make the boardride even better? Money can similarly polarise people. And they might even be couples co-investing in joint pursuit of a comfortable future.

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I call your tolerance for risk your sleep-at-night quotient. Just how much risk – which you can really think of as the potential to lose money – you can handle without turning into an insomniac. A number of factors will shape this: nature, nurture and need. We’re all born with a certain inbuilt propensity for excitement and danger, which you could equally consider risk. That’s “nature”. You’ll also have a learned propensity for excitement and danger, shaped and honed through your observation and experience of money and investment. Your parents’ influence, the way they dealt with it and when and how they exposed you to the concepts, was probably key. Financial stress, anxiety, foolhardiness, debt dependence – we unintentionally absorb or actively repel our parents’ economic attitudes. Behold “nurture”. And you’ll be contending with external factors that temper and may even override the previous

two risk influencers. How old are you? How much money do you need? How soon do you need it? Yes “need”. These three vital factors will determine the right investments for you. If you’re already thinking “shares are too risky for me”, you may be entirely wrong. Yes, the credit crack-up was confronting, but you need growth assets such as shares and property to reach your goals. The key is to balance these with more stable, incomeproducing assets. The fortunes of markets can turn on the head of a pin (witness share recoveries of 20 per cent in some 12-month periods in the years after the financial crisis) and you need to be invested to benefit. More importantly though, if you have a safe, appropriate mix of investments in the first place, market fluctuations shouldn’t hurt you too much and it should be easier to psychologically cope. Turn the page for a quick quiz to size up your investment style.

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Your Money Personality

How old are you? How much money do you need? How soon do you need it?

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Your Money Personality

HOW MUCH RISK CAN YOU STAND? Take the “pillow test” to give you some indication of how much excitement you can handle… and the ideal investment mix for you.

THINK ABOUT THE LAST TIME THE SHAREMARKET FELL AND SENSATIONALIST HEADLINES SCREAMED: “$50 BILLION WIPED OFF THE MARKET.” HOW DID IT MAKE YOU FEEL?

a) Like the New Year sales had come early b) Glad you could pick up some bank stock more cheaply c) Confused – why don’t journalists talk in percentages so people know how bad it actually is? d) Happy that you hadn’t invested in the first place

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YOUR MAIN HOPE FOR THE MONEY YOU INVEST IS TO…

a) Make chunky after-tax returns b) Chalk up steady gains that outstrip inflation c) Protect your hard-earned money from market ups and downs d) Preserve your capital and maybe earn some income

IF SOMEONE GAVE YOU A HOT STOCK TIP AT A BARBECUE, YOU WOULD…

a) Buy a bunch of that stock b) Add a little to your portfolio c) Make a mental note to investigate it d) Back away

b) Philosophical – you knew there was a risk c) Disappointed d) Cheated

WHAT WOULD YOU DO IF SHARES YOU OWNED FELL 20 PER CENT OVERNIGHT?

a) Buy more as fast as you could b) Shrug – they’re a long-term investment anyway c) Cut some of your losses d) Panic and sell the lot

WHAT ANNUAL RETURN DO YOU WANT AND NEED ON YOUR CAPITAL?

a) More than 10 per cent b) 9 to 10 per cent c) 6 to 8 per cent d) 5 per cent or less

a) Ready to roll the dice again

a) Essential to my retirement but, just in case, I’m saving separately, too

HOW WOULD YOU FEEL IF AN INVESTMENT YOU MADE DIDN’T SURGE AS EXPECTED?

WHAT DO YOU THINK ABOUT SUPERANNUATION?

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Your Money Personality

b) It doesn’t cost me anything, so it’s all good c) I’m thinking of salary sacrificing to enjoy the tax benefits d) I’m relying on it to clear my credit card debt down the track

HOW OLD ARE YOU?

a) Under 31 b) 31-45 c) 46-65 d) 66 or above

HOW SOON DO YOU HOPE TO STOP WORKING?

a) In 20 years or more b) In 10-19 years c) In 5-9 years d) In 1-4 years

10.

WOULD YOU SAY YOUR PERSONAL MOTTO IS:

a) YOLO: You Only Live Once b) Just enjoy life c) A dollar saved is a dollar earned d) Good things come to those who wait

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Turn the page to calculate your scores and find out your investment personality

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Your Money Personality

THE CONCLUSIONS

Your money personality and “dream” asset mix

Give yourself four points for each a) you circled, three points for each b), two for each c) and one for each d). Then tally your results and see where they put you.

10-15 CONSERVATIVE

and the rest in interest-bearing assets such as bonds and cash.

You are happiest if there’s little chance of losing money. You just have to realise there’s also little chance of making much. Does this fit with your age and your ambitions for retirement? Your dream asset mix: Up to 30 per cent in growth assets (these are mainly shares and property) and the rest in interest-bearing assets (these are mainly bonds and cash).

25-32 ENTREPRENEURIAL

16-24 MODERATE Because you are pretty keen to keep most of your cash, you’re prepared to accept more muted returns. Investments with potential for capital growth, but also income in case that growth doesn’t eventuate might set you up best. Your dream asset mix: Up to 50 per cent in growth assets

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You can cope with a bit of shortterm volatility if it brings you long-term capital growth. You probably don’t care much about income as an investment priority at this stage. Your dream asset mix: Up to 70 per cent in growth assets and the rest in interest-bearing assets such as bonds and cash. (Note: More than 80 per cent of Australians have their superannuation in a “balanced” managed fund, a type of fund split in this way. For younger people, however, it can be a better idea to invest in funds that hold a higher proportion of growth assets as these are the assets that, although risky in the short term, make higher returns over the long term.)

33-40 AGGRESSIVE You want gang-buster investment returns and you are willing to take a fair amount of risk, and accept the volatility that brings, to get them. Your dream asset mix: Up to 85 per cent in growth assets and the rest in interest-bearing assets such as bonds and cash.

A WORD ON DIVERSIFICATION Whatever your sleep-at-night formula, diversification will assist your slumber. This means spreading your investments across the range of the asset classes mentioned above, so that a downturn in one will hopefully be cancelled out by gains in others. Think about whether they are really spread, too. If you have a home, an investment property or two, and a bunch of cash in mortgage trusts, you really hold only one type of asset – property. So that means you are vulnerable to a cyclical downturn in that asset. You should also invest in different sectors within each asset class. For example, a spread of shares including resources, banking and, say, technology stocks, and not just residential, but also

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Your Money Personality

commercial property. Finally, you need to consider the geographical bias in your portfolio. Australia represents only 2 per cent of the world’s market. Besides, if every one of your assets is in the one country, you are incredibly exposed to a local economic downturn.

FINAL WORD Thorough risk profiling is rather more complex than this little exercise suggests. In fact, there is an entire academic discipline − psychometrics − dedicated to such psychological testing. You should also bear in mind that in most risk questionnaires, people come out as more riskaverse than they can afford to be. Remember: you need to be well rested and achieve your investment objectives. Although a risk-free return of 5 per cent a year might sound appealing, it won’t be much good if you actually need 8 per cent to be able to retire when you would like.

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So you have to balance psychology with necessity. In a nutshell, if you are investing for the long term, you will need more exposure to growth assets; if you are investing for the short term, you will need more exposure to interest-bearing and other safer assets. Once you have split your portfolio among the asset classes (then split it further among a big enough selection of top investments within those assets), you need to do your best to leave it there. Not necessarily in particular investments but definitely – until your risk profile changes – in the assets. Then sleep easy.

If every one of your assets is in the one country, you are incredibly exposed to a local economic downturn.

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Goal Setting

WHATâ&#x20AC;&#x2122;S YOUR GOAL

AND HOW SOON CAN YOU REACH IT?

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Goal Setting

Setting your goals is also about discovering possibilities. You can turn your daily cup of coffee into $70,000. But first, you need to decide what you want from your money. Brad Fox, CEO of the AFA, explains the possibilities while Nicole Pedersen-McKinnon tells you how to decide your goals.

ave people been telling you for as long as you can remember that you need to set goals? Your parents might have been among the first and your teachers were almost certainly next. There was probably a sports coach or two, then you finally entered the workforce and your boss – or better still, an outside consultant – ran sessions on goal-setting. They probably said they had to be S.M.A.R.T. goals too if they were to be effective: Specific. Measurable. Achievable. Realistic. Time-bound. Then they said they would review them with you. Of course, in many cases that did not happen and the goals became meaningless. All of these important people in your life meant well and no doubt were passing on the lessons they had been taught: “If you don’t have a goal, how can you achieve it?” It’s a fair point, but a vital step is missing. How do you know what’s achievable? Who helped you imagine a whole world of possibilities before trying to lock you down to choices that were obvious, probably too easy (because you didn’t want to fail) and like everyone else’s goals? Most people tackle goalsetting in a way that excludes

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a lot of possibilities due to the way our society (and family) has conditioned us. Australia hasn’t been a society that celebrates dreamers, inventors or entrepreneurs, but maybe that’s starting to change as we go through a digital revolution. So what about you and your long-term dreams? Has anyone ever spent time with you to explore your own possibilities? It is an incredibly difficult task to be fully honest with yourself,

Financial advisers help people verbalise their ambitions and dreams. and your partner, to explore your hopes and dreams in a meaningful way. In my experience, it nearly always takes a trusted third person to peel back the layers to help reveal the real drivers and motivations that sit inside us. Friends sometimes fulfil this role, but what they usually aren’t so good at is then putting you on the pathway to achieving the possibilities – or keeping you there.

One aspect to consider is how to fund the possibilities you imagine. Simply, can you afford to do that? “That” could be taking a year off work to study, the trip of a lifetime, reducing your working hours or moving to a job with less pay (and fewer pressures). Or maybe it’s to build an investment portfolio that “only rich people have” and that you always thought was out of reach. Maybe it’s to help your children enter the housing market. Financial advisers do this for a living. They can take you through a journey of discovering what might be achievable for you, and I don’t just mean financially. Depending on their style, they often start from helping people define what matters most to themselves, even discovering their “why” or driving motivation in life. They help people verbalise their ambitions and dreams, then help to show them the possibilities to create outcomes beyond what they imagined were achievable. Great financial advice doesn’t limit you. But it often unshackles you to achieve things that would never have been a S.M.A.R.T. goal, because you didn’t know they were possible. BRAD FOX

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Goal Setting

Reaching your goals doesn’t have to be about depressing denial. By deferring spending now, says Nicole Pedersen-McKinnon, you’ll enjoy rewards you can look forward to for many years to come.

top for a moment and think about how much you have earned in your working life. It’s probably a fair chunk of money. What do you have to show for it? Don’t despair if the answer is, not much. The problem may be nothing more than a lack of “future focus”. Here’s the “eureka” moment you need – anything you are able to save now, you will be able to spend later. This means there will be something left to spend later, when you are no longer working and still playing. It’s about deferred spending rather than depressing denial. And you’ll enjoy rewards you look forward to more anyway. Delicious anticipation! But, as I always say, you need strong motivation to resist instant gratification. Shiny, yummy, consumer temptations come at us every day and if we are to walk blithely on by, most of us need a very good reason. Before we get into that, it’s vital you realise the damage you could be doing with seemingly innocent spending. A dollar here, a fiver there ... they’re called micropayments, but before you know it, they can add up to major spending. Indeed, these could be what’s breaking the bank – and

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NO DAILY COFFEE

$100 SAVINGS A MONTH

$70,000 SAVINGS IN 25 YEARS

derailing your future. Previous generations had it right when they coined the phrase “take care of the pennies and the pounds will take care of themselves”. Today the average person can easily spend $1,200 on coffee a year, perhaps $700 on a snack to go with it, a possible $500 more on, say, impulse buys at the register and another $500 or so on movie rentals, song downloads, apps and games. That gives us a grand, scary total of nearly $3,000. But you probably have no concept of how much this is actually setting you back. Here’s what that money could do for you instead. If you saved just the money you might spend on coffee $100 a month - in an account earning six per cent interest (a long-term average), in 25 years you would have close to $70,000. Better still, only $30,000 will have come from you; the rest will be courtesy of the bank. But wait 10 years before you start and, to reach that same balance, you’ll need to save $240 a month – so you have to cut out far more than just coffee. You’ll have to scrounge $43,000 of your eventual $70,000 yourself. Delay another decade and you’ll

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Goal Setting

need to find an eye-watering $1,000 a month to stash away $60,000 of your $70,000 cash. This is your new best friend, compounding – the sheer magic of earning interest on interest – in action. It means the sooner you start squirrelling away money, even small amounts, the easier it is to amass a lot! Also, it means you will need to rely less on big returns and the extra risks they demand. While micropayments are doing nothing but holding you back, micro-deposits significantly advance your progress towards your hopes and dreams. So in the immortal words of the Spice Girls, tell me what you want, what you really, really want. You’ll need very clear short, medium and longterm goals to overcome the temptation to simply spend what you earn when you earn it. And whatever the timeframe, repaying debt puts you in the realm of financial geniuses. When you’re in the red and paying interest, compounding is working against you. Ditching debt gives you a risk-free, taxfree effective return equal to your interest rate (more about that in a moment).

HERE ARE SOME IDEAS TO GET YOUR BIG LIFE GOALS UNDERWAY: IN THE SHORT TERM:

1-2 YEARS

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Think fun! A holiday in Thailand next year … or a more expensive, longer sojourn the following year. A new couch. Maybe even a new kitchen. These are the sorts of goals you should focus on in this period - the relatively instant pay-offs. These are beautiful money targets, because they make you feel like you are really achieving something. (Whatever you do, never use credit for something experiential, for which you’ll have nothing to show afterwards but photos.) Also, cast your mind towards the future: pay off a credit card without forking out a fortune in interest, or clear that car loan years early.

IN THE MEDIUM TERM:

3-5 YEARS

In this period your car might need replacing. Plan this far ahead and - rather than automatically borrowing for what is one of the worst investments - you could pay cash. Put aside $140 a fortnight and in five years with a top savings account, you’ll have $20,000 to buy a car. The alternative is buying a car upfront, then paying about $27,000 including interest for it over five

years, or $205 a fortnight. In this timeframe you might also like a new kitchen. Same deal.

IN THE LONGER TERM:

5 YEARS-PLUS

The ultimate goal for all of us should be to retire with no personal, or non-investment, debt. The other holy grail of retirement is a big-enough asset base – super, a separate share portfolio or property for example – to generate an income adequate to replace your salary (or the recommended twothirds of it). Let’s talk a little more about your potential debt freedom. Make this a priority and you will be laughing all the way to the bank (or usually the far cheaper home lender, the non-bank). If you have the average $350,000 mortgage debt at a five per cent interest rate and stick to the banks’ 25-year repayment schedule, interest means you’ll fork out an extra $264,000. But if you can manage to throw just $100 more a month at your mortgage, you will save more than $26,000 and clear your debt three years early. If you are able to repay an additional $500 a month, the savings leap to

And whatever the timeframe, repaying debt puts you in the realm of financial geniuses.

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$93,000 and nine years. It’s also possible to make these same savings free. Those nonbank lenders I mentioned earlier typically offer mortgage interest rates at least one percentage point cheaper than the big guys. By simply switching your loan to them and keeping your repayments the same, you slash your interest bill twice: through under-cutting and over-paying. All of a sudden, you’re putting in nearly $200 more a month and it’s not costing you a cent above what you’re used to paying. This pain-free strategy slashes your interest bill by almost $100,000 and brings your debt-freedom date forward by five years. You can find your own potential time and money savings on my free Mortgage Freedom Date calculator here: themoneymentorway .com/#!/mortgage-cal. Beyond all these savings, when your mortgage is repaid you will also have possibly $2,000 extra each and every month with which to achieve everything else that you want. “Hang on,” I hear you say. “Isn’t super supposed to be taking care of my retirement for me?” It’s crucial you realise that mandatory 9.5 per cent super contributions are

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✁

Goal Setting

This pain-free strategy slashes your interest bill by almost $100,000 unlikely to sustain you for the whole of your sunset years. The industry body that calculates these things, the Association of Superannuation Funds of Australia (ASFA), says a couple needs an annual income of $59,000 to fund a “comfortable” retirement. Comfortable is defined as including some leisure and recreational activities, occasional clothes and other shopping, private health insurance and a bit of travel. It’s far from lavish. ASFA also assumes in its calculations that you own your own home. Debate is raging about what kind of super stockpile you need to generate this kind of money. A million dollars is a figure often bandied about, although some pundits are disputing whether this is enough at current rock-bottom rates. Certainly, you’d need an annual investment return of six per cent for $1 million to yield the ASFA income estimate. But that assumes you never touch your fund itself and simply live off the income, so in reality you could

get by with far less. My advice is to be alert but not alarmed – and simply target your biggest possible balance. There’s a great calculator by the regulator at moneysmart.gov .au/tools-and-resources /calculators-and-apps /superannuation-calculator that lets you project your super balance and the huge benefit of additional before and after-tax contributions. Again, it’s all about compounding, so start early. And watch like a hawk that your fund’s returns are high and its fees low. You want to make this as easy as possible on yourself. Now you’re in the know, be sure to include repaying your mortgage and building a nice little nest egg in the list of your personal money goals (right). Write beside each one the date you’d like to achieve it. Then put an estimate of what the goal will cost and how many pays until your target date (so if the target date is five years away and you are paid fortnightly, multiply five x 26). The moment of reckoning is to divide the cost by this number of pays to find the amount to put aside from each one.

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✁

Goal Setting

YOUR MONEY GOALS (1-2 YEARS)

SHORT-TERM GOALS Goal

Target date

Total

Cost

No. of pays

Savings per pay

(3-5 YEARS)

MEDIUM-TERM GOALS Goal

Target date

Total

Cost

No. of pays

Savings per pay

(5+ YEARS)

LONGER-TERM GOALS Goal

Total

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Target date

Cost

No. of pays

Savings per pay

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Goal Setting

WORDS OF WISDOM FRAUD

“To avoid fraud,

never write cheques payable to your adviser if the money will be used for investments. Make the cheque payable to the product provider instead.”

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THE QUESTION IS, CAN YOU AFFORD ALL THIS? Your personal financial situation, otherwise known as your budget, basically comprises four elements – your income, fixed costs, discretionary spending and saving. You can look at your pay slips and bank accounts to see how much income you receive after tax each pay period, remembering to add in any that come in cash. And don’t forget, this should grow as you strive to get in control of your finances. You can also use many strategies to cut your fixed costs and discretionary spending. Get wise. Using credit to continually spend more than you earn has the greatest potential to sabotage your future. To be a

financial success you don’t have to be particularly clued up, but you can’t be clueless either. What of micropayments, the guilty little pleasures that can inflict seriously big financial pain? I am not suggesting you abstain completely, because this is the stuff that makes life that bit more fun. The key is to figure out what you are spending and how much you can actually afford to spend. Then make this amount – and this amount only – your designated fritter fund. A good trick is to count down this cash – or virtual cash. If you have an available $40 a fortnight, keep track of what’s left either on a bit of paper or online. When there’s no more money for incidentals, there’s much

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Goal Setting

you can do to sweeten your days that’s always free. Think picnics in the park, home cinema … and your waistline might also benefit from treat relief. If you still can’t afford everything you want, you may have to push back the target dates of some goals. Bear in mind, it’s advisable to put at least 50 per cent of your available money towards goals that are going to increase your net worth. That means, if you carry over any credit card debt from month-to-month, have a personal loan or have a mortgage, paying these off should be at the very top of your priority list. They should be in that order, too, assuming the interest rate

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Using credit to continually spend more than you earn has the greatest potential to sabotage your future

is highest on your credit card and lowest on your mortgage. But the decision is yours whether to use your full 50 per cent to pay all your debts off first, then start channelling the freed-up money into super and investments, or whether to – from the beginning – pay down your debt and invest at the same time. The right choice for you will come down to your tolerance for risk. No one should want money for money’s sake. You should want it for the options and opportunities it brings to secure you and your family the life you dream about. Surely that’s the motivation to get a handle on your future?

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Getting Advice

WHERE TO FIND FINANCIAL ADVICE There are plenty of places offering financial advice. But where do you start? We take you through the main options.

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Getting Advice

YOUR BANK The first place most people go when seeking out anything financial, and this includes advice, is their bank. Most banks will have a wealth management arm or private bank where advisers are licensed to offer financial planning to customers. When going to a bank, you must be aware that you are likely to be sold or advised primarily on that bank’s products. Just like stepping into a McDonald’s store, you will be sold a McDonald’s burger and chips – you won’t get the option to check out Hungry Jack’s.

PROS: Huge resources, great research

CONS: P roduct choice limited

to bank brands, limited number of advisers

YOUR ACCOUNTANT For those fortunate enough to have an accountant, this may be a good starting point when starting to get financial affairs in order. There has been considerable consolidation meaning many accountancy practices are also equipped to offer financial advice. Accountants need to be appropriately licensed to offer you financial advice so make sure they at least have their Australian Financial Services License and the experience.

PROS: U sually fixed fees for advice, CONS: Often not financial advice

specialists; watch fees on SMSFs

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YOUR SUPER FUND

ASIC REGISTER

A lot of Super Funds have some level of advice that they offer their members. This advice is often around what the fund can offer in terms of investment and insurance options. The advice is general in nature. If you want anything more complicated, then it is worthwhile seeking out a professional adviser. Some super funds have relationships with financial planners they can put you on to.

In March 2015, the Australian Securities and Investments Commission launched its own list of financial advisers. The register houses the entire marketplace of approximately 24,000 financial advisers across Australia. The register lists key attributes of financial advisers, including employment history, specialties, qualifications, years of experience, memberships and whether they have any black marks or previous disqualifications against their name. The list is comprehensive, and has been implemented to help consumers know their adviser’s background.

PROS: C ost effective (often free) CONS: U sually basic general advice only

AN ADVICE ASSOCIATION There are several associations in Australia that look after the interests of financial advisers. The three most prominent associations are the Association of Financial Advisers (AFA), The Financial Planning Association (FPA) and the SMSF Association. They have differing levels of membership depending on the experience and level of qualifications. All advisers that are members abide by the different association’s code of ethics. The Associations also provide a “Find an Adviser” service on their website for customers. The AFA has a Your Best Interests video channel showing real life stories and scenarios to help educate clients.

PROS: C overs entire financial

PROS: Advisers abide by

PROS: C omparisons and consumer

association’s code of ethics, easy search functionality CONS: T hey do not cover the entire marketplace

advice marketplace CONS: S earch functionality limited, difficult to compare

ADVISER RATINGS The Adviser Ratings register is the ASIC list with additional benefits. It lists all the components of the ASIC register next to each adviser, such as qualifications, experience and disqualifications - but then rates them to make it easier to compare. It also allows existing or previous customers to review their adviser, like a Tripadvisor of the finance industry. The skills of advisers are also rated by customers to help new customers get matched more appropriately.

reviews makes it easy to choose the right adviser CONS: N ot all advisers are on the site yet

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The First Meeting

DO A LITTLE HOMEWORK A FINANCIAL ADVISER. You’ve found a new financial adviser. Jeff Thurecht, Director and Financial Planner It’s the morning of the first meeting with your new financial adviser. How do you want it to go? You might start listing questions – about the adviser, about the process, about your situation, about lots of things. But to ensure you get the most out of the opportunity, it’s important you take a little time to prepare. As American IndyCar driver Bobby Unser once said: “Success is where preparation and opportunity meet.” The first meeting is usually about getting to know each other, understanding how the process works and gaining a feeling that you can work together. Your adviser may ask you to do some things before the meeting, such as collect information. It’s really important you follow through on these requests. It also makes sense to take the time to get yourself ready. After all, it is all about you!

HERE ARE FIVE THINGS YOU CAN DO Write down your questions. There is always a lot to think about when doing anything for the first time. As things fly through your mind, write them down so you can be in a position to ask them in your meeting. Some ideas you might want to consider are:

1 What do you want to know about your adviser?

2 How will you choose whether you will continue to work with an adviser?

3 What are you hoping to get from an ongoing relationship?

hat, specifically, triggered you W to make an appointment?

5 What are the burning issues that you would like addressed in the first meeting?

To ensure you get the most out of the opportunity, it’s important you take a little time to prepare.

FP_56-57 Beforehand.indd 56

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The First Meeting

TO MAKE THE MOST OF A IT’S ALL ABOUT YOU. at Evalesco Financial Services, tells you how to prepare for the first meeting. A lot of those areas are likely to be addressed in the first meeting. You can tick them off as you go and come back to any that aren’t covered to your satisfaction. UNDERSTAND YOUR CURRENT FINANCIAL POSITION You aren’t expected to know everything or have a tight grasp on all of the detail of your current position at the start. But it does make sense to have an idea of where you stand. This is your starting point on the journey to achieving your life goals. Your adviser will want you to bring information, like recent loan statements, superannuation statements, investment account balances, group certificates and insurance information. Don’t worry about trying to work out what it all means. Your adviser will help you make sense of the information. If you have a budget, that’s great. Take it with you. If you don’t, that’s fine, but give some thought to how much you realistically earn, spend and save on a monthly basis.

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THINK ABOUT YOUR GOALS AND ASPIRATIONS What’s important to you? What unmet aspirations do you have that may require money, time or planning to achieve? It’s easy to get caught up in the detail of conversations around money. Now is a great time to step back and think about the bigger picture. How can creating a financial plan help you achieve the things important to you? Understanding your current position gives us a starting point for our journey. Understanding your goals and aspirations gives us a destination. SORT OUT THE LOGISTICS It’s often easy to miss some of the key details, so sort out the logistics in advance of seeing your adviser. Make sure you know where you’re going for the meeting and how you’re going to get there. Make sure your know who you’re meeting, at what time and how long the meeting is expected to take. Importantly, ensure your spouse, partner or other key decisionmakers can be at the meet-

ing. Often in a relationship one partner is primarily charged with managing the finances. However, it is really important that everyone is on the same page about the process and what’s important. There is no better time to cover this off than right at the start. OPEN YOUR MIND When it comes to financial advice, there are lots of opinions. There is a lot of noise from the 24hour news cycle and it’s easy to get caught up in it all. And, it can be a scary. But most of this noise is irrelevant to your situation and often not indicative of what you are likely to experience. In selecting your financial adviser, you will have done some research, maybe online or through referrals, and may have an idea of what to expect. That’s great and will give you some comfort. From there I would encourage you to open your mind. Park your preconceptions at the door. Be willing to enter into an open conversation that may go to places you never expect, which in turn may lead to outcomes beyond your wildest dreams.

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Adviser Checklist

HOW TO CHOOSE YOUR FINANCIAL ADVISER Want professional help to achieve your financial goals? AFA president Deborah Kent shows you how to choose the right partner. If you are reading this, congratulations – you are taking the important first step to securing your financial future. Choosing the right financial adviser is a critical part of that decision. Your financial adviser should be someone with whom you can build a long-term relationship. Someone you trust to hold your hand through the ups and downs that life throws at you. In a nutshell – someone you can count on. There are any number of myths around seeking advice. My colleague, Melinda Houghton of Aon Hewitt Financial Advice, writes on the AFA website: “There is still a legacy of thinking that if you want to work with a financial planner, you need to be rich first. Kind of like cleaning up your house before the house cleaner comes!” How do you go about finding the right person to form such an important partnership?

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YOU NEED TO DO SOME RESEARCH. TRY THIS CHECKLIST OF 10 THINGS TO CONSIDER:

Referrals from friends or professionals, such as accountants and lawyers, are a great place to start, as they will have had experience.

There are websites where you can look for a financial adviser in your area: yourbestinterests.com.au has a list of qualified advisers. Adviser Ratings (adviserratings.com.au) has client and professional ratings. ASIC’s MoneySmart site (moneysmart.gov.au) has a register.

You must feel comfortable with your adviser and they should resonate with you. Ask if he or she is the principal of the business. If so, who in the business can help you if they are unavailable?

Your adviser should listen. They need to understand what it is you seek to achieve and what is important to you. They should ask you questions that are thought-provoking and engaging as part of this process.

If they have their own company, are they self-licensed or are they licensed through another entity that is ultimately responsible for the advice? If self-licensed, ask about professional indemnity insurance.

What kind of services can they provide at the start and in a long-term relationship? Find out what an adviser can and cannot do. Once you’ve found the right one, you don’t want to have to change as your circumstances do.

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Adviser Checklist

Do they have a professional certification such as the Fellow Charted Financial Practitioner (FChFP)? How long have they been practising?

By law, advisers must explain in advance all of the remuneration they will receive from advising you so be comfortable with any fees and commissions.

Is your adviser a member of a professional body like the Association of Financial Advisers (AFA), with a strict Code of Conduct? They should be.

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Lastly, check on the ASIC Register for their background. A brief Google search wonâ&#x20AC;&#x2122;t go astray for additional information or the public profile of the financial adviser. One of the hardest things for an adviser is managing the constantly changing investment environment and your changing circumstances. This is why you need a competent professional who will continue to review your plan with you. It should be a rewarding relationship for both of you.

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Fees & Charges

HOW MUCH SHOULD YOU PAY FOR ADVICE? Financial advisers have moved from selling products and receiving commissions to the more transparent fee system. Here’s how you can work out what you should pay. By Brad Fox, CEO of the AFA. Paying for professional financial advice is much the same as paying for other types of professional services. It comes down to the size and complexity of the issues that you want to solve. Simple problems cost less than solving complex ones.

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As the client, you always have the right to discuss the fees you are paying to make sure you are receiving good value.

Most financial advice fees are structured in one of three ways: An hourly rate, where the client will be charged on the basis of the number of hours that it takes to provide the financial advice and to implement it. It is important for clients to understand how many hours are likely to be required and what the hourly rate is. Depending on the experience and qualifications of your adviser, this fee would typically be between $175 and $375 an hour. Some advisers will agree a flat fee for a clearly defined package of advice and services. It is important that you fully understand what you get for the flat fee and be sure that the package will address the issues you want to solve. Others will charge a per centage of your assets that they advise on – this will normally exclude things like your house. With this method the amount that you pay will be directly related to the total value of your investments. Where your investments go up in value, the remuneration to the adviser will increase. The reverse will also occur - if your assets decline in value, the adviser’s remuneration falls, aligning them with your interests. An example would be a 1 per cent ongoing advice agree-

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Fees & Charges

ment on a portfolio of $100,000 means you will pay $1,000 a year. Just remember if you have extra funds to invest, the adviser will be paid more if you add to you porfolio rather than, say, paying off debt. Make sure this has been considered. Some advisers use a combination of the fee models. It is possible for fees to be paid from your investment or superannuation account rather than you making a separate payment from your bank account. There are tax advantages to consider here that you can ask your adviser about.

Financial advisers disclose all fees at the time of providing the advice and are required to give you an annual fee disclosure statement setting out the fees paid over the last year and services provided. As the client, you always have the right to discuss the fees you are paying to make sure you are receiving good value. And by the way, advisers canâ&#x20AC;&#x2122;t be paid by commissions for any new superannuation or investment accounts that they arrange for you. What about paying for life insurance and income protection

advice? Life insurance advice can be paid for by hourly rates or flat fees, or your adviser may offer you the choice to pay all or part of their fee by way of a commission. This means that from the cost of the insurance that you pay to the life insurance company, the insurer pays part of that amount to your financial adviser. If you choose to pay a commission, your adviser will clearly explain in writing to you what they will receive before going ahead with any advice. Commissions can make it easier to afford quality advice but the choice is yours.

Generally financial advice is broken down into three steps and these days most advisers charge a separate, clear amount for each one.

STEP 1

STRATEGY FEE A good way to think about this is it is like paying an architect or a designer to draw up plans for a renovation to your home. You talk about what you are looking for and they go away and design the plans. Financial advice usually starts where you and an adviser discuss possibilities, and then agree what it is you would like to achieve. The expert creates a financial plan to get you from where you are today to where you would like to be. Depending on complexity this could range from as low as $500$1,000 for simple matters.

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STEP 2

IMPLEMENTING THE PLAN Using home renovation as an example again, this stage involves getting the plan built â&#x20AC;&#x201C; the chippies, the sparkies, the roofers, painters and so on. Financial advice businesses offer an implementation service so that your financial plan moves off the paper and gets put into action. This involves things like the paperwork, applications, life insurance underwriting, consolidating superannuation accounts and setting up investments. They will quote and agree a fee with you.

STEP 3

KEEP YOUR PLAN ON TRACK Just like maintenance on a property. It is so easy to lose focus and get distracted by everyday life. Financial advisers take on the role of personal trainer or accountability coach to help you ensure that the plan stays relevant to what you want to achieve. Of course, overseeing investments is important, but the greatest value can be in helping you stay on track with the promises you make to yourself about using your money.

29/09/2015 4:10 pm

How To Assess The Advice

ARE YOU GETTING THE RIGHT ADVICE? Dianne Charman, Senior Financial Adviser and Managing Director of Jade Financial Group, takes you through the steps that ensure you get your plan right.

n sales, they call it “buyers remorse”. You’ve got a strategy but there are lingering doubts. Working with my clients over the years, the one thing I find that overwhelms people is when they are faced with a plan and have to assess if it is right. But the reason you started this journey was to get organised for your family and achieve your financial targets, so the quickest way to know if you have the right strategy boils down to one question: does it achieve my goals? The benefits along the way can often make it seem that the focus is on, for example, reducing tax - but how does that help you achieve your goals? The insurance seems expensive and although you know you need it - how does it help you achieve your goals? You can answer these questions by working on each element with your adviser. Here’s some useful checks:

GOALS – THE KEY TO ANY FINANCIAL ADVICE YOU’LL RECEIVE If you’ve not made your goals clear to your adviser, then the strategy may not be the right one. You’ll often find that by talking these through with your adviser,

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it’s easier to set out what you want to achieve - and you may find you have a few more goals than you thought!

HAS YOUR FINANCIAL ADVISER UNDERSTOOD YOUR GOALS? If you’ve taken the time to explain your goals and the strategy you’re given doesn’t clearly address how they are to be achieved, speak to your adviser at once.

DO YOU UNDERSTAND THE STRATEGIES? AND WERE OTHERS CONSIDERED? Often the research and strategy options your financial adviser has considered for you may not be in your Statement of Advice in detail, but in the working papers. The adviser may walk you through the other options considered and why they were

not appropriate. Ensure you ask about the other options that were considered. If they are not able to share this with you, it’s a warning for you to reconsider the strategy. You may need another opinion.

DID YOU GO THROUGH A BUDGET AND CASHFLOW EXERCISE? We often avoid looking in detail at what we spend our money on, but this is an important part of building a strategy. If you’ve not reviewed your current expenses and the extra ones added on, it’s important to understand how the adviser suggests the new costs will be covered.

HOW WILL YOU KEEP TO THE STRATEGY? We all start off with good intentions and then life happens. How you track to the strategy is important to see if it’s the right one for you. We know we often have to change our own behaviour to achieve our goals. What support will you receive and how will your success be tracked? The relationship you build with your financial adviser is paramount to achieving your goals and the strategy is the path to getting you there.

29/09/2015 4:13 pm

Wealth Check

LIFE’S LIFE’S DEFINING DEFINING MOMENTS MOMENTS

GETTING MARRIED OR ENGAGED

Have you considered who your beneficiaries are? Build your wedding budget Time to share your finances Get a will

GET THE ANSWERS

www.yourbestinterests.com.au

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29/09/2015 4:13 pm

Real people talk advice

Warren Crawford (Client) Recruitment, 30-35

When asked what stopped people seeking financial advice, Josh Wingrove of Pursue Wealth in Melbourne said “sometimes people think it’s a big move

about your future”. On choosing the right adviser, Warren said the advisers background was important. “Qualifications and the type of advice they specialise in – they should

to see a financial adviser, so they put it

be able to offer advice in the area you’re

on the back burner”. He added “It can be

looking at, retirement advice versus

a bit scary disclosing your entire financial

advice to someone like me”. Warren

situation to someone, so we try to make

was also a regular user of review sites

them comfortable and get to know them…

when deliberating on purchases. “I think

once the client has trust, we can start

they are very valuable, public opinion is

coming up with service options.” Many

big…reviews are important (in finding

people agree that getting advice for

out) what other people are saying”.

retirement is a good idea. But putting it

As someone whose service has been

on the “back burner” wasn’t an option for

reviewed, his adviser Josh also mentioned

Warren Crawford, who gets advice from

how review sites can benefit his business,

Josh. “A lot of friends I speak to are curious

in providing a mechanism for unbiased

that I have an adviser, they wouldn’t

feedback. “After a session we ask our

have thought I earn enough or own

clients to go through Adviser Ratings to

enough to have an adviser,

get feedback”. “We found that some of

but you don’t have to

our processes were a little weak, so we

be a millionaire to be thinking

were able to change them based on that feedback”.

Josh Wingrove Pursue Wealth, Melbourne

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1/10/2015 2:45 pm

Mike Bower (Client) Sales Rep, 60-65

When asked the reason for so many people not seeking advice Justin Mitchell from Integral Financial Planning on the Gold Coast said it was probably “fear of

“it’s important they’re respectable and have been around for a while. I would

the unknown”. “Not knowing how financial

check out some reviews of

advisers can help them and what it costs”

them, do a bit of research and take

he said. His client, Mike Bower said he

it from there”. Mike was a big believer in

always knew he had to get an adviser, but

research and review sites in general. “They

just kept putting it off. “For me and the wife

give customers much more knowledge

now, we’re very happy. It probably would

about credibility…reviews are critical – you

have been very different now if I didn’t have

know the car salesman is going to tell you

an adviser.” Both Mike and Justin felt that

the car is great but these days people are

feeling comfortable in the relationship with

more savvy – 20 years ago it was different”.

the adviser was a top priority. According

Justin had a similar view “(they) apply to

to Justin, “advisers have similar products

every industry now and most services. I

and strategies so rapport, relationship and

myself look for reviews to validate a service

service… being comfortable in approaching

I’m looking for. You don’t take anything at

an adviser with any issues and concerns

100%, but it certainly helps and is a good

is very important.” When asked about

starting point.” Mike went on to add ”You’d

Justin’s service, Mike added “Justin was

have to be crazy not to have an adviser…

good at getting back to me, making my life

they see changes all the time, in taxes,

easier, filling out forms and helping me

super, benefits – normal people like me

understand benefits”.So the relationship

aren’t up on these things. It’s the same

is paramount, but how can you find an adviser in the first place? For Mike, an adviser’s background was important

as any industry, I know about all the new developments and happenings in what I do that people not in my line of work wouldn’t have a clue about…it just makes sense.”

Justin Mitchell Integral Financial Planning, Queensland

adviserratings.com.au

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1/10/2015 2:45 pm

Superannuation

SUPER OR SUPERCHARGED Industry superannuation fund or SMSF? How to gauge what’s best for you. By Jacqueline Fox. For today’s Australians, their retirement experience will be entirely different to that of their parents. THE TWO KEY REASONS WHY Firstly, people live for many more years into retirement, which means retirement really is a “Third Age” where much more quality living can be enjoyed. Australian men aged 65 in 2015-16 can now expect to live for another 19.2 years, while for women the figure is an extra 22.1 years. And, of course, it needs to be funded. According to the Australian Bureau of Statistics (ABS), the average age at retirement for people 45 or over in the past five years is 61.5. Of the 1.5 million men who retired, a quarter left the workforce when they were under 55, half between 55 and 64 and a quarter after 65. Of the 1.9 million women, half retired under 55, just over a third left between 55 and 64 and nine per cent when over 65. The second big difference is that earlier generations relied on the federal government-funded age pension in their later years. Today, Australia’s compulsory

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Of the 3.3 million people 45 or over who retired, two million or 61% made contributions to a superannuation scheme. superannuation savings system is 23 years old and in the next few years people who retire will have been in that system all their working lives. Many will still rely on a reduced age pension – and get the cheap medicines and health care associated with it – but for more and more people, superannuation will fund the major part of their retirement years. ABS figures tell us that of the 3.3 million people aged 45 or over who retired, two million or 61 per cent made contributions to a superannuation scheme.

Of those who did, 55 per cent received all or part of their superannuation funds as lump sums (54 per cent of men and 57 per cent of women). Many used them to pay off or improve their home, buy a new home or buy or pay off a motor vehicle. Some reinvested in a bank account or approved deposit fund, deferred annuity or other form of superannuation – but more than 60 per cent said they now relied on a government pension to fund their retirement. Many people do not engage with this issue until late in their careers as retirement looms: for those, the federal government recently created MySuper. These are low-fee accounts with moderate-risk investment strategies designed for people who have a “set and forget” attitude to their retirement savings. At some point most will take a greater interest in their super and

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Superannuation

want greater engagement, more control and to make their own decisions on strategies and pension-phase outcomes. Most superannuation funds offer investment strategies to suit people at different stages. A young person, for example, is likely to favour a more aggressive investment strategy than someone approaching retirement, for whom preserving the lump sum is the priority. Over the past two decades many Australians have opted to create their own superannuation funds, leading an explosion in the number of self-managed funds (SMSFs). While many wanted greater control over their super, others – particularly small business owners – wanted the significant advantages available under an SMSF, such as having the fund own business premises or buy

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life insurance for members. Up to four members are permitted. Many people turned to SMSFs when they saw their retirement savings slashed by low returns and hefty fees during and after the global financial crisis of 2008: they decided they could do as well, if not better, managing their own money. In 1994 there were about 80,000 SMSFs. Now there are more than 500,000, with $543 billion in assets. Unlike industry and retail super funds, which are regulated by the Australian Prudential Regulatory Authority, SMSFs are regulated by the Australian Taxation Office. There are strict reporting, auditing and compliance rules, and a whole service industry has developed for SMSF trustees who want to outsource the more complex operational tasks.

The financial advice industry is also closely engaged with the SMSF sector. At the transition to pension point, many people buy an annuity, which guarantees an income stream for the rest of their lives, and supplement that with investments that can also remain inside the original SMSF. Retail and industry funds (see j.mp/super-fund-types for definitions) have responded to many of the innovations people found attractive in SMSFs and have renovated the products (and fees) they offer to the public. Superannuation is no longer a “one size fits all” issue – but for people who wish to engage closely with their super, particularly via an SMSF, the onus is now on them to make the right choices and investment decisions to fund their “Third Age”.

29/09/2015 4:14 pm

Your Rights

WHAT CAN YOU DO IF THINGS GO WRONG?

There is a power imbalance, but you have rights. Former CHOICE spokesman and AdviserRatings campaigns director Chris Zinn explains how they work Enforcing your rights around financial advice should be simple. You are paying for a competitive service, which is regulated, from qualified people, who are licensed, to act in your best interest. The providers should be expert in their stated areas, open and transparent in their dealings and fee structures and, where necessary, answerable for any shortcomings to you and other authorities. But there is a power imbalance. As consumers we are usually amateurs in the field of planning our financial futures – which is why we need professionals to help us make sense of our goals and help us to reach them. In such markets, especially those where our money, trust and time are at stake, we need rules that redress some of those

imbalances. It also helps to be empowered by independent information and incentives to help make wiser choices. Financial planners do not, and shouldn’t, claim to have second sight when it comes to investments. They might recommend types of products to place your savings, but markets – as the GFC proved – move both up and down. It’s not their fault! However, various scandals involving planners have led to long talks around how best to transform advice from an industry to a profession with the Future of Financial Advice (FoFA) laws. While there is still debate on certain aspects of these protections, it might not pay waiting for the legislation and disclosures to be perfect. Every year’s delay in

Your Rights

taking the advice of an expert and trustworthy planner could impact on your financial goals. The more you know about what your rights are should anything go wrong, as well as appreciating your responsibilities to make sure they go right, the less chance you’ll be stung by poor practices. RIGHTS Amongst the most basic protections for consumers is the need for the authorisation under an Australian Financial Service Licence (AFSL) of anyone giving financial product advice. Planners must work under the oversight of a licensee, which may be a large firm in itself, to ensure compliance with the rules and sufficient training. It’s a safeguard to ensure there are adequate standards, but wasn’t sufficient to head off the conflicts of interests between the planner and consumers that have plagued the sector. After high-profile collapses, such as Storm and Westpoint, ruined many older Australians’ retirement plans, the debate over FoFA began in earnest. The key issue was so-called conflicted advice. Some “planners” were more seduced by the size of their commissions for selling such investments, rather than warning their clients of the risks of catastrophic losses. There has been a total move away from commissions for superannuation and

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There’s also greater disclosure rules on fees, which makes the cost of getting advice more transparent.

investments to provide transparency for the consumer of services for the planner. FoFA has also spelled out a best interests duty for planners that removes some of the ambiguities around the clients’ wellbeing being paramount. There’s also greater disclosure rules on fees, which makes the cost of getting advice more transparent. In turn this allows better comparisons between different types of planners, hence unleashing more competition. RESPONSIBILITIES You need to be honest and thorough with the planner about your assets, income, potential income and your appetite for risk. The better picture they have, the better job they can do for you. Try to be comfortable with some basic ideas around investments such as; the trade-off between risk and reward (the greater the return, the greater

the risk of losses) and the wisdom of diversification (don’t put all your eggs in one basket). Keep an eye on your investments and, given rare instances of fraud, don’t hand over total control of your money. The government’s MoneySmart website (j.mp/ finadviceprobs) says reputable planners should not ask to be granted your power of attorney. WRONGS Planners might not be responsible for market crashes, but they can be liable for misconduct and compliance breaches. If you are dissatisfied with the service, the first stop is to talk to the adviser. If that doesn’t work there’s the internal dispute resolution system, details of which should be in the financial services guide provided by the planner. If there’s still no joy, you can escalate the matter to external dispute resolution schemes. Your planner must tell you to which one they belong. You can also complain to the adviser’s professional body, take the matter up with the Financial Ombudsman Service (FOS) or seek legal advice. As ever, prevention is better than cure. If you don’t feel happy about your adviser and their service, ask questions. If still not satisfied, take it further. You have considerable rights in the area, but a little homework around what your options are can save much heartbreak.

29/09/2015 4:59 pm

Real people talk advice

Dave Sullivan (Client) Single Dad of 6 children, 65-70

Daniel, as co founder of Warrington Scott, has seen his practice flourish over the last decade. “At the end of the day, your

When I moved back home to Australia with my family, Daniel sorted out all my insurances,

clients need to know you’re in control and

government assistance payments and UK

you know what you’re doing. I have a great

pensions.” Daniel added it was these life

relationship with all my clients.” Dave,

defining moments that really shows the

Daniel’s long time client, counts trust and

value an adviser can bring to someone’s

integrity as a key attributes in an adviser.

life. “it’s not only about helping my clients

“Yes, he manages my money, but in doing

achieve their financial goals, but ensuring

so he makes sure I understand every

you are there through those challenging

investment and every decision regarding

times and taking away the sometimes

my money” exclaimed Dave.“My life was

worrisome task of financial management”.

turned upside down quite suddenly when

Both Daniel and Dave agreed that the

my wife died. I was working long hours

opportunity for clients to review their

as a train driver in the UK – my wife was

advisers is important to help people

the one who managed our household

understand the good that many advisers

budget and finances, whilst holding down

do for their clients. Daniel said “I think a

two jobs. I suddenly became

review site is nothing but great for the

a single father of six

industry – it showcases the value we

children with no

bring to people’s lives.” Dave agreed

income coming in. It was a hard time for us.

“everything and everyone is reviewed these days. It makes it a much easier decision process.”

Daniel Sharp Warrington Scott, Sydney

adviserratings.com.au

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1/10/2015 3:14 pm

Fun Investments

TEN

FUN INVESTMENTS They won’t break the bank – and might even make a profit, writes Jacqueline Fox Mention the word “investment” and most think of real estate or shares – big money and maybe big risk. But investing doesn’t have to be large scale. It can be low-cost, low-risk – even a bit of fun.

ANTIQUES

As a get-rich-quick scheme, antiques are rarely a good investment. But for those who like to live with fine things and enjoy them over the years, antiques can often perform as well as stocks and bonds. According to Britain’s Antique Guild, a study that compares investing in furniture with stocks and bonds noted that furniture performs as well as shares, but silver and gold will, at a minimum, hold their value.

JEWELLERY

Most people buy jewellery, but – for those with a real love of precious stones – taking the time to consider which items hold true intrinsic value can really pay off.

Grange Hermitage, one of the most expensive, would have been strong, he adds.

STAMPS

With Australia Post moving into the digital age, the humble postage stamp may soon be obsolete and collectors are always on the lookout for a rare one. So it might be worth digging out the old stamp collections you had when you were a kid.

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ART

“Like beauty, art is in the eye of the beholder,” Munro says. “But when a shark suspended in formaldehyde sells for $8 million, there’s clearly money to be made with the abstract”

COINS

Financial planner Peter Horsfield says coins are a popular investment choices for collectors. “The obvious risk with this investment is fraud and theft,” he warns.

TIME SHARE

Time share purchases are more a lifestyle investment than financial, says Horsfield. Be mindful of annual costs, your frequency of use and costs of travel there. “Due diligence, as with any investment, is paramount here.”

WINE

Good-quality wine that is cellared correctly will generally always rise in value, says Kane Munro, director of Accountancy Online. The temptation to drink the 1951

looking for, because a $10 vinyl can fetch 50 times that if you find a musical diamond in mint condition. For instance, a 1963 pressing of The Freewheelin’ Bob Dylan is worth US$20,000 to US$30,000.

VINYL RECORDS

Most weekends many people search garage sales and flea markets for vinyl. You need to know what you’re

CLASSIC CARS

There is a club out there for every conceivable make and type of car. If you love your cars and enjoy restoring old ones, then it’s a very lucrative market. Says Munro: “When someone can sell a 1960 VW Kombi van for $202,000 [earlier this year in Melbourne], you know there’s money to be made for the astute fixerupperer.”

SMALL BUSINESS

You read the stories every day: the collector who turns a passion into a fortune. “Like-minded people can make anything happen in business,” says finance author Elizabeth Horsley.

1/10/2015 2:57 pm

A to Z

A-Z of ‘MONEY SPEAK’

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2/10/2015 1:58 pm

A to Z

Talking about your money needn’t be a baffling experience. But you may have to get used to a few terms and phrases. Here’s a simple A to Z to get you going…

ASSETS Anything owned by you that has monetary value, from the cash in your bank account to property, bonds and stocks. It’s smart to have assets in different investment – such as savings and investment accounts, property or shares – to minimise losses if one area isn’t performing well. ACCUMULATION FUND The state of any superannuation fund before it begins paying a pension. The retirement benefit depends on contributions by you and employers, and the fund’s investment return. AGE PENSION A fortnightly payment from the federal government. You must meet various criteria to qualify in part or full. Not to be confused with Allocated pensions which are paid from superannuation. ANNUITY Annuities are bought with a one-off payment and provide a fixed income for a set number of years or life. Generally your money is locked away for the period of the annuity, although some permit withdrawals or a “residual capital value”. There is no capital left at the end of the specified period. Payments

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may be indexed, often in line with inflation. Some annuities allow for reversionary beneficiaries, or payment of the annuity upon the death of the recipient to a qualifying family member.

BUDGETING / BANKRUPTCY If you can make budgeting a lifelong habit, you should stay out of debt, have money for incidentals and build solid savings. Bankruptcy is what may happen if you don’t budget. People unable to pay their debts may formally ask to be declared bankrupt. Creditors to whom they owe money may also apply for this declaration. Bankrupts cede control of their finances to a manager and a permanent record is created on the National Personal Insolvency Index. BONDS A medium- to long-term investment issued by governments and some companies. They pay regular, fixed amounts of interest for the term of the bond. Since they are usually low-risk, returns are commensurately lower. The invested funds (the principal) are repaid at the end of the term (maturity).

CAPITAL For individuals, the money or other assets owned for the purpose of investing. For a company, the funds received from owners or investors to further its business objectives.

BALANCED FUND

A fund that invests across a mix of asset classes like cash, fixed interest investments, property and shares, to achieve medium- to long-term capital growth and a reasonable level of income.

2/10/2015 1:58 pm

A to Z

COMPARISON RATE A notional interest rate that combines any fees and charges relating to a loan with the basic interest rate to reveal the true cost of the loan. CREDIT SCORES Your credit score is calculated from information such as unpaid and overdue mortgage repayments, plus credit card and other defaults. It also factors in your lender request and credit enquiries history. You can order a credit report from a bureau like Veda. Want to improve your score? Consolidate all debts, so you can pay loans off faster and on time.

DIVIDEND A payment made by a company to shareholders. It is a share of profits based on the number of shares a person holds. A franked dividend is from profits on which tax has been paid, which translates to big savings at tax time. DIVERSITY A diversification strategy involves spreading your money across different asset types such as cash, fixed interest, property and shares, in the hope that if one investment loses money, the others will perform and help make up for the loss.

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EQUITY The value of an asset – your house, shares and so on – less any money owed against it. ESTATE PLANNING Estate planning might not top the list of fun things to do, but creating a will is a crucial part of securing your family’s future. Nominating beneficiaries on your superannuation account is equally important. Developing an estate plan ensures your assets are given to the right beneficiaries and are also protected if a beneficiary has legal issues.

FINANCIAL ADVISER/PLANNER These terms mean the same thing. A financial adviser reviews your circumstances, then puts together a plan to help you reach your goals – whether that’s investing in shares or planning to retire. When choosing an adviser, ensure they are licensed and have the qualifications and knowledge for your situation. FINANCIAL PLAN A strategy, usually created with help from a financial adviser, that defines your current financial position and goals, and sets out investment strategies to reach those goals.

FIXED INTEREST RATE Interest paid at a fixed rate over the term of a loan or investment. Opposite of variable interest rate.

GROWING WEALTH Keeping track of your net worth is the first step to increasing your wealth. Even on a budget, you can gradually increase your net worth by adding assets and decreasing debt. Spend weekly discretionary income wisely – avoid splurging too often on things that don’t appreciate in value, such as clothes, dining and nights out. They might be fun, but won’t make you rich. GUARANTOR A person who guarantees a loan for someone else. The guarantor is legally responsible for paying the other person’s debts if the debtor can’t pay them.

HOME BUYING / HOME LOANS Do it right. Research properties and neighbourhoods, then set

2/10/2015 1:58 pm

A to Z

your budget: aim for a 20 per cent deposit and factor in costs such as stamp duty. Ask mortgage providers for fact sheets so you can compare like with like. Many websites and apps can help. Work out repayments you are sure you can handle. If possible, build a reserve in case interest rates rise, as most home loans apply variable rather than fixed rates. HONEYMOON OR INTRODUCTORY INTEREST RATE An interest rate offered for a short period: reduced, for a new loan or credit card account; or raised, for a new savings account or term deposit. Remember, it will eventually revert to the standard rate.

INVESTING / INSURANCE Whether you are looking into shares, managed funds or property, investing is a key way to grow your wealth. An investment needs to make you money, or a “return”. Before deciding on an investment, read its product disclosure statement to understand the fees or financial risk involved. Depending on where you are in life and your risk level, you will probably have many types of insurance. Whether choosing life, health care, home or consumer credit insurance, research the details, know what they do and don’t cover, and what they cost.

The finance industry is loaded with cringeworthy phrases and jargon. Don’t let marketing copy or think pieces on the state of the economy cloud your judgement – if something doesn’t make sense, ask questions. JOINT ACCOUNT An account with a financial institution in the name of more than one person. Many families and married couples have their assets in joint accounts. Anyone named as a joint account holder can operate it (unless any activity requires two signatures), so the account can still be accessed in the event of the death of an account holder.

KNOWLEDGE As they say, knowledge is power and that’s definitely the case in the finance world. By keeping up to date with the latest economic developments, financial products and services, you will be better equipped to discuss your options with your accountant, adviser and financial institution.

LIQUIDITY A measure of how easy it is to turn an investment or financial product into cash. Shares, for instance, can be traded daily and are considered liquid. Property, on the other hand, can take weeks or months to sell. LOAN-TO-VALUE RATIO (LVR) The LVR is the size of the loan compared to the value of the property. The higher your LVR, the greater the risk to the lender. Avoid high-risk loans, such as one with a 90 per cent LVR, as you will incur extra costs such as lender’s mortgage insurance.

MATURITY The date on which a debt or investment and all outstanding interest payments must be paid in full.

INFLATION

The increase in the cost of goods, services and wages over time.

JARGON Have you heard the terms “good debt” or borrowing “solutions”?

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NEGATIVE GEARING Gearing is the process of borrowing money to invest in assets such as property. Negative gearing is when the cost of owning an asset is higher than the income it generates. Under current tax law, this loss be used to offset tax on profits on other income-producing properties.

OVERDRAFT An overdraft is when you withdraw more money than you have in your bank account. You can also arrange an overdraft with your bank if you are in need of emergency cash. Extra interest is charged for as long as the account remains in overdraft and other fees may also apply.

PAYDAY LOAN A cash advance against your next pay. These short-term loans charge high interest rates and often very high fees, and usually must be repaid within a single pay cycle. There are many warnings about such products, as they often lead borrowers into spiralling debt traps. PROFIT Profit is what you make after accounting for all expenses.

A to Z

companies and funds you invest in. Quarterly reports tell you whether a company or fund’s reported profit growth matches their forecasts. If a company beats its forecast or estimate, share price tends to rise – but it’s unwise to make long-term

MANAGING DEBT

From owing a small fortune on the credit card to getting behind on your mortgage repayments, debt can easily creep into your life. But don’t let it become unmanageable – find an ASIC-licensed debt consolidator or speak to a financial adviser about your options.

investment decisions based on a single quarter’s data.

RETIREMENT Having a financial plan for your retirement is essential. You can increase your retirement income by investing in assets, watching your spending and continuing to work longer. Don’t forget to take advantage of increased entitlements as you age, such as travel concessions and reduced council and water rates. REVERSE MORTGAGE A loan used by retirees to boost their cash holdings without having to sell their home. Interest is added to the loan and does not have to be repaid until the house is sold, usually as part of a deceased estate. RISK “Risk tolerance” means the amount of chance you are prepared to take on investment returns and how your finances would be affected by losses. You’ll often hear “the greater the

QUARTERLY EARNINGS It is a good idea to keep track of the quarterly earnings reports of the

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A to Z

risk, the greater the return.” Of course, the greater the risk, the greater the chance of losses.

SALARY SACRIFICING You and your employer agree to pay a portion of your pre-tax salary as an additional contribution to your superannuation. Assets that help you produce an income, such as a laptop computer, may also be paid for via salary sacrifice. SAVINGS Usually, a deposit at a bank or credit union that offers a higher interest rate than basic transaction accounts. Account holders can generally access their accounts at any time, but time restrictions may apply to withdrawals. SUPERANNUATION / SELF-MANAGED SUPER FUNDS Always aim to build on your superannuation. Choose the investment option – balanced, conservative or growth – that suits your risk profile. Upping your contributions either by salary sacrifice or making aftertax contributions are key ways to boost your super. If you want access to a broader range of investments, such as antiques, cash and bonds, a self-managed super fund (SMSF) might be for you.

TAX Know your marginal tax bracket to help you understand how tax affects you and your income. Those earning between

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$37,001 and $80,000, for example, are taxed $3,572 plus 32.5 cents for each $1 over $37,000. However, if you earn between $80,001 and $180,000 you will be slugged $17,547 plus 37 cents for each $1 over $80,000. Capital gains tax is what you pay on the profit received from selling an asset or investment. TERM The length of time a loan or an investment will run. Regular interest is usually paid until they mature, when any remaining interest accrued, plus the original deposit, are paid in full. For a loan, the term is the point at which it must be fully repaid. TRUSTEE Someone appointed to carry out a legal duty – often to manage a super fund on your behalf.

UNIT INVESTMENT TRUST An investment vehicle that pools the resources of a group of investors. In Australia, a unit trust must be registered with ASIC as a managed investment scheme.

VARIABLE RATE HOME LOAN A mortgage where the interest charged changes, usually in line with the Reserve Bank’s official cash rate. The possibility of rises in mortgage payments must be allowed for in your financial planning. Opposite of fixed rate. VOLATILITY One of many terms used to explain that investments carry risk, and that markets can fall as

well as rise. When they fluctuate rapidly, they are described as volatile: may not be the best time to make investment decisions.

WARRANT A warrant is a financial product issued by banks and traded on the Australian Securities Exchange (ASX). Somewhat like a lay-by, warrants let you lock in the price of an asset to buy at some point in the future.

EXES Getting divorced takes such a toll people forget the many practicalities and decisions involved in decoupling. When splitting assets, seek advice from a financial adviser on how to divvy up everything.

YIELD Yield is the income you receive from an asset on an annual basis.

ZERO PER CENT LOANS A loan with “zero per cent” interest sounds enticing. Whitegoods and car dealers use this marketing come-on, but the cost of the offer will be built into the pricing at some point. Remember: if it looks too good to be true, it probably is. Link: Veda: www.veda.com.au Find a financial adviser: www.adviserratings.com.au www.yourbestinterests.com.au

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The Last Word

FINANCIAL PLANNING IS REALLY ALL ABOUT LIFESTYLE By Brenton Tong, Head of Strategy, Financial Spectrum

ltimately, making money and growing wealth isn’t about the number, it’s what you do with it. A financial plan that works for you today could be completely wrong for you in as little as six month’s time if you decide to start a family, setup your own business, buy a house or move into retirement. So, how do you make those difficult life decisions? We all know that we should save more, spend less, reduce our debt, be patient and wait for things. At the same time, we know we should eat healthier food, exercise more and call our loved ones more often. The fact remains that when push comes to shove, we probably don’t. Planning for your finances is the same as planning on losing weight –

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just the other way around! You want to gain money. And to do this, you need motivation. Here are a few simple ideas that show how you can make plans for major lifestyle choices: WE WANT TO START A FAMILY. Starting a family is a MASSIVE undertaking without even considering the physical challenges. You’re going to go from potentially two incomes down to one for a period of time. You’ve got an additional mouth to feed and lots of paraphernalia to buy. When you see the stats, you wonder how anyone can survive it. But they do. It’s always best to start with the basics – a budget. I WANT A NEW (OR BIGGER) HOUSE. Do you borrow? Do you save? Do you delay or buy now?

Indecision can cost a lot in terms of money as well as your sanity. Just like everything, map it out. Work out your budget, where are the risks? Will things get tight if rates rise? What are the alternatives, can you renovate if you need more space? How does that compare with the cost of selling and stamp duty to buy something new? Have confidence in your data and your plan, and understand how to deal with any changes that may come up. I DON’T WANT TO RETIRE. Finding out one day that you actually have enough money to live off for the rest of your life can be a hugely liberating experiences. Many people choose not to retire at this point but make drastic changes to improve the quality of their life. It could be volunteering or starting a consulting business to offer your years of experience back to clients. Confidence in your financial position allows you to make these decisions. Ok, so I understand that a lot can change in my life – how do I talk to my financial planner about it? Just write a list and get it all done. If your financial planner can’t explain how their plan is going to help you navigate around your life, don’t change your life – change your planner.

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DIRECTORY DAVID MADDOCK

STEVE TONIAZZO

Services: Superannuation and investments; Direct equities; Strategy and structure; Ongoing portfolio review; Retirement planning and redundancy; Cashflow management; Government entitlements and aged care; Estate planning; Self Managed Super Funds.

Senior Financial Planner AFP®, BCom

David Maddock is an Authorised Representative of Apt Wealth Partners Pty Ltd

Contacts: 03 5221 7557 david@aptwealth.com.au / www.aptwealth.com.au

ABN 49 159 583 847 AFSL NO. 436121

Senior Financial Planner CFP®, B Bus, Dip FS (FP), SA Fin

Steve Toniazzo is an Authorised Representative of Apt Wealth Partners Pty Ltd ABN 49 159 583 847 AFSL NO. 436121

BEN TRAVERS

Ben Travers is an Authorised Representative of Apt Wealth Partners Pty Ltd

Contacts: 03 8779 5254 stevet@aptwealth.com.au / www.aptwealth.com.au

STEVE NIELSEN

Senior Financial Planner CFP®, BCom (Acc), Dip FS (FP)

Ascent Wealth Management Personal Advice, given personally

Specialties: Wealth and Retirement Advice and Insurance and Estate Planning Advice Location- Brisbane South

Contacts: 02 8262 4000 ben@aptwealth.com.au / www.aptwealth.com.au

P O Box 324 HOLLAND PARK QLD 4121 (07) 3343 9228 / 0417 292002 steve@ascentwm.com.au http://www.ascentwm.com.au

TIM HENRY

BRETT DILLON

ABN 49 159 583 847 AFSL NO. 436121

BD Financial Planning

“ENGAGE you today, INSPIRE you for tomorrow, EMPOWER you for your future” P 03 9584 3343 / 0407 327 501 E tim@aspireplanning.com.au W. aspireplanning.com.au

“we help clients achieve what is important – to them”

Retirement planning, SMSF, superannuation and strategic advice. Contact: Sydney CBD or Central Coast 0414 821 863 info@bdfinancial.com.au www.bdfinancial.com.au

Authorised Representative of Affinia Financial Advisers Limited, ABN: 13 085 335 397, AFSL No: 237857

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DIRECTORY MALCOLM PHILLIPS Dragonfly Financial Services

Life Planning, Investment, SMSF, Retirement and Aged Care Advice. Call today: 02 6273 3118 malcolm@dragonflyfs.com.au www.dragonflyfs.com.au

SCOTT MALCOLM Money Mechanics

Specialties:Cash Flow, Wealth Creation (property and shares), Superannuation (including SMSF and Public Sector Super Schemes)

What’s important to you is important to us. Recognised as one of Australia’s leading independently owned wealth management groups, Infocus Money Management and PATRON Financial Advice is home to more than 190 Financial Advisers across 120 locations nationally.

“we partner to build your wealth and financial understanding”

Unlike many other financial planning businesses, we are not aligned to a bank, which means our clients receive strategic advice that is not product dependent. At a local level this means we have a sustainable business model which supports our clients through a journey of business and life events.

Contact: 1300 772 643 advice@money-mechanics.com.au www.money-mechanics.com.au twitter @moneymechanics Canberra | Sydney | Melbourne

To speak to your local Infocus Money Management or PATRON Adviser phone 1300 463 628 or visit www.infocus.com.au

PHIL THOMPSON

We specialise in: • • • • • • • • •

SMSFs Gearing Investment Strategies Life Insurance Retirement Planning Wealth Creation Superannuation Debt Management Estate Planning

1300 463 628

Rise Financial

32 15 4 58 13

“Take Control – With Your Independent Financial Adviser”

25 Michell Street, Monash, ACT, 2904 Phone: 02 6292 0015 Email: phil@risefinancial.com.au Website: www.risefinancial.com.au

www.infocus.com.au

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DIRECTORY DIANA WATKINS-BAKER

JASON COOK

Tiernan Parsons Financial Services Pty Ltd AFSL 391761 Certified Financial Planner

• Retirement Planning • Superannuation Advice • P ortfolio Management •M ortgage Broking • R isk Management • C ash Flow Management • Self Managed Super Funds

Contacts: 03 9813 2933 diana@tpfs.com.au / www.tpfs.com.au Located in Camberwell

WIN

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Contact: 07 3391 7199 enquiries.presidio@wb.com.au www.wb.com.au

wbfinancialgabbacentral @WB_GabbaCentral wb_financial Jason Cook; WB Financial

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FINANCIAL SECURITY GIVE YOUR FAMILY AND FRIENDS AN ONLINE COPY OF THE REALLY SIMPLE GUIDE TO MONEY

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Professional members of the Association of Financial Advisers have been providing life-changing financial advice for 68 years, so when you are ready to take the next step toward seeking your own financial advice, seek out a quality financial adviser that is an AFA Member.

The best advisers can be found at www.yourbestinterests.com.au

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