The really simple guide to Money - Issue 02 by Big Splash Media

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Welcome

WELCOME

to The Really Simple Guide to Money Edition 2

BRAD FOX

OUR CONTRIBUTORS

ow do you feel about money? Recent research from the Association of Financial Advisers (AFA) and the Beddoes Institute, Money, Wellbeing and the Role of Financial Advice, found improving your understanding of money issues can increase your sense of wellbeing by up to 42 per cent. Your sense of wellbeing is a combination of your relationships, your working life, your health and the way you feel generally. That’s an incredible difference from getting a grip on controlling your money. The AFA and our financial literacy initiative Your Best Interests is pleased to support Australians to improve their knowledge and confidence about money by participating in The Really Simple Guide to Money. Helping more people get out from under the worry of money pressures is really important to our members who are highly qualified financial advisers spread around the country. Every day, professional adviser members of the AFA help people remove money worries through financial coaching and support. They help you find the balance

TERESA OOI worked as

a senior business writer for The Australian newspaper for 17 years, including stints as property editor. She also worked for the Financial Times. She is the editor of The Really Simple Guide to Self Managed Super and Asian Cruise Yearbook.

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between all of the demands placed on you financially, such as choosing between spending today and saving for tomorrow, understanding your superannuation or deciphering the fine print of a life insurance contract. Your Best Interests and The Really Simple Guide to Money are both terrific resources to introduce you to some of the common concepts affecting you and your money. We are proud of the AFA financial advisers and experts who have contributed articles to this second edition and hope you find them both helpful and enjoyable. For more articles check out yourbestinterests.com.au. In thinking about the money issues you want to get control over, I encourage you to do your research and to tread carefully. Money is too hard to earn and too easy to lose. So, when you are ready to get some expert help look for an AFA professional financial adviser by using the Find an Adviser search at yourbestinterests.com.au. It’s a positive step to help you make the best decisions for you, your family and your future. Brad Fox Chief Executive Officer, Association of Financial Advisers (AFA)

NICOLE PEDERSENMCKINNON is 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, to take people from financial worry to wellbeing.

LACHLAN COLQUHOUN

has written for some of the world’s best financial titles, including the Financial Times and The Australian Financial Review as well as three ABC Networks. He has edited Insto Magazine and The Really Simple Guide to Self Managed Super.

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

Editor Lachlan Colquhoun

Publisher Peter Lynch

Executive Editor Teresa Oi

Commercial Director Leisa Chell

Art Director Kerry Alice Sub-editor Sandy McPhie

Sales Executive Jairo Manzoupo Digital Director James Brouard

Contributors Lachlan Colquhoun, Jacqueline Fox, Peter Lynch, Teresa Ooi, Nicole Pederson-McKinnon, Charles Badenach, Rod Bristow, Dianne Charman, Brad Fox Ages of Wealth team: David Reed, 2015 AFA Adviser of the Year; Ben Nash of Pivot Wealth; Adrian Patty of AP Financial Solutions; Bill Bracey of Sydney Financial Planning. Thanks to Brad Fox, Samantha Clarke and Karen Tinnelly of the Association of Financial Advisers (AFA) 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

5 COVER PIC: Justin Lloyd /

CONTENTS 6 George Clooney’s investment lessons Publisher’s letter

8 Mr & Mrs Australia – still the lucky country Our life in numbers

10 The only person who would give me money was me Sandra Sully on getting a foot on the property ladder and financial independence

14 How to save $10,000 right now Trim down non-essential spending and still have fun

16 So where should you put your investment dollars? Australia’s love affair with bricks and mortar continues

18 Housing v shares Which one is better?

20 Australia is super powered Superannuation is something everyone needs to understand and engage with for a happy retirement

22 The super of the future? What sets industry super funds apart from the rest?

24 Getting personal

NewspixCOPYRIGHT: © NEWS LTD

MONEY ESSENTIALS 56 Are you on the money? Think you are financially smarter than the average Australian? Take our quiz to find out

Retail super funds promote personal service and expertise

26 Doing it yourself They are increasingly popular, but self-managed super funds are not for everyone

60 What are your goals… and how soon can you reach them? Taking charge of your finances can create enormous possibilities. Here’s how you can create realistic goals – and achieve them

29 The robo test We pit a robo adviser against a human financial adviser to see who gives the best advice

34 Mars v Venus – finance for couples Navigating different attitudes towards money to secure financial harmony

36 How Australians save money See how your saving habits compare with the averages

38 6 Ages of wealth and happiness Our panel of experts tells you how to plan for each decade of your life, from your 20s to your 70s

52 How Luke cooked up a property portfolio Luke Mangan shares his insights on building a $100 million business

62 Calling in the experts… When you need an adviser …and how to find one

64 5 Questions you should ask a financial adviser When looking for a money mentor, make your first meeting count

66 What will it cost? Making sure you get value for money and the advice you want

68 What happens if things go wrong What are your rights if you have a dispute with your adviser?

aking money while M having fun They may not make you rich, but these investments can be fun

72 Beat the tax man and still be his friend There are plenty of ways to reduce your annual tax bill and secure a fat refund

74 The A-Z of money speak Learn a little of the lingo to make sure you know what’s what

80 The last word How money can buy happiness

reallysimplemoney.com.au

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Introduction

GEORGE CLOONEY’S

INVESTMENT LESSONS W elcome to the latest edition of The Really Simple Guide to Money – designed to help get your financial life on track. Earlier this year, George Clooney was plastered all over the sides of buses advertising his latest movie Money Monster.

Peter Lynch Publisher The Really Simple Guides

Today, while borrowing money is cheap, earning it is a lot tougher, and more complicated

The movie is about an America investment show host, Lee Gates (Clooney), held hostage on live nationwide television by an angry investor. Kyle Budwell (Jack O’Connell) lost his mum’s $60,000 inheritance in a scheme Clooney had spruiked as “safer than the banks”. It wasn’t, of course. An angry Budwell storms the set, fits Gates with what appears to be a vest stuffed with Semtex and forces him to expose the scheme as an US$800 million fraud. Many have derided the film as far fetched. Perhaps movie critics don’t read the business pages. Just about every day, a new peril is exposed in our most hallowed and trusted financial institutions. The movie’s ending contains a salutary lesson, too (spoiler alert!). Budwell is shot dead, while Gates lives to spruik another day. The whistle blowers who sounded the alarm over Australian pension and insurance malpractice weren’t shot. But they were sacked.

Hardly surprising, then, that trust in those supposed to help us manage our money is falling. A recent Roy Morgan poll showed trust in bank managers, for instance, has fallen from 43 per cent to just 30 per cent in two years. Watching the movie reminded us of our mission: to ensure Australians, many of whom receive more education about baking a cake than managing money, know enough to figure out when something just isn’t right. But we don’t believe Australians should despair of those entrusted with managing their finances. Much has been done, and much more is being done, to win back the public’s trust and ensure our money is safe. Today’s economic climate is a tough one to navigate. Families need all the help they can get to make it through life’s financial pitfalls, and in many cases that means seeking out financial advice. A few years ago, things were different. Some savings accounts paid up to six per cent – yes, six per cent guaranteed! Property was almost blue chip. Today, while borrowing money is cheap, earning it is a lot tougher, and more complicated. Interest rates are low, but property prices are high and many see the sector as unstable. Our $2 trillion in superannuation

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Introduction

COURTESY OF SONY PICTURES

savings is reflecting the uncertainty in the markets with lower returns, and some of its tax advantages are under threat. Employment is also changing, with many more Australians changing direction or facing a shortened working week. Meanwhile, today’s young families have a different view of what they should do with their money than their parents or grandparents. A recent report from the NAB’s wealth management company MLC, reveals almost half of us live from pay cheque to pay cheque. But we consider travelling, eating out and buying the latest smartphone or computer as just a normal part of life. It’s a fascinating read. The 2,000 people surveyed for the report

Many have derided the film as far fetched. Perhaps movie critics don’t read the business pages. Just about every day, a new peril is exposed in our most hallowed and trusted financial institutions

don’t think having $1 million in savings qualifies as being rich, an income of $150,000 is just “comfortable” and an early retirement is the top aspiration. Sadly, few look like making it. Seven out of 10 had debts, and more than a quarter of those with incomes between $150,000 and $199,000 were not saving a cent. The lesson from this is that it has never been more important to have a plan. On the following pages, we strip away the mystery around money and hope to convince you that some simple measures can dramatically alter your chances of a bright financial future. Like a diet or a fitness plan, it just needs a little commitment. And there are plenty of experts around to help you succeed. reallysimplemoney.com.au

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What You Are Worth?

MR AND MRS AUSTRALIA

STILL THE LUCKY COUNTRY Australians live in one of the richest countries in the world. According to the International Monetary Fund, we are ranked 13th on the world ladder for gross domestic product. Each Australian household has a net worth of $809,000, according to 2013-14 figures from the Australian Bureau of Statistics. This is our life, in numbers.

HOUSEHOLD LEDGER Assets (property, car, house contents etc) $954,800 Liabilities (mortgage and other credit, loans) $144,900 Household net worth $809,900

$14.1BN on alcohol

ANNUALLY WE SPEND

$20BN on gambling

Savings $99 per week Credit card debt $4,324

$1.1BN on tea and coffee

Weekly earnings $1,499 Disposable income $998 Hours worked 32

$8.0BN on beauty products and treatments

NEST EGG

Average superannuation per household

$159,900

Couples aged 55-64 have the most at

$488,000

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What You Are Worth?

VITAL STATISTICS

Australians lost $229 million on scams in 2015

82.1 average life expectancy 1.9 average kids per family

WEEKLY EXPENSES, AVERAGE FAMILY

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

Sources: International Monetary Fund, Australian Bureau of Statistics, ASIC, OECD, AMP.NATSEM, Suncorp; figures are national averages.

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Interview

THE ONLY PERSON WHO WOULD GIVE ME MONEY

WAS ME

Journalist and news presenter Sandra Sully’s start on the investment ladder was a family affair, driven by her determination to be financially independent, writes Teresa Ooi.

eing financially self-sufficient was important to television news reader Sandra Sully from an early age. She knew no one was going to leave her any money and was determined to make her own. And she can empathise with today’s 20-something investors daunted by the prospect of raising a deposit in a property market that has experienced an amazing boom. Sully bought her first property at the age of 20 and banded together with her brother and sister to do so. Together they spent $65,000 on a unit in Brisbane. The sibling partnership gave her the leg-up she needed. But she cautions you need to be completely confident in the relationships to make this work. “I have always been fascinated by property since I was in my late teens. I realised unless my siblings and I pooled our resources, we would never be able to own a property,” Sully says. “I wouldn’t recommend this to everyone because you really have to be confident of the relationship. “You can buy a property together if you are in a relationship, but on one condition – you have to trust your partner. If the relationship ends, you must trust the person enough to be able to sell the property and share the proceeds.”

By the time she was 30, Sully had bought and sold three more homes. As she admits, she had developed a taste for property investment. “Money was not freely available when I was growing up. We were a working-class family. My father worked as a stevedore and my mother was a kindergarten assistant,’’ Sully says. “We were not flush with money. My father budgeted the family finance and was very generous. But as a woman, I always remember the indignity of my mother having to ask Dad for money and she also had to account for how she spent it. “For seven years, my mother was homebound as she had to look after a family of four children. She only gained some financial independence when she had a part-time job as a kindergarten assistant.’’ It was a salutatory lesson. Sully decided she never wanted to be in the same position. She has a financial adviser and an accountant who has been working with her for two decades. “The only person who would give me money was me. I always knew I had to be financially independent and not depend on a man.’’ At 51 and with 26 years experience at the Ten Network, Sully has seen the ups and downs of a volatile

“We do not feel comfortable about rushing back into the property market right now.”

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Interview

stock market and the painful ramifications of the global financial crisis (GFC), and has come to the conclusion that property has been her best investment. However, she cautions anyone entering the real estate market to do so with their eyes open. “On occasions when I bought a property with a previous partner, I did all the financing and conveyancing. We did okay, we did not lose money. I’ve always looked on mortgages as forced savings.” Her worst investment was to get a margin loan to buy shares just prior to the GFC. “My share portfolio and managed funds took a bit hit because of the GFC. I was badly burnt so I told my financial adviser to get me out of managed funds and shares and held cash instead.’’ Today her self-managed super fund has a portfolio of high-yield bluechip stock and she is happy with the returns. “I am fortunate that I have a good accountant who has been with me for more than 20 years.’’ In 2011, Sully married Symon Brewis-Weston, the chief executive of FlexiGroup. It was a second marriage for both of them. Last year, they decided to sell their properties in Sydney and are now renting instead. “We are relishing the freedom of renting. We just pay the rent and do not have to worry about anything else.” While they are both out of the property market in Sydney, Sully still owns a small unit in Brisbane. “We do not feel comfortable about rushing back into the property market right now. At the moment, we are simply building up our cash reserves. Cash is king.’’ While they have joint finances, Sully believes women are entitled to have their own secret stash of money – in case of a rainy day. And she has no plans to give it up. reallysimplemoney.com.au

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Simple Savings

LIFE’S LIFE’S DEFINING DEFINING MOMENTS MOMENTS

Have you saved for a deposit? Factor stamp duty, rates and maintenance into your budget Find the right mortgage

GET THE ANSWERS

www.yourbestinterests.com.au

Your Best Interests is dedicated to helping you make the right financial choices.

REALLY SIMPLE MONEY 2016

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HOW TO SAVE $10,000

RIGHT NOW Whether you’re saving for a house deposit, holiday or retirement, you can reach your goals much faster by trimming non-essential spending. Nicole Pedersen-McKinnon suggests 10 areas where savings could net you $10,000 a year. Where would you spend your last $10? How about your second-last $10? Then your third-last etcetera? Asking yourself these questions is potentially valuable because it helps you sort out your must-haves from the niceto-haves and, if you do the exercise smartly, it will save you money. Here are 10 ideas on discretionary or optional spending to help you prioritise and see where you might cut back. After all, that’s how you’ll realise your precious life goals as fast as possible.

SWEET TREATS

Wouldn’t give them up for quids? Neither would 27 per cent of women. The Cash of the Country report by RateCity says more than a quarter would spend their last $10 on chocolate. Men are not so attached. It’s easy to spend $15 a week on snacks. But are they really essential?

COFFEE

Men love their coffee more than ladies, with 26 per cent putting it at the top of their “non-negotiable”

list. But have you calculated how much coffee (and treats) costs you over a year? Two cups of coffee a day, five days a week will cost about $1,600 a year. You could cut down to one cup, skip the snack and save more than $1,500 a year.

SHOPPING

FOOD

Apparently men are more likely to go large on impulse purchases – the RateCity report found 35 per cent admitted to spending $500-$10,000 against 27 per cent of women. Women are more likely to impulse spend under $500. Their most common weaknesses are fashion items and beauty products, on which we spend an average of $1,454 a year (MoneySmart). Remember, while we all get a buzz from an impulse buy, it’s probably gone long before the credit card statement arrives.

“This is not discretionary!” I hear you say. But there are ways to save big (and avoid expensive takeaways). Chief among them is to have a menu plan for the week, and an ingredients list for the shop. Ideally, never waste food; that’s just throwing away money. Shop late when reallysimplemoney.com.au

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Simple Savings

perishables may be discounted for a quick sale and buy produce that’s in season. Make big curries, casseroles or soups on the weekend and freeze in portion sizes for nights when you don’t have time to cook. It’s not hard to save $15 a week on groceries and that adds up to $780 a year.

BOOZE

ENTERTAINMENT

Men are more likely than women to spend their last $10 on alcohol, says the Cash of the Country report, 16 per cent versus 9 per cent. Even two $10 bottles of wine a week mounts to more than $1,000 a year.

It’s possible to hemorrhage money here. Two ideas. One, entertain at home rather than going out and split the cost. You could have a dinner party where everyone makes a dish, or a cocktail evening where everyone brings a bottle. Picnics should also work out far cheaper. The second way of slashing your entertainment expense is to buy the Entertainment Book, which gives discounts of up to 50 per cent on selected restaurants and bars. It costs about $65 and should pay for itself in two or three nights out. According to CommBank Signals research, we spend an average of $70 a week on eating out, halve that and save $1,750 a year.

GYM MEMBERSHIP

RateCity says more women than men, 7 per cent versus 2 per cent, would keep their gym membership. But we live in a beautiful (mostly) temperate country and free outside gyms make great sense. Google it for a relatively painless annual saving of about $1,300 a year.

TELECOMMUNICATIONS

PERSONAL LOAN

Both genders are pretty wedded to their smartphones. But more than most other bills, your mobile spend is influenced by apathy, both in keeping up with new deals and using them economically. Comparison expert whistleout.com.au shows you can pay as little as $28 a month for unlimited calls and texts, and 3GB of data (BYO phone). Against the average monthly mobile spend of $52 (MoneySmart), switching could save you $288 a year. For broadband, the average Australian pays $70 a month (Canstar). Whistle Out shows you can get unlimited broadband (BYO modem) for $30 a month, potentially saving $480 a year.

This is often a result of previous discretionary spending. The average search on financial comparison site mozo.com.au is for an $18,000 personal loan and you can typically get one with interest from 5.99 per cent – about 8 percentage points cheaper than offered by the Big 4 banks. That will net you an extra $843 a year (five-year term).

CREDIT CARD

An outstanding credit card debt is another hangover of a past spending. At. Least. Pay. No. Interest. On. It. On average, we pay $730 a year in credit card interst (MoneySmart). There are cards that let you transfer an existing balance and pay 0 per cent interest on that debt for, say, 18 months. Throw enough money at it during the interestfree period to clear it (before an expensive interest rate kicks in). Never spend on these cards; the rate will poleaxe you.

WHY BOTHER CUTTING BACK? Previous generations had it right when they coined the phrase “take care of the pennies and the pounds will take care of themselves”. Just look at your spending in a few of the categories on the left. Say you spend $1,200 on coffee a year… $700 on a snack to go with it… a possible $600 on impulse buys … and another $500 or so on movie rentals, song downloads, apps and games. That gives us a total of $3,000 a year. You probably have no concept of how much this is setting you back. If you instead saved that annual $3,000 in an investment earning 3 per cent interest, in 25 years you would have $109,000. Better still only $75,000 would come from you; $34,000 would be courtesy of the bank. But wait 10 years before you start and, to reach that same balance, you’d need to save an extra $2,900 a year. That means you’d have to save $88,000 of your money, while the bank contributed $21,000. Procrastinate another decade and you’d need to find an extra $1,700 a month – paying a total of $103,000 of your ultimate $109,000. This is our friend compounding at work – the sooner you start, the easier building wealth is. And the less you have to rely on big returns and the extra risks they entail.

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Having been married just nine months, Lisa’s husband, Rowan suddenly died of a heart attack at the age of 33 turning her world upside down. Lisa realised that Rowan would have wanted her to pursue her dreams. With the help of a life coach and financial adviser, Lisa made the impossible possible, launching her online homeware store, “Follow” as well as planning for an independent financial future. Visit www.yourbestinterests.com.au, watch how Lisa overcame her grief to get her plans back on track. Watch how she managed to set and achieve realistic plans for a future she didn’t think possible.

www.yourbestinterests.com.au

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reallysimplemoney.com.au

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Investment

SO WHERE SHOULD YOU PUT YOUR

INVESTMENT DOLLARS?

Bricks and mortar continues to be the big focus for Australian retail investors in 2016. If they can get on the property ladder, that is, writes Lachlan Colquhoun.

ust like last year and even the year before that, 2016 has been the year of property. Australia’s property obsession shows no sign of losing its passion and it’s easy to understand why. Interest rates are at a record low. Housing mortgage rates, which closed in on 20 per cent in the 1990s recession, are now about 4 per cent and some are even below that. The low rates are fuelling a surge of interest in property, with prices in capital cities across the nation hitting new highs. With the share market flat and commodities in a downturn, investors are looking back to property as a way of delivering reliable returns. In the 12 months to June, property values have gained 10 per cent across combined capital cities and although that is lower than previous years, it comes after several years of impressive growth since 2013. Returns from property come in two forms, capital gains and rental yield if the property is rented out. With yields at below 5 per cent at best, investors are jumping into property largely for capital gains. These capital gains are creating

the well-publicised dilemma about affordability and the inevitable forecasts that the bubble will burst. Mortgages are ever increasing in size and young people are finding it harder than ever to get on the property ladder unless they have, as Prime Minister Malcom Turnbull recognised, substantial

The GFC was a major wake up call for Australian investors, who now take a lot more notice of where they invest help from their parents. Investors are reportedly muscling out owner occupiers, but even they are finding it difficult to get their deposits together. The Reserve Bank has poured some cold water on investors, too, with banks approving $11.3 billion in investment loans in April, which sounds a lot, but is down 20 per cent year on year. There is a squeeze on. The

average mortgage has risen 23 per cent since 2012, but average wages are only 9 per cent higher over the same period. According to Mortgage Choice’s annual Investor Survey, 30.9 per cent of respondents said they had been saving for many years before being able to buy, while one third said they have taken more than four years to save their deposit. The low interest rates might be fuelling property, but it means that term deposits have lost their allure. At the height of the 2008 global financial crisis (GFC), Australian banks were offering term deposit rates of about 8 per cent, while today they are barely 3 per cent. At the same time, the sharemarket has moved sideways. The All Ordinaries index is the oldest measure of the performance of the Australian sharemarket, tracking the performance of the top 500 stocks by value. In November 2007, the index was at 6,873, its highest value ever. In June 2016, it is at 5,223, and has fallen 3.5 per cent in the past 12 months. That is not to say there haven’t been pockets of value in shares. Bank stocks, for example, had a

REALLY SIMPLE MONEY 2016

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Investment

major rise over 2013, but hit the brakes this year in terms of capital gains, but dividends have remained stable. Part of the attraction with Australian blue-chip shares has been the dividends they have paid to shareholders, with the Big Four banks delivering an income stream of about 5 per cent or more to shareholders. Unlike property, the attraction of shares has been more about yield than capital gains. In a period where the hunt for yield has been one of the major themes, this has been very attractive, particularly when the value of the shares has also been rising. Adviser Marc Bineham, of Your Wealth Hub, says the GFC was a “major wake up call” for Australian investors,

who now “take a lot more notice” of where they invest and also the fees they are charged. “High management investment fees and platform fees that have been charged by traditional bank investments and industry funds have been scrutinised as never before,” he says. Bineham has seen a “marked increase” in lowcost investment platforms, competitively priced indexed funds and direct investments into blue-chip shares as Australian investors look for dividends. “With flat sharemarket growth and low cash rates, tax-effective dividends of greater than 5 per cent from, for example, bank shares, makes real sense,” he says. “Indexed funds are another area investors are looking at as an alternative investment. These funds track the overall sharemarket rather than fund managers picking the individual shares so we have seen substantial savings on fund manager costs with similar performance results.” All this has been a dilemma for investors, but at the same time Australians are pumping about $45 billion a year into their superannuation funds, a large proportion of which is managed by professional managers. Those managers continue to take a diversified approach to investments, with the biggest percentage – about 23 per cent – going into Australian shares and 21 per cent in international shares. Cash is still high at 13 per cent. reallysimplemoney.com.au

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Investment

HOUSING V SHARES

It is the age-old question that divides investors like fans of football teams. Is one better than the other, and why? Lachlan Colquhoun investigates.

ustralians have a thing about property. Before the issues of availability and affordability arose, buying your first home was a rite of passage. On the other side of the fence are fans of the sharemarket. A generation of retirees has been living happily on the dividends of blue-ship shares. We do seem to enjoy living in our main investments, though. According to the 2011 Census, 67 per cent of Australian households live in homes they own or are buying through a mortgage, and one in six Australians has a stake in investment property. Each month, banks lend more than $10 billion to property investors. The property market has come through several years of spectacular performance, with some capital cities enjoying double-digit growth. In Sydney, the median house price broke the $1 million barrier in 2015. Devotees of property have plenty to crow about, but while shares might not have been spectacular in 2016, they have done well over the years. Look at shares in the nation’s biggest bank, the Commonwealth Bank of Australia (CBA). If you bought CBA in 2010, you would

HOUSING

WHY?

WHY NOT?

Hot right now and interest rates are low. Mortgages are blowing out. What will happen if interest rates go up?

Dividends from blue-chip shares are nice. You can buy and sell easily. The market has stumbled recently and we may be in for some volatility ahead.

have paid $50 a share. They hit a high of $96 in early 2015. Even at today’s price in the low $70s, it has been a nice investment, with annual dividends of about 6 per cent.

generational growth. “It might not boom all of a sudden, but it will grow year in, year out,” she says. “And that is the best way to get your money to work for you.”

PROPERTY

Investment property adviser Margaret Lomas, founder of Destiny Financial Solutions, says successful property investment is based on research and a long-term approach. Her advice is to find an area with above-average population growth and a large percentage of families as they are long-term residents. Does it have developing infrastructure and job opportunities? Is there good public transport or plans to upgrade the transport network? If all these boxes are ticked and prices are affordable, Lomas says property is likely to deliver

Funds manager Roger Montgomery, founder of the Montgomery Group, believes the way to deliver returns is through share-price growth rather than relying on dividends. He advises buying into businesses that have an ability to charge higher prices for what they do and reinvest it to create higher rates of return, reflected in the share price. He is disdainful of investing in companies such as BHP, which accept market prices for their commodities rather than setting the price. His analogy goes like this. Imagine you’ve bought a farm at a good price and it is consistently productive. The sharemarket is a noisy neighbour, shouting over the fence and offering to buy at various prices. It can be ignored or, if the price is good, you can accept it.

REALLY SIMPLE MONEY 2016

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Th rig an for

CBCON3

Investment

Simplify the cash management 19 of your Self Managed Super Fund with our SMSF cash account (Commonwealth Direct Investment Account). From the one convenient hub, you can transact with no withdrawal or account fees,* while your money earns a competitive interest rate between investments. Open an SMSF cash account today at commbank.com.au/smsfcash

FPi_18-19 HousingVsSharesi.indd 19 CBCON3072-18 SMSF CIDA 275x210 One Cash Account.indd 1

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SUPERANNUATION

AUSTRALIA IS

SUPER POWERED With more than $2 trillion now invested in funds, superannuation is big business and something everyone needs to understand in order to enjoy the benefits for a comfortable retirement. By Jacqueline Fox.

f you are reading this and you are above school age, it’s a safe bet that you have some sort of superannuation. Since 1995, when the Superannuation Guarantee was introduced, Australian employers have been contributing 9 per cent and more (recently 9.5 per cent) of an employee’s gross wage into super accounts. It has turned into a juggernaut of savings, with the national pool at $2.03 trillion as at May 2016. Each year, $130 billion is pumped into super, with $85 billion coming from employers and $45 billion from individual contributions. It all sounds a lot, but it’s money we’re all going to need. Small wonder, then, that during the recent election campaign it became one of the hottest debating points. Many now believe the golden age of super may be over. An age when you could save large sums tax free or with minimal tax. With savings ceilings and limits on how much you can put in now part of the new political agenda, some feel it is the end of an era. But with public funding of retirement (government pensions) increasingly a safety net only, we’re relying on our super to pay for the rest of the journey. And with life expectancy now at 82 and going up all the time, the reality is that many of us will need that nest egg to last for 20 years or more. Despite this urgency, many of us don’t pay too much attention to our super and if we do pay attention it’s only in our 50s, when we realise retirement is just around the corner. For many of us in what is called the accumulation years, super is out of sight and out of mind. Thankfully, the professionals who manage our super are doing a reasonable job. The total returns for all super funds in the year to June 2015 was 9.9 per cent, and has averaged 9.4 per cent for the last five years.

REALLY SIMPLE MONEY 2016

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Superannuation

COMFORTABLE RETIREMENT

MODEST RETIREMENT

AGE PENSION

Single

HOW MUCH SUPER WILL I NEED?

$42,893 a year

$23,651 a year

$20,555 a year *

Couple

There’s also a whole world of choice out there. For people who are disengaged, there are low-cost MySuper accounts that try to cover all bases with a one-size-fits-all approach to investment. If you want to get more involved, you can switch into any number of funds – industry or retail, selecting one that will take your desired investment approach. If you are 30 years old with a long time to retirement, you can afford to be aggressive. If you are a 58-year-old contemplating retirement, you could be risk averse and want to preserve your capital. In addition to your employer’s contribution, you might think about salary sacrifice because super is one of the most tax-effective ways to save. If you want to get really involved, you can start your own selfmanaged fund. More and more of us are doing this and there are now about 580,000 SMSFs, which can each have up to four members. Even if you accumulate your nest egg in a retail or industry fund during your working years, you might look at setting up a SMSF in retirement. Many people, once they end the accumulation phase are doing this as a way of managing their retirement funds, but it’s not the only way to do things. The whole industry is changing rapidly and now there is a range of retirement pension products to chose from. Whatever you do, one thing is for sure, the only things that are certain in life in contemporary Australia are death, taxes and superannuation – in some form. In the following pages, we review the types of superannuation you can choose and which may be best for you.

$58,922 a year

$34,064 a year

$30,989 a year *

One annual holiday in Australia.

One or two short breaks in Australia near where you live each year

Even shorter breaks or day trips in your own city

Regularly eat out at restaurants. Good range and quality of food

Infrequently eat out at restaurants that have cheap food. Cheaper and less food than a comfortable retirement

Only club special meals or inexpensive takeaway

Owning a reasonable car

Owning an older, less reliable car

No car or, if you have a car, you’ll struggle to afford repairs

Bottled wine

Cask wine

Home-brew beer or no alcohol at all

Good clothes

Reasonable clothes

Basic clothes

Regular haircuts at a good hairdresser

Regular haircuts only at a basic salon or pensioner special day

Less frequent haircuts or getting a friend to cut your hair

Take part in one paid leisure activity Take part in a range of regular leisure activities infrequently. Some trips to the cinema

Only taking part in free or very low-cost leisure activities. Rare trips to the cinema

A range of electronic equipment

Not much scope to run air-conditioning

Less heating in winter

Replace kitchen and bathroom over 20 years

No budget for home improvements. Can do repairs, but can’t replace kitchen or bathroom

No budget to fix home problems such as a leaky roof

Private health insurance

No private health insurance

SOURCE: Association of Superannuation Funds of Australia’s Retirement Standard; Figures from March Quarter 2016. *Base rate before payment of supplements. reallysimplemoney.com.au

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SUPERANNUATION

THE SUPER OF THE FUTURE? Originally tailored to the needs of members from specific areas of the workforce, industry funds have opened their lowfee, not-for-profit offering to everyone. By Lachlan Colquhoun.

ndustry funds have become well known to the public through their distinctive nest-egg symbol and advertising campaign. Industry funds were originally set up by unions and industry bodies in the 1980s to provide for their members in retirement and workers from each industry sector had their own fund. Over the years, funds were developed for teachers, health professionals, building industry workers and the like. Recently, the super landscape has evolved and the 15 industry super funds are now what is called open-offer funds, which means anyone can join if they want to. About five million Australian workers have their retirement REALLY SIMPLE MONEY 2016

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Industry Super Funds

THE LOW DOWN

savings in industry super funds a much wider range of choice of and while that makes them the super products, depending on biggest by membership, the sector how engaged they want to be with is not the largest in terms of funds their retirement savings. under management. In 2013-2014, the government The May 2016 report from the introduced MySuper, designed Australian Prudential Regulatory as a low-cost default fund for the Authority shows the industry least engaged superannuation funds sector is the third largest in account holders and many of these the super industry – after selfaccounts are in industry funds. managed funds and retail – with Industry funds have also total assets of $447 billion. responded to the growing The sector has more than popularity of self-managed 11 million accounts, which means superannuation by offering a much wider range of products. many people have more than one account with money in different There are funds, for example, that are structured to suit industry funds. younger people who have a longer The largest industry fund is investment time frame. AustralianSuper, which has $91 These funds tend to have a billion in assets and more than more aggressive two million members. strategy The key message Industry funds investment than funds designed that industry funds have also to suit older people, promote in the who have a shorter market is that they are developed line to their operated on a not-fortheir suite of time retirement horizon and profit post-retirement therefore have a more basis for the benefit of their members, conservative approach products to investment. and they do not Recognising that pay commissions to many people want to have more product or advice providers in the financial control over their investments, some industry funds now offer services market. the opportunity for members As a result, they claim to be focused on delivering low fees, to construct their own share which are charged as a percentage portfolios within their super accounts. of the member’s balance. Industry funds have also Many people also hold life, disability and income protection developed their suite of postinsurance through their industry retirement products to offer people a different option to the super funds that, because of lump-sum payout, which many their scale, are often able to offer insurance to members at lower people have then been rolling over into newly created selfcost than available elsewhere. Superannuation has changed managed accounts. To drive investment returns for significantly in Australia over the past decade and people now have their members, industry funds

WHAT: Low-fee super funds run on not-for-profit basis for the benefit of their members. Fees are charged as a percentage of the member’s balance. Funds often offer life, disability and income protection insurance at relatively low cost. BEST FOR: Younger people who have a longer investment time frame and do not want to be too hands on. PERFORMANCE: Do your homework and take advice where needed. Industry norms are calculated on a relatively small number of funds. One institution’s balanced fund can carry more risk than another’s. FEES: On an average account, fees can range from 0.4% to 1%.

need to invest those funds. The two largest asset allocations are in shares in Australian companies, and in Australian fixed-interest investments, mainly government and corporate bonds. Many funds also have clearly defined investment strategies that exclude investments in the fossilfuel industry, tobacco and the armaments industry, the so-called screening or ethical investing. Other funds are also large investors in Australian infrastructure projects, such as motorways, and increasingly in renewable energy, on the premise that developing infrastructure also delivers an outcome for their members and the wider community. reallysimplemoney.com.au

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SUPERANNUATION

GETTING PERSONAL Developed by financial institutions and insurance companies, industry retail funds offer members investment expertise and some personal service. By Lachlan Colquhoun.

etail superannuation funds are those offered by banks, insurers and wealthmanagement businesses. The retail super brands offered by the Big Four banks are BT Super (Westpac), MLC (NAB), Colonial First State (CBA) and OnePath (ANZ). AMP is also a major provider of retail superannuation. Within retail superannuation there is a wide choice of investment options, sometimes numbering in the hundreds. These funds all have their own fee structures, but the model is for the fees to be a percentage of the balance. While other sectors of the super industry talk up their low fees, research shows that some of the leading retail funds actually have the lowest fee structures and are highly competitive in terms of cost. REALLY SIMPLE MONEY 2016

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Retail Super

THE LOW DOWN

employer, as well as from salary The retail sector is also catching sacrifice. up with the rest of the market in Most of these accounts will terms of customer satisfaction. become lump-sum payments on The Roy Morgan research retirement and will then typically group has a long-standing survey be reinvested in a range of postof customer satisfaction with retirement products, such as a super and while the retail sector self-managed fund, to create a has historically lagged behind pension or income stream. industry funds in terms The point of difference for retail of satisfaction, the gap is funds and their main pitch to the narrowing and is now at its closest market is that their investment point since the research began. experience and expertise will The retail sector has also gone deliver good secure returns through some changes in recent to account holders. years, with new providers such as In exchange, the bank or wealth-advice franchise Yellow company operating the fund seeks Brick Road entering the market to retain some profit for itself and with its brightday brand, which its shareholders. delivers accounts and The last decade has super advice online. The retail seen a major decline in Some retail sector is what is called corporate superannuation catching up superannuation, where providers have also a company maintained moved into the with the rest own superannuation low-cost MySuper of the market its fund for employees. space, offering what in terms of In many cases, are mostly default those funds have been accounts, which you customer transformed into will go into unless you satisfaction retail superannuation stipulate otherwise. accounts because While retail behind the corporate, one of the providers do not offer insurance big banks was actually already in the same way as industry providing the outsourced funds do, many will use their superannuation services. superannuation businesses as In today’s market, many a channel to market their employers have what is called a insurance products. default super fund, which they This is particularly the case with automatically put new employees the retail funds offered by the big into unless they specifically ask banks, because typically they also otherwise. Often, the default fund have insurance businesses. is a retail fund operated by one of The majority of retail the banks. superannuation accounts are For a long period, retail what is called accumulation superannuation was the largest accounts, designed for the period single sector the Australian when account holders are still in superannuation industry, but that the workplace and contributions has changed with the rise of the are still coming in from their

WHAT: Super funds run by banks, insurers and wealthmanagement businesses, designed to make a profit for the company and its shareholders. Fees are generally charged as a percentage of the fund balance. Companies may use funds to market their insurance products. BEST FOR: People who are working and have contributions coming from their employer, and from salary sacrifice. PERFORMANCE: Industry norms are judged across 260 funds, but do your homework and take advice if needed. One institution’s balanced fund may carry more risk than another’s FEES: Average annual fees can range from as low as 0.35% to 1.94%

self-managed sector, which now has top ranking. According to May 2016 data from the Australian Prudential Regulatory Authority, the retail sector comprises total assets of $532 billion, which is about 27 per cent of Australia’s entire superannuation pool.

reallysimplemoney.com.au

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SUPERANNUATION

DOING IT FOR YOURSELF Workers wanting greater control of their retirement savings and retirees with lump-sum payouts from industry and retail funds are jumping into self-managed super. By Lachlan Colquhoun.

he self-managed superannuation sector has experienced rapid growth over the past decade and now comprises the largest single sector in Australiaâ&#x20AC;&#x2122;s $2.03 trillion superannuation pool. Over the past 10 years, about 2,500 new self-managed superannuation funds (SMSFs) have been created each month, the equivalent of just under 600 each week. SMSFs have struck a chord with the investing public because a significant number of people now want to feel in more direct control of their retirement savings. At the beginning of the century, SMSFs accounted for 15 per cent of retirement savings, and that has doubled to just under 30 per cent in less than two decades.

REALLY SIMPLE MONEY 2016

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Self-Managed Superannuation

THE LOW DOWN

Australia with total assets of $592 There was a particular stampede billion, representing just under into SMSFs during the global 30 per cent of all superannuation financial crisis of 2007-2008, assets. when returns in the regulated A SMSF can have up to four superannuation sector plummeted members, each with their own and many people set up their account, and across all SMSFs funds with a defensive mindset. there are 1.1 million individual At that time, bank term deposits account holders. were paying about 8 per cent This means about one in 20 interest per annum, and many Australians of working age is in a people with SMSFs put the bulk SMSF, either alone or with family of their money in cash, largely to members. preserve their money at a time of SMSFs are quite different from market turbulence. other forms of superannuation SMSFs are not for everyone, and put a significant responsibility but in many cases, they are very back onto members or trustees. attractive for business owners. Because of their popularity, an For some time now SMSFs have industry has developed around been able to borrow to invest in SMSFs offering services across property, a reform that created legal, accounting, auditing and more options for funds. investment advice. A common strategy is for SMSF trustees can business owners to Many advisers either be the individual set up a SMSF that owns their business believe there members of the fund, is most common, premises. The business is a minimum as or they can create a then pays market rent seeding company structure to the SMSF of the business owner. balance for an with what is called a corporate trustee. Also, business SMSF to be Instead of being owners can pay profits viable regulated by the from their business Australian Prudential into superannuation at Regulatory Authority, as all other a tax rate of 15 per cent, instead super funds are, the Australian of the corporate profits tax rate of Taxation Office (ATO) is the 27.5Â per cent for small businesses. regulator for the SMSF sector. SMSFs have also been seen as A trust deed is required to an appropriate financial structure establish a SMSF, a legal document for post-retirement. It is common that must be prepared by someone for many people to take a lumpqualified to do so. Funds are sum payment from a regulated registered with the fund, such as an industry, retail or ATO and are allocated a tax government fund and then create file number and an Australian an SMSF to manage their savings business number. in retirement. All SMSFs must also have an According to May 2016 data investment plan, which sets from the Australian Prudential out the strategy the fund plans Regulatory Authority, there to pursue and an outline of its are currently 574,682 SMSFs in

WHAT: Funds are set up and managed by individuals, with a maximum of four members. Trustees may choose to employ the services of a financial adviser to help administer the fund. BEST FOR: People with at least $250,000 to $350,000 available to start up a fund and with enough time and understanding to manage it. PERFORMANCE: Difficult area to judge because of the wide variety of funds, so do your homework. The SMSF Association cites annualised returns of 7.2%, quoting the Australian Taxation Office FEES: One-off set up fees can range from $500 to $2,000 or more, plus annual accounting and auditing fees, which can vary widely

planned asset allocations. A key difference between SMSFs and regulated funds are the fee structures. SMSFs require a one-off set of establishment fees, which depend on the service provider but are generally between $800 and $2,000, and there are annual auditing and accounting fees. These are fixed fees, unlike an industry or retail fund where the fees are usually a percentage of the total fund balance. Because of this, many advisers believe there is a minimum seeding balance for an SMSF to be viable. This figure varies according to opinion, but it is generally in the range of $250,000 to $350,000. reallysimplemoney.com.au

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ADVERTORIAL

Financial Advice

Seamless integration with CommSec

With 87% of SMSF investors using an online broker,* we have made access to Australia’s leading online share trading platform, CommSec, even easier. If you have an SMSF CDIA and a CommSec account, you can now switch between NetBank and CommSec, without needing to log in again.

Each year at the Commonwealth Bank, we track the sentiment of Self Managed Super Fund (SMSF) trustees in Australia. We’ve noticed that more trustees are making changes to their portfolios to be increasingly defensive, reversing the recent trend to be more aggressive.* This is the result of SMSF investors prioritising safety over growth – increasing the importance of effective cash management.*

One account for savings and transactions The SMSF Commonwealth Direct Investment Account (CDIA) has been specifically designed to act as the transactional hub for the super fund whilst earning a competitive interest rate between investments. With the SMSF CDIA, you can: • Enjoy a competitive interest rate on balances of $10,000 or more. • Make unlimited electronic transactions.

If you trade online with CommSec and settle trades into an SMSF CDIA, you can also take advantage of reduced brokerage rates.# Plus, we automatically recognise balances in your SMSF CDIA when you place an order. That means you can place a buy or sell order as soon as you see an opportunity, without the need to transfer funds or provide a deposit.^^ To help make switching easy, CommSec can also help you transfer your existing shares and take advantage of the ‘Dividend Direction’ service, which takes the hassle out of managing dividend payments. Once your CommSec account is open, you can opt in online, and dividend payments will automatically be paid into your SMSF CDIA** and start earning interest.

+HOS VHFXUH D EHWWHU ğQDQFLDO IXWXUH With our tailored SMSF CDIA, you can simplify the cash management of an SMSF and benefit from integration with CommSec to make it easy to access a wide range of investment opportunities from domestic and international markets. Open an SMSF cash account today and find out more at commbank.com.au/smsfcash

• Benefit from no monthly account keeping or withdrawal fees.^ • Access our online banking platform with NetBank on mobile, desktop or tablet. • Experience the simplicity of one tailored account that caters for a wide range of SMSF structures.

Things you should know: The SMSF Commonwealth Direct Investment Account (CDIA) is a bank account designed for use in conjunction with a Self Managed Super Fund. It is not a superannuation product in its own right. This information has been prepared without considering your objectives, financial and taxation situation or needs. Because of that, you should, before acting on it, consider its appropriateness to your circumstances and think about seeking professional advice relevant to your individual needs before making a decision. Terms and conditions issued by Commonwealth Bank of Australia ABN 48 123 123 124, AFSL 234945 (CommBank) for the SMSF CDIA are available from any branch or by calling 13 2221. Commonwealth Securities Limited ABN 60 067 254 399, AFSL 238814 (CommSec) is a wholly owned, but non-guaranteed, subsidiary of CommBank. CommSec is a Participant of the ASX Group and Chi-X Australia. *Investment Trends 2015, SMSF Investor Report April. ^Access fees may apply when using networks overseas or non-CommBank networks domestically or any transactions involving currency conversion. #To be eligible for discount Internet Preferred brokerage you are required to trade online, be CHESS sponsored and have your CDIA linked for settlement. ^^CommSec provides each trading account with the ability to trade up to $25,000 worth of leading stock and $7,500 worth of non-leading stock without an initial cash deposit. Terms and conditions apply and we reserve the right to reduce limits on your account. Visit commsec.com.au for more information. **The majority of registries will participate in the dividend direction program, however, there may be smaller registries that do not. FPi_28-33 RobotsVsHumans.indd 28 CBCON3072-20 SMSF CIDA Advertorial 275x210_v2.indd 1

29/06/2016 1:56pm pm 6/05/2016 5:34

been prepared dividual needs s Limited ABN ees may apply ave your CDIA right to reduce

6 5:34 pm

Financial Advice

THE ROBO TEST One family, two advisers: one a robot, the other human. Who gives the best advice? Lachlan Colquhoun sets up a road test to find out.

t was only a matter of time. For years, financial advice has been wrapped in mystique. It’s about examining your circumstances. Establishing a relationship. Understanding your goals... Well, tell that to the algorithm that really dictates investment advice. At least, that’s the theory behind the latest fad in investment: robo advice. Yes, robo as in robot – also called “digital financial product advice” or “automated service”. Advisers and investment houses have been harnessing the powers of supercomputing for years. You just haven’t been aware of it. The power of the algorithm in predicting market movements has hitherto

been the domain of the Big Boys Suddenly, it’s available to all of us for as little $55. Typically, you go to a web address and input details of your financial position, and the amount you have to invest, press “go” or “return.” Some robo advisers just dispense general advice, while others deliver investment suggestions and a statement of advice document. Some of the new financial start-up companies , fintechs, are offering this service. But it is also being offered by some of the big banks and fund managers. Robo advice is regulated by ASIC and an adviser offering this kind of service needs to have an

Australian Financial Services (AFS) licence or be a representative of an AFS licensee. We decided to road test robo advice and compare it with the advice given by a leading human adviser. We created a hypothetical family and fed the details into the OwnersAdvisory platform, launched earlier this year by Macquarie Bank. We received a statement of advice, an edited part of which is included here. Representing humans is Paul Kearney, founder and chief executive of the Kearney Group, winner of the Association of Financial Advisers’ 2015 Australian Practice of the Year in 2015. reallysimplemoney.com.au

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Robo Test

MEET THE HYPOTHETICALS Our family is Jack and Jill Hypothetical and their two-year-old son, Ted. • Jack and Jill are both 35 years old • Ted is in childcare two days a week • Jack is on a gross salary of $110,000 per year • Jill works part time for a salary of $35,000

• Their combined superannuation is $90,000 • They have a $650,000 mortgage on a house worth $1.2 million • They have credit card and other debt (car finance) of $25,000 • They have $90,000 cash to invest following recent windfall (outside of their super) When we gave this information to our human adviser, Paul Kearney, he made the point that any adviser would need to know more about them to give them financial advice. Kearney’s point is that financial advice is more holistic and takes into account a person’s life stage, and is very different to investment advice. So we filled out the picture a little more. Jack works in a secure public-service job and while he may have a series of incremental pay rises, it will be slow and steady, rather than rapid change. Importantly, he is not in danger of losing his job. Jill is planning to return to the workforce full time when Ted starts primary school in two or three years. She was previously on $80,000 and is expecting to return to her old job. They are not looking to move or to significantly renovate their family home and have no plans for major spending in the near future.

THE ROBOT SAYS…

The OwnersAdvisory robot began with a greeting: “It is a pleasure to advise you on your investments and progress toward your investment success. This summary shows the top line view of our advice to you. You’ll ﬁnd detailed information regarding our recommended actions, reasons for these, and the beneﬁts to you inside this statement of advice.” The robot then went on to detail specific investment of the Hypothetical’s $90,000 cash in 17 products, all available on the Australian Securities Exchange (see right). After allocating the portfolio across

THE HUMAN SAYS…

After an extensive consultation process, Paul Kearney offered the following advice to the Hypotheticals. 1. LIFE TRAJECTORY OBSERVATIONS: • C ash flow is going to be extremely tight over the next two years until Jill heads back to work full time. • M oney will loosen up after that and there will be significant flexibility to adopt a number of strategies. • O n the basis of information supplied, we can see that, carefully managed, Jack and Jill can work themselves into a very strong position by retirement.

REALLY SIMPLE MONEY 2016

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Robo Test

the stocks, the robot went on to explain that the portfolio had been constructed with an investment horizon of 25 years for growth investors. It forecasts an expected return on the portfolio of 5.4 per cent, with dividend yields of 5.6 per cent. THE ROBO PORTFOLIO Vanguard Australian Government Bond Index ETF................ $15,857 iShares Europe ETF Depository Interests...........................$13,427 iShares Core S&P 500 ETF Depository Interests.............$9,974 Medibank Private Limited.....$8,999

2. CASH-FLOW MANAGEMENT IDEAS: • Establish a banking mechanism that ensures you stay on track with your weekly and monthly expenditure – those things that happen every week and those that happen less regularly. • Make sure you have funds that are easily accessible in the event of emergency/urgent need. This can be done with an offset account, a deposit or a redraw facility on your mortgage. • Ensure you are well protected against the cash-flow problems that sudden illness may cause. 3. STRUCTURAL CHANGES: • Get rid of the credit card debt by absorbing it into your home loan, then adopt the cash-flow controls mentioned above to ensure you never get a credit card debt again. • Put your $90,000 into an offset account against your mortgage until you find a better place for it (and you may decide there isn’t one). 4. WHAT TO CONSIDER WHEN CASHFLOW LOOSENS UP IN TWO YEARS: • Accelerated mortgage repayments. These work at the prevailing interest rate – net of tax, so are a great defensive investment. • Investment from cash flow.

Magellan Financial Group Ltd....................................$8,541 Rio Tinto Limited.................$7,084 Qantas Airways Limited.......$4,160

• Salary sacrifice to super, particularly for Jack. • Supporting borrowings for an equity portfolio. • Supporting borrowing for an investment property. 5. YOUR CURRENT SUPERANNUATION: • Is it working hard enough for you? Do you know where it is? Treat it like any other money of yours – understand where it is, what it’s doing and manage it as if it were yours (It is yours!). 6. CURRENT INVESTMENT OPTIONS: • You have $90,000 in cash. Applied against your mortgage, it effectively earns 4.55 per cent (your presumed mortgage rate) after tax. Any other investment would need to earn about 7 per cent before tax and be in Jill’s name to achieve that result. • Instead of using the cash to invest, do as stated above (offset it against your mortgage) and borrow $90,000 (or some other amount deemed to be appropriate) to establish an investment portfolio. Your overall debt position will be identical, but the debt will now be tax deductible, costing only about 2.75 per cent after tax. • From a portfolio perspective, only

Woodside Petroleum...........$3,486 Asaleo Care Ltd...................$3,261 Servcorp Limited.................$3,036 Vocus Communications Limited..............................$2,698 Vanguard International Fixed Interest Index......................$2,494 Russell Australian Select Corporate Bond...................$2,162 Sigma Pharmaceuticals Limited..............................$2,024 Paciﬁc Brands Limited.........$1,124 iShares Global Corporate Bond (AUD Hedged)...............$719 AusNet Services Limited..........$562

borrow enough to fund a 100 per cent growth portfolio that is suitable for you. There is absolutely no point in borrowing at 4.55 per cent to acquire defensive assets as part of your portfolio – that’s so often missed. Instead, regard the funds put in offset as your defensive investment (and wow – it earns at effective 7 per cent, much higher than defensive assets generally), and use borrowed fund to acquire a long-term investment portfolio. • We would recommend against putting this $90,000 into super for now. The time may come for that, but there is too much water yet to go under the bridge to make this commitment at this time. 7. PROTECTION • Ensure your wills and powers of attorney are in place. • Ensure you are protected against bad luck – illness or death. Use your superannuation to fund as much of this expense as is sensible. 8. REVIEW YOUR SITUATION REGULARLY. • Life changes, and so should your strategy. Make sure you have regular review meetings with your advisory team to keep things on track. reallysimplemoney.com.au

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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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Robo Test

THE VERDICT PAUL KEARNEY

THE ROBOT

Robo advice is dangerous

I’ll earn you money without emotion

It makes me feel ill that this robo stuff is getting up as a “modern” solution. It’s everything that caused me to go into financial advising in the first instance 15 years ago, when I was appalled by the “advice” I was being shown by clients (I ran an accounting practice before we combined financial planning into our service offer) as they sought my opinion on its worthiness. It represents every misconception/ delusion/misunderstanding that the general community has unfortunately held – and suffered from – until recently, brought on by the old breed of adviser that is now, thankfully, being eradicated. Can I say this. INVESTMENT ADVICE IS NOT FINANCIAL ADVICE. It’s only a part. An important part in the end, but not the most important part, certainly NEVER the only part, and NEVER the first part. Investment advice is the last thing to discuss, after everything else is understood. It’s the last thing to strategise, after all other strategies have been put in place. It’s a thread woven into the cloth of an overall holistic financial strategy. It is not the cloth itself. The robo advice provided, and if I am to understand the information supplied to it, holds itself out to be the cloth (to use this analogy) to the consumer, who could be easily fooled into believing it. And that’s where all the danger is. It truly worries me that robo advice facilities (and any old-fashioned financial adviser, for that matter) can take what is essentially personal information and wrap it up into what the unwitting consumer could easily misunderstand as financial strategy that is good for them. It isn’t. The advice has practically no realworld contextual value in the lives of the clients.

Too much financial advice from humans is filtered by emotion, personal opinion and bias. If you come to me, the robot for my advice, I’m all about making you (and my makers) money and delivering capital growth. You won’t get psychological coaching, moralistic judgements or any sympathy from me. I access the latest algorithmic methodology and data on global investments. Then I crunch that through world-beating artificial intelligence to create a portfolio of investments that is mathematically forecast to earn you money and generate returns. I’m also able to take into account your personal situation, but only based on the hard data you give me. You can input details about your financial position and your timeline and I’m able to understand your risk profile and, from that, create a portfolio that is tailored for you. So I can give you the best of both worlds: unbiased and mathematically calculated portfolio advice individually crafted for you. And my fees are low and I work quickly. I’m ready to help you whenever you log on to my website, any time of the day or night.

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29/06/2016 2:26 pm

Money and the Sexes

MARS V VENUS FINANCE FOR COUPLES

As in many areas of life, men and women often have very different attitudes towards money. Nicole Pedersen-McKinnon offers advice on navigating the divide to secure a harmonious financial future.

he tricky thing about managing money in partnership is that there might be an interplanetary-sized gulf between the two people’s spending and savings habits. You might not even want the same things. John Gray was clearly onto something when he penned Men are from Mars, Women are from Venus… sales of more than 50 million copies says so. The insight might have made him rich, but how do you reconcile potentially galactic differences between you and your partner to be able to shore up your own futures? Without getting too sexist about it, these are seven things you might do differently, whichever side you come down on.

1 BALANCE THE POWER (NOT JUST BUDGET) We’ll channel John Gray first and accept that relationship harmony often comes down to an equal give and take. Resentment can build if one person is not as “invested”. Think about how much

you contribute to your household’s money environment – note that how much you financially contribute is irrelevant; it’s about your buy-in to the family bottom line. Are you a considerate, engaged partner? And are you financially fair-minded?

2 SET GOALS

The very first stage of setting up a well-functioning financial relationship is to get on the same page. “Shacking up” is actually a money masterstroke: you potentially double your income and halve your bills (we’ll leave aside what happens if you later have kids!). So it’s smart to figure out, about the same time you’re deciding who gets which drawers and cupboards, what your shared goals are. These shouldn’t be money oriented but outcome oriented – the holiday you want in two years, the house in five years, the new car after that. Then it’s an easy process to cost these goals. It’s the next part that’s tougher.

3 TARGET GOALS

This is where the scary C word comes in: commitment. How committed are you to achieving the goals you set as a couple? Where you

REALLY SIMPLE MONEY 2016

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29/06/2016 2:31 pm

Money and the Sexes

fall on the scale will determine your dedication to reserving for them, whether you save appropriately or spend impulsively. A US study by Experian found women typically discuss purchases above $396 with their partner, whereas men don’t feel the need until the spend is more than $1,231. Remember the key to financial compatibility is to target your precious goals together, with a savings plan you both can stick to. If one party is cast as the spender and the other the saver, it’s going to cause friction fast – and naturally undermine your progress towards your goals.

4 ASSESS RISK

There are well-documented differences between the sexes when it comes to investment. Australian risk-profiling service FinaMetrica says that in one in six relationships, the women is the bigger risk taker. It may be that in your partnership, the man is comfortable with far riskier investments than the woman. The thing is, you need to find a way to meet in the middle so the woman can sleep at night and the couple still has the chance to earn big enough investment returns to reach their goals. This one takes sensitivity and possibly a bit of swatting up on an investment – understanding precisely what it is you’re getting into makes most people feel more comfortable.

investments. I’ve lost count of the times women have said to me: “Oh I don’t care about money stuff; [insert partner’s name] takes care of that.” This baffles me as both your future lifestyles depend on them. And is it really fair for one person to assume all that responsibility? It may not be healthy for a relationship. So pay attention!

6 DEAL WITH LOSS

What if you realise one of your investments is going bad? Here, financial advisers once again report far different reactions from the genders. Women will tend to get spooked and sell out quickly. For men, this is almost seen as an admission of failure – and they can hold on in the hopes that they’ll eventually be vindicated. Sometimes, of course, this can mean total loss.

7FIGHT FAIR

Money is incredibly emotive, it riles people like few other things and is the cited reason for a third of divorces. Your attitude to money will have been shaped by hundreds of formative experiences – from when and how you received your first coin, to your experience of debt, to perhaps a former partner with a secret bank account. Try to recognise this and leave your financial emotional baggage at the door. Likewise, be sensitive to the formative influences on your partner: someone who grew up with not much might seem cheap, but may actually be fearful of sliding back into that situation. Work towards a common, considered and considerate purpose, and together you can achieve great things.

5 MONITOR INVESTMENTS So often I have observed amongst women an indifference to

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29/06/2016 2:31 pm

Saving

HOW AUSTRALIANS

SAVE MONEY See how your saving habits compare with the average Australian’s with these figures from ASIC’s MoneySmart website, moneysmart.gov.au

48% SAVING FOR A HOME

13%

OF THOSE WHO ARE SAVING...

SAVING FOR SOMETHING ELSE

10% SAVING

FOR AN EDUCATION

SAVERS

41% TTLE SAVI NG A LI

NON-SAVERS

43%

WHAT KIND OF SAVER ARE YOU?

SAVING FOR A CAR

47%

SAVING FOR THE FUTURE

NG EASILY

47%

33%

16% SAVI

SAVING FOR A WEDDING

SAVING FOR A HOLIDAY

SAVING FOR AN EMERGENCY FUND

SAVERS

SAVING FOR A NEW COMPUTER/ TECHNOLOGY

8% SAVING FOR

FURNITURE/ APPLIANCES

11% DREAMER

I have savings goals, but no real plan for achieving them.

24%

HIT & MISS

I have a plan to achieve my savings goals, but I don’t always stick to it.

37%

SLOW& STEADY

I save small amounts regularly and I’ll eventually get there REALLY SIMPLE MONEY 2016

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29/06/2016 2:30 pm

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29/06/2016 3:17 pm

Introduction

6 AGES

OF WEALTH AND HAPPINESS

Each decade of life is different and each needs a different approach to money. You need to plan and to adapt to life’s changes along the way. Our panel of experts tells you how to plan for each decade, and Lachlan Colquhoun presents real-life case studies.

YOUR 40S Is this what maturity feels like? You’re in control of your career, kids are growing up and you’re in the family home. You feel all grown up at last. Part of that is sorting out your super and your insurances, and thinking about an investment portfolio.

YOUR 20S It’s a carefree decade and money is largely for creating fun and having adventures. You might be living at home and accumulating a HECS debt, and some superannuation might be starting to accumulate. You can still have your fun and start saving if you put a plan in place. You’ll be glad you did.

30s R U O Y IN YOUR 30S

20s R U O Y IN

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It’s starting to get more serious and money doesn’t seem to stretch as far as it used to. There are new expenses with children, mortgage payments and just living day to day. You’re living in the moment just to get by, but taking time out to plan and budget will pay off.

0s 4 R U O IN Y 29/06/2016 2:18 pm

Introduction

YOUR 60S This is the retirement decade, but setting the date is the tricky part. There’s so much to consider before you take that step and start the next phase of life. Health issues might also start to be a factor. More than ever, you need a plan.

50s R U O Y IN

70s R U O Y IN

YOUR 50S

OUR PANEL

On one level, things are comfortable and life is going well, but there are challenges. The kids are almost off your hands and you are contemplating the empty nest. But beware, it’s a decade that is seeing more divorces and that means assets that have been built up need to be split. For some, it’s a nasty shock to look at your super balance and realise retirement is around the corner.

DAVID REED is a certified

retirement coach and is the 2015 AFA Adviser of the Year. He was recently awarded the 2015 Most Recommended Adviser in Australia by the Beddoes Institute. He is also the author of 50 Tips for Over 50’s and co-author with retirement psychologist Barry LaValley of So You Think You Are Ready To Retire.

YOUR 70S This is the Third Age, which should be the most carefree decade since your 20s. You should be enjoying a comfortable and fulfilling retirement, full of fun, travelling, friends and family. Just make sure you don’t outlive your super!

60s R U O Y IN

BEN NASH is a financial

adviser and the founder of Pivot Wealth, a money management firm based in Sydney. Pivot specialise in helping highincome young professionals confidently balance their lifestyle and money. Ben’s focus is to help his clients understand money and make smarter money decisions so they can live their ideal lifestyle.

ADRIAN PATTY is principal

adviser at AP Financial Solutions and cofounder of XY Adviser, which mentors young advisers who are the future of the industry. He believes in empowering clients through education and clarity, taking the uncertainty out of the future and providing the confidence and peace of mind to enjoy life.

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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29/06/2016 2:18 pm

Six Ages The Carefree 20s

20s Y

our 20s are the most carefree and fun loving decade of your life. Or they have been, up until quite recently. In 2016, the 20s mean something a little different to this generation than it did to Baby Boomers. Sure, you still party hard, travel a lot and enjoy life to the full, but it seems some life concerns creeping in at an earlier point. Instead of free university education, early marriage, the prospect of long-term careers and home ownership, life is a little more uncertain. A much larger percentage stay at home, because renting is prohibitively expensive and saving for a home deposit is much easier under the family roof. Then there are HECS fees accumulating, and while paying them off is a decade or so in the future, 20-somethings finish their education with substantial debts. As they make their way through uni, many have a variety of jobs

TIME TO PARTY, BUT ALSO TO PLAN

and accumulate a number of superannuation accounts. Few will stay in a job for longer than two years and many will have several part-time jobs at the same time while they study or try to get a business together. Four or five envelopes arriving in the mail from various super funds

their late 20s and beyond, but it doesn’t mean the world they will eventually emerge into will be any easier. Today’s 20-year-olds are partying with more of an eye on the future than the generations that went before.

Today’s 20-year-olds are partying with more of an eye on the future each year may be annoying, but it does mean 20-somethings are getting an early start. While their parents may have been in the workforce a decade or more before compulsory super was introduced in 1995, 20-somethings have never known anything else. Of course there are good and bad sides to these differences. “Kidults” staying at home can extend their adolescence into

SIX-POINT CHECK LIST

1STAY AT HOME: There is

a reason more young people are staying in the family home for longer. It’s cheaper than a share house and Mum and Dad aren’t too bad after all.

2START TO SAVE: You’ll

never have fewer outgoings,

FPi_40-41_6Ages_20s.indd 40

so it’s a perfect time to start saving. Think about saving half of what you make.

3 BEWARE THE CREDIT CARD: Getting into big

trouble with credit cards will not only mess up your credit rating, it’s a financial black hole. Be careful.

4DON’T WORRY ABOUT

UNI DEBT: Australia’s HECS system of paying for university is just about the cheapest debt you’ll ever have. Get educated.

5THINK ABOUT

INSURANCE: Life and

20s R U O Y IN income-protection insurance only get more expensive the older you get. Be aware premiums rise with age, and for health insurance, sign up before you’re 30.

6HAVE FUN: Life is for

living. Money will never be less important again.

29/06/2016 2:16 pm

CASE STUDY

OUR PANEL’S ADVICE

TWENTY-FIVE-YEAR-OLD Elizabeth Brown is less than a year into a full-time job and is already saving hard for a home deposit. The young lawyer graduated from university in mid-2015 and is living with her parents while she saves about $1,500 a month from her salary of about $70,000 a year. “The main reason I am at home is to save up some money to buy a property,” Elizabeth says. “I’m paying 10 per cent of my wage as board to my parents.” Elizabeth’s plan is to save about $30,000 and then buy her first property, potentially with her parents. She has her sights focused squarely on buying in Sydney’s inner-city, in a suburb where she would like to live. “I don’t think I’d buy somewhere just as an investment, and not live in it,” she says. “I’d like to have the option to do either, so to do that, I want to buy in an area where I can see myself living long term.” With housing prices so high, Elizabeth understands it is likely to take her longer to accumulate the deposit to buy into a more expensive suburb.

STARTING TO GET ORGANISED “I do get pessimistic about it, but at the same time I do think it’s possible,” she says. “Houses are just so expensive these days, but to me it is worthwhile to save up longer to purchase the property I want.” Elizabeth’s focus on her financial future is a recent thing. She admits that in her university years, she was more interested in “holidays, going out and shopping”, but has brought that under

DAVID REED Cash flow and debt management are critical. Set goals and build a simple system to manage money. Education on investment will build your confidence to start saving 10 per cent of your income and grow long-term wealth. Invest in growth assets and let compound interest work its magic. Personal insurance such as income protection is crucial. Consolidate super funds into one.

FPi_40-41_6Ages_20s.indd 41

control since starting fulltime work, with the ultimate goal of accumulating the home deposit. On the advice of family and friends, she also saw a financial adviser, which focused her mind on her goals and how she could achieve them. “My issue was that I was a student until I was 24, so I always thought there was little point in starting to save,” she says.

BEN NASH The sooner you start investing, the better outcomes you can expect. Starting a small regular investment into a diversified share portfolio such as Australian shares or a managed fund will pay big dividends in later years. Investing regularly will also get you in a pattern that will make it easier to fund debt payments when you buy property.

The contact with the financial adviser, she says, also helped her understand exactly where her money was going. “I’ve brought back my spending now, because I didn’t realise just how much I was spending on eating out for lunch and dinner, going out on weekends,” says Elizabeth. “I still do holidays and go out on the weekends, but I’ve definitely got the shopping under control, which was were a large portion of my salary was going.” Superannuation, she admits, is not her “primary focus”, but she is also taking some action there. Like many people of her age, she has accumulated several superannuation accounts through working in a range of casual and part-time jobs. With the help of her adviser, she is in the process of consolidating them all into the one account. “I think I need to find out more about super because I do realise that its going to be more important later on,” she says. “But it’s probably not my main priority right now. The main priority is the house deposit.”

BILL BRACEY Well let’s face it, apart from having fun, there is nothing much more that matters. Until that 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. Step one is start a budget, work out what it’s going to cost to live, and then get a job (or several jobs) to cover your expenses.

29/06/2016 2:16 pm

Six Ages The Thrifty 30s

30s T

his is the decade when, even if you don’t want to, you join the ranks of mainstream Australia. The 30s are when kidults finally transform into adults. You’ve finished university and left home. You may have saved enough for a home deposit and, if you’re lucky, paired up with someone who has done the same. If you have parents who can help with this, you’ve hit the jackpot! While you might be settling down into a career, there are pressures starting to accumulate. If you have bought a house, there are relentless mortgage repayments. If you have a growing family, there is the headache of finding larger but still affordable accommodation. With children come educational choices and child care to pay for. It can also reduce the earning capacity of the family as one parent takes time out to look after the kids. There is a world of financial

LET’S GET SERIOUS

choices to navigate and you are supposed to know the difference between fixed-interest loans, interest-only and variable, and which is best for you.

There is a world of financial choices to navigate Your superannuation balance will be starting to build and with that comes new questions. Should you consolidate all your accounts into one? You probably should, but which one is best? And should you be looking at self-managed super yet? Then there is insurance. Do you have life and incomeprotection insurance

SIX-POINT CHECK LIST

1THINK ABOUT SUPER:

You probably have a number of accounts accumulated through various jobs in your 20s. Best to consolidate them in one account.

2GET A PROPERTY PLAN: It’s harder and harder

FPi_42-43_6Ages_30s.indd 42

for first-home buyers in Australia. Get a savings plan and a strategy to get on the property ladder.

3START BUDGETING: If

you are going to get ahead, you need to know where all your money is going and keep it under control.

with your super fund? Have you made a will? The trouble with your 30s is you are so busy living and working, you hardly have time to plan. But if you can balance today with tomorrow, you can have the best of both worlds, and have some fun along the way.

30s R U O Y IN

4CHECK YOUR

INSURANCE: Think worst case scenario and make sure you have some appropriate cover.

5DO SOME TAX

PLANNING: Understand how much tax you are paying

and what you are entitled to do to minimise it.

6MAKE A WILL: You’ve

probably accumulated some assets, you may have a life partner and be starting a family. Having a will makes sure your assets go to them, if something happens.

29/06/2016 2:15 pm

CASE STUDY

OUR PANEL’S ADVICE

DIANA FERGUSON and her husband Stephane were living the carefree lifestyle of inner-city 30-somethings until Stephane had a workplace accident last year. A spinal injury has kept him in hospital and off work for nine months or so, and the experience has been a major catalyst in the couple focusing on their finances and their future goals. “We used to go out and party, and used to spend a lot on eating out and entertainment,” says Diana, 35, who manages a design team for a fashion label. “But we’ve totally changed the way we live and how we spend our money, and we realise now we were spending money on a lot of things we didn’t need to.” At the time of his accident, Stephane was not covered by income-protection insurance so the workers’ compensation he has received is only a fraction of his income. Having rented an innercity apartment for the last six years, the new financial circumstances made Diana realise that some changes had to be made if the couple was to be able to purchase

PAUSING FOR THOUGHT their own home at some time in the future. She reached out to adviser Peter Taniane and with his help created an investment fund on the Asgard platform, choosing a selection of diversified investments and seeding that with a lump sum. “Because my husband is sick and not working, I didn’t know if I was going to be able to make monthly payments, but I’ve just

BEN NASH You should be looking seriously at property investment to drive future income. How much you spend, how much you borrow and whether it’s your home or an investment will have a huge impact on the future and your cash flow today. Also think about strategies to cut your tax bill and if you haven’t already set up personal insurance, do it now.

FPi_42-43_6Ages_30s.indd 43

added a second lump sum and now I’ve actioned a monthly automatic payment,” says Diana. The plan is to save up the deposit for a property within six years, which they can either live in or use initially as an investment. At the same time, Diana took her superannuation out of the retail fund it had been in for 15 years or so and put the funds into an Asgard retail product.

DAVID REED It’s important to understand the difference between bad debt (loans on things that don’t produce income or increase in value) and good debt, for assets that produce income, appreciate or where interest is tax deductible. Repay bad debt first. Aim to have an emergency savings fund of six months’ income. Consider an offset account to reduce your mortgage.

Now her personal savings go into the investment fund to save for a house deposit, while the super fund receives the 9.5 per cent annual contribution from her employer. “Because I am a Kiwi, I didn’t really know that much about Australian super,” she says. “It was the fund my first employer in Australia set me up with and when I looked at it I realised it had a lot of different settings to what I want now.” Part of Diana’s thinking was around life and incomeprotection insurance for herself and she admits her husband’s injury was a major factor in her “getting focused” on finances. Also on the agenda is starting a family, which will bring with it its own set of financial challenges. “Children are definitely a factor and we definitely want to have a family one day,” says Diana. “So when we get to that bridge, we will probably re-focus and adjust things again, but I am aware that it will have to be in the next few years.”

BILL BRACEY People are either getting married or choosing 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 you survive if you go to one income once you have children? Now is the time to decide what you really want to do in life and to start making it happen. And it’s also the time to create a basic will.

29/06/2016 2:15 pm

Six Ages The Roaring 40s

40s T

he good news is that 40 might be the new 30 in terms of health and only halfway there in terms of life expectancy. In terms of finances, however, it can usher in a new world of responsibility and worry. Forty is an age of reflection, where people assess their lives in all kind of ways and ponder what they’ve done, and judge whether it has been enough. But while you might look back on the past 20 years, it really is time to prepare even more for the next 20 and beyond. Have you got enough super, should you start a business, do you need to buy an investment property or get a share portfolio going? Do you need to start salary sacrificing into super or start your own fund with your partner? How about upping the mortgage repayments and putting that big trip to Europe on hold? If your career is humming

along, is it time to have that stint overseas, both for the benefit of experience and also the ex-pat package? Or is it time to start thinking about a career shift? As if the future isn’t enough to think about, there is the present to take care of. If you have children, you need to make decisions about

you are working too hard, take time out to look after yourself. You won’t want to pay for neglecting your health with illness later.

2INVEST: Not just in super, but maybe it’s time to get

FPi_44-45_6Ages_40s.indd 44

you do is with some other family member in mind. And in the midst of all this, you are trying to make sure you are living the life you always wanted. And all of a sudden you are 49…and wondering how to celebrate your next birthday.

You are trying to make sure you are living the life you always wanted high-school education. You might like the idea of a private school, but the cost is going up all the time. Can you afford it, and if you can, what will you have to sacrifice in doing so? Paying off your house? This is also the age when you enter the “sandwich generation” years, between your children and your parents. Sometimes you feel you are parenting and looking after them both, and everything

SIX-POINT CHECK LIST

1STAY FIT: Especially if

HALFWAY THERE

some shares for yourself, or start a business on the side.

3CHECK YOUR SUPER:

Perhaps you haven’t thought about it in years. Maybe check how it’s tracking and re-set it based on how many years you are from retirement.

40s R U O Y IN

4SPEND TIME WITH

FAMILY AND FRIENDS: Don’t lose sight of what is important and the reason you are working so hard.

5DON’T COMPARE

YOURSELF WITH OTHERS: It’s counterproductive. We

chart our own course in life. If you feel you need to do more, do it for yourself.

6LOOK FORWARD WITH

CONFIDENCE: Feel satisfied with what you’ve achieved and anticipate the future. If you’re not satisfied, there’s still plenty of time.

29/06/2016 2:13 pm

CASE STUDY

OUR PANEL’S ADVICE

DAMIAN HAND WAS quite happy renting his business premises from a supplier at lower than market rent, but that all changed when his supplier and landlord decided to retire. Damian, 46, owns a roofslating business in Sydney’s west. He bought into the business with two partners in the early 1990s and later bought them out, becoming sole owner in 1998. With six to 10 employees, depending on the work pipeline, things were ticking along fine, but the situation with the factory space was a catalyst for his reassessing his financial affairs. “I was quite happy renting the business from the supplier, it was mutually beneficial,” says Damian. “But when things changed, I realised that I didn’t want to start paying market-value rent and in 10 to 20 years have nothing to show for it. “So first of all we looked at the business buying a factory, and then I was given some advice that doing it through a self-managed superannuation fund (SMSF) was the way to do it.” Having decided on a SMSF, Damian and his wife,

SUPER ALL PART OF THE BUSINESS Kylie, a police officer, took their savings out of their respective industry funds and created their SMSF, leaving sufficient balances in the industry funds to continue to pay for their life insurance. Pooling their funds, they had just over $200,000 in the SMSF, but there was a shortfall to make up to buy the factory they wanted for about $530,000. Instead of taking out a limited-recourse loan through

BEN NASH This decade should be about paying down mortgage debt on your home. Look at using equity in property to boost your investments and make sure they are structured in the most tax-effective way. Consider salary sacrifice to grow your super. Start building other assets to fund your lifestyle between winding back from work and when you can access your super.

FPi_44-45_6Ages_40s.indd 45

the SMSF, as many people do, they were able to make up the difference through a personal line of credit. “It got a bit complicated just before all this happened with the home mortgage,” says Damian. “We had been on a five-year interest-only loan. But when we went on interest and principal, the payments soared, even though I had $400,000 in an offset account.” So he paid the $400,000

DAVID REED Good cash-flow management is vital as you juggle expenses for family, mortgage, education and retirement savings. Save costs where you can, such as homeloan interest, and pay off credit card balances monthly. Consider establishing an education savings fund for your kids. Make sure your estate plan is in order and review personal insurance benefits.

off the mortgage and asked the bank for a personal line of credit “for as much as they would give me”. “When we needed the extra funds to buy the factory, I used that money to make up the difference.” Now the factory has been bought through the SMSF, Damian and his wife as the sole trustees are thinking of other investments. “We do want to diversify a bit and I think that we could look at some residential property,” Damian says. With two children heading into private secondary education soon, the Hand family is about to incur more expenses, but Damian is feeling confident. “We are lucky in that we are not struggling for money,” he says. “More would always be nice, but we have enough for what we want to do, enough for a holiday each year together and everyone is happy and healthy.” Looking into the future, Damian sees the sale of his business as the next major financial milestone on his way to retirement. “I’d like to think I could sell the business before another 20 years is out.”

BILL BRACEY Review your financial plan, particularly looking at wealth creation, super and retirement strategies. If you’re not on track to meet your goals, you need to effect immediate change. Is your insurance plan adequate re children, debt and divorce? Remember, half of all marriages fail. Do you now have new goals to add to your plan?

29/06/2016 2:13 pm

Six Ages The Full-On 50s

50s Y

ou’re cleaning up after your sensational 50th birthday party and you go through a mental checklist of where you are in life. Despite the hangover, you can feel pretty pleased about where things are at. The kids are closing in on the end of high school and seem to be on the right path to university and beyond. The house is nearly paid off and the business you started in your 40s is ramping up just at the right time. The plan is to sell it in a couple of years and do all those things you’ve been promising yourself for years. But thinking about the party, you understand you’ve been luckier than a lot of your friends of the same age who were celebrating with you. There were several divorces and even the amicable separations meant assets were halved and both parties had to reset their financial expectations and begin again. Others had lost jobs and some

had been retrenched several times. The redundancies were nice at the time, but the money was squandered and finding another well-paid job later in life proved challenging. Then there was the school friend who’d had that debilitating illness. Like everyone in her generation,

she assumed she was bullet proof and that nothing bad would ever happen, so she didn’t have income protection or disability insurance. She ended up moving back in with her elderly parents and becoming their carer as they became progressively more infirm. So as you finish the cleaning up after the party, you are thankful for your good fortune. You have a good launch pad for retirement.

1SET SOME NEW GOALS: 3GET SERIOUS ABOUT 2RE-THINK WORK: Are you enjoying your job, or is it time to try something else? It’s not too late to change as long as you plan carefully.

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It’s just sad that so many of your friends are not in the same position and, for many reasons, are set to spend their 50s pedalling frantically to play catch up.

In your 50s, you have a good launch pad for retirement

SIX-POINT CHECK LIST Write the bucket list. It helps you focus.

LAUNCH PAD TO RETIREMENT

SUPER: Now is the time to put your foot on the super savings accelerator. Don’t freak out if you don’t have enough super, there is still time. Just.

4DON’T OVERSPEND: With the kids off your hands,

50s R U O Y IN

you probably have more disposable income than you’ve had in years. Enjoy that, but don’t waste it.

your own financial future to molly coddle your kids.

5 DON’T OVER-INDULGE THE KIDS: You had to make

Get those check-ups, keep up the exercise. If life is a marathon, you are barely two-thirds of the way there and you need to stay fit to make it.

your own way in life and moved into a share house in your teens. Don’t sacrifice

6FOCUS ON HEALTH:

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CASE STUDY

OUR PANEL’S ADVICE

WHEN GERRY AND Janelle Taniane decided to go their separate ways after more than 30 years and three children together, they needed a clean financial settlement. The 50-somethings from Sutherland Shire in Sydney’s south agree their divorce has set them back financially and means they’ll have to keep working longer, but both can also look forward to what most would call a comfortable retirement. Six years ago, Gerry sold his audiometry practice and rolled part of the proceeds into a self-managed superannuation fund (SMSF) he had set up with Janelle after rolling over accounts they held in industry super. Meanwhile, they had sold the family home and bought a duplex, where they lived with one of their sons. About two years ago, they separated and agreed the assets should be divided equally between them. They each took $250,000 from the sale of the duplex, leaving about $340,000 sitting in a solicitor’s trust fund to be divided between them when the settlement is agreed. They are in the process of negotiating the division of

JANELLE AND HER MUM

NEW BEGINNINGS assets in the SMSF. With her $250,000, Janelle has purchased a house with her daughter and son-in-law, who are expecting their first child. She has a mortgage of about $300,000 on her share of the new property, but that is largely covered by repayments from one of her sons. “He borrowed some money from us to set up his business, and he’s paying that off over the next eight years and that largely covers my mortgage,” says Janelle.

DAVID REED Talk with your spouse about what you’d like your retirement lifestyle to be. Explore how a transitionto-retirement pension could work for you. Research shows planning for retirement five to 10 years ahead results in an increase of $157,427, compared to those without a plan. Consolidate your super funds to take greater control and perhaps lower fees.

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“I also have the option of taking my share of the rest of the duplex sale and paying that off the mortgage as well.” Janelle works full time as a nurse manager at a public hospital. In addition to her employer’s contribution, she is paying $500 a fortnight into super through salary sacrifice. “I think I’ll work for another 10 years or so, but I’ve also got the option of going part time,” she says. “I’m financially worse off as a result of my divorce, but I’m still quite comfortable.”

ADRIAN PATTY There’s still time to make up for any shortfall in your retirement fund. Increase tax-free super contributions. Review your investment allocation. If your portfolio balance is where you need it to be for a comfortable retirement, it may be appropriate to reduce the risk of your portfolio. If you’re far off your required balance, it may be important to increase the risk.

Gerry has re-located to the South Coast of NSW where he works for the company that bought his business. “The relocation was a necessity to ensure continuity of employment, however I have grown to enjoy the stress-free life down here,” he says. With the proceeds from the duplex sale he has purchased a town house, which he has a mortgage on. When the balance of the duplex funds comes through, he is tossing up whether to pay off the mortgage or buy an investment property. “I think by coming down here, where property is so much cheaper, I’ve managed to side-step some of the negative financial impacts of the divorce,” he says. “I will need to salary sacrifice superannuation payments to ensure a comfortable retirement. Now I’m hoping to get around to the things on my bucket list, such as travel and golf, and perhaps buy a little boat. “In terms of a retirement date, I’d like to say 2021, when I turn 65, but I really like what I do and I love my clients, so I think I’ll also see if there’s an opportunity to go part time and keep active.”

BILL BRACEY Review the “bedroom plan” formed 20 years ago to see if it still matches your goals. Reprioritise and effect changes based on your updated objectives. Retirement is now tangible. Will you be debt free by then? If the kids move out, it might be time to think about downsizing and freeing up some capital-gains-tax-free funds to shore up your wealth-creation strategy.

29/06/2016 2:12 pm

Six Ages The Super 60s

60s S

ixty sounds pretty ominous, doesn’t it? But the reality is that at 60 many of us are happier than we have been since our 20s. Suddenly we have the money and the time to really enjoy life. And with the advances in health and fitness, who is to say that 60 isn’t truly the new 40? In an ideal scenario, the kids are now independent, the family home has been paid off and you’ve downsized, pocketing a nice sum to top up your super. But the reality is that only a minority of 60-year-olds are in this position. Experts say we need at least $1 million in super to retire in comfort, so many 60-yearolds are likely to keep working through this decade to the new national retirement age of 67. Some may need to stay in the workforce into their 70s. According to the Australian Institute of Superannuation Trustees, the number of working Australians

FREE AT LAST?

aged 65 and older will have to double their savings if they are to enjoy a comfortable retirement. For single women, the statistics are daunting due to the welldocumented pay gap. According to Industry Super research, 70 per cent of single retired women rely on the pension and 40 per cent retire

To make these your best year, you need to have a good financial plan below the poverty line. Another thing to ponder is your longevity. It’s great that life expectancy in Australia is now 82, but if you retire in your 60s, will your super stretch that far? All this means that even though you might retire from your day job in your 60s, you might need to keep things ticking over a little bit and you certainly need to think hard about making your super last.

SIX-POINT CHECK LIST

1GET SOME FINANCIAL

ADVICE: You’re likely to retire this decade. If you’ve never had financial advice, now is the time to get some.

2THINK ABOUT WORK/

LIFE BALANCE: Re-configure your life with some part-time

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Many people now say that the years from 60 to 70 are the best years of your life. The truth is that to make this happen, you need to have a good financial plan in place.

work if you want to take your foot off the pedal a bit, but don’t want to retire yet.

3CHECK YOUR SUPER:

How is your super tracking? Do you need to do something to top it up? Do you need or want to start accessing it?

0s 6 R U O IN Y

4PLAN THAT BIG TRIP:

You’re still healthy and if the finances are looking okay, think about treating yourself.

5THINK ABOUT

DOWNSIZING: Perhaps having a big cull of your possessions, selling the

family home and downsizing is the change you need.

6LOOK FORWARD TO

THE FUTURE: Retirement in Australia is increasingly the Third Age, a 20-odd year period of happiness and fulfilment. Think about making that happen for you.

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CASE STUDY

OUR PANEL’S ADVICE

JUDY AND GARY Gibbons paid off their mortgage after a big win at the pokies, but that is just about the only part of their financial affairs they have left to chance. The couple from Dapto on the NSW South Coast are both barely 60, and yet have been comfortably retired for several years. Gary’s $70,000-plus win at the local Leagues Club put paid to what was left of their mortgage just over 11 years ago and with the help of financial adviser David Reed, they were able to configure their finances to ease into an active retirement. “We were both also lucky enough to have been with the same company for a long time,” explains Judy. “I was with Woolworths for 40-odd years, starting at the checkout and then moving into human resources, while Gary was a bricklayer by trade, but ended up working at BlueScope Steel, which used to be part of BHP, as a shift supervisor.” The couple each had corporate superannuation through their jobs and they received employee shares in both Woolworths and BHP over a long period of time.

SET AND FORGET “I kept re-investing the dividend in more shares and Gary did the same and it built up,” says Judy. “When we came to retire, it was an interesting conversation with our adviser David Reed. “He said that we were putting all our eggs into the same basket by just having the two stocks, but I felt as if I was being disloyal.” The adviser’s counsel won out and almost all of the shares were sold, with fortuitous timing in terms of their market value. The share

DAVID REED As you approach retirement, your focus may shift from chasing a return on your capital, to the return of your capital. Regularly review your super investments to potentially minimise risks. Assess what your likely retirement living expenses will be. Consider buying expensive goods that could be due to be replaced, such as white goods or a car, before retirement.

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proceeds were added to the two lump sums from the company retirement funds and the couple created a selfmanaged super fund (SMSF). The fund is invested in a diversified portfolio of shares, annuities and fixed-income products which, after all bills are paid, gives Gary and Judy about $6,000 each month to live on. So organised are they, that they barely have to think about their bills, all of which are spaced out and set up with direct debits.

ADRIAN PATTY The best part of this age is access to super. Some may have enough to retire. For others, a transition-toretirement strategy can allow you to reduce working hours or contribute more to super before tax. Either way, the movement of your super account into the pension phase ensures no tax is paid on earnings. Another benefit is the government age pension and a seniors’ card.

“Around 90 per cent of the bills are paid on the credit card and the whole bill is paid off at the end of the month,” says Judy. “Set and forget is the perfect way to describe it. Yesterday I was with my sister-in-law and she was having to run here and there to pay different bills, but we just sit down with the card at the end of the month and tick it all off.” Retirement gives Gary plenty of time for his twice weekly golfing, and the couple regularly takes a road trip for three to five days to vacation at regional centres, such as Port Macquarie, as well as major overseas trips annually. The Gibbons downsized from their larger fourbedroom home to a two-bedroom house several years ago and their only daughter, Melanie, and her husband, Simon, live in Canberra with their “two fabulous grand-dogs”. For the future, downsizing again to a unit is on the agenda, but not immediately. “We are still healthy and active and enjoying things, so maybe that will be in another 15 years or so,” says Gary.

BILL BRACEY Retirement is either upon you or just around the corner. This can be an enjoyable time if you start moving out of employment and work part-time, using some of your super to fund your lifestyle. Importantly, you must be both debt-free and kid-free or this won’t work well. So ask yourself if you have enough funds to achieve your goals.

29/06/2016 2:37 pm

Six Ages The Slow-Down 70s

70s I

n your 70s, you should be looking back at a life fulfilled and enjoying living for the moment, too. You are several years into retirement, you’ve found a range of new hobbies and you and your partner are ticking off that bucket list. But it’s not quite as carefree as that for most people. Money still needs to be balanced – if you go on the cruise to Alaska you’ve always dreamed about, that will mean cuts to other areas of the budget. You and your partner still have your health, but there are ongoing check ups and trips to the doctor. It’s also a period when you might be thinking about downsizing for a second time, or even retirementhome options. It can be good to pre-empt that final move, so you can make the right choice rather than being rushed into a less than satisfactory situation if your health starts to fade later. The 70s is a decade with its own

set of life decisions and you are mindful of making sure your nest egg will stretch as long as possible. It can, of course, come with disappointment. Many people mourn the loss of life partners and suffer from loneliness. Others are bored and feel trapped without the funds to travel.

Whether it’s travelling, taking up a hobby or volunteering, stay involved and keep yourself active.

2FORGET YOU’RE

70: Each generation of 70-year-olds is pushing the

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The 70s might be, on some levels, the time when it all comes together in a fulfilling retirement. But the majority of us will only be able to enjoy it to the full if we have won the lottery or made good solid plans along the way.

You are mindful of making sure your nest egg will stretch The current generation of older Australians also went through most of their working lives before the era of compulsory superannuation. This means the percentage of 70-year-olds on the pension is likely to decrease over time, but it also means 70-year-olds will be increasingly responsible for funding themselves, particularly if the retirement age is lifted progressively to 70.

SIX-POINT CHECK LIST

1KEEP YOUR MOMENTUM:

YOU’VE EARNED IT

boundaries on what this decade means in terms of fitness and health. There’s still a lot of fun to be had.

3CHECK YOUR ESTATE

PLANNING: Make sure that if anything did happen to you, everything is in order and as you want it.

70s R U O Y IN

4TAKE ADVANTAGE OF

BEING A SENIOR: There’s a range of entitlements and discounts for senior citizens. Use them, even if you don’t feel like a senior.

5WATCH YOUR SUPER:

We’ve all heard the one about

not being able to afford to live to 80. Keep a close eye on your funds so to make sure they don’t run out.

SMELL THE ROSES: Cherish your friends and your family and enjoy the first chance in decades to live for the moment.

29/06/2016 2:38 pm

CASE STUDY

OUR PANEL’S ADVICE

WHEN BILL GLASS was about five years old, his aunt gave him a book on the legends of ancient Greece. It triggered a lifelong interest which, in his retirement, he has returned to through studying a history degree at Macquarie University. At 70, Bill is four years retired after a career as an accountant and international tax expert to a series of large corporates, beginning with oil company Exxon and then moving into building products with Pioneer International, Hanson Plc and then Heidelberg Cement. The last three jobs, he concedes, were fortunate in that he was part of three takeovers and as a senior employee with shares as part of his remuneration package, his shares were acquired each time, at the takeover premium. “I’ve been lucky because those takeovers generated a fair amount of additional income which I wouldn’t have had in other circumstances,” says Bill. He was also in the company superannuation fund, a defined-benefit scheme, so when he retired he took that and with the help of adviser David Reed,

FOLLOWING LIFELONG INTERESTS he created his own selfmanaged superannuation fund (SMSF) which now provides his living expenses. The fund is balanced towards domestic and international shares, property funds and international fixed interest. In addition, Bill has built up a private share portfolio of about $1 million by buying stocks cheaply during the global financial crisis (GFC). He describes this as “the cream on the cake”.

DAVID REED The objective in your 70s is to minimise risk and receive a safe, smooth income. Assess your withdrawal rate from your savings each year to make sure your money lasts a lifetime. Seek advice on the level of growth assets in your portfolio. It’s important that you have sufficient to make your money last, while not giving you sleepless nights with volatility.

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“I was lucky again in that I acquired the shares at the start of the GFC and I bought all the banks at a low value and several years later, they had gone up quite a bit and I had a reasonable portfolio,” Bill says. He concedes it would make better taxation sense to have the share portfolio inside his SMSF, but he enjoys trading on his own. “That is not to take anything away from David, whose advice has been

ADRIAN PATTY At this stage, many may want to consider distributing wealth to loved ones or charity. Downsizing is also common. An alternative to downsizing could be a reverse mortgage, whereby equity in the home can be drawn to release funds. Deciding on an aged-care solution is challenging due to its tax treatment and complex payment structures, but is important.

fantastic and has done all the right things for me,” he says. “I just like to have some investments I can change myself without any reference to anybody else.” A widower for nearly 20 years, Bill enjoys the ability to be generous to his daughter, her four children and his son. He has helped create and seed a family trust for the grandchildren, “so that when they turn 21 they will each have some assets behind them”. This year he took the entire family on a US holiday, the highlight of which was a trip to Disneyland. Bill lives modestly in an apartment in Sydney’s Inner West, but does indulge his passion for racing with a small financial interest in seven racehorses. “I’m not much of a punter, but I do enjoy going along and seeing them race,” he says. One thing not crossed off the bucket list is an archaeological dig. “The university offers the chance to go on digs in various places around the world, and while I haven’t done that yet, it is still in the back of my mind and it is still something I’d like to do.”

BILL BRACEY The important thing is to enjoy yourself while still having plans for the future. Your needs will change and you want the luxury of making your own decisions. Ensure your retirement plan will last. Review possible government age pensions and other benefits, because you may be eligible. Start or review your aged-care plan so you’re not forced into it down the track.

29/06/2016 2:38 pm

Interview

HOW LUKE COOKED UP A

PROPERTY PORTFOLIO Spreading his risk over several income streams has enabled chef Luke Mangan to build a $100Â million business spanning five countries. By Teresa Ooi.

REALLY SIMPLE MONEY

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Interview

uke Mangan is best known as a celebrity chef. But behind the scenes, it is property that has ensured he can create the delicious food he serves. At the age of 28, Mangan bought his first terrace in the Sydney suburb of Paddington. He sold it seven months later and used the $400,000 profit as seed capital for his first restaurant venture, Salt in Darlinghurst, Sydney. Today, Mangan oversees a $100 million business empire across five countries with 19 restaurants and 700 staff. He also has a licence deal with Virgin Airlines and Carnival Cruise Lines, where his Salt Grill restaurants are on board five P&O cruise ships. Soon he will be cooking on Belmond’s Eastern and Oriental Express train from Singapore to Bangkok as well. But it wasn’t always like this. Mangan is a cautious businessman who believes in spreading the risk. His advice for anyone going into food, for instance, is: have other income streams. “I started at 15 as a cooking apprentice in Melbourne. I did my hard slog, then headed to London and worked at the Waterside Inn with famous French chef Michel Roux,” says Mangan. “I came back to Sydney when I was 25, worked at the CBD Restaurant in 1995 before opening my first restaurant at the age of 28.” Now at the age of 45, Mangan says he is “in a good space’’. And admits his success is down to one of the oldest investments. “Property has been good to me. I’ve bought a few units off the plan, sold them and made good money. I still own three units in Sydney, which I rent

out. Property is easy. It can sit there and be rented.’’ He says it is tough to make a good living from owning a restaurant. “You have to create other income streams, so that if one fell over, another will help prop up the business.” After closing Salt in Darlinghurst, he opened Glass Brasserie at Sydney’s Hilton Hotel in 2005. Just before the global financial crisis (GFC) in 2008, he opened a restaurant in San Francisco, but closed it within three months. “It was an expensive affair, but I had no choice. The GFC then hit Australia and we felt it at Glass.

In the face of the GFC, Mangan realised he had to have other income streams Overnight, the corporate lunch market went dead. “We had to come up with a different tack – come for glass of wine, a burger or a piece of fish and salad, all for only $18. We were inundated with secretaries and office workers who wanted a quick lunch at the bar. “It became so packed that it spilt over to the main restaurant. The restaurant still has the same deal, but it now costs $25.” In the face of the GFC, Mangan realised he had to have other income streams, so he started his Providore range including olive oil, spices and balsamic vinegar. He also managed to write five cook books.

The GFC also forced him to sell 50 per cent of the Salt brand to a Japanese partner, which helped him expand the brand to Asia. Mangan does not employ a chief financial officer, but instead keeps a close eye on his finances. He has an accounting firm that has been with him for more than 20 years and makes sure he is on top of all the operations across five countries: Australia, Japan, Indonesia, the Maldives and Singapore. “I am up at 6am. I go for a swim or run at Bondi Beach and am back at my desk looking at my emails by 7.30am until 12.30pm when I head for the city to oversee Glass. “Every restaurant manager gives me a daily report on the revenue, how many covers were sold, what were the positives and negatives. I want to know everything.’’ When he started as a chef, Mangan recalls thinking the restaurant business was all about the chef. Now he is older and wiser, he says it’s all about the customer and their experience. “I realised by the time I was 35 that I did not want to be in the kitchen working 12 to 14 hours a day. I needed to get out of the kitchen and expand the business.’’ Beside his business and property, Mangan has a self-managed super fund with property and blue-chip shares as his main assets. One of his worst investments was starting Baby Bites, an organic baby food venture that failed and he lost $500,000. “It was a very expensive exercise, an experiment that did not work. But I had to move on.’’ And what advice would he give a youngster who wants to be a chef and run his own restaurant empire? “Don’t do it,” he says with a grin. reallysimplemoney.com.au

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29/06/2016 2:39 pm

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29/06/2016 2:41 pm 6/05/2016 5:34 pm

MONEY ESSENTIALS What you need to know to get your finances in shape

THE MONEY QUIZ

GOAL SETTING

CALLING IN THE EXPERTS

HOW TO FIND AN ADVISER

5 QUESTIONS TO ASK AN ADVISER

THE COST OF ADVICE

WHAT TO DO IF THINGS GO WRONG

FUN INVESTMENTS

BEATING THE TAX MAN

A-Z OF MONEY SPEAK

LAST WORD

“An investment in knowledge pays the best interest.” –Benjamin Franklin

ms ned, our

16 5:34 pm

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29/06/2016 2:41 pm

ARE YOU ON THE MONEY? Think you are financially smarter than the average Australian? Nicole Pedersen-McKinnon has put together this quiz to find out.

an you believe two-thirds of countries fail on basic financial literacy? Standard & Poor’s and a bunch of other bighitter international organisations recently published the results of a short money test they’ve developed and, globally, they are pretty appalling.

Against the 150,000 citizens from 140 countries that took part, Australians did okay. A score of 71 per cent put us into the top 10 – just, and saw us beat the United States. But we are well behind the topranking Scandinavian countries, and Israel, Germany and the

United Kingdom. At least we beat New Zealand! The quiz tested knowledge of the big-issue areas of inflation, interest, compounding and risk. And I believe there are a few additional pieces of (easy) expertise you need to become a successful money manager.

REALLY SIMPLE MONEY 2016

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The Money Quiz

Take this money smarts quiz to test – and correct – your understanding of basic financial and investment knowledge.

SAY THAT FOR TWO YEARS YOU HAVE HELD MONEY IN A BANK ACCOUNT PAYING 4 PER CENT INTEREST. IN THE SECOND YEAR, YOU EARN: a. M ore interest in dollar terms, than in the first year b. T he same interest in dollar terms c. Less interest in dollar terms d. 5 per cent interest

IT IS SAFER TO: a. P ut your money into one promising investment b. S pread it across several promising investments c. Spread it across 10 promising investments d. Take it to the casino

YOU ARE KEEN TO BUY AN INVESTMENT PROPERTY BECAUSE RETURNS IN YOUR CHOSEN AREA WERE 15 PER CENT LAST YEAR. THAT LEVEL OF RETURN IS: a. Low b. Medium c. High d. Never to be repeated

YOU DECIDE TO BORROW $100. YOU ARE BETTER OFF AT THE END OF THE FIRST YEAR IF THE INTEREST WAS SET: a. At $10 b. At 8 percent c. At 6 percent d. By a pay-day lender

WHAT IS YOUR SINGLE MOST VALUABLE ASSET? a. Your car b. Your house c. Your ability to earn an income d. Your good looks

THERE ARE TWO INVESTMENTS. ONE CARRIES A HIGHER PROMISED RETURN. IS THERE: a. More risk of losing money b. The same risk of losing money c. Less risk of losing money d. No risk

YOUR INCOME (HAPPILY) DOUBLES IN THE NEXT 10 YEARS. THE PRICE OF ITEMS YOU SPEND MONEY ON ALSO (UNHAPPILY) DOUBLES OVER THAT PERIOD. CAN YOU BUY: a. Nothing b. Lesser amounts than today c. The same amounts as today d. Greater amounts than today

10.

YOU ARE 20 YEARS FROM RETIREMENT AND DECIDE YOU WANT TO INVEST YOUR SUPER INTO A HIGHER RISK AUSTRALIAN SHARE FUND THAT HOLDS SHARES IN DIFFERENT COMPANIES ACROSS THE ENTIRE MARKET. YOUR MONEY IS: a. Diversified across asset classes b. Diversified within an asset class c. Diversified across countries d. Not diversified

SAY THAT YOU DEPOSIT $100 INTO A BANK ACCOUNT AND LEAVE IT THERE FOR FIVE YEARS. IF THAT ACCOUNT PAYS 10 PER CENT INTEREST EACH YEAR, IN FIVE YEARS YOU WILL HAVE: a. $0 b. Less than $150 c. Exactly $150 d. More than $150.

WHO DETERMINES THE INTEREST RATES YOU PAY AND EARN? a. The Reserve Bank of Australia b. Your banks or financial institutions c. Your employer d. The guy at the track

Confident? Turn the page for the answers and why. I’ll admit some questions were intended to trick you. reallysimplemoney.com.au

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The Money Quiz

THE ANSWERS 1) A. More interest in dollar

terms – that’s compounding in action. You earn interest just on your initial deposit in year one, but in year two you earn it on your initial deposit plus the first year’s interest. And so the snowball of success begins.

2) C. Spread it across 10 promising investments – this is the vital concept of diversification. The more your spread your money, the less one bad investment will impact your overall return. (But also the less one good investment will impact your overall return.) I’ll assume you didn’t circle the casino option. 3) C. High – property returns more like 8 per cent on a longterm average basis. Remember, too, that past performance is no indication of future performance. 4) B. Your banks or financial institutions. This one may have tricked you, but the link between Reserve Bank moves and what you pay and earn has been comprehensively diluted since

the credit crack up. Banks are now likely to pass on more, less or even completely ignore official cash-rate movements. There’s been great sport in recent years in taking whatever action will most bolster profits.

5) C. At 6 percent – Because you’re borrowing money, so you want rates to be low. And $10 equates to a 10 per cent interest rate. By the way, pay-day lenders’ rates work out at 90 per cent or more; these guys used to be called loan sharks. 6) A. More risk of losing money. The higher the potential reward, the higher the risk, which translates as: you could lose your money.

7) B. Diversified within an asset class. They’re all shares. Hopefully your money is spread far and wide across different companies (stock diversification) and industries (sector diversification), but you are completely exposed to a downturn in the shares asset class (with no asset diversification) or in Australia (with no country diversification). 8) C. Your ability to earn an income. This one probably gave you cause for pause but, assuming you have a mortgage, you can’t pay for your house without an income. And your income is what subsidises everything else in your life. It’s vital you safeguard it (and your family) with income-protection insurance. (If you’re a super model so rely on your looks for income, it is even possible to insure them.) 9) C. The same amounts as

today. If wages inflation and consumer prices inflation keep pace, there is no change to your purchasing power. It’s when wages fail to keep up that we’re in trouble.

10) D. More than $150. That’s compounding again. As Albert Einstein put it: “He [or she] who understands compound interest earns it; he [or she] who doesn’t, pays it.” A firm grasp of that will change the course of your life.

As Albert Einstein put it: “He [or she] who understands compound interest earns it; he [or she] who doesn’t, pays it.” A firm grasp of that will change the course of your life. REALLY SIMPLE MONEY 2016

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The Money Quiz

colours colours used in the Mates rates identity Pantone 282c c100 M77 Y10 K60

Pantone 107c c3 Y86

Pantone 429c c6 M1 Y2 K25

mates rates Mortgage broKers

mates rates Mortgage broKers www.matesratesmortgages.com.au

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✁

Goal Setting

WHAT ARE YOUR GOALS…

AND HOW SOON CAN YOU REACH THEM? Nicole Pederson-McKinnon has some advice on how to set goals toward a secure financial future.

n the words of the Spice Girls, tell me what you want, what you really really want. However, financial goal setting is not just about understanding what you want, you need a hierarchy of goals and be able to understand how they fit together in your life. You’ll need clear short-, mediumand long-term goals to overcome the temptation to simply spend what you earn when you earn it. 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 riskfree, tax-free effective return equal to your interest rate.

The best approach to goal setting is to understand how to chip away at debt, save where you can and prioritise what you want over the short, medium and longer terms.

IN THE SHORTER TERM – ONE TO TWO YEARS 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 be focusing on in this period. The relatively instant pay-offs. These are beautiful money targets because they make you feel 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 – THREE TO FIVE YEARS In this period, your car might need replacing. Plan this far ahead and rather than borrowing for what is one of the worst investments, pay cash. Put aside $140 a fortnight into a top savings account and in five years you could have $20,000 cash to buy a car. The alternative is borrowing $20,000 to buy a car then paying about $27,000 including interest for it over the next five years, or $205 a fortnight. In this timeframe you might also like a new kitchen. Same deal.

IN THE LONGER TERM – FIVE YEARS+ The ultimate goal for all of us should be to retire with no personal, or non-investment, debt. The other Holy Grail 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 two-thirds of it).

NOW SET YOUR GOALS List your money goals in the table. Set a date you’d like to achieve each one, estimate what it will cost and how many pays until your target date (if the date is five years away and you are paid fortnightly, multiply five x 26). Then divide the cost by the number of pays to find the amount to put aside each pay. REALLY SIMPLE MONEY 2016

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Goal Setting

YOUR MONEY GOALS (1-2 YEARS)

SHORT-TERM GOALS Goal

Target date

Cost

No. of pays

Total

Savings per pay

(3-5 YEARS)

MEDIUM-TERM GOALS Goal

Target date

Cost

No. of pays

Total

Savings per pay

(5+ YEARS)

LONGER-TERM GOALS Goal

Total

Target date

Cost

No. of pays

Savings per pay

$ reallysimplemoney.com.au

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Getting Advice

CALLING IN THE EXPERTS… WHEN YOU NEED AN ADVISER Seeking financial advice is a personal choice, but for many people the right advice has made a real difference. By Lachlan Colquhoun.

hen you want to build or design a home, if you are not a builder or an architect, you engage those services. And if something goes wrong with the plumbing, unless it’s very easy to fix, you call the tradies in and the plumber fixes the problem for you. Compare this with financial advice. While some people feel comfortable handling their own investments, many do not. The reality is that many people are out of their depth in planning their finances and need the advice of a professional to help get them on track. They don’t know enough about the disciplines of budgeting. They have no real idea of how much they actually spend and where their money is going. And when it comes to investing or saving, they have little knowledge of the range of products out

there and how they are regulated and taxed. The investment landscape is complex and challenging even for experienced and engaged individual investors, and planning for retirement can be a minefield to negotiate. Many people feel the need to engage financial advice as retirement age comes into view. They feel they haven’t done enough to save for retirement and are dissatisfied with their progress towards investment goals. Some need financial advice because of life-changing events, others simply lack the time required to be as vigilant as they need to be. In recent years, the concept of coaching and mentoring has become popular in many aspects of life. People have coaches for their businesses and their careers. They seek out experienced mentors to guide them along their way. In the same way, financial advisers can be seen as money coaches. They are there to help guide people with goal setting and finance strategy. They are there as a

sounding board to give people feedback on how they can get to where they want to be on their financial journey and achieve the lifestyle they seek. The financial planning profession has also gone through significant changes in Australia. With the advent in 2013 of the Future of Financial Advice (FOFA) reforms, the world of advice is now more transparent than ever before. The FOFA reforms were designed to ensure the integrity of the financial advice industry and deliver a system offering affordable and accessible financial advice to the Australian community. In tandem with the compulsory superannuation system, which has created a national savings retirement pool of more than $2 trillion and growing, FOFA’s goal was to further professionalise the financial advice profession to help Australians manage and grow that wealth. The aim is to inspire the trust of consumers so that more will reach out to advisers with the confidence that their financial best interests are the paramount item on the agenda.

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Getting Advice

… AND HOW TO FIND ONE If you’ve decided it’s time to get some financial advice, Dianne Charman has some tips on finding the right professional to help.

financial adviser can bring a wealth of support and value to you and your family as you seek to achieve your financial goals. All relationships require effort and investment, and your relationship with a financial adviser is no different. It’s also a relationship that goes both ways. Your adviser can be a great support in uncertain times and is there to celebrate the highs with you. In choosing the right adviser, here are a few key steps.

STEP 1: Decide what you want to achieve. Make some notes on your future goals and what’s important to you right now.

you the services they offer and the areas in which they are qualified to provide advice. Next, verify their information by checking on the ASIC Financial Adviser Register at www.moneysmart.gov. au/investing/financial-advice/ financial-advisers-register

STEP 3: Meet with advisers. When making a decision about any professional you’ll engage with, it’s important to meet with them to confirm you’re a good match. This is one of the most

important professional relationships you will have and ensuring you fit together is critical. Don’t rush this part of the process. See several advisers to understand the different types of businesses and the range of people available. Don’t forget it’s not just the financial adviser you’ll be dealing with, it’s their team as well. Use the five questions on the next pages to help you narrow down your choice. Dianne Charman, CFP, is Senior Financial Adviser with the Jade Financial Group.

STEP 2: Think about what you are looking for in an adviser, in terms of their location, the type of advice they offer, their qualifications and experience. Then do some research. Look at how they charge – check out the process and their fee schedule (for more, see question 3). Review their financial services guide, which will tell

Find an adviser near you at yourbestinterest. com.au/memberdirectory

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Getting Advice

5 QUESTIONS

YOU SHOULD ASK A FINANCIAL ADVISER Once you are ready to meet potential advisers, here are some questions you should ask to help you find the best person to fit your needs. By Charles Badenach.

1WHAT IS YOUR BACKGROUND

AND WHAT FORMAL QUALIFICATIONS DO YOU HAVE?

In dealing with any professional, it is important to have an understanding of their professional background and qualifications. All financial advisers in Australia must meet a certain minimum educational requirement and these standards are constantly being raised. The more qualified and experienced your adviser is the better. Your Adviser should show a commitment to continual education. When looking at an adviser’s qualifications you should consider both their formal education and their experience: •W hat degrees, diplomas or postgraduate qualifications do they have. There is no higher industry designation than the Fellow Chartered Financial Practitioner (FChFP). •W hat specialist accreditations do they have e.g. life risk specialist, SMSF specialist, estate-planning specialist etc. •W hat is their experience as a financial adviser? •W hether they are a member of any industry associations and/ or professional bodies, such as the AFA?

You can check an adviser’s qualifications through the financial advisers register on the ASIC website (moneysmart.gov. au/investing/financial-advice).

WHAT IS THE SCOPE OF YOUR ADVICE? In a similar way to medical professionals, not all financial advisers provide the same services, some offer holistic advice, others offer advice in a limited range of areas such as insurance or superannuation. It is important to ask a potential adviser if they are capable of providing all of the services you require. An adviser that suits one individual may not suit another. Some advisers may not have the experience or qualifications to advise on a particular area such as self-managed superannuation funds, direct shares or margin loans. Whatever your long-term needs and objectives are, make sure the adviser you choose can meet them all. As you will hopefully have a long-term relationship, you should also ask your adviser what actions they will take to implement, update and maintain any plan you devise together. For example, how often will you meet with your adviser? Do you have access to a team of experts or just the adviser?

HOW DO YOU CHARGE FOR YOUR SERVICES? A professional relationship will not work over the long term unless you have an understanding of what advice you are receiving and what this costs you. It is important that you get an understanding on what fees you pay, how these are calculated and how they are paid by you. A financial services guide, which you will receive at the initial meeting, is a useful starting point, and any costs you are charged will be set out in the statement of advice. Generally, you will pay costs for the initial advice which should be set out either in a terms-ofengagement letter or discussed and agreed before proceeding. If you require ongoing financial advice, you will be charged an annual fee. Traditionally, this has been a percentage of the funds under management, however most advisers are moving towards charging a fixed fee for an agreed set of deliverables. There are a limited range of circumstances where an adviser may be paid from a product such as personal insurance and in these situations, you need to understand how this works. All fees and commissions will be transparent and disclosed to you in the statement of advice.

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Getting Advice

CAN YOU PROVIDE AN EXAMPLE OF YOUR CURRENT WORK AND CLIENTS? Before you work with an adviser, you should get an understanding of how they work with their clients including examples of the work they have provided for clients. This would normally include how they structure their statements of advice and how advice is provided on an ongoing basis. For example, do they use an agenda for a client meeting, how do they update their clients when changes are required, and what technology do they use to assist with the provision of advice (e.g. videos). In addition to reviewing how the adviser engages with their clients, I would also recommend asking for client testimonials and details of current clients who have similar needs to you and who you can contact. We have a

client testimonial playlist on our YouTube channel which we email to clients as and when required with the client contact details. For prospective clients this is an invaluable resource.

ARE YOU AN ALIGNED OR UNALIGNED FINANCIAL ADVISER? It is important that every client understands whether the adviser works in an “aligned” or “nonaligned” financial advice business. This allows the client to gain an understanding on whether there are any incentives to recommend one product or structure over another. Aligned advisers include those employed by a large organisation who recommend products associated with that organisation. This may also include advisers whose businesses use that organisation for dealer services. Non-aligned advisers, on the other hand, generally have an

“open architect” model where they do not have an incentive to recommend one product over another. One option is not necessarily better than the other, but clients need to understand if any conflicts of interest potentially exist.

A FINAL WORD A financial adviser can add significant value to your financial health over the long term and finding the right one can be difficult, but when you find one, it will be one of the most sensible moves you can make. However, be careful when making the choice as similar to any profession there is a small number of bad apples, which tarnishes the reputation of the majority. Good luck in your search. Charles Badenach, CFP is the Principal and Private Client Adviser at Main Street Financial Solutions.

Find an adviser near you at yourbestinterest. com.au/memberdirectory

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Getting Advice

WHAT WILL IT COST? Expert advice comes at a price and making sure that price is good value for you is important, writes Brad Fox, CEO of the Association of Financial Advisers. (AFA)

ome decisions in life are too big to get wrong, especially where your finances are concerned. This can be especially true of decisions that involve complex areas such as superannuation, tax, mortgages and life insurance. Picture it as a set of interconnected levers;

pulling one lever will have an impact on all the others. But it was US Secretary of Defense Donald Rumsfeld who reminded the world that there are “unknown unknowns.” That is things we don’t know that we don’t know. In the context of your money,

pulling a financial lever by making a decision where there are “unknown unknowns” could lose you thousands of dollars. That’s why many people find themselves a financial adviser – to protect themselves from what they don’t know. The question then is what should financial advice cost? What is its value and how can you pay for it? Paying for professional financial advice is much the same as paying for any other professional services. It comes down to the size and complexity of the issues you want to solve. Solving simple problems costs less than solving complex ones.

MOST FINANCIAL ADVICE FEES ARE STRUCTURED IN ONE OF FOUR WAYS: 1. An hourly rate charged on the basis of the number of hours it takes to provide and implement the financial advice. Depending on the experience and qualifications of your adviser, this fee would typically be $175-$375 an hour. 2. An agreed 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. 3. A percentage of the assets you are advised on (normally REALLY SIMPLE MONEY 2016

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Getting Advice

excluding things like your house). The amount you pay will be directly related to the total value of your investments. For example, a 1Â per cent ongoing advice fee on a portfolio of $100,000 means you will pay $1,000 a year. 4. Life-insurance commissions are the only types of commissions allowed for financial advice and provide an inexpensive way to pay for life insurance advice. Some advisers now charge a fee for life insurance instead of receiving the commission. Each financial adviser has a legal document called a financial services guide that sets out how they charge for their financial advice, but importantly, at the first appointment with you, they will outline the costs for the work you need done based on your circumstances. By law they must put their fees in writing to you, usually in a legal document called a statement of advice. I recommend you sign an agreement on the cost before any work gets started. Remember you always have the right to discuss the fees you are paying to make sure you are receiving good value.

IS IT GOOD VALUE? Think of any work you may have had done for you, such as a tradesman around home or legal advice. Value depends on how you feel about what you received. Recent research from the Association of Financial Advisers and the Beddoes Institute called Money, Well-being and the Role of Financial Advice found that improving your understanding of money issues can increase your sense of wellbeing by up to

An interesting fact: In a lot of financial advice, the adviser often convinces the client to spend money on a life experience such as a great holiday. The fear of not being able to afford it can be overcome. 42 per cent. A sense of financial wellbeing means you sleep at night instead of worrying, arguments with your partner are about where to go on holidays instead of whether you can afford to go and it means that you can choose your employment for the sense of fulfilment it gives you rather than just for the money. So, the value of financial advice comes down to how you feel about the advice, the service and support provided, and the outcomes both in terms of wellbeing and wealth.

HOW CAN I PAY FOR IT? It is important to consider the tax advantages when deciding how to pay for your advice so ask your financial adviser about this. Ongoing financial advice is usually tax-deductible, but regrettably the initial advice fee is not. Generally, financial advice is broken down into three steps and most advisers charge a separate, clear amount for each one.

STEP 1 STRATEGY FEE This is like paying an architect 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. With financial advice, you start by discovering what is important to you and the adviser creates a financial plan to get you from where you are today to where you would like to be in the future. Depending on complexity, the fee for this could range from $600 for simple matters to $5,000 for family type matters.

STEP 2 IMPLEMENTING THE PLAN Continuing with home renovation as an example, 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 to get your financial plan moving off the paper and into action. This involves things such as paperwork, applications, life insurance underwriting, consolidating superannuation accounts and setting up investments. The adviser will quote and agree a fee with you.

STEP 3 KEEP YOUR PLAN ON TRACK 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 made to yourself about controlling your money rather than your money controlling you. reallysimplemoney.com.au

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Your Rights

WHAT HAPPENS IF THINGS GO WRONG Q

You’re in dispute with an adviser. What are your rights? Rod Bristow outlines the steps you should follow.

uality financial advice changes people’s lives. Advice isn’t transactional like a bank account, a credit card or a mortgage – it is a trusted relationship with a qualified and experienced financial “coach” who is there to help you be the best that you can be in your financial life. But what do you do if you have concerns about your adviser or the advice you’re receiving? Or if you aren’t sure the advice is right for you or your circumstances? Let’s step through this to help you understand what you can do if things aren’t going to plan in your advice relationship.

Your adviser is measured against legal obligations and the licensee’s policy requirements. If any shortfalls are identified, the licensee will work with you to ensure they are resolved WHAT IF THIS DOESN’T WORK?

THE FIRST STEP First and foremost, speak with your adviser. An advice relationship is based on trust, so it’s important to be open and honest with your concerns. If you think something isn’t right, ask as many questions as you need to in order to be satisfied. Be clear about the issue and, if possible, what you would like to happen to fix the problem. Qualified, experienced and reputable advisers will value this feedback and work to ensure you remain a satisfied customer.

If you have spoken with your adviser and still feel something needs to be addressed, you can speak to the adviser’s financial services licensee. Each adviser must list contact details for the licensee and the complaints process in their financial services guide. All licensees have clear obligations to manage customer complaints and will be keen to hear from you if there are unresolved matters. Licensees are also required to have formal internal disputeresolution processes in place. This

includes a number of steps, such as: • Acknowledgment of the complaint • Investigation processes • Commitment to a final response within 45 days of the initial complaint (in many cases, the licensee will aim to resolve this earlier if at all possible). You should clearly set out your concerns so they can be adequately addressed. While it’s good to be able to put these things in writing, don’t let the thought of not being able to write down your complaint put you off. Your adviser or licensee should help you to do this, to ensure your complaint is heard fairly and promptly. While investigation by the licensee is not independent, this investigation is not taken lightly by any reputable organisation. Your adviser is measured against legal obligations and the licensee’s policy requirements. If any shortfalls are identified in these, the licensee will work with you to ensure they are resolved.

I STILL HAVEN’T RECEIVED A SATISFACTORY RESPONSE. WHERE TO FROM HERE? If you have done all of these things and still don’t feel the issues you’ve raised have been properly

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Your Rights

or fairly addressed, you have the right to seek assistance from one of the financial services industry’s external dispute resolution schemes (EDRS). These are: the Financial Ombudsman Service; Credit Ombudsman Service Limited; or Superannuation Complaints Tribunal. During the complaint process, your adviser’s licensee will advise you of the relevant EDRS for you to progress your claim with. The intention of these organisations is to provide an inexpensive and accessible option for you to resolve matters without the need to progress them through the courts, including providing the option to have your complaint investigated at no cost to you. There are limits to what EDRS can award, so check with the licensee about these limits before to making a decision on how to progress your complaint. Where the amounts of a claim are significant, you may want to consider having the matter heard in court. Rod Bristow is Managing Director and CEO of Infocus Wealth Management Ltd.

If you still don’t feel the issues you’ve raised have been properly or fairly addressed, you have a right to seek assistance with one of the financial services industry’s external dispute resolution schemes

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Fun Investments

MAKING MONEY

WHILE HAVING FUN Investment doesn’t have to be a serious business. Luxury collectables from cars to fine art are rivaling the returns of blue-ship shares and property.

or a classic or vintage car enthusiast, there is nothing better than driving around in your pride and joy in the knowledge that not only are the cylinders humming nicely, but the car is appreciating in value with every kilometre. After a lull a few years ago, at the height of the global financial crisis, collectable cars have come roaring back in value to the point that they are often now described as an “asset class” all of their own. The bar for classic car prices has been set very high recently with some spectacular sales overseas. A Jaguar C-Type from 1953 sold for US$13.2 million in California last year. Locally, an Aston Martin DB5, as

A chaise lounge designed by Australian Marc Newson, which first sold for $10,000 when it was launched in 1986, recently sold for $4.7 million at a London auction driven by James Bond, can now be purchased for $1.75 million, while some Ferrari models have seen gains of more than 300 per cent in the past five years or so. According to Knight Frank’s The Wealth Report, the value of classic car

transactions has spiked 17 per cent in the past year and has outperformed every other luxury category such as coins, watches and fine art. Adding to the beauty of it all is that unlike shares or property, there is no capital gains tax owing when a car is sold. The rise in classic car values has also had an impact on the value of Australian-made cars. At Bennett’s Classic Auctions in South Australia, owner Larry Bennett says the value of “Australian-made muscle cars”, which are his firm’s specialty, has rebounded after a volatile few years. “It all came to a peak in 2008 or so when things became a bit inflated, and people were quoting $1 million for a GT Falcon,” he says. “But then things calmed down quite a bit to a point where those cars could be bought for $300,000, but now we’ve seen the trend is going upwards again for your Aussie cars such

$4,700,000 REALLY SIMPLE MONEY 2016

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Fun Investments

as the Falcon and Monaro.” Bennett’s also had a recent auction of MGs which was highly successful. “Austin Healeys are at the top end of that British sports-car class while the MGs have been a bit like the poor cousins, but the poor cousins are starting to creep up in value a bit,” says Bennett. He has also had firsthand experience of the socalled “survivor cars,” also known as “barn finds”, where people bring unrestored classic vehicles to the market. The most spectacular example of this, hitting world headlines in 2015, was a treasure trove of 60 rare cars found in the barn of a French farm house. One of these cars, a rusting Ferrari, was sold for a record $28.5 million. Closer to home, Bennett recently sold a 1965 Ford Falcon utility in completely original condition. “It had somehow escaped the ravages of time and was in original condition, but it was like everything was completely new,” he says. “It drove beautifully, still had the original seat covers and the original 1965 AM band radio still intact, which was a bit spooky.” The ute sold for “twice what another similar model would go for” and reached $20,000 at auction. Bennett’s advice, however, is to enjoy the cars and not buy them as investments. “What’s the fun in it if you can’t drive around in them,” he says. It is advice that is echoed, in a completely different context, by Sydney fine art dealer Andrew Shapiro.

$1,750,000

Locally, an Aston Martin DB5, as driven by James Bond, can now be purchased for $1.75 million At his auction house in Woollahra, Shapiro has seen a move away from people buying art through a self-managed superannuation fund (SMSF) to individual purchasing. “There was a big switch about two years ago for people to move out of buying within the SMSF fund,” he says. “And right now people aren’t buying within the fund, they are buying for themselves and to enjoy the work.” The SMSF “arms-length rules”, which mean investors are not able to hang the art their own homes are, says Shapiro, “too restrictive”.

“It’s also too clumsy,” he says. “You have to store it or hang it somewhere else, you can’t live with it. “It just takes all the fun out of it and what is buying art if not for the enjoyment of it?” While it is a completely different field from classic cars, Shapiro says the art market has also rebounded strongly with contemporary art the standout performer. “I’d say that art has become a blue-chip investment now. It does take research and there’s a whole industry of art dealers out there who are working with clients to build collections which will appreciate significantly in value,” Shapiro says. Some of the best art investments have been some of the most unlikely. A chaise lounge designed by Australian Marc Newson, which first sold for $10,000 when it was launched in 1986, recently sold for $4.7 million at a London auction. At that price, the question is: would you sit on it or just admire it in the room? reallysimplemoney.com.au

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Income Tax

BEAT THE TAX MAN

AND STILL BE HIS FRIEND Bit miffed about all the tax you lose out of each pay slip? Then you’ll be delighted there’s plenty you can do to secure a fat refund. So start planning now, writes Nicole Pedersen-McKinnon a little lean, delay expenses and scrounge all the income you can to take advantage of the lower tax rate. If you have any highperforming assets, such as shares or property, you’d like to offload, now’s a good tax time.

your receipts. Don’t miss one cent of money you are entitled to from the government – deductions are probably the easiest and best way to slash your tax. You may be able to claim any cost that relates to your income, for example, if you are a nurse, dry cleaning and car costs if you carry equipment.

SPEND UP BIG Assuming you’ve earned a tidy sum and are looking to cut your tax bill, fork out for additional deductible expenses. For example, nurses can claim uniforms. Search ato.gov.au for a list relevant to you. This will help most if it pushes you into a lower tax bracket – below the 2015-2016 taxable income thresholds of $18,201, $37,001, $80,001 or $180,001.

WEIGH A PREPAY You can take timing to a whole new level if you’re likely to cop a far bigger tax bill this year than next – pay the next 12 months of some deductible expenses up front. Think the big ones such as income-protection insurance and interest on investment loans (but consider if this is the best use of the money).

DELAY PAY Once again assuming it’s a prosperous year, do what you can to shunt further income into next year. Bonuses, commissions, overtime… defer them until the next tax year and you’ll come out ahead. If instead, the year’s been

Kerry Packer famously said: “If anybody in this country doesn’t minimise their tax, they want their heads read.”

GET GIVING

RUMMAGE FOR RECEIPTS Suppress that groan, fill in those mileage logbooks and hunt down

Donations to a registered charity are tax deductible, which means they will cost higher-rate taxpayers little more than half. Kerry Packer famously said: “If anybody in this country doesn’t

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Income Tax

minimise their tax, they want their heads read.” What better way to do it than helping others?

$13,800 taxable income) and you can earn a rebate of up to $540.

SUPER SUPER SAVINGS FUND

GET TRAVELLING It is possible you can claim deductions for work-related or investment-related travel. So give thought to a work jaunt and/or investment-property inspection. You can usually claim whatever portion of the trip is business related. And don’t forget work-related training could also be tax-deductible (you might have to reduce the amount by $250).

SUPPORT YOUR SPOUSE Make an after-tax super contribution of $3,000 for a noor low-earning spouse (less than

SUPE(R) UP YOUR OWN BOTTOM LINE This is not technically a tax tip, but if you’ll earn less than $50,454 this tax year and you make an after-tax super contribution of $1,000, you’ll get up to $500 from the government (a cocontribution). This goes directly into your super fund – so you can’t get it until it’s unlocked at your preservation age, but extra money is extra money.

MAKE PROPER(TY) MONEY We Aussies love our investment property, but many of us fail to

claim enough deductions. Generally these are anything to do with managing or maintaining the property (so agent’s fees, repairs, rates, water and insurance) and also loan interest. But a professional depreciation schedule could give you the biggest boost; get an adviser, accountant or quantity surveyor to calculate the decline in value of furniture, appliances and renovations you could claim over a number of years.

HEALTH INSURANCE

BUY HEALTH COVER (MAYBE) If you earn more than $90,000 a year as a single or $180,000 as a couple and don’t have private hospital cover, you’ll pay a fine of up to 1.5 per cent called the Medicare Levy Surcharge. Often this is more than the cost of cover itself. Put health insurance in place for the year (remembering you may also qualify for a tax rebate on your premiums).

The ATO website, ato.gov.au, has lots of information, tools and handy calculators reallysimplemoney.com.au

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A to Z

A-Z of ‘MONEY SPEAK’ 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…

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A to Z

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 investments – such as savings and investment accounts, property and 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 oneoff 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 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.

COMPARISON RATE 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.

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

BALANCED FUND

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

CAPITAL GAINS The financial gain realised from buying and then selling assets. It is essentially a profit created over time. It can be subject to capital gains tax, depending on your tax position and the type of asset. reallysimplemoney.com.au

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A to Z

other defaults. It also factors in your lender request and credit enquiries history. You can order a credit report from a bureau such as 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 help make up for the loss.

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.

GROWING WEALTH

Keeping track of your net worth is the first step to increasing your wealth. Even on a budget, you can

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

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 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. 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

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A to Z

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.

JARGON

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

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.

NEGATIVE GEARING

Gearing is the process of borrow ing 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 can be used to offset tax on profits on other incomeproducing properties.

OFFSET ACCOUNT

Popular in mortgage finance, money in an offset account is linked to a home or investment loan. Money held in an offset account can be calculated against total debt and borrowers are charged interest on the difference.

OPTIONS Options give investors the right, but not the obligation, to purchase shares at a predetermined price within a set time period.

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

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

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. reallysimplemoney.com.au

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A to Z

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.

QUARTERLY EARNINGS

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

RISK

A home loan often 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 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 risk, the greater the return”. The greater the risk, the greater the chance of losses.

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.

ROBO ADVICE Investment advice created online by digital advice progams. For a fee, customers input their financial details and the robo adviser creates a suggested investment portfolio.

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.

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A to Z

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.

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

VARIABLE RATE HOME LOAN

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.

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

YIELD

ZERO PER CENT LOANS

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.

TAX

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

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

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.

Links: ASICs MoneySmart: moneysmart.gov.au Association of Financial Advisers, Your Best Interests: yourbestinterests.com.au Veda credit & data analysis: veda.com.au reallysimplemoney.com.au

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The Last Word

HOW MONEY CAN BUY HAPPINESS

By Peter Lynch

’ve just taken Australian Unity’s Personal Wellbeing Index (PWI) test – and discovered I am, well, pretty happy, actually. In fact, I am happier than most – and many Australians are a very happy lot. The average score of the Index, developed with Deakin University as a measure of our general feelings towards life, is 75. So we are threequarters satisfied with our lot. Not bad, considering all the gloom and doom that assails us every day. The index scores your feelings about work, relationships and financial security. It’s quick to take, but telling, nonetheless. And

contains a few lessons for those thinking about their money. They say money can’t buy happiness and the Index bears this out. But security and financial control does make us happy, and that’s an important point. Perhaps you won’t be surprised that the correlation between increased happiness and increased income is greatest in lower income groups. The richer you are, the less money affects your wellbeing. In hard cash terms, the report states: “To shift wellbeing by one point for those in households

“The power of money to affect wellbeing lies in its capacity to alleviate stress and create an environment for happiness.” earning $15,000–$30,000 annually, an extra $18,750 of income is required. But for households earning $150,000–$250,000 an extra wellbeing point will cost more than $147,000.” In other words, as the rich get richer, they don’t necessarily get happier. But as the poor get richer, they do. Women hit the normal level of wellbeing at lower income levels than men ($15,000–$30,000 versus $31,000–$60,000). Overall, the wellbeing of those earning more than $100,000 is about four points

higher than for those earning less than $100,000. But the really important factor is control. To quote the report: “The wellbeing of people who earn less than $100,000 a year, but rate themselves at least eight out of 10 for being in control of their finances is higher (76.48) than those who earn more than $100,000, but assess themselves five or below out of 10 in terms of financial control (73.06). “The power of money to affect wellbeing lies in its capacity to alleviate stress and create an environment for happiness. Accordingly, people can achieve normal levels of wellbeing even with low income, so long as they feel in control of how they spend it.” And Australians are an existential lot, it appears. “More than a third of those in the September 2014 survey answered their best days are ‘right now’. This group reported wellbeing scores considerably above the normal range. “Average PWI is one thing, but what PWI is okay and what isn’t? We believe there is a wide so-called normative range, between 60 and 90, as people are inherently different, some more positive, others less so. “However if a person’s PWI is below 60 and stays that way over time, it is a signal … they are at risk of depression.” So where did I fall? A rather smug and complacent 83.4. Find your PWI by taking the survey at australianunity.com. au/about-us/wellbeing

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HE MAY READ MEN’S HEALTH BUT DOES HE KNOW ABOUT MEN’S WEALTH? Introduction

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DIRECTORY Tim Henry

STEVE NIELSEN

B.Bus (Banking & Finance) Grad Dip FP, AFA

P 03 9584 3343 M 0407 327 501 E tim@aspireplanning.com.au W aspireplanning.com.au

Ascent Wealth Management Personal Advice, given personally Specialties: Wealth and Retirement Advice and Insurance and Estate Planning Advice Location- Brisbane South P O Box 324 HOLLAND PARK QLD 4121 (07) 3343 9228 / 0417 292002 steve@ascentwm.com.au http://www.ascentwm.com.au

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

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

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wbfinancialgabbacentral @WB_GabbaCentral wb_financial Jason Cook; WB Financial

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