Do you have a healthy savings habit?

Do you have a healthy savings habit?
A good savings habit is the foundation of wealth creation

Even at an early age when you received pocket money, you were faced with the decision of what to do with that money. Some chose to save part of it and put in a bank account (or piggy bank). Those savings became the seed of your retirement capital (whether you realised it or not).

Many people believe that wealth is created by buying and selling assets. While that can explain part of the story, if you never save any money, you’ll never have any capital to “buy and sell assets” with. Savings is the oxygen that feeds the wealth creation fire.

In this article we look at ways to improve your level of savings (and ultimately your ability to attain financial independence). Click Here To Read More

A self managed super fund comes with responsibilities

A self managed super fund comes with responsibilitiesSelf managed super funds to come under increased scrutiny

Self managed super funds (SMSFs) are being set up at a faster rate than ever before. They’re now the fastest growing sector of the superannuation industry and account for around one third of total superannuation assets in Australia (see chart below).
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DIY Financial Planning – The real costs may not be evident

DIY Financial Planning – The real costs may not be evidentDIY Financial Planning appears to be a low cost alternative

There are a lot of smart people who make some rather dumb choices with respect to their finances. More often than not this is driven by short term thinking and the desire to save an immediate out of pocket expense. There is often a failure to lift the eyes and see the bigger picture.

An example that highlights this is the use of superannuation. We’ve talked previously about the significant benefits of making pre-tax contributions to super. However, in this article we look at the benefits of making post-tax contributions to super.
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Investment Return Volatility – A Potential Wealth Hazard

Volatility: a wealth hazardInvestment return volatility is poorly understood

Most investors understand that in order to increase their expected future return, they have to accept a higher level of volatility (or variability) in the value of their investment portfolios. But beyond that, they do not understand just how damaging volatility can be to their wealth aspirations.

The amount of volatility you expose yourself to affects your probability of achieving a desired wealth outcome. In this sense, it is a forward looking concept. And, as such, it is an extremely important factor to take into account when designing and managing any investment strategy.

But this article reveals some poorly understood aspects of volatility, by looking backwards. That even when you know actual returns and actual volatility, wealth outcomes may vary dramatically.
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Ownership of family wealth

Which structure is best?
Family wealthFor our clients, there are predominantly four ways they hold their personal wealth. They are:

  1. Directly, either as an individual or jointly;
  2. In a private investment company;
  3. Through their family trust; and / or
  4. Via a self managed or public superannuation fund.

Which structure is best? It depends. But given our emphasis on focusing on the things you can control, the structure choice is one that needs serious consideration. There are a number of often competing factors to take into account, with taxation, asset protection and succession / estate planning usually most prominent. This article considers some of the issues.
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Franked dividends and your investment strategy

Is franking a free lunch …Franked Dividends - Free lunch?

Many D-I-Y investors skew their investment portfolios towards shares that pay franked dividends. This is particularly prevalent amongst trustees of self managed superannuation funds who appear to over value the benefit of franking credits.

There appears to be a view that franking offers “a free lunch”, resulting in its overemphasis as a driver of investment strategy.

We believe investors should not favour particular shares simply because they pay franked dividends. The usual thinking behind such behaviour is, in our view, flawed.
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Financial Planning: Personal Financial Advice or “Product Flogging”?

They make used car salesmen look good …Personal Financial Advice or Product Flogging

The financial planning industry (and a number of accountants dubiously playing on the edge) has come under intense fire recently.

The downturn in investment markets has exposed a number of products that have not turned out to be in clients’ best interests. These include high yield mortgage funds, absolute returns funds, agribusiness and protected equity products and excessive margin lending.

Criticism of planners and offending accountants that promoted these products is well justified. In many instances, it is difficult to resist the conclusion that their sale was driven or too heavily influenced by what was best for the promoter.

But, judging from public responses to a number of recent newspaper articles adverse to financial planners many people also blame their financial adviser for recent poor investment performance and/or failing to get them out of share markets prior to the downturn.
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Why have a Self Managed Super Fund?

Not for higher investment returns …Self managed super fund

There has been an above trend increase in the number of self managed super funds (“SMSF”) set up recently. Such spurts usually occur when investment returns have been poor. The expectation appears to be that better returns will be achieved with a self managed fund.

However, there is no clear link between investment performance and super fund structure i.e. self managed, industry, corporate or retail public offer. While industry fund advertisements suggest otherwise, their claims relate to the relatively higher costs of the alternatives. Before costs and taxes, no structure has any inherent investment performance advantage.

Five potential SMSF benefits …

But a SMSF offers at least five potential benefits over other super structures:
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“Timber”: Agribusiness Managers Felled

Diseased from the beginning …

“Timber”: Agribusiness Managers FelledWithin a couple of weeks of each other in April and May, the two largest stock exchange listed managers of managed investment schemes (“MIS”), Timbercorp and Great Southern, went under. Most likely, shareholders will end up with nothing while creditors are almost certain to take a substantial haircut.

Timbercorp and Great Southern sold interests in agriculture based (or “agribusiness”) investment projects, particularly forestry plantations, to investors or “growers”.

While the “green” credentials of the projects were highlighted, the primary purchase motivation for investors was the large up-front tax benefits offered. The long term economic viability of the projects was always suspect, even more so now that their ongoing management is under a cloud.

Based on our wealth management principles, we think these projects and the decisions to invest in them were flawed from the start. It is a tragedy that there is now an estimated $6 billion of funds and 61,000 investors (see Footnote) caught up in a disaster that could have been avoided by applying a few tried and tested decision making fundamentals.
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Is This You?

By most measures, you’re doing pretty well.

You either have a successful career, as a professional or business executive, your own growing and vibrant business and/or are independently wealthy.

You set and achieve high standards for yourself.

But you feel that your personal financial affairs may not be as well positioned and as organised as other aspects of your life. You are not driven by money for the sake of it, but “money related” issues on your mind may include:
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