DIY Financial Planning – The real costs may not be evident

DIY 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

Investment 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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Why you need a personal cash flow budget

Surely the wealthy don’t need to budget …

It is true that some high income earners have no idea how much they spend, simply too busy making money to take the time to work out how they are spending it. And there are some people who consider you are not really wealthy if you ever have to ask how much anything costs. Budgeting is so demeaning.

However, it is no coincidence that all major businesses budget and account for their cash inflows and outflows. It is unlikely any lender or potential shareholder would provide them with funds if they didn’t. They would be viewed as financially irresponsible.

If you’re serious about personal wealth management, we believe that household cash flow budgets are a necessity, not a nice to have or something only the less well off need to worry about.
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Borrowing and Wealth Management

Attitudes to borrowing

We all know that many people have become very wealthy through the use of borrowing. These people are often lauded as brilliant entrepreneurs and we are encouraged to emulate their success. But the last couple of years have again starkly reminded us that borrowing also comes with considerable risk and, potentially, financial ruin.

Where does borrowing sit in a wealth management plan? There are many opinions:
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Mortgage or Super?

Are you better off reducing your mortgage or contributing to super?

A lot of people ask this question. Unfortunately, as with many wealth management decisions there is no straight forward answer. The appropriate choice depends on a number of issues, some of which we address in this article.

The obvious starting point is to look at the numbers. Assume you have 15 years until you can access your superannuation benefits free of tax. You have a mortgage that is costing you 7.0% a year (after tax) and a small amount of super. Over the next 15 years, you expect to have at least $13,375[1] a year of surplus cash flow.
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