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Australians need a retirement confidence boost

Australians need a retirement confidence boost

Giving Australians better access to high-quality and more affordable financial advice is imperative.

One of the fundamental principles for achieving long-term investment success is planning.

In fact, the importance of having a clear financial plan, whether it’s formal or informal, can’t be overstated. As is the importance of sticking to it.

Without a well-documented, detailed plan that incorporates specific goals, there’s a fair chance investors will miss out on key opportunities over time, potentially lose their long-term focus and not attain the financial heights they had hoped to reach.

The consequences of this can range from feeling demoralised to experiencing devastating financial impacts, and it’s evident there’s a strong link between having a plan and individual confidence levels, especially in relation to retirement.

The importance of planning

To this point, Vanguard recently released How Australia Retires study found that Australians with the highest confidence about their future retirement were following a financial plan.

After surveying more than 1,800 working and retired Australians aged 18 years and older, they found that people who have a financial plan are six times more confident about their retirement outcomes than those without one.

Australians with the highest retirement confidence have taken the most purposeful actions to prepare for their retirement. Many have accessed professional financial advice, they’re relatively likely to use budgets and prioritise their savings, and they make regular extra contributions into their super.

Broadly speaking, they know what they need to do to achieve the retirement outcome they desire and are optimistic about entering this phase of their life.

By contrast, they found that Australians with a low confidence about their retirement tend to be the least actively prepared.

Often they’ve never accessed financial advice and they have little understanding of how they can achieve their retirement goals. They also expect to be more reliant on the Age Pension after they retire than those with higher retirement confidence.

In addition, they don’t tend to make regular additional super contributions and are generally less optimistic and more likely to feel disinterested, anxious or worried about this later phase of life.

This is typically the case for older Australians who’ve taken less action to prepare over time.

The role of super

Interestingly, only half of working-age Australians consider super an important component of their retirement plan and they expect to rely on it less than existing retirees.

As part of this, more than half of working-age Australians (54%) estimate their super balance constitutes half or less of their total investment balance.

Indeed, one in four working age Australians highlighted investment property as being a big part of their retirement plan. That compares with only one in 10 retired Australians having investment property as an asset.

But of concern is the fact that while super is an important component of total retirement assets, relatively few people actively engage with their super.

In many cases, super is the second-largest asset people have outside of their home. Yet, one in four Australians don’t know what their current super balance is, and one in two are unaware of what they’re paying in super fees.

And most Australians haven’t had any contact with their super fund, often because they rely solely on their employer’s compulsory contributions.

Increasing engagement

This is an area that really needs attention, and there’s a great opportunity for the super industry as a whole to step up their engagement with fund members.

For example, most Australians don’t really understand all of their available options when it comes to making personal contributions into their super account each year. Even making small additional contributions on top of employer contributions can have a big positive financial impact over time.

So can reducing fees, because higher fees equate to lower returns. Understanding what you’re paying in investment fees allows you to do a comparison with other providers and to potentially switch to lower-cost alternatives.

This is where financial advice can play a crucial role. There’s a strong correlation between the use of professional advisers and retirement confidence.

The survey found that of the Australians who have received professional advice, 44% indicated they were extremely or very confident in funding their retirement. Of those who have never sought any professional advice, only a quarter indicated they were confident.

Which is why giving Australians better access to high-quality and more affordable financial advice, that’s relevant to their specific needs, is imperative.

Financial advisers have an important role to play in terms of recommending the most appropriate investment options to individuals based on their needs, but also in terms of behavioural coaching. Having peace of mind is invaluable.

It’s never too early to engage a financial adviser to map out a financial plan that has the best chance of investment success over the long term, so contact us today, so we can help you on your financial journey.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

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Banking on the Age Pension

Banking on the Age Pension

The ranks of Australians receiving the Age Pension are increasing. It’s important to understand who is eligible and its role in retirement planning.

Just days before the 2023 Federal Budget was handed down on 9 May, the Australian Bureau of Statistics released a new report including data on the number of Australians receiving the Age Pension.

The report, New Census insights on income in Australia using administrative data, has largely flown under the public radar so far.

But it contains some interesting retirement insights compiled from the 2021 Census, most notably that “nearly half of Australians aged 65 years and older receive most of their income from the Age Pension (47.8% or 2,029,000 persons)”.

That’s a powerful statistic, especially when taking into account the “Support for Seniors” expense numbers detailed a week later in the Federal Budget’s Statement 6: Expenses and Net Capital Investment.

Support for Seniors (the Age Pension) has been costed in the latest Budget at $54.87 billion for the 2022-23 financial year, rising progressively on forward estimates to $67.32 billion in 2026-27.

A growing reliance on the Age Pension

One of the key findings from How Australia Retires study, released in May, is that the Age Pension features most prominently among Australians who are still working and who have not taken purposeful steps to prepare for their retirement, and who are more likely to say the Age Pension is part of their retirement..

These steps include having a well-documented and detailed financial plan, ideally prepared by a professional financial adviser, and making extra contributions to superannuation over time.

Australians who have low confidence about their retirement generally have low expectations about the amount of income they’ll likely receive during retirement and believe the Age Pension will form the biggest component of their retirement plan.

The number of Australians receiving the Age Pension is continuing to rise, and has actually increased significantly since the 2021 Census data that the ABS has used in its recent Census insights report.

The Department of Social Services (DSS) Expanded DSS Benefit and Payment Recipient Demographics – December 2022 data shows 2,565,870 people were receiving the Age Pension at the end of last year.

This included 1,783,980 people receiving full pension payments, 393,365 people receiving part pensions as a result of the “income test”, and a further 385,525 people receiving part pensions as a result of the “assets test”.

Under the income test, individuals can earn a maximum of $190 in income per fortnight (and couples $336 per fortnight) from other sources before their pension is reduced by 50 cents for every dollar above the respective allowable limits.

Under the assets test, individuals and couples are assessed on whether they do or don’t own a home. They can hold up to a certain value of financial and other assets before their pension is incrementally reduced for every dollar above the respective allowable limits.

Single homeowners can have up to $280,000 in assets, and non-homeowners up to $504,500, before their full Age Pension starts to reduce. The Age Pension cuts out completely once singles reach maximum asset limits of $634,750 (homeowners) and $859,250 (non-homeowners), with higher cut off points for singles who receive rent assistance.

The same rules apply to couples receiving the Age Pension, but the limits are higher.

Couple homeowners can have up to $419,000 in assets, and non-homeowners up to $643,500, before their full Age Pension starts to reduce. The Age Pension cuts out completely once couples reach maximum asset limits of $954,000 (homeowners) and $1,178,500 (non-homeowners).

The growing role of the Age Pension

The DSS’s demographics data shows that there just under 400,000 Australians aged 66 to 69 that were receiving a full of part pension as of December 2022 – roughly about 15% of the total Age Pension population.

Keep in mind that this is the youngest Age Pension cohort, as individuals can potentially qualify to receive a full or part Age Pension from the age of 65 years and six months, depending on the year they were born.

The largest cohort of pension recipients (about 51%) was aged 70 to 79.

For most Australian retirees, the Age Pension forms a meaningful portion of their retirement income, and for all retirees it should be considered as part of the retirement planning process.

Two key features of the Age Pension – it is payable until one’s death, and it adjusts for inflation over time – make the Age Pension a very valuable benefit as well.

Given this, a thorough understanding of how the Age Pension works, what benefits should be expected, and its role in planning for retirement is critical.

For retirees who meet the eligibility criteria, the Age Pension can act like an inflation-protected, lifetime-income safety net.

This means that Australian retirees who are eligible for the Age Pension can expect to receive a fortnightly pay packet that maintains its purchasing power for as long as they are alive and as long as they continue to meet the assets test, income test and residency rules.

If available, it is a great resource to help meet “basic living expenses” in retirement.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

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How emergency funds deliver peace of mind

How emergency funds deliver peace of mind

When life tosses up an unexpected event – such as retrenchment, a medical emergency or even just a big bill to fix the car – it can be nerve-wracking worrying about how to deal with the crisis. And, if funds are short, that just adds to the stress.

But imagine that you have a secret cash stash – an emergency fund – that will cover the costs, giving you the mental space to deal with the problem.

In fact, an emergency fund is the basis for a strong financial strategy and provides a crucial safety net. Regardless of your age or income, it makes sense because the unexpected can happen to anyone.

Without a cash reserve, you may have to rely on credit cards or loans, which can further strain your financial situation and mental health.

An emergency fund gives you the peace of mind to be able to weather the storms that come your way without racking up unwanted debt and interest payments.

How much is enough?

Of course, it can be tough to save when inflation is eating away at your income. Rising interest rates, rents and the cost of groceries are putting a big strain on households. The Australian Bureau of Statistics reports that household savings have declined for over a year as people contend with increased mortgage payments, among other rising costs.

Nonetheless, by putting aside even a small but regular payment into a separate fund you will slowly accumulate enough to cover emergencies.

The size of your emergency fund depends on your own circumstances, but an often-quoted target is enough to cover between three and six months of living expenses.

It may differ if say, you are planning on starting a family and need funds in reserve to cover the difference between parental leave payments and a salary; you have children in school and want to be able to cover school fees for a year or more, no matter what happens; you need to take time off work to care for a family member; or you need to make an unplanned trip.

On the other hand, if you have retired, having a buffer against market volatility can be helpful. If there is a market downturn and your superannuation is not providing your desired income level, a year’s worth of living expenses in an emergency fund can make all the difference to your lifestyle.

The main thing to remember is that if you need to raid your emergency fund, start work on rebuilding it as quickly as possible.

Building your emergency fund

Putting together a budget can help you to analyse how much you can afford to put away every week, fortnight or month. Then, consistently saving until you reach your goal is the key, no matter how small the amount.

It is best to keep your emergency fund separate from your everyday transaction account to reduce the chance of you using your saved funds for regular expenses. One option is to pay yourself first by setting up a direct debit, so your emergency fund grows automatically with no extra action needed from you, and to avoid the temptation to withdraw your savings.

The type of account you choose for your emergency fund is important. It should be readily available so, while shares and term deposits may offer higher returns, they are not quickly accessible when required. Shop around for a bank account that offers the highest interest to get the most out of your hard-earned income.

Building an emergency fund is essential to a strong financial plan, providing a safety net should something unexpected arise. If you are unsure of the best way to set up an emergency fund, we encourage you to contact us. We can provide guidance on the best options for your unique financial situation and help you take steps towards it.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

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Understanding and paying off debt

Debt is a common financial obligation that many people face. It refers to money borrowed from a lender that must be paid back over time, usually with interest. Debt can take several forms, including credit card debt, personal loans, and mortgages.

Managing debt can be a significant challenge, especially when drowning in a sea of bills and an increasing cost of living. High-interest rates, administration fees, and minimum monthly payments make it easy to feel your debt is out of control. However, with professional guidance from a financial adviser, you can take control of your debt and work towards achieving your long-term financial goals.

Understanding the various types of debt and the associated risks is important before taking on any new debt. For example, credit card debt often comes with high-interest rates, making it difficult to pay off quickly. In addition, personal loans may require collateral, including a home or car, to secure the loan.

Understand your budget and cashflow

A way to free up money and pay off debt is by reducing expenses. First, look at your monthly budget and identify areas to cut back.

Reducing expenses can be challenging, but it’s an essential step in managing debt effectively. Focus on what is a need vs what is a want. By freeing up more money, you can improve your cashflow and put more towards paying off your debts each month. The benefit is reduced interest payments as you pay the loan off faster.

Alternatively, increasing your income is another way to pay off debt faster. For example, consider a side hustle like driving for Uber or asking for a raise at work. You could also look to sell items you no longer need.

Another option is to ask your loan provider for a discounted rate – you don’t know if you don’t ask.

Create a debt management plan

To effectively manage debt, create a debt management plan. This plan should include all debts, including the outstanding balance, interest rate, time frame remaining and minimum monthly payment.

Once you understand your debt, you can create a strategy for paying it off. Your financial adviser can help you strategise your approach to repayments.

Consolidate your debts?

Having numerous debts can result in paying several administration fees and interest charges. Merging all your debts into one loan may lead to reduced interest and fees and assist in saving you money. In addition, consolidating your loans may make it easier to handle your debt as you will only have to make one payment rather than managing multiple loan repayments simultaneously.

Pay your debts on time

Time management is an important aspect of staying on top of and managing any debts. Ensuring that repayments are made on time can help you to avoid incurring late fees and added interest charges. The other downside of late payments is the impact on your overall credit rating, which may impact the ability to negotiate a lower rate or obtain a new loan.

Consider creating notifications that prompt you when your payments need to be made, or investigate if paying through direct debit would benefit you..

Stay motivated

Managing debt can be a long and challenging process, but staying motivated is important. Celebrate the small victories, such as paying off a credit card or loan, and focus on progress rather than how much you have left to pay. If charts help you achieve goals, plot the remaining loan and track it through to completion – note the original path of the loan and track with the additional payments to show the savings being made.

It’s also essential to avoid taking on new debt while working to pay off existing debt. Try living within your means and avoid overspending, even if it requires making sacrifices in the short term.

Managing debt requires a combination of strategies, including creating a debt management plan, reducing expenses, seeking professional help, and staying motivated. Taking proactive steps to manage your debt can improve your financial health and help achieve your long-term financial goals.

If you’re looking for professional guidance to manage your finances and investments, our team of financial advisers can help create a holistic plan to manage your debt, increase your savings, and achieve your long-term financial goals.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

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Organising debt

Selling assets to manage debt

Over the past month, we have seen the Reserve Bank of Australia (RBA) pause its seemingly endless increase in cash rates.

This increasing cash rate has been implemented to curb inflation. However, for many, this has just exacerbated the issue of making ends meet as interest rates on home mortgages, investment loans, car loans and personal loans significantly rise. Coupled with the increased cost of living for goods and services, much of the hard earned income is now consumed with little to nothing left over for other activities like a holiday.

The days of a near zero cash rate and low interest rates seem well behind us; hoping it will return there soon is unlikely. For those who took out loans over the past few years or are still working through repayment of previous loans, the question has now been posed, “should I sell assets to cover the debts and pay my bills?”

The answer is a resounding – it depends

Each person is different, and an individual’s financial position must be considered, which means the answer can change.

Selling assets such as investment properties, shares or downsizing the car can assist with a quick amount of cash that can reduce debt and give some much-needed breathing room to the weekly cash flow. With ever present credit card bills, loan repayments and the ‘after pay’ credit systems (and associated high interest rates) this may be very beneficial.

You may look to sell your investment property, pay the debt, and then invest the remaining equity in a different investment like shares or real estate income trusts (if you want to stay in property). Selling some shares can give that sudden cash injection needed.

On the surface, this seems like a great approach. Lowering the loan-to-value (LVR) ratio leads to better cash flow and the added benefit that lending institutions may consider refinancing at a lower rate if the LVR has been reduced (always ask – it does not hurt). So what are the potential downsides?

  • Are you selling the asset at a bad time in the market and not optimising the asset value?
  • Will selling the asset create a significant capital gain, offsetting the cashflow savings?
  • Are you selling an income generating asset at the expense of tightening the budget and potentially impacting your long-term retirement goal for time of retirement or income in retirement?

Which asset is the right one to sell?

Each scenario is different and the assets and loans in play are different – there is no one answer.

The key is to make your decision an informed one. Your financial adviser is here to help discuss the situation, identify the pros and cons and help determine how the decision works with your financial goals and risk profile.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, visit our Personal Financial Planning services page or contact us today.

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All about aged care

All about aged care

Whether considering options for yourself or deciding how best to help someone close to you, residential aged care can be a complex area requiring careful thought. The uncertainty surrounding where to move, how much it will cost and where the money will come from can be overwhelming and stressful.

There are typically three steps you need to take before entering residential aged care.

Firstly, before entering residential aged care, your health must be assessed to determine your eligibility for care. The assessment can be performed by any doctor, nurse or social worker who is a member of an Aged Care Assessment Team (ACAT, or ACAS in Victoria). You can visit myagedcare.gov.au to request an assessment.

Secondly, finding an aged care facility. Make sure you find an aged care facility that you are comfortable in and that will suit your needs. You may like to visit a few different places, as you can apply to as many facilities as you like. The accommodation costs for all aged care facilities are published on myagedcare.gov.au. This website also provides a description of the rooms and services available at the facility.

Thirdly, organising your finances. Upon entry to an aged care facility, you may be required to pay either an accommodation contribution or an accommodation payment. This may involve a lump sum payment, periodic payments, or a combination of both. Some people will have their accommodation costs met in full or in part by the government, while others will need to pay the accommodation price agreed with the facility. The Department of Human Services will advise which applies to you determined by your level of assets and income at entry.

There will also be a basic daily fee to pay and there may be a means-tested care fee which is determined by your level of assets and income reassessed quarterly. Some aged care facilities offer a higher level of service or a higher standard of accommodation or food as an extra service or additional fee.

Keeping or selling your former home often forms an essential part of the strategy as does how you invest. A poorly structured and executed plan can result in lower Age Pension entitlements and higher ongoing care costs. Your adviser can walk you through the options and any implications. For example, if you keep your home, we can discuss strategies to pay the agreed accommodation payment and explain how your home will be treated for Centrelink/DVA and aged care purposes. If you sell your home, we can also help identify the best way to invest the proceeds and get the balance right between generating an income, maximising Age Pension entitlements, and reducing ongoing care costs.

There is a lot to consider and decide upon, and with the right advice, it does not have to be overwhelming or stressful. We are here to help, so please get in touch with your adviser to discuss.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

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Australian Money

Need more cash?

Ok so the heading sounds great, and who wouldn’t want more cash?  With rising interest rates and general market uncertainty, we all want a little extra in our bank balance.

Let’s have a look at some options out there that may just provide an added windfall.

1. Lost Super

Remember that job you had once packing shelves at the supermarket, or the paper delivery?  Ever wondered where the super went?  Changed jobs and never really looked at the paperwork you signed?  Changed address or email and lost contact with an old fund?  Chances are you may have some lost super out there and it is worth checking.

Good news – the money is still yours, you just need to claim it.  It will either be with the ATO or with the original super fund.

The search is relatively simple.

  • Go to MyGov website and log in
  • Ensure your account is linked to the ATO
  • Select ‘Super’.

This will show detail of your super accounts and consolidate them into one fund if that is your preference.  Not everyone wants to do this – consider whether there is insurance held in super you require, which account to consolidate to and if there are any advantages to a particular fund.

You can also call or fill in a form to look for super. More detail can be found at https://www.ato.gov.au/forms/searching-for-lost-super/.

Sorry to say, that unless you meet a condition of release, this isn’t going to benefit you until retirement.

2. Unwanted items

One option for an immediate cash injection is to sell some unwanted items from around the house.  Remember those presents from last year, that unwanted home décor, the kid’s bike they have outgrown, computer games that just aren’t cool anymore?  Clothes can definitely raise a few dollars from a clean of the closet. With a multitude of options to sell online, this can be an excellent way to raise money and buy something you want now.

Depending on the online platform used, take care with scams, consider insurance for expensive items sent out and consider where is best for pick up / drop off of items.

Yesterday’s goods are today’s treasures!

3. Grow your own plants

So the kids are now on holiday and looking for something to do. Why not put them to work on making a veggie garden?  This can be a fun experience for the kids and yourself.

Take the kids to your local garden centre and let them choose some of their favourite veggies and herbs. The enjoyment of eating your own carrots or cherry tomatoes combined with a few extra dollars off the grocery bill.  Planting a citrus tree will also pay off over time.

4. Airtasker / Uber and part-time roles

Part-time roles can help fill a gap at this time of year and whilst time with the family is important, a few hours spent on an odd job could just get the ultimate present for someone.

Airtasker is an online site where people list odd jobs they want done. If you can assemble flat packs or trampolines, this may be for you. Have a look on the site for typical prices and know what you are worth before you sign up for a job.

Uber will allow you the flexibility to choose your hours and your trips. You don’t always get to choose who the passenger is, but if you are going from point A to point B anyway and can get some money from someone needing a lift, this may be perfect.

These ideas may not be for you and perhaps controlling the budget in other areas is a better way to save. With rising living costs and loan repayments, planning on how to manage your finances is critical. If you need some help, talk to one of our financial advisers.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

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Insurance Policies

Is your insurance all it claims to be?

Many Australians hold some form of personal insurance, with many of us choosing to hold insurance through our superannuation provider. However, few truly understand the cover, how it works and if it is actually suitable to our personal needs.

A few common misunderstandings we encounter:

Group Insurance

Group insurance covers a group of people, most commonly members of a particular super fund.

Most industry super providers will offer default (group) insurance. This insurance has not been underwritten by an insurance provider, tends to be lower quality with the benefit amount decreasing as you get older, when the likelihood of a claim becomes higher.

Most industry super funds will allow you to fix your cover or apply for higher levels of cover through group insurers (subject to underwriting).

Retail Insurance

An alternative to group insurance is retail insurance, with more industry super funds providing the option to fund these retail policies.

Retail insurance policies are underwritten by the insurance provider before cover is offered. This generally results in the insured gaining higher quality cover and generally a higher chance of a successful claim as the insurance company will note any exclusions from cover up-front.

Linked Policies

This option allows you to combine cover.  The most common situation is linking total and permanent disability (TPD) cover (life or trauma) with TPD. Linking policies reduces the premium more than if you were to hold the cover separately. However, many people do not realise if you claim on one (i.e. TPD), this amount will then reduce from the life benefit available, unless you have a buyback or reinstatement option on your cover.  This option tends not to be offered with industry super insurance.

Income Protection

Many people understand they have income protection but wait periods before a claim can be made, these vary from 14 days to two years. It is important to know what your wait period for a claim is to ensure you can fund your living expenses whilst being unable to work. In addition, benefit periods typically vary from two years to age 65, this is the length of time you are able to be covered/receive income payments from the insurer.

We like to think we would recover within two years but it is rather common to be incapacitated for longer than two years, for example, mental health or spinal injuries, extended benefit periods should always be considered when applying for cover.

Premium Types

Stepped: these premiums start out lower but the base premium increases as you get older. Generally, this type of premium is good for younger applicants working on building wealth or clients who only need insurance for a shorter period of time.

Level: these premiums start out higher but as you age, they increase slower generally with CPI. If you think you need insurance up to retirement at age 65, this type of premium will work out more cost-effective for the life of the policy.

Stepped vs Level Insurance Premiums

Insurance benefit amount

It is important to ensure you have the right level of cover to suit your needs such as clearing debt, maintaining your lifestyle and funding medical expenses.  You may have other items of importance to cover such as funding children’s education.

At The Investment Collective, we take a comprehensive approach to providing financial advice. An important part of that advice is insurance and ensuring you have the right cover in place to suit your needs and complement the achievement of your goals and objectives.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

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Retirement Plan

Do you have an Aged Care Plan in place?

We plan for many aspects of our lives, but few people plan for future aged care needs. Now is the time to change that trend.

The truth is, most of us avoid thinking about our own future aged care needs, delaying our decisions until perhaps they are taken out of our hands.

Life expectancies are increasing. This means not only might we expect to live longer than our parents and grandparents, but we might also expect longer and more active retirements. However, this does not remove the possibility that we may need help with daily living and medical care in our older years.

If we reach a point when we are increasingly vulnerable, we do not want to be left unprepared.

Planning creates peace of mind.

Planning for our retirement, as we dream of travel, cruise ships and caravans as well as more time playing with the grandkids, can be quite enjoyable. Perhaps that’s why we put off planning for our aged care needs – it’s not as much fun to think ahead to a time when we might need more support.

But with the right advice, planning ahead offers many benefits and can be easier than you think. Benefits may include:

  • Peace of mind for you and your family
  • Taking pressure off family when a crisis occurs
  • Allowing you to have a voice, and
  • Avoiding costly mistakes.

Creating a plan that will work for you includes consideration for what sort of life you want to live and what makes a good life for you. This should take into account options for where you could live but also how to continue your interests and stay connected to family, friends and your community. Understanding the costs and planning your finances is a key component of making the plan work effectively.

Don’t leave it too late!

Don’t leave your aged care planning too late. We have helped many of our clients to start the planning process and often discuss when and how to bring your family into this process.

If you are ready to start the conversation, contact our Head of Financial Planning, Robert Syben at robert_syben@investmentcollective.com.au and let us work with you to create a plan for all of your retirement needs.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

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AFL football

The Cats, the human brain and investment markets

If you said, “they are all difficult to predict,” you would be right. Although, of all three, Molly is the easiest to predict. For example, when my wife goes to the kitchen for any reason, Molly expects to be fed. It took Molly only a few short weeks to train Kathy as her slave, but Molly’s persistence paid off.

But what of the human brain and the stock markets? It is known that we only use 10 percent of our brains, but that is not true. The human brain is complex, with more neuronal connections than there are stars in the universe. Let’s think of the brain like a footy team. Using AFL as an example, we might field a side with 24 players. Of those, two will be on the bench ready to come on at a moment’s notice. The remaining 22 players, all on the field, do what their positions require. But they will not all be busy at the one time.

Our brain is much like an AFL team. We use all of our brain; just not all at once. That is a good thing because (a) it would be exhausting (the brain uses about 20 percent of our energy) – and (b) we would be in constant conflict with ourselves. Instead, our brain orchestrates a merry opera in which we ramp things up and tamp things down as our circumstances require. For example, when the emotional part of our brain (the limbic system) is in play, the pre-frontal cortex (the thinking, reasoning, decision-making and inhibitory parts of our brain) damps down with the effect. When we are upset, stressed, anxious or excited, we are not doing our best thinking. It’s much like the star forward going off the ground right at the time when kicking a goal is crucial.

You might think this is an interesting lesson on the brain (or not), but what does it have to do with investment markets? Investment markets operate in much the same way, although sometimes less predictably. The Buddy Franklin-like full forward may be seen as somewhat of a stalwart, a match-winner, a sure bet, but he is not a machine and, as such, he is subject to the same human frailties as the rest of us. Stock markets can be like that too. They have ups and downs, ebbs and flows and sometimes, even crashes.

In a bear market, the blue-chip resource stock that supposedly could not lose, might stumble, just as Buddy did on Grand Final Day (sorry not sorry to the Swans supporters!), while other stocks hold or make gains. Even bonds, often thought of as a sure kick, have dipped.

So, what happens when we play the game and lose? It is disappointing but it is only ever a moment in an arbitrarily punctuated point in time. It is not the end. There is another day, another season, another chance.

Not often do we think this way, but what happens in the world happens – what one person sees as good, the other sees as harmful. Events are neutral; it is our reaction, strongly shaped by our past experiences, that decide whether it is good or bad. For example, when stock markets take a hit, we may view that negatively particularly if we have a holding. However, what if we want to buy into the market? A dip or tumble could present wonderful opportunities. Understanding where our position falls against our long-term strategy is important as is tamping down our limbic system and ramping up our pre-frontal cortex.

It was once said that the only certainties in life are death and taxes. I would change that to “very little stays the same.” This brings us to the need to be both informed and prepared. This is why, at The Investment Collective, we take the time to understand your circumstances, aspirations and risk appetite. We work with you to effectively balance your portfolio such that when one player stumbles, others can help fill the void. Sometimes, almost an entire team can have a bad game. It happens, players will be traded, others retire, but many will be retained because they are the heart of the team and the heart of the team beats strong.

The market has taken a tumble; the rollercoaster is in motion. We do not know when the ride will end. However, we have an ever-vigilant eye on geo, political, economic and social trends coupled with up-to-date research on the companies within your portfolio. This better positions us, as the coaching team, to steer you to a win at the Grand Final.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

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2020