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Fatherhood: A New Beginning

Having just welcomed our second child into the world and with the new financial year upon us, it has certainly been a time of reflection about new beginnings and what lies ahead for the future. The seemingly endless routine of getting up during the night and changing nappies, dream feeds and rocking your precious little ones back to sleep gives you an abundance of time (where most normal people are actually sleeping) to think and reflect on where you are and what you want to achieve.

Being a first-time parent was daunting enough and came with all sorts of challenges my wife and I were still adapting our lives around before finding out we were expecting our second child. Having our second child so close together came as a totally unexpected, yet welcome surprise. But what had we gotten ourselves into having two daughters under the magical age of two?

Like all parents, I imagine that we want the very best for our children that we can possibly provide. However, having someone completely and utterly dependent upon you to tend to their every need, was one of the most daunting aspects of Fatherhood for me personally, yet it was also something that I embraced. Being the sole income earner supporting our little family only highlighted the importance of ensuring we had adequate insurance coverage in place to ensure our family would not be financially burdened in the event of anything happening to either parent.

The birth of both children will forever be etched into my memory as some of the greatest experiences of my life. Hearing their first cries as they entered the world will be sounds that I will never forget. Holding them both for the first time and seeing how tiny and fragile they were is also something that will stay with me forever.

The age difference between our girls is 17 months. I was an only child growing up and my wife has a twin sister, so she always knew the benefit of having a sibling growing up and it was something she wanted for our first child. With the closeness in age of our girls, here’s hoping they will be lifelong friends, with a few heated disagreements thrown in along the way.

With all the sleepless nights and challenges that come from being a new father, the rewards certainly far outweigh any of the negatives. Seeing them learn new skills each and every day and interact with each other brings a smile to my face whenever I think about them. It is funny as human beings, we tend to forget or block out the bad memories of all the sleep deprivation and only remember all the good memories.

Having become a father has made me appreciate all the sacrifices my own parents have made for me in order to allow me the best opportunities possible. I look forward to making many sacrifices for my own children to ensure that the cycle can continue.

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From An Adviser’s Perspective

I’ve been a financial adviser for about 17 years, and have met with quite literally hundreds of clients. I’ve always found it fascinating to learn how people think and act in respect of their wealth. The conversations I have with clients tend to have common themes.

The financial planning process itself is pretty straightforward. At the initial meeting, I aim to understand the client; their current situation, objectives and preferences. After all, it’s all about them. Thereafter, I prepare recommendations in respect of appropriate strategies, structures and investments that will help increase the chances of them achieving their objectives.

As such, for me, it’s the interaction with clients that I find interesting. Listening to a client, and confirming back to them my understanding of their objectives and preferences is, of course, paramount in this process. This process can be straightforward or lengthy, as many clients are unclear as to exactly what their objectives are, and what they may need to do in order to achieve them.

My discussions with clients often come down to the same following points:

  1. Spend less than you earn
  2. Invest surplus income in quality assets that generate income
  3. Review your investment portfolio on a regular basis
  4. Structure your financial affairs as simply as possible, but no simpler
  5. And when it comes to the investments themselves:
    • I don’t, and can’t, promise to ‘shoot out the lights’ on investment returns (Quite frankly, if I could do that on a consistent long term basis I wouldn’t need a day job!)
    • Risk, or the volatility in the value of your investments, always, ALWAYS, equals return
    • A risk is not necessarily a bad thing or something to be avoided (If you avoid all risk that the value of your investments would decline, all you’d be left with are bank deposits paying 1.75% per year.

So don’t avoid all risks, however, make sure that you understand the risks and receive an appropriate level of compensation for assuming them.

My aim is always to place my client in a position from which to make an informed decision. The decision is always theirs to make. I’m simply looking to provide constructive input to assist them.

If you would like to learn more about our services, please contact us today. One of our friendly advisers would be delighted to speak with you.

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Some Thoughts On Brexit

Two years ago Analysts/Consulting Owen Evans presented a seminar for clients entitled Fun with Vertical Fiscal imbalances.  A core message was that Australian Governments had effectively no clue as to the extent revenues would fall as a result of the mining boom, and that we were in for a lengthy period of declining living standards.  The response, Owen said, was that government would increasingly be confined to short terms and instability would become the norm.  Let’s look at some facts that have emerged since then.

By a relatively large majority, UK voters elected via referendum to leave the EU. This was clearly a surprise to most commentators and markets, with Sterling and global equities markets getting thrashed on the day, the PM announcing his resignation (to take place by October) and roughly half the Labour Party front bench resigning. Watching it live was like watching lemmings jump into the sea below, a feeling exacerbated when the most interesting commentator turned out to be Lindsay Lohan.  Here are a few observations:

The short-term economic implications for the UK and Europe are clearly negative. The longer-term implications are also negative but may not be overtly visible. One must presume that global GDP growth falls very slightly over the next two years because of this. One also must conclude that interest rates are likely to stay lower for longer; and,

The direct impact on Australia and Australian listed companies is likely to be imperceptible. But there may be a small bias in favour of domestic-related businesses as opposed to exporters and interest rate sensitive stocks.  There is certainly no reason to think that Brexit will hasten a global economic recovery and for that reason, there is no rush to return to investing in mining and resources related industries.

The Brexit debacle was immediately followed by Australian voters demonstrating a significant swing toward a union leader from a Government roundly rejected by voters in 2013.  Preferring heart over head, Australia will probably end up with a hung parliament and a Senate controlled by individuals who variously want to ban live cattle exports (thereby effectively killing the NT economy), subsidise Tasmanian electricity generation and reintroduce financial transactions taxes, reintroduce tariffs that will increase the price of goods for everyone, and based on petitions of just 200,000 people, introduce rolling referendums to decide laws.  If you think that is kooky, consider that by the end of the year a boorish reality TV star could be the next US President;

These seemingly outcomes are both seemingly bizarre and based on a well-honed ignorance of what matters.

Western prosperity since 1946 has been based to a large degree on growth in trade, personal freedom and mobility, and increasing economic integration. The days of having three different electricity outlet types in the UK and 35 in Europe have been coming to an end. Brexit is a vote against trade, against mobility and against integration. In effect, 17m Britons voted for an immediate pay cut.  It seems unlikely that they would have done that, if they understood the impact.  The fact that two of the main proponents of Brexit have now stood down, suggests a total lack of belief in the BS they were peddling.

First, this is an unexpected outcome and following issues with US polling during the primaries it calls into question the capacity of western leaders to understand what exactly it is their constituents want or expect from Government.  Instead of making and delivering on policy Governments are deliberately pandering to interest groups/issues, because:

  1. there is no point in trying to convince rusted-on supporters and;
  2. because of the mistrust and pressures linked to a decline in living standards, we are living in a time where people are relying on their feelings for guidance, rather than education or logic.
  3. Add to this the internet which is enabling democracy by popular engagement, with the consequence that many people have plenty to say, but not much knowledge about what they are saying.
  4. Across the west we have an ageing population increasingly fearful of the impact of immigration.  It is borne of a nationalistic fervour and a desire to build barriers against all manner of perceived threats (but immigration in particular). 

A basic tenet of economics is that what is good for the population is not necessarily good for the individual.  Combined with the inability to measure voting intentions accurately combined with a willingness to vote against perceived self-interest (even if it is the general interest) suggests that unusual political outcomes may have become standard.  As a result of these factors, the gridlock that hampers decision making in many Governments is set to become more serious.

As we have said countless times in Client newsletters, we have entered a time of extended volatility and uncertainty and we are experienced in managing that.  This experience is critical when the main alternative to investing in markets is to put your money in the bank.  Interest rates of below 2 percent are about a third of the income generating capacity of most of the portfolios we build.  The choice to put your money in the bank ensures you lock in very low-interest rates, and that you are eating into an increased amount of your savings, just for day to day expenses.

In terms of the market outlook, Brexit will likely see markets unstable for a while.  But they were already unstable, and the portfolios we have built for clients have shown good results in withstanding that.  As we have said in Client newsletters, interest rates are unlikely to increase anytime soon, and in general that is good for the portfolios we build.

Given the trade advantages of the EU, we will be amazed if the long term outcome is not that the UK struck a deal with the EU such that most if not all of the primary economic advantages were retained, but that the UK exerted more control over its borders.  In this context, its worth noting that Norway subscribes to almost all of the EU rules, thereby retaining trade benefits, but without being a member (of course, it gets no say on how those rules are formed).

Overall, our view is that we are in for a very long period of sub-trend global growth and this will continue to result in global economic and social instability.  For many years there will be no free kicks and the rewards will go to those who can look beyond the emotion.  We believe that is the most valuable service that we can offer clients.

Originally published in our July 2016 newsletter, read more recent newsletters here.

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3 Things You Should Do Now You’re 30!

1. Protect your biggest asset; Income Protection

What would you say is your biggest asset? Your home? Car? Maybe. But what about your income? Say for example your annual salary is $70,000 plus superannuation guarantee. By the time you reach age 65, your cumulative income will reach $4,667,000 (assuming a salary increase of 3.5% p.a.). So why not protect it? Income protection will pay you a regular income in the event you are unable to work due to illness or injury. Benefits are capitalised by insuring to the maximum available cover of 75% of your gross earnings (your total fixed remuneration package, including fringe benefits and any other earned income excluding investment income). A various number of waiting periods are available ranging from 14 days to 2 years. Benefits are then paid for periods ranging from 2 years to age 70. Premiums for Income Protection are tax-deductible to the individual and the benefits payable are taxed as assessable income.

2. Know your Superannuation

Many of our clients have noted that they are unaware of their superannuation; it’s not much more than a line on each pay slip. They aren’t sure how many accounts they own or what is in their most active account and seem to have the general perception of “Why should I have to worry about super when I can’t access it for another 30-40 years?” To keep it simple, your superannuation is the largest savings account you will ever own; it’s your future. To maximise these savings, you should consider the following:

  • Super consolidation – rolling your funds into one manageable account. This is to ensure your funds aren’t being gobbled up by pesky administration fees.
  • Salary sacrifice considerations – Salary sacrificing falls into the Concessional Contributions category, along with Superannuation Guarantee contributions from your employer. You do have to be careful you don’t exceed the caps. Be sure to talk to an adviser about your options regarding salary sacrificing.
  • Risk profile – as a young investor, you may be comfortable taking on a little more risk with your investments via superannuation. Generally speaking, industry funds default to a balanced portfolio. The average return on these accounts is generally CPI (Consumer Price Index) plus 5%.

3. Create Wills and Power of Attorney (POA)

Estate planning is necessary for all adults. We have found clients tend to underestimate the size of their estate. Normally when a new industry super fund is opened, there is a certain amount of default cover attached to the fund. If you have a number of industry super funds, your cumulative death benefits may enter into the hundreds of thousands of dollars, but will it go to whom you wish? There is an interesting case, McIntosh vs McIntosh, where a simple estate plan could have made a huge difference in the distribution of benefits. McIntosh, a young male passed away following an accident. He had a number of super funds each with death benefits attached. His mother, was in an interdependent relationship with her son, and justly applied to receive the benefits. However, McIntosh’s father, whom he had no relationship with, appealed the decision and was awarded half of the death benefits. In the eyes of the court, the father had every right, but was this the outcome McIntosh would have wanted? Seek advice from a professional and avoid the ‘do it yourself’ option. We can’t stress enough the importance of having a valid and up to date will in place.

Please note that the above has been provided as general advice, it has not taken into account your personal circumstances or financial goals. If you would like more tailored advice, please contact us today, one of our friendly advisers would be delighted to talk to you.

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Time is running out for you and your family members to take advantage of the Government Co-Contribution initiative in the current financial year.

Basic eligibility criteria is that a tax return is lodged, at least 10% of total income comes from employment or carrying on a business, and you are less than 71 at the end of financial year.

If you make a personal after-tax contribution (i.e. non-concessional or undeducted contribution) to superannuation, you may qualify for an additional contribution directly from the Government. Essentially, the Government will match on the basis of 50c for every dollar of eligible contributions you make to superannuation up to a maximum co-contribution amount of $500 (i.e. $1,000 contribution to receive $500 government co-contribution).

The full super co-contribution is available if your total income is less than $35,454. The maximum co-contribution reduces by 3.33 cents for every dollar earned over $35,454 reducing to zero when your total income is $50,454 or more.

There is no need to claim the Government’s co-contribution. Provided you qualify and submit a tax return, the Government will automatically forward the co-contribution amount to your super fund.

To find out how the co-contribution works and who is eligible to receive the government’s co-contribution to superannuation, click here.

If you want to take advantage of the Government co-contribution initiative in the current financial year, you will need to make a non-concessional contribution to super so that it is received and processed by the fund prior to Thursday, June 30, 2016.

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EOFY – Superannuation Contributions Check

Superannuation is still one of the most tax effective places to house your retirement funds.

Have you thought about contributing to superannuation?

Concessional contributions are contributions made into superannuation for which a tax deduction is claimed; such as superannuation guarantee contributions (SGC) or salary sacrifice contributions.

At the present time the cap is between $30,000 and $35,000 pa depending on your age, and this is scheduled to reduce at the beginning of the 2017/18 financial year if the 2016 budget becomes law.

Your employer contributes at least 9.5% per annum to your chosen fund, but working individuals under the age of 75 can contribute to their fund by way of salary sacrifice, to bring the total annual contribution up to the cap.

You need to talk to your employer to make a salary sacrifice arrangement but you will first need to calculate how much salary to sacrifice each pay period so that you still have sufficient for living expenses.

Salary sacrificing will reduce the tax that you pay personally and the greater benefit is for the higher income earners. For example a person whose top marginal tax rate is 19% plus Medicare will receive a tax benefit of 4% plus Medicare – i.e. the difference between the marginal tax rate and the contribution tax rate in super, whereas someone who earns $75,000 will gain a tax benefit of 17.5%.

Did you know that you can also make after-tax superannuation contributions?

If you have accumulated money that you have no immediate need for and would like to add to your retirement benefit, it is also possible to contribute this to superannuation. It is not taxed upon entry to your superannuation account, but once the contribution is made you will lose access to that money until you meet a ‘condition of release’. The most common condition of release is reaching age 60, but there are restrictions on how much you can withdraw until you are fully retired.

A lifetime cap of $500,000 (indexed) will apply to non-concessional (after-tax) contributions and will include all after tax contributions made on or after 1 July 2007 with immediate effect from 3 May 2016. This is subject to legislation of the budget.

Any after tax contributions made before budget night (7.30pm on 3 May 2016) that exceed this cap, may remain in superannuation without penalty.

Please note: Some superannuation information is subject to legislation of the recent Federal budget, so are government proposals only at this stage, and not yet law. The information provided in this article is general advice only. It has been prepared without taking into account any person’s individual objectives, financial situation or needs. Before acting on anything in this article you should consider its appropriateness to you, having regard to your objectives, financial situation and needs. If you would like to recieve more tailored advice, please contact us today.

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