Investment Advice

Investments exist on a risk spectrum. The higher the return, the higher the risk. So, your comfort with different levels of risk is crucial in determining what kind of assets are appropriate for you to invest in.

A quick summary

Investment advice

As recent market movements and global events have highlighted, different types of risk exist within asset classes as well. For example, an oil shortage can lift the value of shares in the energy sector but reduce the value of companies that rely on heavy fuel use. And there are different ways of thinking about risk. In theory, gold is a defensive, low-risk investment, but if you sell equities in a market downturn and buy gold, you could face income risk from the loss of your share dividends.

The key to any successful investment is making sure it lines up with your goals. Understanding what you want to achieve with your capital and finding the right investment will help you make the right decision for your needs.

Everyone has a unique risk profile, OakView Financial spend the time to understand your goals and build suitable investment strategies individually. 

Managed Funds

Managed investments

Managed investments or managed funds are investment vehicles that pool together the money of many investors. Because of this, you do not own the individual investment as you would with a direct share; the managed investment owns the underlying assets, and the fund manager buys and sells on your behalf. When you invest in a managed investment, you buy units in that fund.

The value of your units is calculated daily with the changing market value as the funds’ investments rise and fall. You may also receive distributions from the managed investment, this is based on any income earned by the underlying investments.

As these funds are professionally managed, there will be a fee associated with each fund. Before making any investment, ensure you are aware of all fees the fund charges.

Property investments

Property is often seen as being less risky than other forms of investments. However, while it may seem more straightforward, there are pitfalls to be aware of. Here’s what you need to consider about investing in property.

Pros

  • Less volatility – Property can be less volatile than shares or other investments.
  • Income – You earn rental income if the property is tenanted.
  • Capital growth – If your property increases in value, you will benefit from a capital gain when you sell.
  • Tax deductions – You can offset most property expenses against rental income, including interest on any loan used to buy the property.
  • Physical asset – You are investing in something you can see and touch.
  • No specialised knowledge required – Unlike some complex investments, you don’t need any particular specialised knowledge to invest in property.

Cons

  • Cost – Rental income may not cover your mortgage payments and other expenses.
  • Interest rates – A rise in interest rates will mean higher repayments and lower disposable income.
  • Vacancy – There may be times when you have to cover the costs yourself if you don’t have a tenant.
  • Inflexible – You can’t sell off a bedroom if you need to access some cash in a hurry.
  • Loss of value – If the property value goes down, you could end up owing more than the property is worth.
  • High entry and exit costs – Expenses such as stamp duty, legal fees and real estate agent’s fees.

Steps to financial success

Wealth creation

The key to building wealth is to have one or more goals you are continually aiming to achieve. To achieve your goals, you need to have a strategy that takes into consideration your personal circumstances. Aimlessly investing may have short-term success, but you will lose focus and, in most cases, spend gains on short-term gratification.   

The following are key areas to manage for financial success:

Financial guidance and advice

Having professional help is one of the best ways to help build and grow your wealth. Just like having a personal trainer at the gym can help you achieve better results than if you were to fly solo, a good financial planner will help guide you through the good and bad of the finance world.

Professional financial advice can be particularly helpful at key points in your life. People typically think about getting advice when they are approaching retirement, with all the planning that entails. But strategic advice earlier in life could potentially make a big difference to your financial health.

Setting clear goals

By setting clear, well defend goals within a reasonable timeframe is a fundamental step in building wealth. It is important to decide what you are trying to achieve with the money you are creating, when you will need it and how much you will require to achieve it.

This will allow you to select the right investment best matched to your goals. Selecting the right investment for your situation is significantly easier when you have clear goals in mind.

The length of time you have to invest plays a critical role in selecting the right investment. Generally, the longer you have to invest, the higher the risk you can take and the greater returns you would expect.

Budgeting and debt reduction

Budgeting helps you to feel in control of your money. Setting up a budget gives you a clear picture of your income and expenses. It can help you spend less and save more to achieve your money goals.

Eliminating Bad Debt should be a priority when considering your budget. As this debt is a result of borrowing money to purchase depreciating assets or for the purpose of consumption. It does nothing to build your overall wealth and should be avoided wherever possible.

Good debt, on the other hand, has the potential to increase your net wealth; these are things that increase in value over time.

Risk profile

Every person has a different tolerance for risk when looking at investments; the goal of a Risk Profile is to provide an understanding of a person’s risk tolerance, as this will help select the best investment options for their situation.

There are three primary categories when looking at risk profiles, each with differing levels of risk the investor is willing to accept. Each prime category has differing levels within it, accounting for variables.

Defensive

You want minimal volatility in your investments. You typically want income-generating investments that have little capital growth. You generally have a small-time frame for your investments and are unwilling to take on unnecessary risk.

Moderate

You are an investor looking for a moderate to high return but would rather not take on too much risk. Moderate investors generally align with Balanced portfolios, blending a mix of growth and defensive assets, with a moderate timeline for investments.

Aggressive

You are seeking the highest possible return. You are an investor with a long-time frame and have a strong tolerance for risk. An aggressive investor is someone who understands the risks of the market and how short-term losses are inevitable but are willing to hold for long-term growth.

Term Deposits and savings accounts

Cash

The most common cash investments are investment vehicles such as savings accounts and term deposits that earn interest. By leaving your cash in the account, it will earn interest on the principle and continue to earn compounding interest.

This boosts your cash savings with little to no risk, generally with a stable rate of return. Cash is also the most liquid of all investment options, providing easy access to your money when needed.

While cash investments are very low risk, they are the lowest performing asset over the long term.

Portfolio rebalancing

Diversification across major asset classes with international exposure

The goal of portfolio rebalancing is to safeguard your investments from being overly exposed to undesirable risks. Over time some individual investments within your portfolio may be increasing in value well above others. This will increase the assets weighting of the portfolio outside the original target allocation. Adjusting this periodically will maintain the risk in your portfolio within the desired risk allocation.

ETF’s

Exchange Traded Funds

An Exchanged Traded Fund (ETF) is a combination of a managed fund and direct shares. While a share invests in one company, an ETF invests in many at once. Like a managed fund one unit of an ETF gives you access to many different underlying investments. However, unlike a managed fund an ETF can be traded on a stock exchange just like a share. ETFs blend the benefits of both these investment vehicles into one convenient asset.

Exchange Traded Funds have seen a massive increase in popularity in the last decade and are one of the most popular investment vehicles for Australian investors. ETF’s have the unique advantage of providing both diversification and specialisation in the same fund. You can gain access to multiple companies in the same field of operation.

Investing in super

Superannuation Investment Advice

To paraphrase a popular saying, investing is a journey, not a destination. When it comes to superannuation, the better you manage your investments along the way the less you need to worry about your destination, that is, a comfortable and rewarding retirement.

We use the phrase ‘saving for retirement’ quite often referring to super, but saving is actually just putting money aside for a time to use on a specific purpose later.

When we invest, we don’t just keep it aside, we buy something (referred to as an asset) on the premise that it will be worth more later, so we can outpace the cost of living.

Many of the principles of investing are the same inside super and anywhere else. Superannuation is simply a vehicle that holds your investments in an environment that the government treats more favourably for tax purposes than money outside of super.

Digital currencies

Crypto Investments

Like any currency, cryptocurrencies only have value if enough people recognise them as an acceptable form of payment in exchange for goods and services.

And like any currency, the value of cryptocurrencies can rise or fall over time based on the forces of demand and supply as well as investor sentiment.

For example, a single Bitcoin was worth $458 in September 2014. Three years later, the price hit a peak of $25,506, before dropping back to earth. In October 2020, bitcoin was trading at around $15,000.

As the price history of Bitcoin attests, cryptocurrencies should be viewed as high-risk investments. If you are risk-averse, cryptocurrency investments are unlikely to be a suitable investment for you.

That is not to say that cryptocurrencies do not have a place in a well-diversified investment portfolio. They are best thought of as an alternative asset class with little or no correlation to traditional asset classes such as shares, property and bonds. But diversification and knowledge are key to reducing potential risks.

A simple idea

Tips to grow wealth

Our number one tip for growing your wealth is only to invest what you can afford.

You always want to control when you sell your assets.

If you are over-leveraged and need access to funds that are invested, you may be forced to sell at a time when it is not in your best interest.

Holding an asset and selling when the time is right will always result in a positive outcome for you.  

Frequently asked questions

Find quick answers to common questions using our helpful FAQs.

When can I access my superannuation?

When you reach your preservation age and retire, you can access your super to fund your retirement.

You can also access your super:

  • when you turn 65 years old
  • under the transition to retirement rules (if you are eligible), while you continue to work.

You don’t have to cash out your super just because you’ve reached a certain age, however, you need to check if the rules of your particular super fund specify otherwise.

Your preservation age is not the same as your pension age. Your preservation age is the age you must reach before you can access your super and depends on when you were born.

The tax payable on super benefits depends on a number of things, including:

  • your age
  • the amount of the payment
  • whether you receive your super benefits as a super income stream or a super lump sum
  • whether your super comes from a taxed or untaxed source.

Some super benefits have a tax-free component and a taxable component. The tax-free component generally includes:

  • amounts you have contributed to your super fund without claiming those amounts as a tax deduction
  • certain other tax-free amounts you may have rolled into your super fund.
How much should you have in your super when you retire?

ASFA estimates that the lump sum needed at retirement to support a comfortable lifestyle is $640,000 for a couple and $545,000 for a single person. This assumes a partial Age Pension.

ASFA estimates that a modest lifestyle, which covers the basics, is mostly met by the Age Pension. They estimate the lump sum needed to support a modest lifestyle for a single or couple is $70,000.

However, this might not be enough for you, it is important to seek advice on this with a Financial Planner; the team at OakView Financial can sit down with you and work out your required balance to meet your retirement needs.

How much super do I need to retire on $60 000 a year?

It’s fair to assume that the average Australian might hope to live comfortably, if not lavishly, in retirement.

The widely reported ASFA Retirement standard suggests couples can enjoy a ‘comfortable lifestyle’ on around $65,000 a year. It stands to reason then that a single person should be able to live more than comfortably on $60,000.

If $60,000 a year sounds like your kind of retirement, the next step is to work out how much super you will need to fund it. That’s where our expert team comes in. 

How much superannuation does the average person retire with?

The Association of Super Funds Australia (ASFA) latest report states the average superannuation balance required for a comfortable retirement is $640,000 for a couple and $545,000 for a single person. This assumes you will withdraw your superannuation as a lump sum and receive a part Age Pension.

However, the average superannuation balance of a 60–64-year-old Australian is $359,870 for men and $289,179 for women. This, unfortunately falls short of the required amount needed to live a comfortable retirement.

The good news is that you still have time to change these numbers; time in the market beats timing the market. By working with a Financial Planner, you can employ strategy’s to boost your superannuation so you can hit all your retirement goals and live that well-deserved comfortable retirement.

What is superannuations transfer balance cap?

The transfer balance cap is a $1.7 million transfer balance cap on the amount of money you can shift into a super pension account. Excess amounts will need to remain in a super accumulation account or outside super, where earnings will be taxed. The interaction of the transfer balance cap with other income and investments can be complex, so we advise you to seek professional advice.

The $1.7 million cap applies to individuals, which means a couple could have up to $3.4 million in individual accounts. However, if a couple has one account between them in a single name, the $1.7 million limit applies.

How much money can you have in the bank and still get the pension in Australia?

The Department of Social Services reviews the eligibility for the Age Pension each year, increasing the upper limits to scale with inflation. Australian Parliament may also introduce policy changes to the limits, it is best to review your retirement strategy with your Financial Planner each year to ensure you are always taking advantage of the best outcome.

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