Answer 3-4

Well done for thinking about your financial future

We are so excited you chose to embark on your journey with us. You would suit our Discover package with a focus on:

Cashflow And Budgeting

When our capacity to save increases, which is generally due to a combination of hitting our salary peak and expenses decreasing due to children leaving home, there is a chance to capitalise on this theoretical surplus for the future. What can happen instead though is that lifestyle expenditure increases.

There is often a balance between investing in current experiences and investing for the future. But what if I told you that could do both? By making plans about what we want to achieve, we also can achieve purpose to our spending. If, for example, you have a plan to travel every year maybe you do not need that extra coffee every day; that saving could be an extra $1,000 per annum to put towards a trip.

To help with budgeting the first step is to map out your essential spending so that you know exactly how much you can spend on discretionary spending. The next step is to make the decision based on your goals whether you want that trip to Italy or alternatively a trip to a cheaper destination that allows you to save some money to make extra repayments to that lingering mortgage, extra contributions to super or a contribution to an investment. Managing your cashflow and having a budget gives power and informed choice to your decision making and is the foundation of a sound financial strategy.

Centrelink Planning

The age pension (or service pension) as we now know it was designed to provide a safety net in case you outlive your money. When it was first introduced in 1909, the pension age was 65 for a man and 60 for a woman. Life expectancy then was only 56. Now, life expectancy is nearing 85, while the age pension age is between 65-67 for most people.

The pension is paid as a fortnightly payment and is part of the broader retirement income system. This is often referred to as a ‘three-pillar’ system consisting of basic income support (the Age Pension); compulsory savings (the Superannuation Guarantee); and, support from private savings (such as homeownership and voluntary superannuation contributions).

You are assessed on both your income and assets.

Assets include, among other things, your super balances, pension balances, bank accounts, shares, investment properties, cars and household contents. It does not include your principal residence. Income includes, among other things, income from employment, pension income, rent and deemed income.

What is deemed income?

Your financial assets including your shares, bank accounts, super balances and some pension balances are combined and deemed to earn a certain rate of income, regardless of the income actually earned from investments.

ABS data indicates that super was the main source of income for 19% of retirees. Interestingly, 53% of those intending to retire expect super to be their main source of income.

Investment Planning

If you are investing without a strategy you are gambling. Okay, so you need an investment strategy, what strategy is best for you?

Everyone is generally familiar with investment choices in their normal super funds like “balanced” or “growth”. These terms apply to pooled investments that allocate funds to different assets based on an asset allocation strategy. The asset allocation strategy is based on Modern Portfolio Theory. This theory is not so modern now as it was first put forward by a man called Harry Markowitz in 1952. The theory hypothesises that assets have certain characteristics and by combining these assets with each other in an optimal way creates an Efficient Frontier. This frontier is how your super funds calculate how much they should have in each asset class to give the best chance of a good return with the least amount of risk. This is a Strategic Asset Allocation.

Times have changed since 1952 and there are more financial instruments that fit outside of traditional asset classes, new asset allocation strategies such as Dynamic Asset Allocation and the technology advances as well as information transfer have changed how the market views change and thus how assets react now may not be in line with past reactions. That is not to say that Strategic Asset Allocation is still not appropriate just that there are strategies that can be layered and tailored.

Strategies need to be fluid to take notice of change but also need to be objective focussed. Talk to us about what your objectives are.