The thought of retirement is an enticing one for many of us. Imagine throwing off the shackles of the workforce and being able to do whatever you want, whenever you want. But why wait until you are retired to do the things you love? 

Retirement is a time where we finally have the space to do what we want to do with our lives, whether that’s travel, developing and learning new skills, taking up hobbies or just enjoying the company of those we care about.

The problem with waiting until we are retired is we are postponing engaging in things that could be making us happy right now. Exploring what gives us joy now and developing those skills will make for a much easier transition as you wave goodbye to your working years.

Something to retire to

Retirement represents a big shift in the way we live our lives and it’s not uncommon for that adjustment to be a little challenging. For many, our jobs give us a profound sense of identity and define how we perceive ourselves, so our sense of self can suffer when we leave the workforce. There is also often a gap in our lives where work used to be.

That’s why rather than looking forward to retiring from something, ‘have something to retire to’ is a common piece of advice to encourage people to think about what they want their life to look like when they leave the workforce.

Think about what defines you now and satisfies you outside of work, and putting in place a plan of how that may play out in retirement can be a good idea.

Start today to do the things you love

While it can be hard to carve out time while you are still in the workforce, it’s possible to take small steps and set aside dedicated time each week or commit to activities that won’t take a lot of your time.

If you are keen to travel when you retire, consider signing up for a short course in the language of the country you are keen on visiting to get prepared for the trip of your dreams.

Or if you want to finally write that novel you’ve been mulling over for years, set aside a little time now to draft a framework and get a head start. Who knows by the time you retire you may be on your second novel!

Keen to do more exercise? Join a gym now and get into a routine – even if you only manage to get there a couple of times a week it’s a good start.

It takes a while to develop new habits and skills so starting to pick up the things you want to explore in retirement now sets you up for a smoother transition when you have more time to devote to these activities. Starting now also gives you a chance to try things out and see if they are something you want to commit time and energy to.

Fostering connections with those you care about

While spending time doing things you love makes for a happy and satisfying retirement, another important factor is being around people you enjoy being with.

Think about the people you enjoy spending time with and foster those friendships right now. Not only will it make for an easier transition when you retire, it will also bring you joy and the benefits of those relationships right now. There is always room in your life for making new friends too!

The best laid plans can change

It’s important to be open minded in your plan of how you see your retirement unfolding. Remember that not everyone retires on their own terms. Some need to retire sooner than expected or in a different manner than expected due to ill health, caring for a family member or because of a decision or situation in the workplace.

On that basis it’s important to live well now – enjoy your present life and embrace the things that make you happy as you’ll also be setting yourself up to enjoy retirement – whether it’s just around the corner or still a way off.

Everyone loves a bargain, but as cost-of-living increases continue to put pressure on budgets, tracking down a freebie or two can also take some pressure off.

Getting things for free that you would otherwise have had to fork out for, also means you can save while still having some room to splash some cash around for the fun stuff.

Aside from the obvious cost savings of a freebie, it’s a clever way to test things out before you’ve committed to buying something that you may not want or need in the long run. It’s awful to spend money on something, only to find out that you’ve wasted your hard-earned cash. Not to mention the environmental benefits of using goods that might otherwise be going into landfill.

Score a freebie from the kindness of others

There are loads of ‘buy nothing’ groups and sites such as Nextdoor or Freecycle that have sprung up to give away things that people don’t want any more including furniture, appliances, moving boxes and plants.

‘Buy nothing’ groups also sometimes organise clothing swaps. The clothes you don’t wear any more might be just what someone else is looking for. Keep your eye out for any in your area or even organise your own with a group of friends.

If you just need an item for a short period of time it might make sense to borrow it. Online libraries make it easy to exchange goods on a temporary basis at no cost. It’s a great choice if you just need something for a short space of time – like tools for a project or a tent to take off camping for the weekend. A couple of sites to check out are: The Sydney Library of Things and The Sharing Shed in Melbourne.

Maximising your rewards

Even if you are doing your best to not spend, there are times when you can’t avoid pulling out the credit card. However, your credit card can give you access to a host of freebies like hotel stays, flights, gift cards and appliances via rewards programs.

Just be conscious that finding the right credit card means considering interest and fees. No rewards program is worth paying a lot of interest or being stuck with expensive fees. And not all rewards programs are created equal, some are more generous than others so be sure to read the fine print.

Using your credit card for as much as possible of your eligible spending will help maximise the points you can earn, but just make sure you can manage the repayments on the card, so you are not incurring late fees.

You could also look at rewards programs with your favourite businesses. Many shops and restaurants offer special perks for members’ birthdays or for regular customers, offering freebies such as food, shipping, gift cards, merchandise and movie tickets.

Of course, there are other ways to score freebies from businesses, but they usually want something in return. 

The gift of giving

Many businesses offer discounts, vouchers and free products or services in exchange for supplying reviews on sites like The Champagne Mile. As well as the attraction of free stuff there is also a feel-good factor that you are helping the businesses you are reviewing.

It’s also common for businesses to offer free trials to introduce you to their company or products, and this can be a fantastic way to try something for free for a brief period. Just be aware that you’ll need to give them your credit card to access these so it’s important to keep track of the cancellation date and cancel at the end of the trial to avoid incurring costs. Be careful though – scammers often dangle an enticing freebie to get you to give them your credit card details so verify any offer to make sure you are not being swindled.

Once you start seeking out freebies you’ll find a lot more – and you won’t just be getting free stuff, you’ll be freeing up savings for the important, big-ticket items.

The ranks of young Australian investors have swelled over the last two years. And many have very different investment objectives and strategies to older investors.

Young Australian investors aged 18 to 24 are likely to be more risk averse than their older counterparts and least likely to tolerate moderate or high variability in their investment returns.

These are among the key findings from the just-released ASX Australian Investor Study 2023, which also found that the main investment goal for 36% of “next generation” investors over the next 12 months is to build a sustainable income stream.

The ASX study findings are based on a survey of 5,519 Australian adults conducted by Investment Trends in November 2022.

Interestingly, only 17% of retirees (aged 65 and over) listed building a sustainable income stream as their main goal over the next year. Their biggest focus (nominated by 20% of the retirees who participated in the ASX study) is to protect their existing investments and income against markets falls.

Only 9% of next generation investors nominated this as their main goal, with maximising capital growth the top consideration for 19% of respondents in this young adult age band, followed by achieving a balance between capital growth and investment (nominated by 14%).

Profiling the next generation investors

The ASX’s study found that almost 10% of Australia’s 10.2 million investors fall into the next generation age category, and 63% of these have only started investing in the last two years.

The Next Generation Investor

Source: ASX Australian Investor Study 2023

While many next generation investors are focused on building sustainable income, the ASX study found that returns are less motivating for younger investors than for older demographics when making investment decisions.

Next generation investors rate risk (33%) and their personal circumstances (29%) above returns (25%) as their most important considerations. They also consider whether funds can be accessed at any time if their money is tied up (20%).

This makes sense given younger people typically will want to access their funds over the shorter term for lifestyle purposes, including for travel or to use investments as a deposit to buy a home.

Next generation investors are least likely to tolerate moderate (16%) or high variability in returns (10%).

The majority understand the cyclical nature of investing, with 29% saying a fall of 20% in their portfolio balances is a risk they understand could happen and another 36% saying if this happened, they would be concerned but would wait to see if the situation improved.

But the ASX study notes that the apparent financial conservatism of next generation investors is at odds with their level of investment in cryptocurrency assets.

“This product at present could be seen as a relatively risky investment, yet 31% of next generation investors hold it in their portfolios. Their median holding is $2,700, representing 6% of their total portfolio (compared to 3% for all investors). It possibly appeals to their excitement about new technologies or a desire to do things differently to their parents.”

Less likely to be diversified

Another key finding from the ASX study is that next generation investors report the lowest level of investment diversification among all age groups and are the least knowledgeable about diversification.

Portfolio diversification by age

Source: ASX Australian Investor Study 2023

Next generation investors on average have investments in 3.1 products, with one-third holding ETFs.

The ASX study points out that their diversification level is most likely due to the short amount of time in which they have been able to invest and their generally low incomes given many are at the start of their careers.

The low levels of diversification among next generation investors may also be counter-effective against their relatively high level of risk aversion.

As such, this suggests many young investors may benefit by learning more about the role of diversification in mitigating risk and in helping to stabilise returns when investing across a range of asset classes.

The ASX study found that social media is an emerging source of investment information for younger investors, with 43% also typically consulting their family and friends, 22% the ASX website, and 21% online broker websites.

Source: Vanguard June 2023

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2023 Vanguard Investments Australia Ltd. All rights reserved.

Important:

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Did you know it’s likely you’ll spend up to two decades or more in retirement? It’s a long time, so will you be able to afford all the things you’ve thought of doing in retirement, before your savings run out?

By starting now and making small changes to how you approach your super savings, you can get closer to the retirement you’d like – and hopefully make your savings last longer.

Note: Some of the strategies explained below are subject to your total super balance cap (combined value of your accumulation and pension accounts). For more information visit the ato.gov.au or contact your financial adviser. In the meantime, here are five strategies to help you build a bigger super balance.

1. Consider consolidating your super funds

If you’ve moved jobs or done casual work over the years, you might have money in several super funds. One super account means less paperwork and not having to manage multiple super accounts.

There are a few things to think about before you consolidate your super:

• Weigh up the benefits and features of your other super funds against your chosen super account.

• Check the tax implications and see if your tax and preservation components will be impacted. Speak to your financial adviser for further information.

• Compare the fees of your funds and check for exit or termination fees.

• Don’t forget your insurance. Check if your chosen super account will give you appropriate cover to replace any cancellation of insurance cover that will occur by consolidating your accounts. Appropriate insurance can include level and types of cover as well as policy terms. If you have a pre-existing medical condition, consider whether you’ll be eligible for the same level of cover if you cancel your existing insurance policy.

• If you intend to claim a tax deduction for personal contributions made into your other fund, there’s something you need to do first. Ensure your “Notice of intent to claim a deduction for personal contributions” is made and acknowledged by that fund. 

• If you consolidate your super, you’ll have fewer funds to manage and it’ll be easier to keep track of your retirement savings.

2. Make personal contributions

By making a personal super contribution and claiming the amount as a tax deduction, you may be able to pay less tax and invest more in super. The contribution will generally be taxed in the fund at the concessional rate of up to 15 per cent instead of your marginal tax rate which could be up to 47 per cent, including the Medicare Levy. Additional 15 per cent tax applies to concessional super contributions if your combined income and concessional contributions exceed $250,000. 

This strategy could result in a tax saving and enable you to increase your super balance.

To claim the super contribution as a tax deduction, you need to submit a valid ‘Notice of Intent’ form. You’ll also need to receive an acknowledgment from the super fund. You’ll need this before you complete your tax return, start a pension or withdraw or rollover money from the fund you made your personal contribution to. It’s generally not tax-effective to claim a tax deduction for an amount that reduces your taxable income below the threshold at which the 19 per cent marginal tax rate is payable. This is because you would end up paying more tax on the super contribution than you would save from claiming the deduction.

We recommend you see a financial adviser or tax consultant to get the right advice for you.

3. Salary sacrificing

You might also be able to reduce your tax and boost your super balance through salary sacrifice. This is an agreement with your employer to contribute a certain amount of your pre-tax salary or potential bonus into your super. The word sacrifice doesn’t really make this strategy sound appealing, but it has some great benefits.

Instead of being taxed at your marginal tax rate, these contributions are generally taxed at the concessional rate of up to 15 per cent (an additional 15 per cent tax applies to concessional super contributions if your combined income and concessional contributions exceed $250,000). For example, if you earn $95,000 a year, you could save up to 24c in every dollar sacrificed.

If you’re a high income earner, you’ll be taxed an extra 15 per cent on your before-tax contributions (30 per cent in total). However, this is still lower than your marginal tax rate of 47 per cent (including the Medicare Levy).

Making before tax contributions to super can be a tax effective way of building wealth. Before tax (or concessional) contributions also include mandatory contributions made by your employer and are capped at $25,000 per year regardless of your age. Penalties apply for exceeding the cap.

The Government’s MoneySmart website has a great super contributions optimiser calculator that can give you an idea of how salary sacrificing can affect your super and take home pay.

If you like the idea of salary sacrificing, it’s a good idea to discuss it with your employer and see if you can make an arrangement with them to do this.

You should also seek advice from a tax agent or speak to your financial adviser to determine if this strategy suits your financial situation.

4. Make after-tax super contributions

Maybe you’ve received an inheritance, a bonus, or sold an asset? If you are considering making non-concessional (after-tax) contributions to your super, there are important things to consider. The after-tax contributions cap is $100,000 pa, or up to $300,000, if you bring forward two years’ worth of contributions. To be eligible to make non-concessional contributions, certain requirements must be met. For more information contact us.

Government super co-contributions also help eligible people boost their retirement savings. If you’re a low income earner and you make personal (after-tax) contributions to your super fund, the government also makes a contribution (called a co-contribution) up to a maximum amount of $500.

The amount of government co-contribution you receive depends on your income and how much you contribute. When you lodge a tax return, the ATO will work out if you’re eligible. If the super fund has your tax file number (TFN) they’ll pay it to your super account automatically. The way your co-contribution is calculated depends on the financial year in which you made your personal super contributions. You can visit the ATO website for specific income levels and amounts.

You may be able to make after-tax contributions to your super before you turn 65 even if you’re not working. After 65, you’ll need to meet a ‘work test’ each financial year to be able to make after-tax contributions (you’ll need to have worked 40 hours over a consecutive 30 day period), or are eligible for the work test exemption.¹ And you can’t make after-tax contributions once you’re 75.

5. Top up your spouse’s super

Is your spouse working part-time, earning a low income or currently not working (but not retired)? If so, you may both be able to benefit by making a ‘spouse contribution’ to their super account. In the 2017/18 financial year, if your spouse’s assessable income is less than $40,000 and you make a spouse contribution on their behalf into their super account, you’ll receive a tax offset of up to $540 a year. Other eligibility criteria apply.

You should also seek advice from a tax agent or speak to your financial adviser to determine if this strategy suits your financial situation.

Seek professional advice

Remember the tax and super systems are complex and subject to change, and everyone’s financial situation is different. So before making any major changes make sure you speak to us.

1 An exemption from the work test is available from 1 July 2019. The exemption allows you to make voluntary contributions to your super without the need to satisfy the work test, for one financial year only. This is available to recently retired individuals aged 65 – 74, who have a total super balance less than $300,000 (prior to the most recent 30 June), and met the work test for the previous financial year. Also, this can only be applied once in your lifetime.

Source: NAB

Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://www.nab.com.au/personal/life-moments/work/plan-retirement/boost-super

National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.

© 2023 National Australia Bank Limited (“”NAB””). All rights reserved.

Important:

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Buying a house is an exciting time. These steps will smooth your way through the house buying process.

1. Save for a house deposit

The first step is to get your finances sorted. Do a budget to identify how much you can afford to save for your deposit.

Next, do some house price research. Getting a general idea of house prices helps you set a goal to work towards. A great savings goal for a house deposit is 20% of the purchase price, plus enough to cover buying costs (see steps 5 and 6, below).

2. Work out what you can afford to borrow

Everyone’s situation is different. How much you can afford to borrow depends on your:

• income and financial commitments

• house deposit, plus any other savings

• credit score and credit report

Be realistic about what you can afford. Mortgage interest rates are on the rise, so give yourself some breathing room.

Use this mortgage calculator

Work out your home loan repayments and compare different rates.

3. Find the best home loan rate

When looking for a good deal on a home loan (mortgage), the interest rate matters. A home loan is a long-term debt, so even a small difference in interest adds up over time.

Compare home loan rates

Contact at least two different lenders to get loan options personalised for your situation. A rate even 0.5% lower could save you thousands of dollars over time. 

Get help if you need it

With many lenders to choose from, you may decide to get a mortgage broker to find loan options for you. Contact us to find out more.

Get pre-approval to buy

Consider getting loan pre-approval from a lender. They’ll ask for evidence of your current financial situation to assess your ability to repay the loan. Pre-approval lasts for 3–6 months and shows you’re eligible to apply for a loan up to a certain amount. It doesn’t commit you to a loan. It lets you set an affordable price range, and tells sellers you’re serious about buying.

4. Find a house to buy

Find a balance between the lifestyle you want and what you can comfortably afford.

Know why you’re buying

Reflect on why you want to buy. Are you planning to grow your family? Do you want to renovate? If you’re buying with a partner, talk about this together. Being clear about why you’re buying helps narrow down your property search.

Consider your must-haves and nice-to-haves

Make a list of your:

• ‘must-haves’ (can’t do without), e.g. property size, layout, public transport, schools

• ‘nice-to-haves’ (could do without for now), e.g. design, fittings, outdoor space

Focusing on your must-haves will help you prioritise the things that matter most.

Stick to your price range

If you’ve been pre-approved for $500,000, don’t waste time looking at properties advertised at $600,000. If your ideal suburb is outside your price range, keep an open mind about where to look.

Do your research

Look online, talk to real estate agents, go to property inspections and explore what’s on offer. Pace yourself — your search could take months.

5. Negotiate to buy your house

Finding a house you love is thrilling. It’s easy to get carried away by your emotions. Stick to your budget, and be as clear-headed as possible when bidding or negotiating to buy.

Auction or private treaty

If you’re a first home buyer, observe a few auctions so you understand how they work. Bring an experienced friend or family-member along to help you bid. Or consider hiring a buyer advocate to help with the buying process.

If buying at auction, expect to pay a deposit immediately (for example, 10% of the purchase price). There’s no cooling-off period if you buy at auction.

If buying privately, the contract of sale will include the deposit amount and when you need to pay it. There’s a short cooling-off period in most states and territories. You can usually get out of the contract and get most of your deposit back if you give written notice.

Contract of sale

The seller (vendor) of a property will prepare a contract of sale. As a potential buyer, first inspect the property and talk to the real estate agent or seller. Then, ask to see the contract of sale. Get help from a solicitor or conveyancer to review the contract before signing. Paying a legal expert is the best way to avoid costly mistakes.

Building and pest inspection

Once you’ve found a property you like, get a building and pest report done by a professional:

• building inspection — structural issues, damp, electrical safety, cost of maintenance or repairs

• pest inspection — termite activity, other pest issues

This could save you a lot of money down the track.

Make an offer

When you’re ready, there are two ways of making an offer:

• unconditional — a binding contract to buy outright, if you have confirmed finance and are sure about the property

• conditional — becomes a binding contract to buy, if certain conditions are met (e.g. valuation, finance approval, inspections)

Finalise your loan

Tell your lender you’ve found a property you wish to buy, and apply to finalise your loan.

6. Settle on your new home

You’re on the home stretch now, with a few more costs to take care of before you can move in.

Settlement

The settlement date is when the property title is transferred into your name, and your mortgage begins. The contract of sale sets out the settlement period, when you have to pay the full purchase price. Your solicitor or conveyancer will finalise the settlement with the lender and seller. Then you’ll get the keys to your new home.

Stamp duty

Stamp duty is a one-off state government property-transfer tax. You typically need to pay this within 30 days of settlement.

Find out how much you have to pay by using one of these calculators:

• Australian Capital Territory — Revenue Office: Conveyance duty calculator

• New South Wales — Revenue NSW: Calculator — for land and property transfers

• Northern Territory — Department of Treasury and Finance: Stamp duty calculators

• Queensland — Office of State Revenue: Transfer duty calculator

• South Australia — RevenueSA calculator: Stamp duty on conveyances

• Tasmania — State Revenue Office of Tasmania: Property transfer duty calculator

• Victoria — State Revenue Office: Land transfer (stamp) duty calculator

• Western Australia — Office of State Revenue: Calculators

If you’re a first home buyer, check if you’re exempt from stamp duty or entitled to a rebate or concession.

Home and contents insurance

Protect your home and contents against damage or loss. This may be a condition of your home loan. 

Stay on track with your repayments

Finally, update your budget with your mortgage repayments, plus ongoing costs like council rates and land tax (when known). Extra expenses may take time to get used to, so keep an eye on your spending for a while.

Source:

Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/home-loans/buying-a-house

Important note: This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.  Past performance is not a reliable guide to future returns.

Important

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Hedge funds use investment strategies that are more complex than other managed funds. Many aim for positive or less volatile returns, in both rising and falling markets.

A hedge fund is a complex investment and risks vary. Read the product disclosure statement and consider getting financial advice before you invest.

How hedge funds work

Hedge funds (‘absolute return’ funds) use pooled funds to invest in alternative assets or strategies. This may include the use of derivatives, alternative investments or leverage in domestic and international markets.

Hedge fund returns may depend less on traditional assets, like shares and bonds. This can make it a good way to diversify a portfolio.

A hedge fund may aim to deliver positive or less volatile returns, in both rising and falling markets. It could try to outperform a benchmark, such as a market index or interest rate. Or achieve a benchmark return with less volatility.

Hedge fund features

There are different types of hedge funds. The features and risks of each depend on:

• fund strategy

• what assets it invests in

• where assets are

• investment tools used

• fund manager’s knowledge and skill

See the fund’s product disclosure statement (PDS).

Investment tools

Common investment tools include:

• Leverage — When a fund increases its exposure to certain assets or strategies, usually through borrowing. Leverage can increase returns, and increase losses.

• Derivatives — Securities whose value depends on an underlying asset such as a share, commodity or index. Used to manage risk. And gain or reduce exposure to assets, markets or events. Enables an investor to buy or sell an asset in the future, based on an agreed price.

• Short selling — An investor borrows a security from another party (a broker), then sells it on the market. The investor aims to buy an identical security at a lower price and return it to the lender. And hopes to profit from the difference between buy and sell prices.

• Alternative investments — Investing in assets such as high yield bonds, synthetic assets, derivatives, unlisted shares or other hedge funds.

• Active management — The fund manager decides what to invest in, and how much. The manager’s expertise is crucial to the fund’s success.

Fund of hedge funds

A ‘fund of hedge funds’ is a fund that invests in other hedge funds. It may invest all or some money in other hedge funds.

When a fund invests in another hedge fund, the underlying fund is usually not open to retail investors. The underlying fund may be offshore, with less monitoring.

A fund of hedge funds may have extra risks. For example, it may invest in multiple hedge funds, across assets and markets. This can make it harder to know where the fund invests your money, and what the risks are. You may also have to pay more fees.

Pros and cons of hedge funds

To decide if investing in hedge funds is right for you, consider the following:

Pros

• Targeted strategies — A fund may target less volatile returns, so it loses less in a down market. This may be at the expense of gains in a rising market. Or mean a risk of greater losses. So consider your appetite for risk when choosing a fund.

• Asset diversification — Can expose you to a broader range of asset classes and markets. This can help diversify your portfolio. And reduce exposure to downturns in some asset classes or markets.

Cons

• Leverage risk — A fund may have an exposure greater than 100% of the assets invested. So, if markets move against the fund’s position, it could lose a lot. Derivatives and short selling both involve leverage risk.

• Liquidity risk — Investing in assets not traded on an open market makes them harder to sell or value. If an asset devalues, it may be hard to sell fast if you want to get your money back. A fund of hedge funds may not be able to exit the underlying funds quickly. This makes it harder to redeem your money at short notice.

• Concentration risk — Concentrating assets in a single market means a greater risk of losses, if that market underperforms.

• Complex structure risk — May be hard to work out how the fund invests your money. And the risks you are taking on.

• Counterparty risk — Derivatives could be purchased ‘over the counter’ by agreement with another party. That party may fail to honour the agreement.

What to check before you invest in a hedge fund

Read the product disclosure statement

Hedge funds vary in risk and complexity. The fund manager will give you a PDS before you invest. This sets out the features, benefits, costs and risks of the fund. Make sure you understand the investment before you go ahead.

Check your understanding of the fund

Use these questions to check your understanding of the fund:

• Strategy — What are the investment goals? How will the fund achieve these goals?

• Investment manager — Who manages the fund? Does the manager have relevant skills and experience?

• Local or international — Does the fund invest in Australian or overseas assets? If overseas, have foreign currency risks been hedged?

• Past performance — Past performance is not a reliable indicator of future performance. But it can give you an idea of how the fund has performed, in rising and falling markets. Look at medium to long-term performance (over 5 to 10 years).

• Third party service providers — Does the fund uses third party service providers? If so, are they licensed in Australia? Or elsewhere, where financial regulations may be less strict?

• Fees — How are fees charged? Does this offer an incentive for the fund manager to take extra risks? Does charging of a performance fee depend on the fund outperforming a benchmark? If so, is the benchmark appropriate? Will returns, after fees, justify any additional risks taken?

• Structure — How are the investments structured? As a test, how easily could you explain this to someone else?

• Redemptions — How quickly can you redeem your investment from the fund? Is there a minimum time your money must stay in the fund? Is there a minimum redemption amount? When you redeem, do you have to pay an exit fee?

Get advice if you need it

Talk to us if you need help deciding if this investment is right for you.

Source:

Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/managed-funds-and-etfs/hedge-funds

Important note: This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.  Past performance is not a reliable guide to future returns.

Important

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

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.

And 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.

Source: Vanguard

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2023 Vanguard Investments Australia Ltd. All rights reserved.

Important:

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

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. It makes sense regardless of your age or income because the unexpected can happen to anyone.

Without a cash reserve, you may have to rely on credit cards or loans, which can put a further strain on your financial situation and your 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 is putting a big strain on households. The Australian Bureau of Statistics reports that household savings have been declining for more than a year as people contend with increased mortgage payments among the other rising costs.ⁱ

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, it can be helpful to have a buffer against market volatility. If there is a downturn in the markets and your superannuation is not providing your desired level of income, 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 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 an essential component of 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 reach out to us. We can provide guidance on the best options for your unique financial situation and help you take steps towards

i https://www.abs.gov.au/media-centre/media-releases/economic-activity-increased-05-cent-december-quarter

Bonds can play an important role in investment portfolios, but what exactly are they, what are their benefits, and how do you invest in them? 

What are bonds?

Bonds are a type of investment security that enable investors to lend their money to a bond issuer for a set term in return for regular income payments based on a fixed or floating interest rate.

Bond issuers are typically governments, large organisations and companies, which often choose to borrow large amounts of money for different purposes from a pool of investors via the global bond market.

When the term of a bond issue expires the issuer is expected to repay investors their principal investment amount in full.

What are the benefits of bonds?

Bonds are often described as defensive assets. While the capital value of bonds can fluctuate along with changing economic conditions, the issuers’ ability to repay the principal, and interest rates, they are generally less volatile than growth assets like shares and property.

If you hold a bond until the end of its term (maturity), you know how much to expect back at maturity (the face value) and how much you’ll receive along the way (coupon payments).

If you buy or sell bonds before maturity, you are exposed to more volatility as the capital value can fluctuate along with interest rates and market conditions.

Interest rates are one of the primary drivers of bond pricing, with prices typically moving inversely to interest rates. I.e. when interest rates rise bond trading prices fall, and when interest rates fall, bond trading prices rise.

However bonds generally provide more capital stability for medium to long-term investors than shares, which don’t offer an agreed schedule of dividend payments or the full principal repayment at the end of a given term.

As well as providing diversification from shares, property and other assets, investing in a broad range of bonds can also help diversify your returns.

Historically, bond prices have tended to be positive when share prices have been negative. This typical inverse relationship between bonds and shares can provide balance to your investment portfolio.

How do you invest in bonds?

You can buy government and corporate bonds through public offers when they are first issued or on the secondary bond market. High minimum transaction sizes may apply as these markets are considered ‘wholesale markets’.

While some bonds are available to buy and sell on the Australian Securities Exchange with lower transaction minimums, the range can be limited, restricting your ability to build a diversified portfolio.

Managed bond funds and exchange traded funds (ETFs) can be a more flexible, less restrictive way of building a broad portfolio because they are able to purchase more securities that have high transaction minimums due to scale.

The different types of bond funds can give you access to different markets and sectors, providing greater opportunity to diversify your portfolio. Talk to us to find out more. 

Source: Vanguard June 2023

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2023 Vanguard Investments Australia Ltd. All rights reserved.

Important:

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Use the new First Home Super Saver Scheme (FHSS) to save your first home deposit faster

If you’re saving for a deposit on your first home, the Federal Government’s First Home Super Saver Scheme (FHSS) could help you reach your target sooner, by allowing you to save for your deposit inside your super.

A government initiative introduced in late 2017, the FHSS Scheme is aimed at helping first home buyers save for their first home. The FHSS allows individuals to access certain eligible voluntary contributions made to their super fund, taking advantage of the concessional tax treatment of investment returns within super. The program functions as a way of helping Australians onto the property ladder.

Essentially, while earnings on investments – such as interest earned on savings account balances – in your own name are taxed at your marginal tax rate (which may be up to up to 47%), earnings on investments in your super fund accumulation account are eligible for a concessional tax rate of 15%.

FHSS benefits

• Investment returns outside super – Marginal tax rate (may be up to 47% including Medicare levy).

• Investment returns inside super – Taxed only up to 15%.

How does the FHSS work?

The FHSS allows you to withdraw eligible voluntary contributions made into your super account (from 1 July 2017). You can contribute up to $15,000 per year, and $30,000 in total under the Scheme. You can then withdraw eligible contributions to use specifically for a first-home deposit. You can only make a withdrawal from 1 July 2018.

You’ll also be able to access associated earnings (calculated by the ATO based on a set rate¹) on eligible contributions that you withdraw. Depending on market conditions, your super savings may earn more than they would in a regular savings account. You’re also likely to save on tax.

Eligible contributions include:

• salary sacrifice contributions

• personal contributions

• voluntary employer contributions (does not include mandatory employer contributions such as Super Guarantee).

Contributions must be made within the existing concessional and non-concessional caps.² The type of voluntary contributions you make into super will affect the maximum release amount. You can withdraw 100 per cent of your eligible non-concessional (after-tax) contributions and 85 per cent of eligible concessional (pre-tax) contributions.

Who is eligible for the FHSS?

To be eligible for the FHSS Scheme, you need to be able to answer yes to the following:

• You’ve never owned any property in Australia – this includes an investment property, commercial property, a lease of land in Australia, or a company title interest in land in Australia.

• You’re not using FHSS amounts to purchase the following type of property: any premises not capable of being occupied as a residence, a houseboat, a motor home, or vacant land.

• You’ve not previously requested a FHSS release authority.

• You’re aged 18 years or older (at the time of withdrawal).

Eligibility is assessed on an individual basis. This means if you’re a couple or you’re looking to purchase a property with a sibling or a friend you can pool your funds, as long as you all can meet the requirements. For more information on eligibility, visit the ATO’s page on the FHSS Scheme.

Withdrawing your funds

From 1 July 2018, you can apply to withdraw eligible contributions, along with any associated earnings, for the purchase (or construction) of your first home.

Earnings are calculated by the ATO, opens in new window based on a formula, rather than actual earnings on these amounts in your fund.¹

You can apply for the release of voluntary contributions up to a maximum of $15,000 from any one financial year and $30,000 in total across all years.

Certain components of the total amount released to you will be subject to tax. Generally this will include any concessional contributions released, plus total associated earnings. These assessable components will be taxed at:

• your marginal tax rate less a 30% offset, or

• 17% if the Commissioner is unable to estimate your expected marginal rate.

Your summary will show the amount of tax withheld for you to include in your tax return for the year you request the release.

As well as meeting the terms above, you must:

• occupy (or intend to occupy) the property as soon as it’s practical to do so, and

• live in the property for at least six of the first 12 months you own it (from when it’s practical to do so).

In most cases, you need to purchase the property within 12 months of having the funds released to you.

If you don’t use the funds for the above purpose, you will either need to contribute the funds back to super as a non-concessional contribution, or pay additional tax.

It is important to understand that, if after you make eligible voluntary contributions, your intentions change, and you no longer intend to purchase a home, you won’t be able to access the funds you contributed until you meet a ‘condition of release’. Based on current law, this is unlikely to occur until you reach age 65, or retire after reaching your preservation age (see ATO, opens in new window website for more information).

Case study: Michelle and Nick

Michelle earns $60,000 a year and wants to buy her first home. Using salary sacrifice, she annually directs $10,000 of pre-tax income into her superannuation account, increasing her balance by $8,500 after the contributions tax has been paid by her fund. After three years, she is able to withdraw $25,758 of contributions and deemed earnings on those contributions. Her withdrawal is taxed at her marginal rate (including Medicare levy) less a 30% offset.

If Michelle had instead deposited these amounts (net of PAYG tax) into a savings account in her name earning 2%, she would have had approximately $6,239 less to use as a deposit at the end of the same three year period.³

Make sure your nominated super fund or funds will release the money – some super funds, including defined benefit and constitutionally protected funds, may not. You should also check whether you’ll have to pay any fees or charges.

1 Deemed rate of return is based on the 90-day Bank Bill rate plus three percentage points

2 The concessional contribution cap for 2018/2019 is $25,000 for all Australians. The annual non-concessional contribution cap is $100,000. Your non-concessional cap is nil for a financial year if you have a total superannuation balance greater than or equal to the general transfer balance cap ($1.6 million in 2018–198) at the end of 30 June of the previous financial year. ato.gov.au

3 These estimated outcomes have been modelled using the online Government estimator, accessed on 8 May 2018. Actual returns and relative outcomes may differ depending on performance of markets and deposit products.

Source: NAB

Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://www.nab.com.au/personal/life-moments/home-property/buy-first-home/super-saving

National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.

© 2023 National Australia Bank Limited (“”NAB””). All rights reserved.

Important:

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.”