With the cost of living on the rise, it’s more important than ever to have a financial safety net that protects you and your family in case the unexpected happens.

Most Australian employees have some form of life insurance, often through their superannuation fund, but many of us tend to ‘set and forget’.

To make the most of your life insurance policy, it’s useful to understand how it works, and how premiums and payments are affected by tax.

Various types of life insurance

Life insurance is an umbrella term for a range of policies that cover different situations. They include:

• Life cover, which pays out after your death to someone you have nominated.

• Income protection covers you if you’re unable to work because of illness or injury.

• Total and permanent disability (TPD) insurance provides medical and living costs if you become permanently disabled.

• Accidental death and injury cover pays a lump sum if you die or are injured.

• Critical illness or trauma insurance pays a lump sum to cover medical expenses for major medical conditions.

• Business expenses insurance covers ongoing fixed business costs if you’re a business owner suffering serious illness or injury.

Tax benefits and deductions

The premiums for most types of life insurance are not tax deductible, but there are exceptions. Premiums for income protection held outside of super are tax-deductible and inside super for the self-employed. Business expenses insurance premiums are also tax deductible.

The tax treatment of benefits paid out by policies also varies according to the type of policy and your situation, so it’s important to talk to us. Generally, life cover paid to someone who’s financially dependent on you (typically a spouse and children under 18 years) is not taxed. But if the beneficiary isn’t your financial dependent, they can expect to pay tax.

Income protection insurance payments must be declared on your tax return and will be taxed at your marginal rate, just like your usual salary. Business expense insurance payouts also taxable.

Lump sum payments made through other policies are not taxable.

Inside super or outside?

Some of these insurances, particularly life cover, income protection and TPD, can be purchased through your super fund. Most people have a basic level of cover held this way, but you should check to see if it’s adequate for your needs.

If you are aged under 25, have a super balance of $6,000 or less, or your account is inactive, you will need to “opt in” if you want insurance cover.

If you have a self-managed super fund (SMSF), you’re required to consider whether to hold life insurance for each of the fund’s members, although there’s no obligation to buy.

Super pros and cons

You’ll need to do the sums for your circumstances, which is where an adviser can assist, but there may be an advantage to using your super to pay the premiums. The main reason is cost.

Sometimes, the buying power of larger super funds allows them to negotiate competitive pricing for insurance products.ⁱ It’s not always the case, so you’ll need to shop around to make sure you’re getting the best deal.

Another potential financial benefit in paying the monthly premiums out of your super account, is that you’re using funds taxed at 15 per cent. Whereas, if you pay the premium from your own bank account, you’d be using funds already taxed at your marginal tax rate, which may be higher. That means your pre-tax dollars are working harder and you’ve still got your cash in the bank.

The main drawback to paying insurance premiums through super is that you’ll be reducing your super balance, which means less for retirement. However, you could choose to boost your balance using salary sacrifice or personal contributions.

Your safety net checklist

1. Decide on who and what needs to be financially protected if something should happen to you.

2. Weigh up the best type of life insurance to meet your needs and shop around.

3. Be clear about any tax implications of an insurance payout

4. Make sure the policy benefit is adequate and check it annually.

Deciding on the type of life insurance you need can be tricky, so give us a call on Phone: 07 5641 4134 to discuss your insurance needs.

i Insurance through super – Moneysmart.gov.au

Important: 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. 

Any information provided by the author detailed above is separate and external to our business. Our business does not take 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.

Volatility is part and parcel of investing so it’s important to put it into perspective and look at the full picture when thinking about your wealth, rather than focus on day-to-day market swings.

If there was to be a single investing lesson that emerged from the events of the last two years, it is that we should learn to expect the unexpected.

And with that in mind we should acknowledge that volatility is part and parcel of investing.

There are several ways to measure volatility – the VIX index or as it is colloquially known the “index of fear” being perhaps the best empirical measure. But there is a simpler measure of market volatility that is much closer to home and that is when friends and family start calling to ask “what is happening to my super”. That is when market falls have got people’s attention.

And for the near term at least, we will probably continue to experience more market bumps and drops for a while. For those approaching or already in retirement, accepting that market volatility is here to stay could possibly induce a few sleepless nights, especially for those who keep an ever-watchful eye on their investment portfolios.

But while dramatic market losses can sting, it is important to keep a long-term perspective in order to participate in the recoveries that follow. Research shows that the average length of a bear market is 236 days while bull markets on average have lasted 852 days, leaving investors well compensated for the long-term risk they took on.¹

So a long term perspective is extremely important, but so too, is context.

Take a moment to pause and look at the big picture. If you only view your shares or superannuation portfolio balance in isolation to everything else, then recent market volatility will have been of concern with widespread impact across most equity and bond investment portfolios in the past few months. At the time of writing, the ASX/S&P300 is down around 6% while in the US the S&P500 index is hovering around the more eye-catching -17%.

But if you were to zoom out and include other aspects of your investment portfolio – dividend payments for example, or your property value, then the overall picture is a little rosier. Dividends are particularly noteworthy during this volatile time because unlike back in 2020 when many investors had to tighten their belts or draw down on capital because payouts had been vastly reduced, most companies are still paying out some form of dividend. In this situation, the income element of share portfolios is still delivering steady returns for most investors – a particularly valuable point for investors with self-managed super funds who commonly have a strong yield tilt in their portfolios.

Also, while rising interest rates are front and centre of everyone’s minds right now, for those who own a home or have an investment property, now is a good time to remember that the property values have enjoyed strong gains during the worst of the pandemic in the last two years, far outstripping the interest rate increase aspect of the equation. Further, while landlords might be lamenting interest rate rises, according to a recent Domain report, every state in Australia is also experiencing its sharpest rental price growth in 13 years, with most rental increases keeping pace with interest rate rises.

So at times like these, remember to look at the full picture when thinking about your wealth. Your portfolio in its entirety includes your superannuation, your portfolio outside of super including shares, property and fixed income and cash. Viewed in widescreen mode, it’s likely that you’re still in positive territory despite the pull back in share market values.

These can be challenging times because when volatility is spiking the emotional response is to want do something – anything. Which is when being clear about your long-term investment goals and having an asset allocation in line with your risk tolerance can be the best antidote and help you be disciplined and stay the course.

Contact us if you need help with your investments, or would like to find out more about investing. Call us on Phone: 07 5641 4134.

Source: Vanguard

¹Vanguard

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.

© 2022 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.

If someone you don’t know asks for your personal details or offers you a loan, it could be a scam. Scammers can use your personal information to steal your money and run up debts in your name.

If someone contacts you about an investment that you think could be a scam, see investment scams.

If you were affected by the Optus or Medibank data breach, contact your bank to let them know. See the ACCC’s Scamwatch for the latest scams to watch out for. 

How to spot a scam

Scammers can target you online, by phone or by email. Know what to look for so you can spot a scam and protect yourself.

Credit card scams

Scammers don’t need your credit card to use it. They only need your card details.

Signs of a credit card scam:

• You notice unusual purchases on your credit card statement.

Check your credit card statements regularly, especially if your card is lost or stolen. If you see something you don’t recognise, report it to your bank.

Loan scams

If someone contacts you out of the blue to offer you a loan, it’s probably a scam.

Signs of a loan scam:

• The loan seems too good to be true (for example, a really low interest rate).

• There’s no credit check or you’re guaranteed approval.

• They ask for an up-front deposit or your bank details.

• The offer is ending soon and they pressure you to act now.

• The company claims to be in Australia but has an international phone number.

If you don’t recognise the lender, check the company details online and read reviews. Make sure it’s not on our list of companies you should not deal with.

Phishing scams

Phishing is when a scammer tries to steal your personal information. The scammer pretends to be a company you know, like a bank or an internet provider. The scammer may contact you by email, phone or text, or on social media.

Signs of a phishing scam:

• The email address doesn’t match the company name (also look for hotmail, gmail or outlook in the address).

• There are spelling mistakes or the information doesn’t make sense.

• You’re asked to update or confirm your personal details.

• You’re asked for immediate payment.

Don’t click on any links. Delete the email or message straight away.

To find out about the latest scams, visit Scamwatch.

What to do if you’ve been scammed

If you think you’ve been targeted by scammers, act quickly. See what to do if you’ve been scammed for steps to take and where to report it. 

How to protect yourself against scams

Scammers are skilled at finding ways to get your details and your dollars. Follow these simple steps to protect yourself from scams.

Use strong passwords

Strong passwords make it harder for scammers to hack your online banking or email accounts. For tips to protect your information online, visit the Australian Cyber Security Centre.

Secure your computer and mobile devices

Make sure your computer’s antivirus software and operating system is up to date. These can help block scammers before they attack.

Password-protect all your devices. If you’re using a shared or public computer, never save passwords and always log out of your accounts.

Shop on secure websites

Only shop on websites you trust and make sure the website is secure. The web address should show a closed padlock or key and start with ‘https’.

Avoid public Wi-Fi

If you’re using a public Wi-Fi network, don’t send or receive sensitive information. For example, don’t log in to your online banking or social media accounts.

Shred your documents

Shred letters from your employer, bank or super fund before you throw them out. These letters often contain personal details that scammers can use.

Check the lender is licensed by ASIC

By law, all lenders must hold a credit licence from ASIC. You can check if a lender is licensed on ASIC’s website. Choose ‘Credit Licensee’ in the drop-down menu when you search.

If they don’t have a licence, don’t deal with them and report them to ASIC.

It’s a challenging time for household finances right now. Interest rates are rising as the Reserve Bank of Australia increases the cash rate to put the brakes on inflation, and flat wage growth means household incomes have not been keeping pace with cost-of-living increases.

The best way to deal with uncertain times, is to be on the front foot with your finances and ensure your personal financial situation is as healthy as it can be.

If you are feeling the pinch of higher inflation you’re not alone. The prices of certain goods and services have risen well over and above the official inflation measure, most notably electricity – with the wholesale price surging more than 141 per cent over 12 months, and petrol – increasing by over 32 per cent.^{i, ii} We are also feeling the pain at the shops with food prices also rising and experts suggesting increases could be as much as 10 per cent.ⁱⁱⁱ

So as the cost-of-living increases, how do you manage to boost your savings, save for a home deposit, or pay down the mortgage to get ahead?

Let’s look at some ways you can flex your money management muscles and strengthen your financial situation.

Get off the couch

The first step is to think about what motivates you to use as your focus, so have a think about your financial goals. Are you wanting to save for a particular purpose like for a home deposit? Or are you at a different stage of your financial life and keen on getting that mortgage down or looking at investing or renovating? Whatever the goal it’s important to identify how much you are wanting to save and your timeframe.

Don’t just think about your goal in cold, hard financial terms – being emotionally connected to your goal, i.e. why this particular goal is important to you, will provide the impetus to get started and to also keep you on track.

Track your expenses

To get off and running, add up your monthly expenses – the more information the better, so include quarterly or annual expenses as well as your discretionary spending which may be a little more difficult to track. As you go through the figures to come up with a total of your spending, see what you can learn from your spending patterns and where you might be able to cut back.

What’s your bottom line?

Analysing how your financial situation is faring is then a matter of taking your income over the course of a month and subtracting your total monthly expenses. Once you have a clear picture of your current financial position, it’s a matter of tweaking your spending and/or your income over a specific time frame to meet your financial goal.

Get a hand with the heavy lifting

Sounds easy but tracking expenses and sticking to an allocated budget can be tough, so why not let an app do some of the heaving lifting for you. There are many options including Beem It, Fudget, and Pocketbook. It’s also worth checking what budgeting features are offered by your bank or financial institution.

There are many and varied approaches to budgeting that you can select from, so find something that works for you. One popular method is to prioritise your savings and ‘pay yourself first’ putting a designated amount of money each month into a separate account. Or you could try the 50/30/20 method which involves splitting your monthly income into three main categories:

• 50% of your income for your needs – food, bills, insurance, transport, rent or mortgage repayments etc

• 30% of your income for your wants – distinguishing between needs and wants isn’t always easy but ‘wants’ are generally the extras that aren’t essential to living and working like travel, entertainment and dining out.

• 20% of your income for saving

Bulking up your savings

Discipline and developing good habits through repetition help you build your strength. Don’t panic if you have a blowout or an unforeseen event throws you off. Just get back to those good habits you are establishing. On that note it can be a good idea to have a contingency in your budget to reward yourself at a certain point or even to deal with a financial emergency.

There is nothing like the feeling of being in control of your finances and working towards a goal that you care about, so take first step to start flexing those financial muscles today. Contact us on Phone: 07 5641 4134.

i https://www.abc.net.au/news/2022-04-29/power-pain-as-bills-tipped-to-rise-40-per-cent-on-surging-prices/101023488

ii https://www.afr.com/technology/uber-drivers-stay-home-and-suffer-as-petrol-prices-bite-20220602-p5aqpp

iii https://www.news.com.au/finance/economy/australian-economy/food-prices-fears-of-10-per-cent-hike-due-to-rising-gas-prices-poor-food-harvests-and-inflation/news-story/4cbf4870017a8ffa7705a58fdc1f3fb1

Important: 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.

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.

Small businesses across the country will be looking for ways to reduce costs amid cost of living and rising price pressures.

Economic challenges are expected to continue into the 2024 financial year, from inflation and supply chain lags to higher interest rates and reduced consumer spending.

Businesses will need to keep a close eye on their income and expenses to maintain positive cashflow, Small Business Loans Australia founder, Alon Rajic says.

“As Australian businesses continue to face the repercussions of the last two years, a significant proportion will have challenges, particularly without a savings buffer or strategy to help meet their expenses,” said Rajic.

Small Business Loans Australia research set out to find out if fast-rising interest rates and inflation would impact small business’ ability and motivation to invest in themselves. Specifically, more than a quarter (29 percent) of respondents had not planned to invest in their business at all this financial year.

Three quarters of respondents (76 percent) admit their cashflow will be impacted by interest rate rises and inflation over the next year, it also found.

Specifically, 30 percent believe their cashflow will be impacted because it will be harder to collect customer payments, while 26 percent say it will be harder to attract sales. A further 20 percent say both issues will impact cashflow.

But before you take any extreme actions like reducing staff hours or letting workers go, here are 11 straightforward tips to begin minimising business costs today.

1. Take a systematic approach

The best starting place is to consider your key cost centres, such as purchasing, sales, finance, and administration, for example.

Go over your profit and loss statement for the past 12 months and rank your expenses from highest to lowest and comb through each one in search of cost saving potential.

Make sure you go back and look over your budgets and forecasts and see how you’re tracking.

Also, benchmark your business against industry standards. For example, your waste levels could be higher than the industry average, or others in your industry could be introducing sustainable business measures, which could be bringing them savings.

2. Uncover hidden costs

Costs aren’t always easy to spot in business, but they can add up quickly.

Hidden costs could be the rising cost of insurance policies, unused subscriptions, permits and industry memberships you pay each month even though you never enjoy any of the perks they offer.

Sit down and go through your bank account and track the expenses to see where you can make savings or do without.

Also, be sure to double check supplier invoices for any overcharging, double billing or discounts that haven’t been applied.

3. Sell off unwanted equipment

If you’re no longer using tools and equipment, don’t let them sit in the garage or stockroom gathering dust. Conduct an audit and convert what you can back into cash wherever appropriate.

Selling used or unwanted items brings in some extra cash, you’ll be able to put that money back into keeping the business running.

4. Negotiate with suppliers

Taking half a day out to shop around for lower prices could end up making you more money than you realise.

Call your bank and see if they will offer you a better deal on your business loans, and shop around energy providers to see how you might reduce your utilities overheads.

Start with your biggest expenses and work your way down the list.

5. Separate personal and business expenses

Put simply: don’t make personal purchases from the business credit card.
Separating out your expenses will mean you can account for them easily and it’s a great way to make sure you don’t miss out on tax deductions.

It can also make sure you aren’t mistakenly claiming for personal expenses, which will be frowned upon by the Australian Taxation Office.

6. Reduce spending

After all, a penny saved is a penny earned.

And that means it’s much easier to hold onto the cash you already have.

Set a budget, and follow it, and analyse where your money is being spent and where you can cut costs.

Even simple things like packing your lunch and purchasing a coffee
machine for the office can add up over time — that five dollars a day for takeaway coffee will wind up being around $1,300 over the course of a whole year.

7. Conduct a tech audit

Technology costs can add up, but if you’ve implemented tech a year ago that you’re no longer using, it can be a huge waste.

Go through your licenses and subscriptions that you don’t need or use to see what you can be culled.

It may be that you’re also hemorrhaging money due to inefficiencies in your systems — for example, if you’re wasting time and resources on manual data transfers between multiple software solutions.

A business management platform should include a broad variety of built-in features, allowing you and your staff to accomplish all your core business processes, such as accounting, payroll, inventory management and more.

9. Improve staff productivity

Employees not pulling their weight in the business can reduce efficiency and become a costly liability.

Assessing and improving staff performance can be a great way to reduce costs before resorting to reducing staff hours.

Set ambitious but achievable goals your staff can get behind and consider what business management tools you might need to help track productivity and performance.

9. Realign marketing budgets with performance

The sole purpose of marketing is to drive interest in your business’ products and services.

When times are tough, taking a close look at your marketing performance should be a regular occurrence to determine whether you’re getting value for money.

For instance, doubling down on your customer service may drive word of mouth outcomes that effectively boost the effectiveness of other marketing activities, or a targeted letter could deliver a new favourite customer.

Whether your analysis results in less spend or more, auditing your marketing budgets will help you gain a better understanding of where and when sales are coming in, and where your money is spent.

10. Reduce your space

Do you really need that shopfront or office space anymore?

We all learnt the virtues of running a virtual business over the past few years, so if you’re still leasing an office space, now could be the time to consider whether there are more cost-effective alternatives.

11. Seek out an expert

If you’re finding it challenging to cut costs, consider hiring an expert to suggest other cost reduction strategies.

The right advisor can help you audit your existing systems and processes, business and sales strategies, and make suggestions on how to sustain and grow your operations.

Don’t leave the hard decisions until too late. If you’re facing challenges as a result of the current high-cost environment, now’s the time to get active.

Source: MYOB November 2022

Reproduced with the permission of MYOB. This article by Nina Hendy was originally published at https://www.myob.com/au/blog/reducing-costs/

Important:
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.

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.

An understanding of the risk and return characteristics of various asset classes is vital to the portfolio construction process.

When constructing a portfolio, having an asset allocation that encompasses a wide range of different investments is an important factor for long-term investment success.

But as the number of investment products and variations available to investors continues to grow, the importance of truly understanding what you’re investing in is more important than ever, as is where you’re getting your information.

How are Australian investors approaching portfolio construction?

ASIC recently released research exploring the motivations, attitudes, and behaviours of Australian retail investors, including the most common product types held by investors.

Australian shares were the most popular investment, followed by cryptocurrencies and international shares.

51% of investors who owned Australian shares estimated that shares made up at least half of their portfolio value while 40% of investors who owned cryptocurrencies estimated that crypto also made up at least half of their portfolio value.

While the concept of risk might feel intuitive, interestingly, all respondents found risk difficult to understand or articulate.

Just one in three cryptocurrency owners considered that they owned products that were risky or speculative. Additionally, those who only owned cryptocurrency were even less likely to consider their investments risky, despite the lack of diversification and crypto’s volatile nature.

When it came to researching investments, ASIC data showed that some 80% of investors do their own research. However, half of all investors agreed that they’ve only invested in things because they didn’t want to miss out. Over a third of all investors agreed that they only invested because their friends did.

Understanding investment risks

An understanding of the risk and return characteristics of various asset classes is vital to the portfolio construction process.

When it comes to thinking about investment risk, a good way to start is to view investing as part of a continuum that gets progressively riskier as you seek a potentially higher reward.

At that point it then becomes a question of: how much risk are you comfortable with?

Growth assets like Australian shares and international shares carry higher risks than defensive assets like bonds or cash – while they may have the potential for greater returns, they also tend to be more volatile.

Cryptocurrencies on the other hand are typically even more volatile than traditional growth assets. Unlike shares and bonds, cryptocurrencies don’t pay dividends or cash payments, and therefore its value may not match the sizable amount of risk the investor takes on.

They’re also highly speculative in their current state – cryptocurrency prices have experienced wider fluctuations than traditional assets and some have had dramatic short-term drops.

Diversification is the best way to manage these investment risks. Holding a balanced mix of assets that gives your money enough of a chance to grow while also creating a buffer that can help shockproof your portfolio when markets are down is key.

Tuning out the noise

Friends and family can often be a great source of information and ideas, but it’s important to remember that investment decisions should not be solely based on what everyone else around you is doing.

Investment information now freely abounds across the internet and social media is full of investment recommendations. But while they play a significant role in today’s world, social media forums in particular are places where you need to apply a healthy dose of scepticism, do your own research and take personal responsibility for the decision to invest.

But while staying up to date with market commentary can be helpful, if it becomes a source of daily anxiety and prompts you to tinker with your portfolio, perhaps consider trying to keep things simple and take a leaf out of Warren Buffett’s investing playbook – if you don’t understand it don’t invest in it.

Contact us today if you’d like to discuss further. Call us on Phone: 07 5641 4134.

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.

© 2022 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.

We all approach decision making in our own way, making a multitude of decisions every day: ‘Should I hit snooze again on the alarm?,’ ‘Do I take the train to work, or do I drive,’ ‘What should we have for dinner?’

In fact, researchers estimate that the average adult makes 35,000 decisions every day.ⁱ While most of these are fairly insignificant, we also constantly make complex decisions that may support us in many areas of our lives – from navigating a change of career, handling a new project at work, or even managing the complexities of interpersonal relationships.

Having some knowledge of the decision-making process can help you to be more self-aware when faced with those larger, more complex decisions.

The biology of thought

The human brain is an intricate organ. It contains about 100 billion neurons and 100 trillion connections, and controls our emotions, thoughts, and actions. Our brains appear wired to work in complex ways to enable us to make the best decisions possible with the information we’re given. In very simple terms the process is a little like a court trial. Our brains register sensory information like sights and sounds and then act as a jury to weigh each piece of ‘evidence’ to make a judgement or decision.

Thinking fast and slow

Nobel laureate Daniel Kahneman in his hugely successful book Thinking, Fast and Slow – suggests that there are two distinct and different ways the brain forms thoughts.ⁱⁱ

‘Fast thinking’ is automatic, intuitive, and used for most common decisions. It is our brain conserving energy by making the bulk of its decisions on some degree of autopilot. This style of thinking uses cognitive shortcuts to let us respond quickly and instinctively to a wide range of fast and ever-changing inputs, like discerning emotions from facial expressions, ducking when something is thrown at us, reading words on a billboard, or driving a car on an empty road.

On the other hand, ‘slow thinking’ is more thorough and logical but also takes more time and is resource intensive. It kicks in when you focus on a task or problem, monitor and control your behaviour, formulate an argument or do anything that causes your brain to exert itself.

Different thinking for different situations

Of course, both styles of thinking have their place. It’s important to be able to make fast decisions when required – in fact, fast thinking comes from the most primal part of our brain to help us make the kind of snap decisions integral to survival. However, there are times when you need to analyse and think through all the implications of a complex decision like whether to accept that new job offer interstate or buy that new car.

Amongst the multitude of small decisions we face every day, it can be hard to find the time and energy for the big ones. Steve Jobs famously explained that he wore the same outfit every day to have one less easy decision to make so that he could focus his energy on the more complex decisions he was dealing with.

Minimising mistakes

If you find you rely heavily on fast thinking in your life, making choices based on gut instinct with little research or consideration, it may be time to consciously slow it down.

While that may not mean wearing the same outfit day in, day out, you might be able to have a few things in your life on autopilot, like putting together a weekly meal plan so thinking about what’s for dinner is one less decision to make in your busy day.

Slow thinking takes discipline and effort. It’s important to approach critical decisions in a measured way and give yourself the time and head space to think things through, rather than being swayed by emotion or the cognitive biases associated with fast thinking.

Good decision-making, either financial or otherwise also benefits from having a sounding board to talk things through with, and of course we are here to assist with any important financial decisions you may be faced with. Contact us on Phone: 07 5641 4134.

i https://iise.org/details.aspx

If you are looking to buy property in the near future there are a lot of numbers you’ll be keeping track of – how much deposit you are saving for, how much you can borrow, how much to allow for closing costs, a figure for your total overall budget, as well as how much your monthly repayments are likely to be. With all those figures in your head it’s no wonder that another important figure – your credit score – often gets overlooked.

If you are on top of all your other numbers but not sure what your credit score is, you are not alone – approximately 80% of credit active Australians don’t know their credit score.ⁱ

It is an important number to be aware of – particularly if you have been through a period where you may have struggled to pay bills or repayments on time.

An important number

Your credit score is a number between zero and either 1000 or 1200, depending on the credit reporting body. Lenders use this figure as one of the factors that help them decide whether to give you credit or a loan, how much to lend to you, and at which rate of interest – on the basis that lenders want to lend to and offer more attractive deals to those they consider will be less likely to default on the loan. It’s all about using the variables that make up the credit score to weigh up risk. The higher your score, the more likely it is that you’ll get approved – and get a good deal.

How is this number calculated?

Your credit score is calculated using the financial and personal information available in your credit report. An algorithm crunches the variables to determine your final score – looking at your overall debt and how you manage it, the number of loan applications you have made, your credit cards and current credit limit as well as accounts you may have opened or closed.

Credit reports are required to also show details of any financial hardship arrangements that have been put in place like loan deferrals and reduced payments. These used to show the account holder as being in arrears with payments and had a negative impact on your credit report but now, as long as you meet the requirements of any financial hardship arrangements you may have in place, it won’t be detrimental to your score.

How can I access my credit score?

You can request your credit report from Equifax, Experian and Illion. You can get a free report every 12 months, if you have been refused credit within the past 90 days, or if your personal information has been updated.

What’s considered a good score?

If your credit report shows scores out of 1,200 then as a rule of thumb a score above 853 is excellent while above 661 is good.

If your credit report shows scores out of 1,000, above 690 is excellent and above 540 is good.

How to improve your credit score

If that magic number is looking a little low, there are steps you can take to improve it. To start with it’s worth checking your credit report to ensure there are no errors and reporting any inaccuracies to the reporting agency in question, along with any supporting documentation.

Other things you can do to get that important score a little higher include:

• Lowering your credit card limit

• Limiting how many applications you make for credit

• Paying your rent or mortgage and bills on time

• Paying any existing loans including your credit card on time each month and ensuring you either pay in full or more than the agreed amount.

Before you can look at making improvements, the first course of action of course is to request your credit report so you can keep an eye on that magic number.

If you’d like to talk to us about getting in the best possible position to secure the best deal, please give us a call.

i https://www.creditsavvy.com.au/press-centre/credit-savvy-urges-australians-comprehensive-credit-reporting-nab

Important: 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.

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.

In the same way finding a balanced lifestyle is conducive to good health, finding balance in an investment portfolio gives investors the healthiest chance of achieving their long-term goals.

Having a diversified mix of assets is essential because it mitigates market volatility and reduces portfolio risk. This is because the best performing asset one year can be the worst-performing the next.

Take for example cash – in FY22, a year marked by economic uncertainty and geopolitical conflicts, cash topped the list as generating the best returns at 0.1 per cent. The last time cash was king however was more than 10 years ago during the Great Financial Crisis.

Conversely, the worst performing asset in FY22 was Australian listed property returning -12.3 per cent. A year before, it was amongst the best performing asset classes with 33.2 per cent.

What’s clear from these returns is that markets are impossible to predict; past performance does not guarantee future performance. So, one of the best thing investors can do to lessen this ambiguity is to simply diversify.

A dive into diversification

What does it mean to be diversified? A good place to start is to understand what it is not: that the more investments you own, the better diversified you are.

Investing in several shares from similar industries may reduce single-company risk, but it may not sufficiently protect you from sector downturns, nor does it let you capitalise on potentially stronger performance elsewhere.

Different asset classes have different risk/return characteristics, and as evidenced in the cash-property example earlier, generate different rates of return in any given year. Generally, shares and bonds move in different directions. During periods of equity market downturns for example, high-quality investment-grade bonds tend to act as a buffer to volatility and can cushion any dramatic falls in portfolio value.

Similarly, investing only locally or in one region carries limitations also. Politics, industries, and consumer sentiment vary widely by country, generating different rates of economic growth. Not investing internationally may cause investors to miss opportunities to temper domestic market swings, given global economies do not grow nor contract in sync.

A balanced allocation

Broadly speaking, there’s three risk/return profiles investors can choose to build a portfolio upon: conservative, balanced, or growth. Which allocation is best depends on an investor’s goals, time frame and age.

A conservative portfolio generally allocates the majority of money to less risky assets such as bonds, whereas a growth portfolio will preferences equities. Generally, the longer your investment horizon, the more risk you can take as short-term volatility tends to smooth out in the long-run; day-to-day market fluctuations therefore have little impact over the long-run.

An example of a balanced portfolio could consist of 50 per cent growth assets such as Australian Shares, International Shares and emerging markets, and 50 per cent income assets such as Australian fixed interest, International fixed income and cash.

The right way to rebalance

The combination of assets investors choose to include in their portfolio – known as their asset allocation – is one of the key determinants of investment returns and explains the majority of portfolio variability over time. Market timing and stock selection on the other hand have little impact on long-term performance.

Which is why sticking to the right asset allocation through periodic portfolio rebalancing, as life goals evolve and markets fluctuate, is important.

Say you’ve selected a balanced approach and for simplicity sake, are targeting a 50/50 split between shares and bonds, which no reinvestment of dividends or capital gains, no additional contributions nor factoring in investment costs and taxes.

You originally invest $1000 in a shares fund which buys you 20 units. You invest another $1000 in a bond fund, which similarly buys you 20 units.

Fast forward a few months and assume shares have performed strongly while bonds have been flat.

Which means the asset allocation is getting out of balance, away from your desired 50/50 split. From a returns perspective, this might seem positive but the market risk within the portfolio has edged higher than desirable for a balanced investor. This means you are now overweight in shares and taking on more risk than you may have first anticipated.

Rebalancing the portfolio backs to the 50/50 allocation is the logical remedy but many investors struggle to do it because it can seem counterintuitive to sell a well-performing asset to buy more of the under-performing asset. But keep in mind rebalancing is about managing risk and not maximising returns.

There’s no way of predicting if shares will continue to outperform or if they’ll tumble tomorrow – if they do, you might be losing more than you are comfortable with.

The benefits of ready-made portfolios

An alternative to building your own portfolio is to invest in Diversified funds or ETFs – akin to a ready-made investment portfolio aimed at providing long-term returns that match an investor’s desired level of risk.

Not only, as the name suggests, do Diversified funds and ETFs have in-built diversification across multiple asset classes and markets, they also reduce the transaction costs associated with investing in different assets as you simply invest in just one.

As these funds and ETFs are professionally managed, investors also benefit from the investment expertise and automatic periodic rebalancing.

Contact us today on Phone: 07 5641 4134 if you would like to talk about your portfolio.

An iteration of this article was first published in the ASX’s October newsletter.

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.

© 2022 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.

For the first time in years, the amount needed to save for a deposit is decreasing as housing values across most of Australia decline.

While this sounds like good news if you’re saving for a deposit, cost of living increases means aspiring homeowners may not be able to divert as much money to a deposit without significant lifestyle sacrifices.

Food prices have skyrocketed, as has the price of petrol. Furniture is more expensive, as are clothes, while rents have drastically increased across Australia.^i,ii Yet household spending is up, rising 2.2% in the June 2022 quarter.ⁱⁱⁱ

So how can you save for a deposit without losing your lifestyle? Here are some ways you can reach your financial goal while still enjoying life in the present.

Budget for fun

We don’t mean budgeting is necessarily a fun activity (though we’re not judging those who get a kick out of it), but rather that it’s important to create room in your budget for hobbies or small indulgences.

Perhaps it’s for a fancy restaurant meal, that weekend away, a new pair of shoes – whatever it is, set aside a set amount for the nice things in life.

Budgeting for this ahead of time can help prevent a splurge. Just as a restrictive diet can have you heading for the cookie jar, being too strict with your savings can backfire if you feel deprived. Establish a set amount per month allocated to fun to avoid the guilt and stay on track.

Find low-cost entertainment

If you’ve got expensive taste when it comes to entertainment – regular nights out, multiple subscription services, tickets to sporting games and concerts – you may need to pare it back.

That doesn’t mean nights on the couch scrolling Netflix. You just need to think outside the square when it comes to low-cost entertainment.

Going out to dinner with friends can be swapped for cooking for them at home or holding a pot-luck feast. Facebook Marketplace and Gumtree are great for second-hand buys, and you can keep an eye out for discount event tickets in your area.

Fitness-wise you can check to see if there is a parkrun near you; a free 5km community run held each weekend. You can visit an art gallery, museum or botanical gardens for an enjoyable day out for next to nothing.

Source another income stream

While paring back your expenses is often necessary to save, you can also boost your income. Again, think creatively as to how you can earn more money.

Do you have a particular skillset or talent you can monetise? Whether it’s a hobby or a previous profession, you might be able to drum up business with your side hustle.

This will take up more of your time, so be realistic around how much time you can invest – you don’t want to be burning the candle at both ends in your pursuit of growing your savings.

Then there are passive income streams, such as course creation or investing in the share market. While the term ‘passive income’ sounds appealing, it’s not as simple as getting something from nothing. You will still need to invest your time and effort in establishing and/or maintaining this income stream and it might not be an easy ride.

Reframe your thinking and priorities

Of course, another way to save more is to reframe your thinking and be clear on your priorities.

You may have to forgo your daily coffee from the café, but you’ll be a homeowner sooner if you tighten the financial belt. Rather than seeing saving as a sacrifice, remind yourself what it will give you in return.

Saving will pay off in the long-term, so stay motivated by thinking of your end goal. For help staying on track or to discuss your borrowing capacity, feel free to get in touch on Phone: 07 5641 4134.

i https://www.theguardian.com/news/datablog/ng-interactive/2022/jul/27/cost-of-living-australia-price-changes-inflation-2022-sydney-melbourne-brisbane-interactive-data-explorer-june-quarter

ii https://www.theguardian.com/australia-news/2022/jul/06/rents-rise-at-fastest-rate-in-14-years-across-australia

iii https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release

Important: 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.

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.