What is risk?

Defining your risk profile is the first step in selecting what asset classes are appropriate for you. It will help avoid a situation where you would otherwise be investing in assets that are in conflict with your individual needs and objectives. Risk is a relative measure and it is important to determine a time frame before making an assumption about the risks of a particular asset class. For example, if your investment timeframe is 10 years then it could be said that cash is a risky investment because history shows that cash will not keep pace with inflation. Similarly shares could be viewed as risky if investing for a short time frame, because of the volatile nature of share markets. You should consult your adviser so that your risk profile can be determined before investing.

Why should I put money into superannuation, doesn't it just lose value?

A common misconception is that superannuation is an investment class of its own. This is not the case; superannuation is merely a tax environment in which to place investments—cash, fixed interest, property and shares. The nature of the investments does not change just because they happen be inside a superannuation structure. In most cases superannuation will provide a less hostile tax outcome for any given investment. With Superannuation you are also investing at regular intervals via your employer (compulsory Superannuation Guarantee) contributions plus any voluntary contributions including salary sacrificed contributions. This means that you are saving in instalments and in so doing, averaging the price paid for the underlying investments. This is often called “dollar cost averaging”.

What is a managed fund?

A managed fund is a professionally managed investment portfolio that individual investors can buy into, purchasing 'units' rather than shares. Each managed fund has a specific investment objective. This is usually based around the different asset classes (cash, fixed interest, property and shares). The money you invest is used to buy assets in line with this investment objective. When you invest in a managed fund, you are allocated a number of 'units'. The value of your units is calculated on a daily basis and changes as the market value of the assets in the fund rises and falls. A Financial Adviser can source and compile a portfolio of appropriate managed funds tailored to meet your needs and objectives.

How do I get life insurance? How much do I need?

Your adviser has access to calculators specifically designed to assess the covers that should be in place. After that assessment the cost of cover can be illustrated and where it may fit within your own budget. Life insurance can be purchased from a number of licensed agents, banks and insurance companies. The amount required depends on a number of factors including debt, other assets and income. A professional adviser is recommended to do these calculations for you.

I heard you could get insurance through your superannuation, what are my options?

Insurance can be purchased via your superannuation fund, as well as through external sources. Generally premiums paid via the superannuation fund may be tax advantaged. You should consult your adviser to determine the best way to purchase your insurance requirements.

How much money do I need to retire?

Whether you have $100,000 or $1,000,000 the amount required to retire differs for everyone. You need to consider a number of factors such as general living expenses, capital expenses (eg. a new car), holidays, home renovations, payout of mortgages and other debts. Once you have established these requirements an adviser can model an appropriate amount required in order to comfortably fund your retirement objectives and lifestyle.

How much can I contribute to superannuation?

In addition to the 9% of your salary that your employer is obliged to contribute on your behalf, you can contribute on a voluntary basis, pre- and post-tax. There are however, caps that depend on your age and the amount already accumulated in your superannuation account. If you contribute more than the capped amount you will be taxed. Your financial adviser can explain the Concessional and non-Concessional taxes, and the benefits and disadvantages of contributing to your superannuation.

When can I access my superannuation?

You can access your superannuation only on retirement, at age 65, or if you are permanently injured/disabled. You are allowed to access as a Transition to Retirement Pension from age 55 however there are limits on what may be withdrawn, currently it is a 10% maximum of your account balance annually.

What is salary sacrifice?

Salary sacrifice is having your employer pay the gross amount into your superannuation account or any other normally tax-deductible investment or expense. The advantage is that the tax benefit is immediate as opposed to waiting until you complete your tax return. The financial benefit lies in the amount you would have paid in tax based on your marginal rate of taxation compared with the 15% Contribution tax on those amounts sacrificed. If your marginal rate is 30% then you are 15% ahead on it having been taken as a regular salary. It is a 15% rate of return before any earnings are credited! Conversely, the taxpayer would pay the full marginal rate of tax if the funds were paid as salary. As a consequence more of your money ends up being invested using the sacrifice method of superannuation payment.

I am thinking about running my own superannuation fund, should I start a self-managed fund? What are the benefits?

The overall benefits of placing money into superannuation are the same whether the fund is public offer or a self-managed fund. The perceived benefits of a self-managed fund are that unlike a public offer fund, a self-managed fund will generally invest in assets such as direct property or direct shares. A self-managed fund could buy a property that is used to run the member’s business from an office or factory. A crucial consideration here will be the costs involved in start up and ongoing fees for audit, accounting and other incidentals.

Can I reduce tax?

There are a number of ways to minimize your tax which include contributing to superannuation, buying income protection insurance, negative gearing strategies, salary packaging and taking advantage of the deductions allowed in your industry or profession. In order to fully maximize your deductions and reduce your tax liability a tax adviser can help.