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SMSFs vs. Other Funds

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SMSFs vs. Other Funds

When it comes to superannuation, there are a variety of options available. But which is right for you? That depends on your individual circumstances and goals. It’s important to understand the differences between industry funds, retail funds and Self Managed Super Funds (SMSFs).

Industry funds are provided by employers or industry organisations and typically offer lower fees, no commissions and tailored financial advice. They can also offer access to additional services such as default death and disability insurance.

However, you have less control over your investments, which could be a downside for some people. Because of the way they are set up and their low cost, industry funds have carved out a large amount of super environment. Industry super often has a lower average balance than the retail and SMSF counterparts. Industry super is usually easy to set up, has no frills and is easy to manage ongoing.

Unfortunately though, when dealing with larger balances Industry super often stack up less favorably because a lot of retail funds and SMSFs have capped fees and are invested differently with can reduce costs dramatically.

Retail funds are usually managed by private providers and may offer more complex investment options than industry funds. Fees can be higher but they often provide access to a wider range of investments such as shares, international assets and property. Furthermore, you have more control over your investments with retail funds compared to an industry fund. The reporting and administration in Retail funds are usually more comprehensive because they are providing a more tailored solution.

The problem with Retail funds is that if the investor does not have the skills or knowledge regarding their investment structures or is not utilising professional advice, the outcomes can begin to deviate over time. Retail funds also capture the self-funded retiree market because of the combination they provide between security and flexibility and being able to craft a bespoke solution for their retirement.

Self Managed Super Funds (SMSFs) give you the most control over your superannuation. But they also carry a range of obligations including compliance, tax and financial reporting that you must be aware of before deciding to go down this route. SMSFs can provide access to the widest range of investments within super but fees can be higher than industry or retail fund options. SMSFs can invest in assets that remain out of reach to Retail and Industry funds, for example:

  • Real property
  • Alternative assets like whiskey, art, cars and gold
  • Leverage through limited recourse borrowing

A lot of recommendations online say that you should have more than $250,000 in super before setting up an SMSF. This kind of blanket recommendation is because of a couple of different reasons.

  1. Cost of setup and ongoing management: The cost of setup is high and ongoing costs are dependent on who is managing the process, however, the costs are often capped which can mean that high balances can be cheaper to administer in an SMSF than in an Industry fund.
  2. Cash flow and diversification of alternative assets: If you have $250,000 in super and want to buy a property then the property is going to represent an enormous % of the balance of the fund which makes the risk factors highly elevated. A higher balance can provide more ability to diversify investments.

Ultimately, only you and your professional advisers can decide which superannuation option is right for your individual circumstances – but by understanding the key differences between industry funds, retail funds and Self Managed Super Funds (SMSFs), you will be better placed to make an informed decision.

So how do you know what kind of super is right for you?

Typically finding the right kind of super for you is going to be determined largely by your balance and your investment needs/preferences.

Consider your level of comfort with investments and the amount of control you want to have over your super. Do some research into each option and seek professional advice before making any decisions. Ultimately, finding the best superannuation option for you will depend on your individual needs and goals.

One of our bread and butter services is helping our clients find the right kind of super for their needs. If you would like some professional support, the first step is to book a 20 minute discovery meeting here.

 

Sources

 

How To Retire Early

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How to retire early

Are you ready to start living life on your own terms and pursue financial independence? Many people dream of doing just that, but they don’t know where to start. If this sounds like a familiar story, then you’re in the right place!

In this blog post we will explore how millennials and gen X-ers can make their dreams of retiring early a reality. We’ll discuss all the key elements you need to consider when planning for retirement including income sources, investments, and budgeting strategies that will ensure your long-term success.

With some hard work and dedication it can be possible to achieve financial freedom so get ready – let’s begin your journey towards achieving an early retirement!

Assess your current financial situation and determine how much you need to save for retirement

Retirement savings may seem like a distant concern, but it’s never too early to start planning. Assessing your current financial situation and determining how much you need to save for retirement is critical to ensure a comfortable future. It’s essential to evaluate your current expenses, income, assets, and liabilities, as these factors will influence how much you need to save.

Your lifestyle choices and your retirement goals are also important considerations in determining your retirement savings goal. Although this may seem like a daunting task, there are resources and professionals available to guide you in the right direction. With careful planning and discipline, you can achieve financial security and peace of mind in your retirement years.

Make a plan to save and invest wisely

Saving and investing can seem daunting, especially if you’re starting with little knowledge in the field. However, by creating a plan of action, you can set yourself up for financial success. One key step is to determine your financial goals and create a budget to achieve them. From there, consider opening a savings account specifically for emergency funds and set up automatic transfers to ensure consistent contributions.

As for investing, it’s important to research different options such as managed funds, property, stocks, and bonds to find what aligns with your goals and risk tolerance. Remember to also diversify your portfolio to minimise potential risks. By taking the time to make a solid plan, you can lay the foundation for a stable and successful financial future.

Track your spending and create a budget that works for you

Managing your finances can be tough, especially if you’re not keeping track of your spending. But don’t fret! With a little bit of effort and some commitment, you can create a budget that works for your lifestyle. Start by tracking your spending for a week or two. This will give you a good idea of where your money is going and where you can cut back.

Then, set a realistic budget that allows for some indulgence while still helping you save money for the things that matter most. Remember, it’s okay to adjust your budget as needed, but sticking to it will ultimately help you achieve your financial goals. So what are you waiting for? Get started today and take control of your finances!

Cut out unnecessary expenses and find ways to reduce costs

In these tough economic times, keeping a close eye on expenses and finding ways to reduce costs is more important than ever. Whether you’re a business owner looking to trim overhead or an individual trying to live within a budget, it can be a challenge to figure out where to start. Luckily, there are plenty of strategies you can employ to cut out unnecessary expenses and keep more money in your pocket.

From reducing your energy consumption to negotiating better deals with vendors, taking a proactive approach to cost reduction can help you meet your financial goals and weather any economic storm. So why not get started today? By taking a closer look at your expenses and finding new ways to save, you can set yourself up for long-term financial success.

Consider investing in stocks, bonds, mutual funds, or real estate

Investing your money can be a wise decision if done correctly. While there are many options available, stocks, bonds, mutual funds, and real estate are some of the most popular choices. Stocks provide an opportunity to invest in a company and earn returns based on their performance. Bonds are a lower risk option, as you’re essentially loaning money to a company or government entity and receiving a fixed return.

Mutual funds offer diversification by pooling money from multiple investors to invest in various stocks and bonds. Finally, real estate can provide a steady stream of rental income and potential for property appreciation. It’s important to do your research and fully understand the risks and potential rewards before making any investment decisions.

Utilise tax-advantaged Superannuation

Saving for retirement can seem daunting, but utilising tax-advantaged super can make the process much easier. Super offers unique tax benefits that allow your money to grow at a low rate(and eventually tax free), giving you more bang for your buck in the long run. By taking advantage of these accounts, you can set yourself up for a comfortable retirement and enjoy the peace of mind that comes with financial security.

Final Word – How to retire early

In conclusion, if you want to know how to retire early and have a steady income for the rest of your life, start planning and investing now. Assessing your current financial situation will give you a clear idea of how much you need to save. Then, come up with a plan and make sure that you are tracking your spending and creating a budget that works for your lifestyle.

You can also reduce costs by cutting out unnecessary expenses and take advantage of opportunities such as super or even investing in stocks, bonds, managed funds or real estate. Retirement is an important milestone but it doesn’t have to be unfeasible. With careful planning, budgeting and strategic investments, anyone can achieve the retirement they desire sooner than expected.

Now is the time to start implementing these strategies so that you too can experience the joy of retiring early with an envy-worthy income!

If you liked this article and want to read more, check out our article on how to save on tax here.

If you want a hand planning for retirement and need to chat to someone, you can book a free discovery call here. 

3 Things You Need To Do Before End Of Financial Year

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3 things you need to do before end of financial year

As the financial year winds to a close, it’s time for all of us Millennials and Gen Xers to give our finances a good hard look.

Managing your money is anything but exciting, but as you get older, it becomes increasingly important to ensure that you have made smart decisions about managing your cash flow for the future. After all, retirement isn’t that far away!

To help you make sure that you’re properly prepared come next tax season, we’ve rounded up three essential things every Millennial and Gen-Xer should do before end of financial year – so sit back and relax while we take care of the heavy lifting! Here are 3 things you need to do before end of financial year.

Maximize your investments – review your portfolio and loans and see if there are any changes you should make before the year is up

Investing can be a tricky business, but maximizing your investments doesn’t have to be. One of the most important things you can do is reviewing your portfolio and loans. Before the year ends, take some time to look over your investments and see if there are any changes you should make.

Are there any underperforming assets that you should sell off? Are there any new opportunities you should be looking into? These are important questions that can impact the return on your investment.

Review your tax deductions – make sure you take advantage of all the credits and deductions allowed by law

As tax season approaches, it’s crucial to review your tax deductions carefully. By doing so, you can take advantage of all the credits and deductions for which you’re eligible under the law. From healthcare expenses to charitable contributions, there are many deductions you may be able to claim if you meet the eligibility requirements.

While it may seem daunting to navigate the complex world of tax laws, taking the time to review your deductions can save you money and ensure you’re complying with all tax regulations. Don’t miss out on potential savings – schedule time to review your tax deductions and planning today!

Take stock of your spending habits – look at where your money has gone so you can plan for the upcoming

Money, money, money – it seems to slip through our fingers faster than we can earn it. But have you ever stopped to take a closer look at where your hard-earned cash is really going? Taking stock of your spending habits is a key step in becoming more financially savvy.

By analysing your past spending, you can identify areas where you may be overspending and make a plan to cut back. This will not only put more money back in your pocket but also give you peace of mind knowing that you are in control of your finances. So, before the new year kicks off, sit down with your bank statements and receipts, and take a closer look at where your money is going – your wallet will thank you for it.

Final Note – 3 things you need to do before end of financial year

Making wise investments and tax deductions can be a great way to increase your gains and save money. When taking stock of your spending habits, it’s worth considering whether they’re in line with your overall goals and vision. Afterall, if you don’t have the right plan to reach your goals, it won’t matter how good the returns are.

Fortunately, with the help of a qualified accountant or financial adviser, you can get a handle on this and make sure you’re making smart financial decisions. Knowing precisely where your money is going and strategically banking on expected returns helps clear up potential trouble spots too. If you’re looking for advice on how to maximize growth potential and steer away from risk-laden investments, click the link to organise a 20 minute discovery call with one of our advisers.

With thoughtful planning and expertise, anyone can start down the path to success when it comes to their personal finances.

If you liked this article and want to know more juicy info about finances, make sure to check out our blog here.

Negative Gearing Explained

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Negative Gearing Explained

 

Negative gearing is a term you may have heard thrown around, but do you really know what it means? It’s an investment strategy that has become increasingly popular in recent years as a way to use your income to generate growth on assets. While negative gearing does come with some risks and restrictions, understanding how it works could potentially help you turn your finances around for the better and create more financial freedom. In this post we will break down exactly what negative gearing is, how it works and why Millennials and Gen Xers are taking advantage of its benefits. Get ready to unlock the power behind Negative Gearing!

 

1.     What is negative gearing and how does it work?

Negative gearing is simply when the cost (including interest) of an investment exceeds the income. The difference is tax deductible and will be taken off your taxable income. Here is a simple example of how is works.

Investment worth $500,000 earning $300 p/w after costs.

Loan of 400,000 with $400 p/w in interest.

$400 – $300 = $100 loss p/w.

$100 p/w annualised = $5200 tax deduction off your taxable income.

 

2.     Pros and cons of using negative gearing as an investment strategy

Pros:
  • Can help with ongoing running cost pressures of investments in high interest rate environments.
  • Creates tax relief for growth investors by offsetting the loss.
Cons:
  • The strategy is reliant on capital gains or massive debt reduction.
  • There is no guarantee that the investment will grow in value.
  • You are making a loss on the investment on an ongoing basis.
  • Can inflate asset prices.

Make sure to check out our other “ most under utilised tax saving” article if you are interesting in how you can reduce your tax.

3.     Tax implications of negative gearing

Let’s assume that you are earning $140,000 in the above scenario. That means you are in the $120,000-$180,000 tax bracket (the second highest) which means you pay 37 cents for every $1 you earn in that bracket.

By having the above loss, you can reduce your income by $5,200 which saves you $3,172 in tax.

This brings the total after tax loss down to $2,028 for the year.

4.     Potential risks of relying on negative gearing for your investments

By relying on negative gearing you run the risk of:

  • Your asset never growing.
  • Not being able to continue wearing the loss.
  • Losing your income and the tax advantages.

 

5.     Tips for making the most out of your strategy

  • Have a high income. Low incomes struggle to get a benefit from a negative gearing strategy.
  • Obtain support when purchasing an investment to give yourself the best shot of investment growth.
  • Have plenty of disposable income. You don’t want to be left in the lurch if costs blow out and you can’t afford it.
  • Never invest just for tax reasons. Negative gearing is a potential benefit to an investment. Not the reason why you should invest.

How do you know if it’s is right for you?

If you have a high disposable income and you are in a higher tax bracket then negative gearing might be appropriate for you to consider as a part of a high growth investment strategy. Consult your financial adviser or accountant to see if you fit the minimum requirements to make it a potential success.

We would love for you to like and follow us on Youtube, Instagram, Facebook and Linkedin. You can also book in a 20 minute discovery call with Kris directly by clicking HERE

You can also find some more information on the ATO website HERE or ASIC moneysmart website HERE.

Quarterly Compass – Summer Wrap Up

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Summer is over and with the first 3 months of the year down, we start a new quarter. A new quarter is always when we take time to reflect on what’s happened and what we expect to see in the months/year ahead. We have had our Huxter Estate 2023 harvest which was exciting and marked the end to a challenging growing season.

Market Update:

Like our harvest, the last 12 months have been a challenging period for investment and the economy. We have seen not only the continuation of high volatility but also the extension of it.

In the first three months we have seen one of the best starts to the year across the globe with investment markets. In Australia the ASX grew by nearly 8% by Feb 2nd and the NASDAQ grew by about 17%.

By mid-March, a lot of those gains were wiped away and the biggest US stock exchange was in negative territory. This is very much on the back of global fears that the continued rising rates were leading to a recession and when SVB collapsed due to a “bank run”, global fears turned to a banking crisis and it seemed that investors were having PTSD flash backs to the Global Financial Crisis (08/09).

The fears of a global financial crisis seemed to be averted and with softer language from federal banks around the world which indicates an easing of rate rises, investment markets have released a sigh of relief.

Australian Outlook:

The outlook for Australia is mixed in my opinion. The Australian economy faces some serious problems but we may be in an excellent position to deal with them comparatively to other countries.

The biggest issues facing Australia right now are:

  • Increased cost of living
  • Massive increases to debt funding
  • Housing shortage
  • Skills and labour shortages
  • Security fears and sanctions on Russia

When in isolation these issues can be dealt with in a manageable way. The major problem is that all of these chickens (along with quite a few others) and coming home to roost all at once.

The typical process of governments and reserve banks of spending their way out of recession is looking unlikely as we have major skills shortages and government debt has already been run up quite a lot. Couple that with a high cost of goods due to sanctions and supply chain issues and we are one credit crunch away from having a very hard landing.

This means that it is imperative that the reserve bank plays a very fine line between reducing inflation and destroying credit availability.

On the flip side, globally, we are on the brink of a technological revolution with AI leading a lot of advancement. This will be underpinned by raw materials which Australia has a long history of using to its advantage.

International outlook:

The global outlook remains similar to last quarter. The major difference comes down to two things:

  1. Credit
  2. Security

Global credit is being challenged through high interest rates and when the US Fed moves the interest rate up, generally smaller economies follow suit in order to have their bonds remain attractive to investment. Banks across the globe generally do not have as much liquidity as Australian banks and regional banks (whilst still massive) need to undertake riskier investments to attract deposit holders.

We saw the spectacular collapse of SVB and then Credit Suisse and it is my belief that we are going to see a lot more of these kinds of collapses over the coming months. This is because in tough times, good companies prosper and poorly managed, overleveraged and/or unprofitable companies fall over. This is as much of a fact in the investment world as the sun setting and rising.

Security is the other factor that is causing pain and it doesn’t look likely to end. China and Russia are actively building the systems to stop using the US dollar as the globes reserve currency.

This is and should be frightening. A major change in the balance of power and currency could have catastrophic and unknown consequences. Whilst frightening, don’t be too alarmed about this.

The global positives are that there are incredible advancements in technology that will change the way we work and interact with each other and all reports about energy advancement seems extremely promising as well.

What does all of this mean for you?

We expect another challenging year in investments as everyone finds their feet. In times like these, there are a lot of opportunities available. The key determining factor in success in 2023 will be cashflow and disposable income that can be used to take advantage of market volatility.