Looking for a Financial Planner Brisbane?
Choosing a financial planner is not like choosing a plumber. You are handing someone visibility over your income, your superannuation, your debts and your plans for the next thirty years — and the difference between good and poor advice compounds quietly for decades. It is worth taking the time to choose deliberately.
This guide covers what to check, what advice costs in Australia, and the questions worth asking before you commit to anyone. It is general information, not advice about your circumstances.
What a financial planner actually does
A financial planner helps you decide what to do with your money over time, and then implements those decisions. In practice that usually means some combination of superannuation and contribution strategy, retirement planning and Centrelink entitlements, personal insurance, investment and portfolio construction, cashflow and debt reduction, tax structuring, and estate planning.
What separates advice from information is that a licensed adviser must consider your specific objectives, financial situation and needs, and document their reasoning in a Statement of Advice. That obligation is what you are actually paying for.
First, check they are licensed
Every person legally allowed to give personal financial advice in Australia appears on ASIC’s Financial Advisers Register. It is free, public, and takes a minute to search.
The register shows you their qualifications, how long they have been advising, which licensee they operate under, what they are authorised to advise on, and — importantly — any bans or disciplinary action. If someone is not on it, they cannot lawfully give you personal advice. Check before the first meeting, not after.
Understand how they are paid
This is the question that most changes the advice you receive, and the one people are most reluctant to ask. There is nothing awkward about it: every adviser is required to disclose it in writing anyway.
Broadly, there are three models. Fee-for-service means you pay an agreed fee for the advice itself, regardless of what is recommended. Commission means the adviser is paid by a product provider — still permitted for life insurance, and disclosed to you. Asset-based fees charge a percentage of the money under management.
None of these is automatically wrong. What matters is that you know which applies, what it costs in dollars, and whether it creates any incentive to recommend one product over another. At Queensland Financial Group our strategic and investment advice is fee-for-service; insurance advice may involve commission, and either way the figures are disclosed before you decide anything.
What financial advice costs in Australia
Most advisers charge a fixed fee to prepare a Statement of Advice, then an optional ongoing fee if you want continuing service and annual reviews. The cost depends on complexity — a single question about contribution caps is not the same piece of work as restructuring a family’s affairs before a business sale.
Two things are worth knowing. The fee must be disclosed in writing before you commit, so you should never be surprised. And an initial meeting is generally free, which means you can meet two or three advisers and compare before spending anything.
Ask what their advice can actually cover
Not all advisers can recommend the same things. Some operate on an approved product list limited to a narrow range, and some — particularly advice offered through a superannuation fund — can only address that fund’s own products.
That is not necessarily a problem if your situation is simple. It becomes one when your position spans several places: insurance held outside super, a partner’s superannuation, an investment property, or a business. Ask directly what falls outside the scope of what they can advise on.
Questions worth asking in a first meeting
- What are your qualifications, and how long have you been advising?
- Who is your licensee, and what are you authorised to advise on?
- How are you paid, and what will this cost me in dollars?
- What is outside the scope of advice you can give me?
- Who will I actually deal with day to day?
- What happens if I want to stop the ongoing service?
- Can you show me what a Statement of Advice looks like?
A good adviser will answer all seven without hesitation. Reluctance on any of them is itself an answer.
Red flags
Be wary of pressure to decide quickly, or of advice given before anyone has asked properly about your circumstances. Be cautious of guaranteed returns — no legitimate adviser can promise investment performance. Treat vagueness about fees as a warning, and be sceptical of any recommendation that funnels everything into products associated with the adviser or their licensee.
One more: an adviser who never says “you probably don’t need this” is not being careful with you.
Do you actually need a financial planner?
Not everyone does. If your finances are straightforward, your super is in a reasonable fund, and you are comfortable with what you are doing, you may not need advice yet.
Advice tends to earn its keep when there is complexity or a decision that is hard to undo — approaching retirement, selling a business, receiving an inheritance, restructuring debt, blending finances after a relationship change, or working out whether your insurance would actually pay out when it mattered. Those are the moments where getting it wrong is expensive and getting it right compounds.
Financial planning in Brisbane
Queensland Financial Group has advised Brisbane families and business owners since 1989, from our office at Suite 2, Level 22, 345 Queen Street in the CBD. We work with people approaching retirement, business owners planning succession, and families sorting out insurance and estate planning — and we frequently work alongside a client’s existing accountant rather than replacing them.
If you would like to talk it through, the first meeting costs nothing and carries no obligation. You are welcome to bring the seven questions above and ask us every one of them.
How much super do I need to retire?
Working out how much you need to save for retirement is a question that keeps many pre-retirees awake at night. Recent market volatility and fluctuating superannuation balances have only added to the uncertainty.
So it’s timely that new research shows you may need less than you fear. For most people, it will certainly be less than the figure of $1 million or more that is often bandied around.
For most people, the amount you need to save will depend on how much you wish to spend in retirement to maintain your current standard of living. One way of doing that is to look at how much you spend now.
When Super Consumers Australia (SCA) recently set about designing retirement savings targets they started by looking at what pre-retirees aged 55 to 59 are actually spending.
Retirement savings targets
As you can see in the table below, SCA estimated retirement savings targets for three levels of spending – low, medium and high – for recently retired singles and couples aged 65 to 69.
Significantly, only so-called high spending couples who want to spend at least $75,000 a year would need to save more than $1 million. A couple hoping to spend $56,000 a year would need to save $352,000. High spending singles would need $743,000 to cover spending of $51,000 a year, and $258,000 for medium annual spending of $38,000.i
Table: Savings targets for current retirees (aged 65-69)
| If you will own your home when you retire and you live: | And you’d like to spend about this much in retirement: | Then you need to save this much by the time you are 65, on top of income from the Age Pension | |
|---|---|---|---|
| Per fortnight | Per year | ||
| By yourself | $1,115 (Low) | $29,000 | $73,000 |
| $1,462 (Medium) | $38,000 | $258,000 | |
| $1,962 (High) | $51,000 | $743,000 | |
| In a couple | $1,615 (Low) | $42,000 | $95,000 |
| $2,154 (Medium) | $56,000 | $352,000 | |
| $2,885 (High) | $75,000 | $1,021,000 | |
Source: Super Consumers Australia
While these savings targets are based on what people actually spend, there is a buffer built in to provide confidence that your savings can weather periods of market volatility and won’t run out before you reach age 90.
They assume you own your home outright and will be eligible for the Age Pension (which is reflected in the relatively low savings targets for all but wealthier retirees), and also make assumptions about future inflation and investment returns.*
Retirement planning rules of thumb
The SCA research is the latest attempt at a retirement planning ‘rule of thumb’. Rules of thumb are popular shortcuts that give a best estimate of what tends to work for most people, based on practical experience and population averages.
These tend to fall into two camps:
- A target replacement rate for retirement income. This approach assumes most people want to continue the standard of living they are used to, so it takes pre-retirement income as a starting point. Once you have an income target you can work out the savings required to generate that level of income for the time you expect to spend in retirement. The government’s 2020 Retirement Income Review suggests a target replacement range of 65-75 per cent of pre-retirement income would be appropriate for most Australians.ii
- Budget standards. This approach estimates the cost of a basket of goods and services likely to provide a given standard of living in retirement. The best-known example in Australia is the ASFA Retirement Standard which provides ‘modest’ and ‘comfortable’ budget estimates updated quarterly for changes in the cost of living.
SCA sits somewhere between the two, offering three levels of spending to ASFA’s two, based on pre-retirement spending rather than a basket of goods. Interestingly, the results are similar with ASFAs ‘comfortable’ budget falling between SCA’s medium and high targets.
ASFA estimates a single retiree will need to save $545,000 to live comfortably on annual income of $46,494 a year, while retired couples will need $640,000 to generate annual income of $65,445. This also assumes you own your home outright and will be eligible for the Age Pension.
Limitations of shortcuts
You may think these spending levels and targets are too low, or out of reach, depending on your personal circumstances and retirement goals. You may also query some of the underlying assumptions, especially if you rent or don’t own your home outright and expect to retire with a mortgage or other debts.
The big unknown is how long you will live. If you’re healthy and have good genes, you might expect to live well into your 90s which may require a bigger nest egg.
If for whatever reason you think your super nest egg is too small for comfort, it’s never too late to give it a boost. You could:
- Ask your employer to put a salary sacrifice arrangement in place or make a personal super contribution and claim a tax deduction, being mindful to stay within the annual concessional contributions cap of $27,500.iii
- Make an after-tax super contribution of up to the annual limit of $110,000, or up to $330,000 using the bring-forward rule.iv
- Downsize your home and put up to $300,000 of the proceeds into your super fund (up to $600,000 for couples).v
Thanks to new rules that came into force on July 1, you may be able to add to your super up to age 75 even if you’re no longer working. As with everything to do with super, strict rules and eligibility hurdles apply so ask us about the most appropriate strategies for your situation.
While retirement planning rules of thumb are a useful starting point, they are no substitute for a personal plan. If you would like to discuss your retirement income strategy, give us a call.
*Assumptions include average annual inflation of 2.5% in future, which is the average rate over the past 20 years, and average annual returns net of fees and taxes of 5.6% in retirement phase and 5% in accumulation phase.
i https://www.superconsumers.com.au/retirement-targets
ii https://treasury.gov.au/publication/p2020-100554
Buachailli Pty Ltd ABN 57 115 345 689 atf Harlow Family Trust t/as Queensland Financial Group is a Corporate Authorised Representative of Synchron AFS Licence No. 243313 This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.
Mortgage vs super
With interest rates on the rise and investment returns increasingly volatile, Australians with cash to spare may be wondering how to make the most of it. If you have a mortgage, should you make extra repayments or would you be better off in the long run boosting your super?
The answer is, it depends. Your personal circumstances, interest rates, tax and the investment outlook all need to be taken into consideration.
What to consider
Some of the things you need to weigh up before committing your hard-earned cash include:
Your age and years to retirement
The closer you are to retirement and the smaller your mortgage, the more sense it makes to prioritise super. Younger people with a big mortgage, dependent children, and decades until they can access their super have more incentive to pay down housing debt, perhaps building up investments outside super they can access if necessary.
Your mortgage interest rate
This will depend on whether you have a fixed or variable rate, but both are on the rise. As a guide, the average variable mortgage interest rate is currently around 4.5 per cent so any money directed to your mortgage earns an effective return of 4.5 per cent. i
When interest rates were at historic lows, you could earn better returns from super and other investments; but with interest rates rising, the pendulum is swinging back towards repaying the mortgage. The earlier in the term of your loan you make extra repayments, the bigger the savings over the life of the loan. The question then is the amount you can save on your mortgage compared to your potential earnings if you invest in super.
Super fund returns
In the 10 years to 30 June 2022, super funds returned 8.1 per cent a year on average but fell 3.3 per cent in the final 12 months.ii In the short-term, financial markets can be volatile but the longer your investment horizon the more time there is to ride out market fluctuations. As your money is locked away until you retire, the combination of time, compound interest and concessional tax rates make super an attractive investment for retirement savings.
Tax
Super is a concessionally taxed retirement savings vehicle, with tax on investment earnings of 15 per cent compared with tax at your marginal rate on investments outside super.
Contributions are taxed at 15 per cent going in, but this is likely to be less than your marginal tax rate if you salary sacrifice into super from your pre-tax income. You may even be able to claim a tax deduction for personal contributions you make up to your annual cap. Once you turn 60 and retire, income from super is generally tax free. By comparison, mortgage interest payments are not tax-deductible.
Personal sense of security
For many people there is an enormous sense of relief and security that comes with having a home fully paid for and being debt-free heading into retirement. As mortgage interest payments are not tax deductible for the family home (as opposed to investment properties), younger borrowers are often encouraged to pay off their mortgage as quickly as possible. But for those close to retirement, it may make sense to put extra savings into super and use their super to repay any outstanding mortgage debt after they retire.
These days, more people are entering retirement with mortgage debt. So whatever your age, your decision will also depend on the size of your outstanding home loan and your super balance. If your mortgage is a major burden, or you have other outstanding debts, then debt repayment is likely a priority.
Older couple nearing retirement
Tony and Elena, both 60, would like to retire in the next few years. Together they earn $180,000 a year, excluding super, but they still have $100,000 remaining on their mortgage. Tony has a super balance of $600,000 and Elena has $200,000.
They want to be debt free by the time they retire but they are also worried they won’t have enough super to afford the lifestyle they look forward to in retirement.
If they do nothing, at a mortgage interest rate of 4.5 per cent it will take five years to repay their mortgage with monthly mortgage payments of $1,864. At age 65, their combined super balance will be a projected $1,019,395.
Jolted into action, they decide they can afford to put an extra $1,000 a month into their mortgage or super.
- If they increase their mortgage payments by $1,000 a month, the loan will be repaid in three years and two months. But their super will only be a projected $931,665 by then, so they may need to work a little longer to fund a comfortable retirement. From age 63, they might consider salary sacrificing into super with money freed up from early repayment of their mortgage.
- If they salary sacrifice $1,000 a month to super from age 60, their combined super balance will grow to a projected $1,082,225 by the time they are 65 and their home is fully paid for.
These are complex decisions, but whichever option they choose they will probably need to consider working until at least age 65 to be debt free and build their super.
All calculations based on the MoneySmart mortgage and retirement planner calculators.
All things considered
As you can see, working out how to get the most out of your savings is rarely simple and the calculations will be different for everyone. The best course of action will ultimately depend on your personal and financial goals.
Buying a home and saving for retirement are both long-term financial commitments that require regular review. If you would like to discuss your overall investment strategy, give us a call.
i https://www.finder.com.au/the-average-home-loan-interest-rate
ii https://www.chantwest.com.au/resources/super-members-spared-the-worst-in-a-rough-year-for-markets/
Buachailli Pty Ltd ABN 57 115 345 689 atf Harlow Family Trust t/as Queensland Financial Group is a Corporate Authorised Representative of Synchron AFS Licence No. 243313 This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.
How to turbocharge your investment returns
If you’d invested $10,000 into the whole Australian share market back in 2002, your initial investment amount would have grown to almost $50,000 by 30 June 2022.
It’s a huge gain. Around 385 per cent to be precise. And, to achieve it, all that you would have needed to do is reinvest all the Australian company dividends you’d received over the last 20 years back into the Australian share market.
You could have achieved similar returns by investing through a managed fund or an exchange traded fund (ETF) that tracks the broad Australian share market.
Yet, as good as that all sounds, you could have done much better if you had added to your initial $10,000 investment by making regular monthly investment contributions.
How much better? Just by adding $250 per month your Australian share market investment would have surged to more than $180,000. That represents a 1,729 per cent total return.
In other words, for $60,000 in total additional contributions over 20 years, your end investment would have been worth over $130,000 more than if you had made no extra contributions.
The numbers obviously get larger if you had made higher regular monthly contributions.
By adding $500 per month to the initial $10,000 amount your investment would have compounded by 3,074 per cent to more than $317,000.
That’s a $130,000 total investment ($10,000 plus $120,000 in other contributions) over 20 years to achieve an investment worth $270,000 more than if you had just left your initial investment to grow on its own.
Here’s how those numbers would have looked based on the actual performance of the All Ordinaries Accumulation Index (which measures the Australian share market) from 1 July 2002 to 30 June 2022.
The benefits of regular contributions
|
Date |
No extra contributions* |
$250 per month |
$500 per month |
|
1 July 2002 |
$10,000 |
$10,000 |
$10,000 |
|
30 June 2007 |
$24,432 |
$52,047 |
$79,661 |
|
30 June 2012 |
$19,832 |
$57,104 |
$94,378 |
|
30 June 2017 |
$34,329 |
$117,332 |
$200,335 |
|
30 June 2022 |
$48,503 |
$182,931 |
$317,359 |
Source: Vanguard. *Assumes the reinvestment of income distributions only.
It’s only when you compare the results side by side that the full picture becomes much clearer.
An initial contribution amount combined with a regular investment savings strategy and the reinvestment of distributions over time will deliver much higher long-term results.
In the example used above, there would have already been a significant gap after just five years (in 2007) between investors who had not made additional contributions versus those that had.
And you can see that gap would have kept on widening over time. After 20 years, any investors who had followed a $250 per month regular contributions plan would have ended up with more than three times the amount of money than investors who had made no additional contributions.
A $500 per month contributions plan would have increased the differential to more than six times.
Understanding dollar-cost averaging
There’s another major advantage in making regular investment contributions, which brings into play a well-known portfolio strategy called dollar-cost averaging.
You may not realise it, but you’re probably already undertaking this strategy (indirectly) if you’re a member of a super fund.
Here’s how dollar-cost averaging works. Every time your employer makes a contribution into your super fund account it’s automatically invested by your fund according to the default investment strategy that you’ve chosen.
Maybe you’ve selected a “high-growth” super option, a “balanced” option, or a “conservative” option.
Behind the scenes your super money is most likely being directed into different managed funds, which invest into shares, bonds, cash, and other types of assets.
While the amount of super your employer pays doesn’t change, your investment purchasing power does change every time you receive a new super contribution.
That’s because the prices of the managed fund units your super fund is investing into does change every day.
If those managed fund unit prices have risen since your last contribution, then your super fund will be purchasing fewer units than last time.
Likewise, if the managed fund unit prices have fallen in value, your super fund will be purchasing more units than last time.
This strategy works in exactly the same way if you make regular contributions at set intervals outside of your super to buy units directly in other managed funds and ETFs.
You’ll automatically buy more units when market prices are lower and fewer units when prices are higher.
Over the total period that you keep investing, your average entry cost into specific assets will potentially be lower than if you’d try to guess the best time to buy in.
As your unit balance grows over time, your corresponding distributions via company dividends and other payments will also keep on growing. That’s the magic of compounding investment returns.
Just like your super contributions, it’s all really about sticking to a disciplined, non-emotional approach to investing that’s not affected by what’s happening on financial markets at any point in time.
Making regular contributions, and taking advantage of dollar-cost averaging, really adds up.
They’re a powerful combination in helping you to focus on achieving your investment goals, ideally through an appropriately diversified portfolio, to give you the best chance of investment success over the long term.
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.
Buachailli Pty Ltd ABN 57 115 345 689 atf Harlow Family Trust t/as Queensland Financial Group is a Corporate Authorised Representative of Synchron AFS Licence No. 243313 This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.
Guide to aged care at home
As we get older, most of us want to remain independent and in our own home for as long as possible, but this can be challenging without some help with household tasks and personal care.
Recognising this, the government runs a Home Care Packages program where approved aged care service providers work with individuals to deliver co-ordinated services at home.
Approval for a Home Care Package starts with an assessment by the Aged Care Assessment Team (ACAT). Eligibility for a Home Care Package, or other government subsidised help at home, is based on your care needs as determined through the assessment. You must also be an older person who needs co-ordinated services to help them stay at home or a younger person with a disability, dementia, or other care needs not met through other specialist services.
You can make your own referral via the government’s My Aged Care website or by calling 1800 200 422 and answering some questions.
Financial eligibility
Your financial situation won’t affect your eligibility. But once you have been assigned a package, you will need a financial assessment to work out exactly how much you may be asked to contribute.
There are four levels of Home Care Packages – from Level 1 for basic care needs to Level 4 for high care needs.
The annual budgets for the packages are (in round figures) $9,000 for a Level 1, $16,000 for a Level 2, $35,000 for a Level 3 and $53,000 for a Level 4. The government contribution changes on 1 July each year.
The idea is that a person, using a consumer directed care approach, can decide how they would like to use that money for help which may include equipment such as a walker or services such as household tasks, personal care, or allied health.
Your contribution could be a basic daily fee up to $11.26 a day, as well as an income tested fee up to $32.30 a day or $11,759.74 a year.i These fees are adjusted in March and September each year.
Expect a wait
Demand for packages is high, with a wait of 3-6 months for a low-level package and 6-9 months for a higher level package.
It’s not unusual to be approved for a high-level package but be offered or ‘assigned’ a lower level package as an interim measure.
Once approved for a Home Care Package, you must appoint a provider approved by the government, whose role is to administer, and manage the package for you.
The provider will charge a fee for their services which is deducted from the Home Care Package. This essentially reduces the amount of money from the package that can be spent on services. Administration costs can be 10-15 per cent of the package and case management another 10 per cent, or thereabouts.
The services offered and the way they are delivered can vary between providers, so comparing offers is important.
How much help you get from a package will depend on your care needs and fees, but generally a Level 1 package might provide two or three hours of help a week, a Level 2 about four hours, a Level 3 package about 8 hours and a Level 4 about 12 hours.
A recent Fair Work Commission ruling mandating minimum two-hour shifts for casual home care workers, while improving conditions for low-paid workers, is also expected to lead to increased costs for providers and ultimately Home Care Package recipients.
Self-managed home care
One way to get more hours of help and have a greater say in who delivers it, is to self-manage your Home Care Package. As well as saving the case management fee you can generally negotiate directly with workers the hours worked and the rate of pay.
You still need an approved provider to administer the package, with the fee being about 10-15 per cent.
There are currently five providers offering a self-managed option. One way to find support workers to assist with your care needs is through one of several online platforms where carers register their willingness to help, along with their hourly rates.
When paying privately makes sense
While home care packages can provide some welcome financial assistance, if all you need is a couple of services such as cleaning or gardening, it can be more cost effective to pay privately.
Nick is the main carer for his wife Jean, who has a diagnosis of Alzheimer’s Disease. Following an ACAT assessment Jean qualified for a Level 4 Home Care Package but received notification that she had been assigned a Level 2 package. The only help they currently needed was regular cleaning, although they knew the time would come when respite care would be useful to give Nick a break.
After crunching the numbers using the government’s fee estimator, on a Level 2 package it worked out that after paying the income-tested care fee and case management and administration fees they would have about $1,500 a year of government support to spend. It was cheaper to employ a cleaner privately and rely on family for other odd jobs.
Jean opted to decline the lower level package and wait for the approved Level 4 package, which would deliver financial benefits closer to $40,000 a year after costs at a time when she was also more likely to use more services. By declining the lower level she did not lose her place on the waitlist, which was based on her priority and care needs at the time of assessment.
Further reforms on the way
To improve delivery of help at home, further reforms are on the way from July 2023 with a new Support at Home Program.
If you are weighing up your aged care options for yourself or a loved one, and would like to discuss financing arrangements, please get in touch.
i https://www.myagedcare.gov.au/home-care-package-costs-and-fees#basic-daily-fee
Buachailli Pty Ltd ABN 57 115 345 689 atf Harlow Family Trust t/as Queensland Financial Group is a Corporate Authorised Representative of Synchron AFS Licence No. 243313 This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.
Putting recent returns into perspective
While 2021-2022 may not have been a stellar year for the majority of investors, it’s worth remembering that the worst performing asset class one year can be the best the next, and vice versa. That’s why successful investing benefits from having a good balance.
The last financial year, particularly the first half of 2022, saw a sharp rise in volatility on global investment markets.
It was hardly surprising. Stock markets, bond markets, commodities markets, and currency markets all found themselves caught up in a turbulence, shaped by a series of unsettling events.
They included the ongoing spread of COVID-19, with China forcing many of its major cities and manufacturing hubs back into lockdowns, and the start of the Russia-Ukraine war this year.
Inflation levels were already starting to rise in the second half of 2021, but the combination of these events has intensified the pressure on already strained global supply chains in 2022.
With the prices of goods and services rising at their fastest pace in decades, central banks have quickly begun raising their official interest rates in a bid to dampen demand.
Reflecting the stormy conditions – and the widespread sell-offs on financial markets over recent months – most investment asset classes recorded losses over the 12 months to 30 June.
A turbulent financial year
| Australian share market | -6.8% |
| U.S. share market | -10.7% |
| International shares | -6.5% |
| Australian bonds | -10.5% |
| Australian listed property | -11.4% |
| Cash | 0.1% |
Note: Asset class percentage return calculations are based on market open levels on 1 July 2021 and closing levels on 30 June 2022 for the S&P/ASX All Ordinaries Accumulation Index. MSCI World ex-Australia Net Total Return Index. S&P 500 Total Return Index. Bloomberg AusBond Composite 0+ Yr Index. S&P/ASX 200 A-REIT Accumulation Index. Bloomberg AusBond Bank Bill Index.
Putting 2021-22 into perspective
2021-22 was anything but a stellar financial year for the majority of investors.
That’s especially the case when you compare it with 2020-21, when the Australian share market gained 30.2 per cent, the U.S. share market grew by 29.1 per cent, and international shares recorded a 27.5 per cent return.
But the last financial year wasn’t the first period where returns have been negative across most key asset classes.
Think back to the Global Financial Crisis in 2008 and 2009, when most investors recorded back-to-back negative returns.
The Australian share market fell 12.1 per cent in the 2007-08 financial year, and then by a further 22.1 per cent in 2008-09.
Over the same two-year period the U.S. share market fell 23.2 per cent and 12.4 per cent, while the returns from Australian listed property were negative 28.6 per cent and 31.2 per cent.
Then, as economies around the world emerged from the GFC, financial markets embarked on a growth spurt for the best part of the next decade.
Even in early 2020, when financial markets fell heavily as the spread of COVID sparked widespread investor panic, returns from most asset classes had started to recover by 30 June 2020.
Five years of returns
Another point to keep in mind that asset class returns vary from year to year. The best performing asset class one year can be the worst the next.
The above table has the best performing asset class for each year highlighted in green, and the worst performing in red.
In 2021-22, cash was the only asset class to deliver a positive return – albeit that after inflation, the purchasing value of cash savings declined.
In 2020-21 cash was once again the worst performing asset class.
The bottom line
Returns from asset classes are never consistent. Successful investing benefits from having a good balance.
Rather than trying to pick the winning investment each year, spreading your investments across a wide range of assets can help to reduce the risk of loss over longer periods that could occur if you had all your capital tied to just one asset class.
Investors who are well diversified tend to enjoy a smoother investment ride over the long term.
Long-term returns data also proves that time in the market will deliver consistent growth over longer periods despite periods of short-term volatility.
Making additional contributions and harnessing the power of compounding returns can make an enormous difference over time.
And it’s never too late to start doing this to give yourself the best chance of investment success.
If you would like to discuss your investment portfolio in light of recent market volatility, please call us today.
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.
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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.
Buachailli Pty Ltd ABN 57 115 345 689 atf Harlow Family Trust t/as Queensland Financial Group is a Corporate Authorised Representative of Synchron AFS Licence No. 243313 This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.
8 retirement mistakes and how to avoid them
Retirement is a phase of life most of us look forward to. It’s a chance to pursue other interests, travel and maybe do some part-time work or volunteering.
Thanks to more than 30 years of compulsory superannuation, we are also retiring with more savings than previous generations and have higher expectations of the lifestyle we wish to enjoy. But that also brings its challenges.
According to the government’s Retirement Income Review, the average age of retirement in Australia is around the ages of 62 to 65.i At the same time, today’s 65-year-old men and women can expect to live to 85 and 88 respectively, on average, and many will live well into their 90s.
To make the most of your retirement years, it’s important to have confidence that your savings will last the distance. The best way to achieve that is to have a plan that will help you avoid some common and preventable retirement mistakes.
Mistakes people make
While it’s impossible to predict what financial challenges lie ahead, these eight common retirement mistakes remain the same:
1. Not knowing your living costs
When you are receiving a regular income, you may be tempted to focus less on keeping a track of your living costs. When the regular income stops at retirement, you can be unaware of whether your investment income and/or pension payments will support your lifestyle costs.
Knowing what your living costs are before you retire can help manage expectations accordingly.
2. Not looking at your super until just before retiring
What if your super was invested in conservative assets throughout your working life? It could mean that your super would not have grown to the level needed to fund your retirement. What if your super’s insurance premiums and fees consumed the returns?
It is vital to review your super account as early and as regularly as possible to ensure it is appropriate for each stage of your life.
3. Underestimating the impact of inflation
Australia’s rate of inflation hovered around 1 per cent to 3 per cent per year between June 2012 and early 2020. Since the onset of the global pandemic in March 2020, inflation has jumped to more than 7 per cent.ii This along with a disruption to the global supply chain and the Russia-Ukraine war has lifted the cost of living to levels that require you to reassess your retirement planning.
4. Not understanding your government entitlements
If you’re age 66 or older, you may be eligible for a full- or part-Age Pension. However, even if your level of wealth puts you above the pension limits, you may still be eligible for other entitlements.
These can include the Seniors Card, Pensioner Concession Card, income tax offsets or pensioner stamp duty exemption/concession.
5. Letting the noise affect your investment decisions
Negative news grabs headlines, such as talk of billions being wiped off share markets, but you rarely read about the billions made during the rebound. There is no denying that the financial markets face volatility during periods of uncertainty. However, as history has shown, over the long run the market trends upwards.
All this noise makes it difficult to stick your long-term strategy, when in fact such events can present opportunities in the markets too.
6. Trying to time the financial markets
“We haven’t the faintest idea what the stock market is gonna do when it opens on Monday — we never have,” said legendary share investor Warren Buffett. Say you invested $10,000 in the ASX 200 index by trying to time the market and you missed the 40 best days between October 2003 to October 2022, your investment would be worth $9,064, whereas if you remained fully invested it would be worth $46,099.iii
Trying to time the markets is never a good idea, especially with your retirement savings.
7. Being asset rich and cash poor
You may have built up a strong balance sheet of assets, but in retirement it is income you require. For many Australians, their family home could be their biggest asset and its value is sometimes unlocked by downsizing into a smaller home, but many Australians remain living in a family home that has surged in value while they struggle to find enough income to live on.
Are your assets generating enough income to support your lifestyle? This income can include rent from an investment property, share dividends or managed fund distributions. If the income is insufficient, you may have to sell some of your assets to provide that liquidity or tap into the equity in your home by taking out a reverse mortgage-style loan.
8. Not consulting professionals
Financial advisers, accountants and other financial professionals can help set you on the right path by navigating the complexities of superannuation, investments, constant rule changes and other factors that affect your retirement. A good retirement plan, implemented correctly, can set you up for life.
Start Planning
Whether it’s due to lack of time or awareness, too many people tend to make these same mistakes when entering retirement which can lead to unwanted financial surprises.
A phase of life you have looked forward to for so long deserves careful planning. So please get in touch if you would like to review your retirement income needs.
i Retirement Income Review Final Report, July 2020 page 63 Retirement Income Review Final Report (treasury.gov.au)
iii From 31 Oct 2003 to 04 Oct 2022, Fidelity Australia Timing the market | Fidelity Australia
Buachailli Pty Ltd ABN 57 115 345 689 atf Harlow Family Trust t/as Queensland Financial Group is a Corporate Authorised Representative of Synchron AFS Licence No. 243313 This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.
Responsible investing on the rise
For many people, there’s much more to choosing investments than focusing exclusively on financial returns. Returns are important, but a growing number of people also want to be assured that their investments align with their values.
Everyone’s values are different but given the choice most people would wish to make a positive difference to their community and/or the planet. Or at least to do no harm.
Indeed, four out of five Australians believe environmental issues are important when it comes to their investment decisions.i
As a result, there has been a surge in what is called responsible investing. Also known as ethical or sustainable investing, responsible investing is pretty much what it says on the label. That is, investments that support and benefit the environment and society more broadly, rather than those whose products or way of conducting business have a negative impact on the world.
Millennials driving growth in sustainability
The trend toward responsible investment has grown rapidly in recent times. According to the Responsible Investment Association of Australasia (RIAA), Australians invested $1.2 trillion in responsible assets in 2020, and we’re not alone.ii The global figure was $47.8 trillion in 2020.iii
The trend has accelerated in recent years, with money flowing into Australian sustainable investment funds up an estimated 66 per cent in the year to June 2021.iv
Responsible investing is particularly popular among millennials, now in their late 20s and 30s and beginning to get serious about building wealth. Many in this group are getting a foot on the investment ladder via exchange-traded funds (ETFs). A recent survey of the Australian ETF market found 28 per cent of younger investors had requested more ethical investments.v
More sustainable investment options
As awareness of responsible investing grows, so does the availability of sustainable investment options, beginning with your super fund.
Most large super funds these days offer a sustainable option on their investment menu. While relatively rare even 10 years ago, the availability and performance of sustainable options has grown strongly over the past three to five years.
According to independent research group, SuperRatings, the top performing sustainable options now surpass their typical balanced style counterparts in some cases.vi
If you run your own self-managed super fund (SMSF) or wish to invest outside super, there is a growing number of managed funds that actively select sustainable investments, or ETFs that passively track an index or sector.
There were 135 sustainable funds in Australia and New Zealand in 2021, so there is plenty of choice.iv
How to screen
But how do you find the ethical investments that best suit your values?
There are several methods used with the most common being negative screening where you exclude investments in companies engaged in unwelcomed activities.
The most common exclusions are companies involved in gambling, tobacco, firearms, animal cruelty, human rights abuses or fossil fuels industries.
Positive screening is the opposite, where you actively seek out investments in companies making a positive contribution to the planet. Some examples might be companies involved in renewable energy, health care or education.
Another criterion is to look at companies that monitor their environmental, social and governance risks as part of their existence. This cuts across all industries and is more about the way the company conducts its business.
Environmentally they may monitor their carbon emissions or pursue clean technology; socially they may be active in ensuring a safe workplace; and on the governance front they may pursue board diversity or anti-corruption policies.
Environmental themes the most common positive screens for investors
Source: RIAA
Climate plays a role
A survey by UBS found that four of the five top themes for responsible investing were related to climate with respondents citing such themes as renewable energy and efficiency, climate change mitigation and pollution prevention.vii
As the popularity of responsible investing grows, so do concerns about the practice of so-called greenwashing. This is where a company or fund overrepresents the extent to which its practices live up to their promises. The Australian Securities and Investments Commission (ASIC) recently announced a review into the use of greenwashing in Australia, prompted in part by the demand for such funds.
Another trend is impact investing in companies or organisations helping to finance solutions to some of society’s biggest challenges. This might include investments in areas such as affordable housing or sustainable agriculture.
At the end of the day, each method can be used separately or in a more holistic approach.
Solid returns
While some investors are driven by their values alone, many more want value for their money. The good news is that it’s possible to have it both ways.
The RIAA survey found super funds that engage in responsible investments outperformed their peers over one, three and five years. While the top performing ethical ETF turned in an impressive return of almost 37 per cent in the 12 months to March 2021.i
Clearly responsible investing is a trend that is gaining momentum, with the financial performance of sustainable investments attracting a wider following.
If you would like to discuss your investment options and how they might fit within your overall portfolio, don’t hesitate to get in touch.
i https://www.canstar.com.au/investor-hub/ethical-investing/
ii https://responsibleinvestment.org/resources/benchmark-report/
iv https://www.morningstar.com.au/funds/article/australias-sustainable-funds-market-is-growin/214505
Buachailli Pty Ltd ABN 57 115 345 689 atf Harlow Family Trust t/as Queensland Financial Group is a Corporate Authorised Representative of Synchron AFS Licence No. 243313 This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.
Is an SMSF right for you?
As anyone who has joined the weekend crowd at Bunnings knows, Australians love DIY. And that same can-do spirit helps explain why 1.1 million Aussies choose to take control of their retirement savings with a self-managed superannuation fund (SMSF).
As well as control, investment choice is a key reason for having an SMSF. As an example, these are the only type of super fund that allow you to invest in direct property, including your small business premises.
Other reasons people give are dissatisfaction with their existing fund, more flexibility to manage tax within the fund, plus greater flexibility in estate planning.
What type of person has an SMSF?
If you think SMSFs are only for wealthy older folk, think again.
The average age of people establishing an SMSF has been coming down and is currently between 35 and 44. Around half of all SMSF trustees own or have owned a small business and over 50 per cent have had their fund for over 10 years.i
They’re also dedicated. The majority of SMSF trustees say they spend 1 to 5 hours a month monitoring their fund.ii
But an SMSF is not for everyone. There has been ongoing debate about how much you need to have in your SMSF to make it cost-effective and whether the returns are competitive with mainstream super funds.
So is an SMSF right for you? Here are some things to consider.
The cost of control
Running an SMSF comes with the responsibility to comply with superannuation regulations, which costs time and money.
There are set-up costs and a range of ongoing administration and investment costs. These can vary enormously depending on whether you do a lot of the administration and investment yourself or outsource to professional services providers.
A recent survey by Rice Warner of more than 100,000 SMSFs found that annual compliance costs ranged from $1,189 to $2,738. These are underlying costs that can’t be avoided, such as the annual ASIC fee, ATO supervisory levy, audit fee, financial statement and tax return.iii
If trustees decide they don’t want any involvement in the administration of their fund, the cost of full administration ranges from $1,514 to $3,359.
There is an even wider range of ongoing investment fees, depending on the type of investments you hold. Fees tend to be highest for funds with investment property because of the higher costs of servicing direct property and higher administration costs for accounting and auditing.
Median total fees for SMSFs with and without direct property
| Balance | All funds | Funds with no direct property | Funds with direct property |
| $50,000 | $2,002 | $1,958 | $9,352 |
| $100,000 | $2,298 | $2,220 | $9,003 |
| $200,000 | $2,898 | $2,603 | $10,398 |
| $300,000 | $3,140 | $2,861 | $10,044 |
| $400,000 | $3,235 | $3,034 | $9,887 |
| $500,000 | $3,339 | $3,207 | $9,969 |
| $1 million | $3,558 | $3,476 | $10,619 |
| Over 5 million | $12,461 | $6,746 | $32,641 |
Source: Rice Warner
By comparison, the same report estimated annual fees for industry funds range from $445 to $6,861 for one member and $505 to $7,055 for two members. Fees for retail funds were similar. It’s worth noting that fees for SMSFs are the same whether the fund has one or two members.
Size matters
As a general principle, the higher your SMSF account balance, the more cost-effective it is to run.
According to the Rice Warner survey:
- Funds with $200,000 or more in assets are cost-competitive with both industry and retail super funds, even if they fully outsource their administration.
- Funds with a balance of $100,000 to $200,000 may be competitive if they use one of the cheaper service providers or do some of the administration themselves.
- Funds with $500,000 or more are generally the cheapest alternative.
Returns also tend to be better for funds with more than $500,000 in assets. While returns will depend on the investments in your fund, average returns for the sector have tended to lag those for other types of super funds.iv
Even though SMSFs with a balance of under $100,000 are more expensive than industry or retail funds, they may be appropriate if you expect your balance to grow to a competitive size fairly soon.
In 2019, only 8.5 per cent of SMSFs held less than $100,000 in assets. Most of these small funds tend to grow quickly via ongoing contributions, or close, once retirees in pension phase wind down their fund.
Increased responsibility
While SMSFs offer more control, that doesn’t mean you can do as you like. Every member of your SMSF has legal responsibility for ensuring the fund complies with all the relevant rules and regulations, even if you outsource some functions.
SMSFs are regulated by the ATO which monitors the sector with an eagle eye and hands out penalties for rule breakers. And there are lots of rules.
The most important rule is the sole purpose test, which dictates that you must run your fund with the sole purpose of providing retirement benefits for members. Fund assets must be kept separate from your personal assets and you can’t just dip into your retirement savings early when you’re short of cash.
Don’t overlook insurance
If you considering rolling the balance of an existing super fund into an SMSF, it could mean losing your life insurance cover.
Large super funds often provide life cover at discounted group rates. So to ensure you and your family are not left with inadequate insurance you may need to arrange new policies. Some people leave a small amount in their previous fund to maintain their cover.
If you would like to discuss your superannuation options and whether an SMSF may be suitable for you, don’t hesitate to call.
iii https://www.ricewarner.com/wp-content/uploads/2020/11/Cost-of-Operating-SMSFs-2020_23.11.20.pdf
Buachailli Pty Ltd ABN 57 115 345 689 atf Harlow Family Trust t/as Queensland Financial Group is a Corporate Authorised Representative of Synchron AFS Licence No. 243313 This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.