Before I get into it for this week, I’m happy to report that my new book baby Replace your Salary by Investing has just gone LIVE on Amazon.
Big shout out to everyone that’s got involved in the first week of the launch, and I’m pumped to report that we’ve celebrated by providing over 1000 people with access to clean, life-saving water in developing countries through our partnership with B1G1.
In money news, the ASX has hit a 9-month high this week. This peak is the highest it has been since April 2022. Off the back of this, the Aussie dollar is also back up over 70 US cents. With travel getting back into full swing, it’s starting to look like it could be a cost-effective time for a holiday.
Brazilian and Argentinian leaders have suggested a new, common currency that would originally be between the two countries, then expand into the rest of South America. The move is intended to boost regional trade and reduce reliance on the US dollar. They have suggested naming it the ‘Sur’ which translates to the south in Spanish.
Smart Money upside #102
Here we unpack the numbers from a recent client we helped, what they were doing with their money when they came to see us, what they chose to do as a result of going through the financial planning process, and the impact and upside we helped them achieve. To chat about how to get these sorts of results, you can book an intro chat with us here.
Couple, early 40’s; household income ~ $280k; total assets ~ $1.5m; saving ~ $10k annually.
Having a large debt and not knowing how to use surplus cash properly.
What they wanted from us / the advice process
A better way to invest money and have a structured financial plan. They were open to suggestions about how to build their assets.
What success looks like for them
Managing their debt more effectively, maintaining their current lifestyle, growing wealth through investment properties, the ability to travel regularly, more education on their finances and setting their kids up for the future.
What money strategy they were following before we went through the planning process
Utilising micro-investing platforms and individual investments as well as using an offset account for their loan.
What money strategy they chose to pursue from our planning work
A superannuation review and a change of investments within their super, a new banking structure, investing in a new diversified portfolio and buying an investment property.
Key benefits of going through the process
Knowledge of their position, education about different investment options and getting clear on their financial trajectory to build confidence they’re on track while being able to help their children.
Value of advice after all advice fees year one: $40k
Year 20 upside after advice fees: $2.8m
If this story resonates you can book an intro call with us here.
Video of the week
Food inflation is raging with prices at some of our biggest supermarkets up close to 10%. In this week’s video, I talk through the ways you can still save more and invest more in 2023, accounting for this raging inflation. Check out the full video here.
Client story of the week
If money and investing aren’t your things, it’s easy to end up resenting the time you have to spend to stay on top of your money management and the constant feeling there’s some trick you’re missing that could make your investments grow faster or easier (or both). This story from a recent client shows how we helped him put a smart tax plan in place to accelerate his wealth-building and bring forward financial security. Check out the full video here.
Learn the tips, hacks, and strategies to help you level up your money game. Pods released last week:
- #287 Money news in human words; Refusing promotion, record property decline & investors bai
Online money education to help you invest smarter and create a life not limited by money:
- Buy property smarter in 2023 – February 22, 2023, 12pm
- Build a second income investing in 2023 – March 8, 12pm
- Invest with property equity in 2023 – March 22, 2023, 12pm
Blog of the week: Choosing the wrong super fund can cost you $166,578
If you’re like most Australians, you probably think super is something you only have to worry about when you’re old and getting ready to retire. That’s only half right.
When you’ve got a long time until retirement, your super doesn’t need too much of your time or attention – but a little goes a long way here.
For a 30-year-old earning the average Australian income of $92,029 with $50k in super, an annual difference of 1% in returns would mean an extra $166,578 in your super fund by age 65.
Choosing the best super fund to hold your superannuation investments is one of the biggest drivers of how your super money will grow over time. There are four main types of super funds you should be aware of to make the right choice for you.
These are funds that were originally set up to service the workers within a specific industry. The majority of these funds are not run for profit, which for most results in their fees being lower than the majority of other superannuation fund options. Typical fees on an industry super fund are between 0.5% and 1% p.a., meaning that for every $100k you have invested, you’ll pay between $500-$1,000 every year.
These funds can be great to reduce your super fees, and many of them have decent investment options with good performance history. But because industry funds are run as low-cost fund super products, generally speaking, the available investment options are slightly more limited, and they typically don’t invest as heavily in their technology which can take away from your user experience.
Retail super funds are typically run by for-profit companies and are generally more expensive than industry options, but most give access to a wider range of investment options.
Typical fees on retail super funds range between 0.5% and the most expensive is up to a whopping 3%, meaning that for every $100k you have invested, the fees will be between $500-$3,000 p.a.
Corporate super funds
These types of funds are typically retail funds that are offered to larger employers with discounted pricing and sometimes even subsidised benefits like insurance coverage. The super funds do this because they’re chosen by the employer as the default superannuation option, meaning they get instant access to a large pool of potential members.
Typical fees on corporate super funds range between 0.5%-2%, so for every $100k you have invested the fees will be between $500-$2,000 p.a.
Some of these corporate deals will also include ongoing financial education or access to an adviser which can be helpful. Just keep in mind that when your financial education is coming from the provider of a financial product, there’s a potential conflict of interest because it serves them for members to remain within their financial product.
Overall how good a corporate super fund depends on the deal an employer can strike with the super provider. I’ve seen really good deals here with ultra-low fees and good subsidised benefits, and others that are very expensive without giving much in return. The devil is in the details here, so if your employer offers a corporate fund you should take the time to understand how it compares to the alternatives.
Self-managed superannuation funds
Self-managed superannuation funds (SMSFs) are a special type of super fund that gives you full responsibility for the management of your superannuation money and allows you to invest in anything from artwork and antiques to traditional investments like property and shares.
The operations of an SMSF are fairly involved and can be quite complicated and time-consuming and expensive, and when you have an SMSF you need to complete and manage a tax return and audit for your fund each financial year.
I’ve spoken to a lot of people that are considering using an SMSF because they want more control over how they invest their superannuation money. But in reality, you can access most investments that people want and get almost the same level of control through a cheaper super fund option.
Guidance suggests that using an SMSF only starts to make sense when you have at least $250k+ in your super fund, and in my opinion even then you need to really make sure the benefit you’re getting from using an SMSF is worth the cost.
How to choose a super fund
The options above all have their benefits and disadvantages, and any option can be good for you and not good for someone else. There unfortunately is no ‘right fund’ type you should use or ‘wrong fund’ to avoid. But there is a right way to make your super fund choice.
Start with your investments
Given your super fund is essentially just an investment account with more favourable tax rules, the investing strategy you want to follow with your super money will be the main driver of what super fund is best for you.
Here you want to choose your investment strategy, and decide whether you want to follow a passive index fund investing approach, invest actively, or use ethical or socially responsible investments. Then when choosing which super fund is best for you, you can narrow down the list of which funds make the most sense for you by starting with those that give you access to the investments you want.
Look at fees
Fees aren’t everything when it comes to super, but they are important. Given the super fund market is highly competitive and the fact super fees are trending down over time, you should be looking at fees so you don’t pay more than you have to.
Once you’ve narrowed down your potential super funds by looking at which gives you access to the investments you want, you can rank the funds by those with the sharpest pricing. You can use super comparison tools like this one from ASIC to save you time when comparing funds
For example, if you want to follow an index fund passive investing approach, you could first look at the funds that offer good index investment options. From there, you look at which ones are priced most competitively to get your shortlist.
Look at features and user experience
If you value certain features or benefits from your super funds, such as the ability to buy exchange-traded funds (ETFs) or direct shares, better quality insurance cover, or a slick user experience you might be prepared to pay a little extra. But if you’re paying for features you’re not using, then your money is going to waste.
Understand what you want and what’s available from your different super options, and then you can compare the fees against funds with similar features.
Beware of insurance when switching
Many Aussies (and young people in particular) fall into the trap of thinking they’re bulletproof and don’t need insurance, but research was done by the Australian Financial Services Council through their ‘Underinsurance’ report shows we have a huge underinsurance gap in Australia.
If you don’t think about your insurance coverage when switching funds, you can end up losing the coverage which can be a serious problem if something goes wrong. If you’re looking to switch your super, take the time to understand the insurance cover you have in place now, what’s offered by your new fund, and what benefits you might be giving up if you switch. This way you can make an informed choice and make the right moves for you.
Choosing the right super fund will have a huge impact on how your investments and wealth building over time, so making the right choice will pay big dividends. But once you’ve selected a quality super fund to deliver good investment performance over time, unfortunately, your work doesn’t (quite) stop there.
The superannuation market is highly competitive, products tend to evolve (and get cheaper) over time. This means that even once you’ve chosen a cracking super fund today, you need to check in on your fund over time to make sure it’s still the best one for you.
Your super fund shouldn’t need a lot of your time and attention, but a little bit goes a long way here.
To your success,
PS: Pivot Wealth exists to help people invest smarter to create a life not limited by money. If you want help to make your next steps easier, you can book a 10-minute, no BS chat with us here.
Founder and Adviser
The information in this note is not personal advice, a guaranteed pathway to that elusive beach bod, or the lost script of Edna St. Vincent Millay’s Pulitzer Prize-winning Conversation at Midnight. This is just a bulk communication pushed out into the internet, and it doesn’t even have your name on it. Your personal situation, needs & objectives, and financial situation have not been considered in putting this together – nor have we considered your dietary preferences, the way you like your hair cut, or your favourite travel destination – but we have spent a lot of time thinking about the future of urban society, whether there is other intelligent life in the solar system, and the pervasion of soy and linseed bread in Australian metropolitan hubs. You should consider the appropriateness of any general advice in relation to your own objectives, financial situation and needs and seek advice before taking any action. You should also consider using a variety of eau de toilette fragrances to keep your partner interested and colleagues on side, not using plastic straws, and minimising your screen time. Where information relates to a financial product, you should read and understand the relevant product disclosure statement. Where information relates to your own potential for awesomeness, you should consider backing yourself totally and completely. Past performance is definitely not an indicator of future performance when it comes to investments and financial products, as well as the likelihood of your children sitting still and quiet for an hour being satisfied playing with a used piece of wrapping paper. Financial services guide.