Hey team,
Happy Monday.
Last week was a big one at Pivot HQ, with my second book baby Replace Your Salary by Investing officially released on Wednesday, and the Smart Money Accelerator kicking off on the same day! Massive shout out to everyone who has got behind these launches, I’ve been blown away with the results and feedback we’ve received so far – and I’m incredibly humbled by the faith the Pivot community has in us to help with making their money dreams come together.
In the past 12 months, we have seen a massive increase in cyber security attacks with names like Medibank and Optus in the firing line. Now, Latitude Financial Services have witnessed the largest-known data breach on a financial institution in Australian history. The company is a consumer lender that provides credit facilities to the likes of JB Hi-Fi and Harvery Norman. They have stated that around 14 million customer details have been taken, which include 8 million driver’s licence numbers and over 50 thousand passport numbers.
Latitude’s share price reacted negatively to the news as the potential financial and reputational impacts are being weighed up by investors. There is also news that Gordon Legal and Hayden Stephens and Associates are teaming up to investigate possible legal action for consumers.
Smart Money upside #111
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 financial 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.
Numbers/Background
Couple, early 40’s; household income ~ $650k; total assets ~ $5m; saving ~ $150k annually.
Frustrations
Knowing that their money could be working harder for them but not having the time or expertise to manage it better.
What they wanted from us / the advice process
Managing tax more efficiently, growing their investment portfolio and buying a property.
What success looks like for them
Creation of passive income.
What money strategy they were following before we went through the planning process
Moving all surplus cash into the offset account and selling off their RSUs.
What money strategy they chose to pursue from our planning work
Paying down variable debts and then using redraw to purchase a property and shares (non-deductible debt to deductible), a new banking structure to improve their cash flow, a review of their superannuation funds and insurances as well as investing into new investment bonds to create long term passive income.
Key benefits of going through the process
Education and understanding of what needs to happen prior to retirement as well as better tax management.
Value of advice after all advice fees year one: $30k
Year 20 upside after advice fees: $5.8m
If this story resonates you can book an intro call with us here.
Video of the week
Investing for your kids is something that a lot of parents want to be doing. However, if you don’t get the set up right you can be stung with a massive tax bill of up to 66%. In this week’s video, I unpack the things you need to think about when investing for your kids. Check out the full video here.
Client story of the week
If you don’t have good support in your corner, money and investing success can be seriously hard work. But if you’ve got average support it can be even harder. You get bombarded with conflicting messages and can end up more confused than when you got started, ultimately ending up being stuck in the inaction trap. This story is from a client that found a way to cut through the noise and accelerate their progress to financial stability. Check out the full video here.
Podcast drop
Learn the tips, hacks, and strategies to help you level up your money game. Pods released last week:
Upcoming events:
Free online money education to help you invest smarter and create a life not limited by money:
- Financing 101 – April 5, 2023, 12pm
- How to save more money faster – April 19, 2023, 12pm
- How to adult with money – May 3, 2023, 12pm
- How to get started investing – May 17, 2023, 12pm
- Get tax smart – June 21, 2023, 12pm
Blog of the week: How to get $428k more out of your super
Because the government seems to be constantly changing the rules, superannuation generally isn’t the go-to investment option for most Aussies. But squeezing an extra 1% out of your super fund will give the average Australian over $400k more money in super at retirement, so it’s worth having on your radar.
Consider this example.
Based on a 21 year old starting out in the workforce on the average Australian income for this age bracket of $58,604, based on employer contributions alone your super balance is expected to grow to $1,261,062 by retirement age of 65.
But if you can find a way to get your super working just a little bit harder for you, generating an extra return of only 1% on your super money would see your super grow to $1,689,976 – an uplift of $428,914.
So how do you get there?
There are a few key things you can do to get the most out of your super money, and when you nail these areas you’ll go a long way to setting up your super for success.
Choose quality investments
Ultimately, your super fund is an investment account, so the one thing that will have the biggest impact on your super growth over time is your super investment performance.
When you’re choosing investments, there are a lot of different ways to be right, and a lot of different approaches that can work. But there are only a few that work consistently year on year.
The main choice you need to make here is whether you want to invest with an actively managed investment, or take a passive index fund approach.
With an actively managed investment, you have an investment manager who is ‘actively’ trying to perform better or differently to the overall sharemarket. With a passive index fund, your investment will track the overall share market and market returns.
There are a lot of advocates for both approaches, and your choice here comes partly down to your investment preferences and philosophy – but the numbers don’t lie.
Research shows that in Australia, passive index funds perform better than actively managed investments more than 82% of the time, and globally the outperformance of index funds is even higher. For me personally, and when advising my clients we favour an index fund approach to deliver reliable, consistent returns over time.
Index funds in my view also have the very real advantage that the only way they can go to zero is if every single company in the country goes bust at the same time – a doomsday scenario that seems highly unlikely.
Make your choice, but choose wisely.
Choose a low cost fund
Once you’ve chosen your investment approach, you should look for a fund that offers the investments you want at a low cost. Cheapest isn’t always best, but if you’re comparing two funds that have similar investments, choosing the lower cost fund will mean more of your investment returns are growing your fund balance instead of just covering fees.
Consolidate your super
When I was younger and working different random jobs through university, I ended up with half a dozen different super funds. By the time I got motivated enough to consolidate them, most of the money had been eaten away by fees and insurance premiums.
Accumulating super funds is an easy thing to do, with most new employers automatically setting you up with a new super fund when you start with them, unless you tell them otherwise. Running multiple super funds means you’ll be paying two sets of fees, and may even be paying for extra insurance you don’t want or need.
Once you’ve chosen a quality super fund with solid investments, stick with one fund until you have a good reason to change. This will minimise your super fees over time, and keep all your money in the same place working together and working for you.
One word of warning when consolidating super or changing super funds around insurance. Most super funds automatically give you insurance cover for life, total and permanent disability, and income replacement when you open an account. If you aren’t thinking about this insurance cover when changing or consolidating super, this insurance cover can be lost.
If you’ve had any health issues since joining your super fund and taking out your insurance cover, this may impact your ability to get new insurance cover. This means that if you ‘give up’ insurance cover, you may be unable to get new cover to replace it in the future on the same terms, or even at all.
As much as Aussies typically feel like they’re bulletproof, the reality is that most Australians are under-insured – step carefully here.
Consider extra contributions
Because retirement feels like forever away most people aren’t rushing out to contribute money to their super that they could save and invest outside super. But because of the low tax rates on super investment earnings, along with the fact you can get tax deductions for making contributions to your super fund, extra super contributions are worth considering.
In my experience, making even small contributions to your super fund comes with an advantage that’s worth even more than the extra money you get into your fund.
I’ve found that as soon as someone starts making extra contributions to their super fund, however small they are, they immediately start paying more attention to what’s going on with their fund.
You look more at the performance, fees, and how your fund compares. You also get more motivated around growing your superannuation, something that will have big benefits over time.
Consider making even tiny extra contributions of as low as $10 per month, and then increasing this over time. You can have your employer take these contributions from your pre tax income, so you’ll hardly even notice the difference in your after tax pay. You can even do this when you get a pay rise so you don’t feel it at all.
The wrap
Your super will be one of your biggest investments in the future. Because super is often not front of mind, it’s easy for this investment to be a little neglected, sitting on the list as something you don’t have to worry about until you’re old.
Your super doesn’t need a lot of your attention or time, but a little goes a long way here. If you can squeeze just a bit more out of your super fund, it will have a huge impact over time and go a long way to improving your lifestyle in the future.
Choose good investments, a low cost fund, and keep your money consolidated through your career and you can have confidence your money is working hard for you – not just your super fund provider.
To your success,
Ben
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
Pivot Wealth
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.