Hey,
Happy Monday.
New data is stating that the likelihood of an Australian recession is as high as 70%. The chief economist of Macroeconomics Advisory, Stephen Anthony has predicted a 50-70% chance of a recession in the next 12-24 months due to high-interest rates and the slowdown in China’s economic activity.
It’s not all doom and gloom though, the share market has been absolutely rallying these past few weeks and as Warren Buffet said, “Be greedy when others are fearful and fearful when others are greedy.” Definitely, an interesting time to be reviewing your investment strategy, and I know I will be.
Smart Money upside #104
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, late 30’s; household income ~ $200k; total assets ~ $600k; saving ~ $5k annually.
Frustrations
Not having money sitting in the right spots, needing to constantly take money out of savings and not having any investment knowledge.
What they wanted from us / the advice process
Trying to save for a house in a new area and help put their money in the right spot.
What success looks like for them
Move out of town – down towards the coast, keep the current home as an investment, have diversified investments across super, shares and property, not living paycheck to paycheck, money to go on other holidays and cut back to part-time work.
What money strategy they were following before we went through the planning process
Saving money in cash.
What money strategy they chose to pursue from our planning work
A new debt management strategy, superannuation rollover, a new banking structure and starting to build an investment portfolio.
Key benefits of going through the process
A better understanding of their financial future, a clearer idea of how money is working for them and a clearer picture of the steps needed to move to their dream home.
Value of advice after all advice fees year one: $2k
Year 20 upside after advice fees: $750k
If this story resonates you can book an intro call with us here.
Video of the week
Is the share market about to boom? The market is giving off big signals that investors should be starting to take advantage of. In this video, I discuss the signals and detail things you need to be thinking about. Check out the full video here.
Client story of the week
Because people don’t often talk about the full details of their money, it’s hard to know what might be possible when it comes to investing and wealth building – so I wanted to share. In this week’s client story, we unpack what was and what wasn’t working for them, and what they chose to do with the support of a solid financial plan. 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:
- #291 Money News in human words; Home upgrading, how wealthy are you, & stamp duty vs land tax
Upcoming events:
Free 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: The hack to increase your super balance by $584k
If you’re like most people, you might think superannuation is something pretty boring that only matters when you’re old. And if you’ve got aspirations of retiring early, it’s easy to think the right move is to all but ignore your super and instead focus on other ways to build your wealth. And you’re right…
Well, at least half right.
You absolutely should have most of your focus on investing in areas other than your super fund. But your super fund will grow to be one of your biggest investments, so it deserves some attention – a little bit goes a long way here.
If you’re 20, making extra super contributions of just $5 daily will mean an extra $584,3911 in your super fund by age 60. And it gets even better because you can get a tax deduction for contributing to your super, meaning it won’t even actually cost you five dollars to get five dollars into your super fund.
Over the years I’ve been helping people with their investing, particularly those in their 20’s, 30’s, and 40’s, I’ve identified a mystery that’s always fascinated me.
Any sane human being that has $10,000, $50,000, or $100,000 (or more) in an investment account would pay serious attention to this money. You’d want to check in on your money regularly, you’d want to know how it was invested, how your investments were performing, and you’d want to know it was set up in the best way possible.
But when it comes to super, most people take the opposite approach. Recent superannuation statistics from Finder.com.au show 10% of super fund members never check their super fund balance, with another third of super fund members checking their balance less than once every three months. To add to this, 58% of Australians don’t actively choose their super fund, instead going with whatever default super option is offered by their employer.
In my opinion, this is borderline crazy.
I want to make something really clear here – superannuation is YOUR money.
How to make the most of your superannuation money
You essentially have total control over how your super money is invested, where this money goes, and how it grows. And it doesn’t matter to anyone else (read your employer or super fund provider) how your super money performs and grows as much as it should matter to you.
Your super fund shouldn’t need a lot of your attention or time. But there are a few things you should do to make sure your super money is working hard for you.
Choose a good super fund
The superannuation fund market is highly competitive, and super funds are getting cheaper with each passing year. This creates an opportunity for you to get your super money working harder for you.
In my opinion, the main thing that should be driving your choice of super fund is your investments. If you first figure out what you want to invest your super money into, i.e. whether you want to use passive index funds, ethical investments, or actively managed investments, this will help you narrow down the number of super funds that might make sense for you.
From there, you want to look at the fees and make sure you’re getting the best deal for the investments you want to use.
Review your performance
As mentioned in the statistics above, so many Australians rarely check in on how their super fund is growing – in my opinion this is a major mistake.
Checking in on your super fund will help you understand how your chosen fund and investments are performing relative to the other super funds you could be using. Further, keeping track of how your super is growing will help you build your understanding of investments and investment markets, leading to more confidence and peace of mind.
Make extra contributions
You can make tax-deductible super contributions of up to $27,500 each year, which means that super contributions can cut your tax bill and help you invest more at the same time. And it gets better because once money is invested through superannuation all earnings are taxed at a maximum rate of tax of 15%, which compares to personal marginal tax rates of up to 47%.
Further, when you make extra contributions to super you create a positive investing habit that you can then build on for the future. And as an extra bonus, I guarantee that when you start making any level of extra contributions to your super you’ll start paying more attention to your super money and how it’s growing.
Super won’t be your first investing strategy
Even though we can see from the figures above that the tax benefits of superannuation are compelling, in my view, it’s probably not the best strategy to go ‘all-in’ on when you’re early on in your investing journey – for the primary reason that you can’t access your super money until age 60 under the current rules.
To me, this means that before you start heavily cranking your superannuation you should lay the groundwork for your investing and wealth-building outside of superannuation.
Because the property is such a crucial step on the journey to financial security, in my opinion when you’re early on in your investing journey, you should have a strong focus on creating a clear path onto the property ladder. In my view, this will make a bigger difference to your long-term wealth position than the tax benefits offered by superannuation.
That being said, it doesn’t mean you should do nothing about your super until you get there. Making sure your super money is invested well is something every single person should do immediately, and starting a small regular contribution plan will get your super money growing faster and help you build good money habits at the same time.
The wrap
Your super fund will grow to be one of your largest investments over time, and small changes have a huge compounding effect over time. With the tax benefits available to super fund investing, super becomes a compelling strategy as you want to build your wealth and get ahead.
But given you can’t access your super until retirement, early on in your investing journey super is likely to take the back seat to other strategies like buying property – but this doesn’t mean super should be ignored.
Take the time to get your super money invested in a quality fund with solid investments that will perform well for you. Check-in on how your fund is tracking over time to make sure your money is working hard for you and that you’re still getting a good deal from your chosen fund. And think about making some small extra contributions to build good investing habits, save some tax dollars, and get your investments growing faster.
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.