Pathways to a prosperous future
We all look forward to creating a financially secure future. But how do you build security for tomorrow without sacrificing your lifestyle today – especially if you have a family to raise or a mortgage to manage?
There are many pathways to a prosperous future for you and your family. Your long-term strategy is likely to include everything from cash, managed funds and shares to the family home and your super. So it makes sense to follow the lead of the investment professionals and look at all your assets as a diversified portfolio.
By thinking about your assets as a portfolio, rather than a collection of separate investments, you can hone your strategy and make sure you’re getting the right overall balance between risk and return.
Getting the right balance
Most investors understand that there’s a trade-off between risk and return, with higher growth assets generally involving more risk. But what you might not realise is that the right mix of investments can give you better returns without driving up your overall risk. That’s because different asset types tend to rise and fall at different times, so the right combination can help you profit from the rises while cushioning the impact of the falls.
Your adviser can help you with how you should combine your assets to help achieve your objectives.
So it’s important to take a close look at all of your investments and think carefully about the role they play in helping you build your portfolio.
Investing in bricks and mortar
For many of us, the family home is a large part of our personal wealth – and we invest a large proportion of our income, and our lives, in paying it off.
The current record-low mortgage rates are a great opportunity for property investors, whether you’re looking to get a foothold in the market, grow your property portfolio or simply pay off your home faster.
But while property can be a great long-term investment, it is only one part of your portfolio. While it’s great to have a roof over your head, the value locked up in your home is hard to access, unless you plan to downsize down the track. Especially if you need funds in the meantime for things like the kids’ education. That’s where the other assets in your portfolio come into play.
Investing in shares
History shows that shares are an outstanding long‑term investment, despite the short‑term ups and downs. Over the long‑term, Australian shares have outperformed most other investment options. With the benchmark S&P/ASX 200 returning 9.58%1 a year for the five years to August 2013, it’s an enduring – if sometimes volatile – way to grow your money.
And it’s also worth considering investing in global shares. With the Australian sharemarket accounting for only 2.3% of the global sharemarket in August 20132, investing in global shares can provide additional diversification and investment opportunities.
You can invest in shares directly or through managed funds. For more information on the best way to access the sharemarket, speak with your financial adviser.
Get instant diversification with managed funds
Managed funds are a great way to take advantage of the benefits of a diversified portfolio without the effort of constructing it yourself. Because your money is pooled with contributions from other investors, you can draw on a wider range of opportunities. This may include bonds and other assets that can be hard for individual investors to access, such as large infrastructure projects like airports or energy production plants. And with a huge range of funds to choose from, it’s easy to find a fund with an appropriate balance of risk and return for your strategy – whether you’re looking to grow your money over the long term, earn an income today, or something in between.
Invest tax-effectively with super
When we think about our investments, we too often forget about super. Yet your super is likely to be your biggest asset after the family home.
Like a managed fund, super isn’t a separate asset type, but a vehicle for investing across a range of different assets. One of the main differences is that super can be extremely tax-effective.
Generally, you’ll pay less tax when you put money into super – less tax on your investment returns and less tax when you take it out. So compared with a non-super investment, super can give you more value from every dollar you invest.
For example, making salary sacrifice contributions lets you add to your super from your pre-tax salary. Instead of being charged your normal tax rate, these payments are taxed at just 15%. So if your normal tax rate is more than 15%, you’ll effectively get more for your money than if you had invested from your after‑tax income.
Similarly, earnings in super are taxed at a maximum of 15%. And if you are over 60 years of age when you access your super, any lump sum or income payments you receive will usually be tax-free.
However, while super may be one of the most tax-effective investments, it must be preserved until you reach your ‘preservation age’ – this means for most of us you can’t access it until you reach at least 55 years of age (and up to age 60 for others).
So it makes sense to treat super like any other investment and give it the attention it deserves. That means thinking carefully about your super investment options and ensuring you’re managing them actively to achieve the outcome you need.
1 Source: http://au.spindices.com/indices/equity/sp-asx-200.
2 Source: World Federation of Exchanges http://www.world-exchanges.org/statistics/monthly-reports.
This may contain general advice. General advice is prepared without taking into account your objectives, financial situation or needs, and because of this, you should, before acting on the general advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs and if the advice relates to the acquisition of a particular financial product for which a Product Disclosure Statement (PDS) is available, you should obtain the PDS relating to the particular product and consider it before making any decision whether to acquire the product.