Making your wealth last a lifetime…
By Jenny Brown – CEO and Founder
It’s interesting, often when clients come to see us in preparation for retirement, they think they need to put all their money into safe conservative cash. However, that is often the worst thing you can do.
Why? Well what you have invested, which is usually in super needs to last for the rest of your life, it needs to keep up with or better still ahead of inflation and where ever possible your capital needs to be preserved. During the past 12 months, cash returned on average 0.25%, less than CPI.
Having a good, diversified portfolio is a great start. Diversification can help smooth out the highs and lows depending on your view towards risk. Diversification is having your investments in a number of different asset classes and sectors within those asset classes. If you take Australian Shares, for example, the ASX 200 had a negative 4.86% return during 2020, however, having a portfolio that is overexposed to Energy, Utilities or Industrials would have resulted in a double-digit negative return over the past 12 months, even financials had a negative 8.99% return. Whereas IT shot the lights out, with materials and consumer discretionary spending posting healthy returns. But it won’t always be this way as history has shown.
Another good strategy is to ensure that you invest into quality assets and have 2-3 years’ worth of drawings or “pension” payments in cash so that when the income earned from your investments gets added you have a good buffer against any market downturn or a GFC mark 3. The dip in March 2020 due to Covid19 provided a very timely reminder that having good diversification and quality assets they will rebound over time. By doing this it means that you won’t need to sell quality assets in a depressed market to fund your pension as you have the cash available to meet your requirements.
Currently, the best tax environment to invest in is still superannuation. With fund earnings tax under current legislation at a maximum of 15% whilst in the accumulation phase and moving to 0% when fully in pension, Super provides a good structure to hold your investments. Yes, we hear you, the government of the day whoever they often keep changing the rules, but we know that the tax rates are better than if you had your investments held in your own personal name.
So that’s the investment part, sound easy right! Well often it’s not, when the markets are going up, everyone is happy and comfortable with their portfolios, it’s those times when the markets are a bit volatile or bumpy that good financial planning comes into play. It’s when you need the help of an adviser to talk through the various strategies that have been implemented and ensure that your portfolio is well-positioned into the future.
And investments are only one part to ensure that your wealth will last a lifetime, there are numerous other factors that need to be considered, such as how much you are drawing from your super including those unexpected lump sums to fund holidays or a new car.
Have you recently done that dreaded budget or spending plan? I know it’s often not a nice thing to do, but it really does help highlight where you might be able to save some money or cut back. It’s surprising the savings that can be found if you do a little research and shop around. I can say from recent experience, keeping a good eye on expenses will pay good dividends.
Planning well in advance of retirement is also key, it’s ensuring that you have enough money to live on, that you have maximised your superannuation contributions to build that nest egg that is going to last for the rest of your life.
As they say, the best time to plant a tree is 100 years ago, the next best time is today. We encourage our clients to start thinking and start planning for retirement today to enable them to have as many choices as they can in building their wealth. If you start early enough with time on your side, then the strategies will help the plans fall into place.
So, let me finish by asking you this: do you have the right plan in place, does it work for you, does it need a re-work, and will it be the right one that will allow you to actively live the life you want to live and ensure that your wealth will last a lifetime.
Reach out and discuss your situation with the JBS Financial team.
Jenny Brown – CEO and Founder