INSIGHTS - Financial issues affecting your lifestyle

The feature article of our Insights newsletter for Spring focuses on personal debt. We discuss the differences between ‘good’ personal debt and ‘bad’ personal debt and provide some tips on managing your own debt situation.
You’ll also find a useful  tips for keeping your investments on track, no matter what the market is doing. We outline the fundamentals of investing you should keep in mind when making investment decisions.

Finally, I hope you enjoy our regular feature, an update on local and international markets from Colonial First State’s Investment Markets Research team.

These articles highlight the importance of regularly reviewing your financial plan. If you would like to discuss your personal situation or revisit your goals, please call me on 02 4925 6125.

Click here to get your free copy of our Insights Newsletter.

Are you ready for tax time?

With the end of the financial year just around the corner, now is the time to make sure your financial affairs are in order.  There are a number of smart strategies you could consider to help you streamline you finances and minimise your personal tax liability.

Insurance Premiums - Some insurance premiums, such as those for income protection are generally tax deductible as an expense incurred in earning your income.

Work Related Expenses - Don't forget to keep any receipts for work related expenses such as uniforms, training courses and learning materials, as these may be deductible for tax purposes.

Prepay Margin Loan Interest - If you have a margin loan, you can prepay up to 12 months interest in advance (subject to prepayment rules). You can claim a tax deduction for the prepayment in this financial year, further reducing your taxable income.

Tax Deductions for Investment Expenses - Expenses you incur while earning assessable investment income may be a tax deductible.  These expenses can include fees for financial advice, account keeping and management fees and interest payments on margin loans.  Claiming a tax deduction for these expenses could reduce your assessable income for the financial year, although not all expenses are immediately deductible. your tax adviser can help your determine what can be claimed.

Review Ownership Structure of Investments - Transferring the ownership of your investments to your self managed super fund (if your fund accepts this) or to your spouse, could reduce the tax you pay on future investment income and capital gains.  However, these transfers have capital gains tax implications so you should seek tax and legal advice from a qualified professional before proceeding.

Managing Capital Gains - It's important to assess if you have made any capital gains or losses from your investments.  The most common way you make a capital gain (or capital loss) is by selling assets such as real estate, shares or managed fund investments.  Managed funds also distribute capital gains which you must report. The Australian capital gains tax system is quite complex so it's important to consult with your tax adviser.

Contributions to Super - Contributing to your super can be one of the most tax effective ways of building your retirement savings.  However you need to be extra careful not to exceed your concessional contributions cap and incur excess tax.

The government limits how much you can contribute to super in any one year.  The annual contributions caps as of 1 July 2009 until 30 June 2012 are:

• $25,000 per year for pre-tax contributions (concessional) if you are under age 50 on the last day of the financial year.  If you're aged 50 or over on the last day of the financial year, a transitional cap of $50,000 per financial year applies until 30 June 2012 (commencing the year you turn 50).
• $150,000 per year for after tax contributions (non concessional) or $450,000 over a three year period if you are under 65 in the financial year the contributions are made.

It's important to keep your financial planner informed about any contributions you make so they can ensure you don't exceed these caps.  Contributions made over these caps are taxed at a hefty 46.5%.

If you currently have a salary sacrifice or transition to retirement strategy in place, or are self-employed and make personal deductible super contributions, you should speak to your financial planner to discuss whether you can boost your contributions this financial year or review your current arrangement.

If you would like to know more about which end of year tax strategies may be appropriate for you, you should contact your financial adviser.  If you dont' have a financial adviser you can call our office on 02 4925 6125 Monday to Friday.  In conjunction with your tax adviser, we can work with you to ensure you are taking advantage of any available tax concessions and that your investments are structured in the most appropriate way.

Disclaimer: This general advice has been prepared without taking into account your particular financial needs,, circumstances or objectives, and is based on Financial Wisdom Limited's understanding of current law as at 14 April 2010.  While every effort has been made to ensure the accuracy of this information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication. We are not tax agents and this article is not intended to be taken as taxation advice.

TIPS FOR SUCCESSFUL INVESTING

Article by Anthony Brodie Dip FP, AIMM, JP  Certified Financial Planner

1. Know what your goals/objectives are:
The first thing to ask yourself is, what are you trying to achieve?  This will have a vital bearing on the types of investments you should choose.  Are you investing to increase your income now, or is your aim to achieve capital accumulation for the future?  Or maybe something in between?

 2. Know your time frame:
Are you investing to buy a home in 2 or 3 years, or do you want to build up assets for your retirement over 10 to 20 years?  The assets that a prudent investor would select as short-term investments are quite different from those that would be selected for long-term investments.

The long term investor can take risk of having more funds invested in volatile investments like shares, because any downturn will in time have an upswing.  However, the short term investor who invested ins shares may be faced with a depressed market at precisely the time when the funds are needed.  Generally speaking, to get the best results you should aim to invest for the medium to long term if you you are investing in growth investments such as shares and property.

3. Know your risk tolerance:
It's no good choosing high risk/high return investments if you are going to lie awake at night worrying about them.  Be realistic and take a sensible approach based on your goals and time frame/s.  Do not expect a high return if you have all your funds invested in mostly fixed interest and cash.  This is one area where real assistance is required.

4. Diversify:
Don't put all your eggs into one basket, in other words diversify your investments by spreading them between an appropriate number of experience investment managers and the major asset classes (ie shares, property, cash, short term securities, fixed interest securities).  Usually all markets don't move in the same way at the same time, so if one asset class experiences a decline, chances are that the other classes will generally maintain their value.

5. Develop a strategy:
If an investment strategy has been based on quality advice, it will be appropriate for your circumstances for many years and won't need to be altered if market conditions change.  A common mistake is to forget about the strategy when market conditions change, that is some investors seeing the share market moving up are tempted to move all their money into shares.  If shares fall they then want to sell.  These investors try to time their investments to match turning points in the market and very often they only achieve the opposite.  Investors who sell when the market falls often only succeed in crystallising a loss.  Because they are out of the market chances are that they may miss the next rally. There is an old saying "It's not timing in the market that matters, but time in the market that counts".

6. Always seek good advice:
Always talk to an experienced and qualified Financial Planner about an investment strategy that will suit your circumstances.  The time he spends in reviewing your financial objectives, discussing your options and developing your investment strategy will probably be the best investment you ever make. 

Disclaimer: This article is no substitute for financial or investment advice and should not be read as such nor relied upon as such. You should seek your own professional advice tailored to your individual investment objectives, financial situation and particular needs.

If you would like further information or would like to arrange an appointment with Anthony Brodie by calling mobile 0425 234 234.