Benefits of a super long engagement

benefits of a super long engagement.JPG

Superannuation is a long-term financial relationship. It begins with our first job, grows during our working life and hopefully supports us through our old age.

Throughout your super journey you will experience the ups and downs of bull and bear markets so it’s important to keep your eye on the long term.

The earlier you get to know your super and nurture it with additional contributions along the way, the more secure your later years will be.

Like all relationships, the more effort you put into understanding what makes super tick, the more you will get out of it.

Check your account

The first step is to check how much money you have in super and whether you have accounts you’ve forgotten about.

You can search for lost super and consolidate all your money into one fund if you have multiple accounts by registering with the ATO’s online services. Having a single fund will avoid paying multiple sets of fees and insurance premiums.

The next step is to check what return you are earning on your money, how it is invested and how much you are paying in fees.

The difference between the best and worst performing funds could fund several overseas trips when you retire, so it’s worth checking how your fund’s returns and fees compare with others. You can switch funds if you are not happy, but it’s never wise to do so based on one year’s disappointing return.

State your preferences

Default options are designed for the average member, but you are not necessarily average. Younger people can generally afford to take a little more risk than people who are close to retirement because they have time to recover from market downturns. So think about your tolerance for risk, taking into account your age, and see what investment options your super fund offers.

As you grow in confidence and have more money to invest you may want the control and flexibility that come with running your own self-managed super fund.

Also check whether you have insurance in your super. A recent report by the Australian Securities and Investments Commission (ASIC) found that almost one quarter of fund members don’t know they have insurance cover, potentially missing out on payouts they are entitled to.ii

Insurances may include Total and Permanent Disability (TPD) and Income Protection which you can access if you are unable to work due to illness or injury, and Death cover which goes to your beneficiaries if you die.

Building your nest egg

Once you understand how super works you can take your relationship to the next level by adding more of your own money. Small amounts added now can make a big difference when you retire.

You can build your super in several ways:

  • Pre-tax contributions of up to $25,000 a year (including SG amounts), either from a salary sacrifice arrangement with your employer or as a personal tax-deductible contribution. This is likely to be of benefit if your marginal tax rate is higher than the super tax rate of 15 per cent.

  • After-tax contributions from your takehome pay. If you are a low-income earner the government may match 50c in every dollar you add to super up to a maximum of $500 a year.

  • If you are 65 and considering downsizing your home, you may be able to contribute up to $300,000 of the proceeds into your super.

You could also share the love by adding to your partner’s super. This is a good way to reduce the long-term financial impact of one partner taking time out of the workforce to care for children. You can split up to 85 per cent of your pre-tax contributions with your partner. Or you can make an after-tax contribution and, if your partner earns less than $40,000, you may be eligible for a tax offset on the first $3,000 you put in their super.

Before you make additional contributions, adjust your insurance, or alter your investment strategy, it’s important to assess your overall financial situation, objectives and needs. Better still, make an appointment to discuss how you can build a positive long-term relationship with your super.

i https://download.asic.gov.au/media/4861682/rep591- published-7-september-2018.pdf

Fostering financially savvy young adults

Fostering financially savvy young adults.JPG

From student debt to new technology and landing that first job, today’s young Australians are transitioning into adulthood in a world very different from the one their parents entered. While economies and societies might change, the principles of managing one’s personal finances stay the same.

Most parents try to instil good money habits in their children from an early age. Eventually they outgrow piggy banks and pocket money but the opportunities to help them navigate the world of personal finance don’t end with childhood.

Here are five lessons parents might consider passing on to their offspring as they make the transition to independent, financially savvy adults.

Lesson 1: Becoming independent requires work

Even if you can afford to fully support your young adult children while they are still students, encouraging them to take on a part-time job can teach them valuable financial and life lessons. Not only will the income allow them to save for goals such as gap-year travels, but they will also learn how to make a job application and the soft skills required in the workplace.

If they are eligible for employer-paid superannuation, you could show them how to check their account, consolidate accounts if they have had more than one job, and discuss the magic of compound interest.

Lesson 2: There are no free lunches

Today’s young adults have near-instant access to credit through high-tech offerings such as payday lender apps and buy now-pay later services such as Afterpay.

The self-discipline required to manage these new forms of instant credit is a big ask, especially when many of us still have problems with old-fashioned credit. A recent ASIC report found that Australians collectively had 14 million credit cards with an outstanding balance of $45 billion. Around half a million Australians were in arrears and almost a million were dealing with persistent debt.i

If you can’t convince your children to avoid the temptation posed by ‘frictionless’ credit, at least explain that easy money commonly involves high interest rates and charges. If your child is determined to take out a personal loan, help them review terms and conditions and encourage them to shop around.

Lesson 3: Good, tolerable and bad debt

Once your child is old enough to be targeted by credit providers, it’s time to have the conversation about different types of debt. Talk them through how good debt is used to purchase appreciating assets such as real estate. Acceptable debt covers things such as taking out a car loan, so you have the means to get to work or study and don’t need to rely on parents to chauffer you around. Bad debt is using other people’s money to splurge on travel, clothes or the latest gadget.

Lesson 4: Investing doesn’t need to be time-consuming and boring

The same technology that has made it so easy to get into debt has also made it easier to start the investing habit.

In recent years, micro-investing platforms such as Raiz and Spaceship have made it simple and attractive for techsavvy Millennials to start investing in equities. These platforms make delaying consumption near painless by, for instance, rounding up purchases to the nearest dollar then directing the ‘spare change’ into investments.

If your progeny is working and receiving super, you might also want to suggest they download their super fund’s app, so they can monitor their financial progress on the go.

Lesson 5: Setting goals to make dreams come true

When your young adult starts working after years of student thrift, the temptation to spend is understandable. While it’s important to have fun, you can point out that setting goals and sticking to a budget in the short to medium term means they can put themselves in a position to travel the world, buy a property and maybe even retire early.

Money isn’t everything but teaching your young adults how to manage it well increases the odds that they will lead the life they dream of. Even better, you won’t need to erode your retirement savings bailing them out of financial trouble.

i https://asic.gov.au/about-asic/news-centre/find-a-media-release/2018- releases/18-201mr-asic-s-review-of-credit-cards-reveals-more-than-onein- six-consumers-struggling-with-credit-card-debt/


What’s ‘passive’ investing really, and is it truly ‘passive’?

Passive investing graphics.jpg

When clients ask me, ‘How are my investments doing?’ or ‘What’s the performance been?’ it’s always important to ask first, in comparison to what? Value judgments for these kinds of questions need a benchmark, or standard, against we hold the results to measure. For some things the standard is zero; maybe when considering the interest rate on a savings account, or possibly you may be interested in the rate compared to an inflation measure, such as the Consumer Price Index (CPI). You may even have a simple fixed rate of return you are comparing to, such as 3% per year.

Other investments you might measure against similar investments, so how does a Term Deposit look compared to savings accounts, or a Bank Bill compared to a similar length Term Deposit? For listed shares, it has become the norm to compare, or benchmark, how individual stocks or large portfolios perform relative to an Index, like the S&P/ASX 200 for a diversified portfolio of Australian Shares.

Some of these indices date back over a century in the US, with measures like the Dow Jones Industrials Average (DJI) first established in 1885, however indices have changed quite a bit since then, especially once the use of computers to track overall share market movements became possible. More meaningful indices such as the Standard & Poors 500 (S&P 500), which tracks the top largest 500 listed companies in the United States as measured by market capitalisation (or size for want of a simpler description), started to appear in the 1960s.

In Australia the equivalent index was the All Ordinaries Index, which covered the top 500 largest Australian listed companies, but has generally been replaced by the S&P/ASX 200, as outside the top 200 stocks you are getting into some very small companies.

Which brings me to my central question, what is ‘passive’ investing and how passive is it really? Well, Passive Investing, often used interchangeably with the term Index Investing, is where you invest in a portfolio of assets (usually shares, but this can often apply to other asset classes like bonds) that match as closely as physically possible, a chosen Index.

Passive investing uses generally only traditional, market-capitalisation (size) weighted indexes. This is an essential point in this discussion, because indices don’t have to be market-cap weighted, it’s just that historically this is what we have decided is the best representation of the default, un-adjusted view of the share market as a whole.

This is interesting because some of the first indices, such as the DJI, were simply measures of changes in share price of a basket of the 30 biggest companies, not changes in overall company value, or market capitalisation.

To get the market cap, or size, of a company, you need to multiply the share price by how many shares are on issue. A company with 10,000 shares worth $100 each is worth $1 million, a different company with a million shares on issue, but with a share price of only $1 is also worth $1 million overall.

So share prices on their own can be deceptive. If the share price falls 10% because a company has issued (created) an extra 10% in shares (without getting any new money for it, say as a director’s bonus), then the value of the company hasn’t changed, but the share price has. So simple share price Indices have their drawbacks, but all Indices do, it’s just some we accept as minor and others we can’t avoid.

So why might these passive investment portfolios, built from copying blindly ‘the index’, not be truly passive? Let’s focus on the Australian share market for the moment, and taking the most widely accepted benchmark Index, the S&P/ASX 200, this index is comprised the top 200 largest (by market capitalisation) listed companies on the Australian stock market.

But there are some significant caveats to this; ‘largest’ is adjusted for ‘available float’, so if a company only has 50% of its shares available for trade (with the other 50% held by a private investor or other parent company for example), this can affect it’s weighting or even inclusion in the index. Other considerations include liquidity and tradeability, company stocks must be ‘institutionally investible’, so very low turnover or illiquid stocks, don’t get included because they are not practically investible by institutions.

This is very important because these excluded companies do exist and in reality form part of the investible universe for the average person on the street, regardless of how attractive (or unattractive) they are from an investment perspective. Other considerations such as if the company is undergoing part of a merger or acquisition can find them excluded from the calculation of the benchmark. These calculations of the composition of the index are usually done each quarter, introducing a large timing factor, especially considering that the real world market trades almost every business day.

But the biggest factor on the nature of index investing is the weighting to size, or market cap. If you take all the 200 companies included in the S&P/ASX 200 and added up their individual market caps, then how much weight each company has in that index is based on their proportionate size compared to the market as a whole.

So if, for example, the Commonwealth Bank of Australia (CBA) market cap is 7.5% of all the top 200 companies in the index combined, then the Index would weight CBA to 7.5%. Any change in CBA’s share price would affect the S&P/ASX 200’s performance by 7.5%. In fact, just the top 10 stocks in the index represent around 45% of the entire S&P/ASX 200 index, putting a lot of influence over the ‘market index’ by just 10 companies. Now this may be saying a little more about the size of the Australian share market than about indexing generally, but it relates to my next point.

As companies grow in size within an Index, if you are ‘passively’ following the index, the weighting of that company in your portfolio is allowed to grow. You never ‘take profits’ on that specific stock. This is not to my mind a ‘passive’ decision, it is an ‘active’ investment decision whereby you are choosing to continue to invest in a rising stock. You are just doing it automatically, following the Index ‘rules’. If a fund manager or investor was to do this outside of following an index, it is called a ‘momentum’ play, where you hope to benefit from the continued rise of a share’s price over time.

This also works in reverse. As a company stock falls in value, you allow it to fall in value within your portfolio, you do not ‘re-balance’ or ‘top up’ (some might say ‘throw good money after bad’), and eventually if the stock continues to perform poorly, they will get dropped from the Index. When this happens the passive investor sells their stock, but again, this is not really a ‘passive’ investment, you are actively deciding to sell based on the rules of the index. A non-index investor (labelled active investor by the finance community) may continue to hold that stock indefinitely, or at least until it goes into liquidation.

So the ‘passive’ investor isn’t so much being passive, as they are following a prescriptive set of investing rules that are laid out by how their chosen Index is constructed. Traditional indexes that seem to be allowed to call themselves passive are ones set around market-capitalisation weighted, with minimum free float, liquidity and other constraints. These rules are an ‘active’ decision on what constitutes the Index.

Many other rules can be used to make up Indices, and these alternative Indices can be used to make up Index-following, or ‘passive’ investments. But these new breed of Indices and Index-tracking investments have not been allowed to use the moniker of ‘passive’ investing; though many don’t want to anyway (everyone needs a point of difference, don’t they?). These alternative Indices are typically called smart-beta, or the term Factor investing has become popular, but are simply different sets of rules for making up an Index than the older, market-cap weighted indices.

Remember, we only really used market cap as our starting point for creating a ‘market index’ because calculation-wise it was very easy. But with powerful computers and massive sets of information-rich data available beyond a simple share price today, more meaningful rules can be used to construct an Index.

I delve a little more into these smart-beta (or low-cost active as I prefer) themes, at least in relation to size, in a previous article ‘Does size matter?’.

Ultimately I am not arguing against ‘passive’ investing, far from it – just read one of my previous articles “The positive side of being passive” – but I also don’t want people to limit themselves to just market cap weighted Indices. These Indices are not really ‘the market’ and a true snapshot of an entire share market, including illiquid and other undesirable stocks, isn’t necessarily the most useful ‘benchmark’ anyway, because you couldn’t practically invest in it.

We just need to be sure, that whatever set of rules make up our Index of choice, we are properly aware of what it is and what it isn’t before we ‘passively’ follow it with our hard-earned money.

Getting into the great outdoors

Getting into the great outdoors.JPG

Despite our intrepid image, Australia is an incredibly urbanised country by world standards, with almost 90% of our population living in or around cities.i The impact of this cosmopolitan living is a proclivity for the indoors, often resulting in sedentary lifestyles, which can augment rates of stress, depression and obesity. The antidote to all this is simple: get outdoors more often. Your body and mind will thank you for it.

The power of nature on the mind

The romantic poets wrote about it at length, and countless artists throughout history have reached the same conclusion: there is healing power in the magnificence of nature. Increasingly science is supporting this thesis, with research into the mental health benefits of being outdoors coming from all corners of the globe.

In Japan, for example, they have a tradition known as Shinrin Yoku, which basically translates as ‘forest bathing’. The idea being that you go into the woods for a length of time to calm down from city life. This practice has been shown to decrease cortisol levels as well as giving your immune cells a boost. In the States they have made similar findings, with research demonstrating that participants performed 50% better on creative problem-solving tasks after having spent three days in the wilderness.ii

By contrast, city dwellers are at much higher risk of developing anxiety and mood disorders than their rural counterparts. The reasons for this are manifold: traffic jams, excessive time seated in front of screens, the close proximity of everything and everyone – they all make it easy to get stuck in your head and sweat the small stuff. The beauty of nature by contrast is its vastness, how it can situate you in the ‘here and now’ and put your problems into perspective.

Body and soil

It appears the old saying ‘go outside and get some fresh air’ was more than just a trick your mother used to get you out of her hair. Indeed, the benefits of fresh air cannot be underplayed. Not only does the increase in oxygen help your white blood cells and thus your immunity, it also boosts your serotonin levels, ameliorating your mood and fostering a sense of well-being and joy.iii

Moreover, people who get outdoors more often are more likely to be exercising thereby producing endorphins. Even the decision to walk to the local shops rather than drive can have numerous benefits.

Cheap and easy

Getting outdoors doesn’t have to mean going on a five-day canoe trip or taking your swag to some remote location. It can be as simple as going to your local park. Australia has a legacy of public green spaces from Victorian times, as well as vast reserves of national parks not far from city centres. The best bit about them is that they are free for everyone and actually function as a social leveller. So why not take your bikes for a ride, pack a picnic with the kids, or enjoy a leisurely stroll with the dog around your local park.

To the future

The proof as they say is in the pudding, with governments around the world developing responses to the health problems associated with the concrete jungle. Many are starting to factor this into both their urban planning and public health policy. In Singapore they have long held the ‘city as a garden’ concept aiming to foster green spaces in municipal centres. Finland’s government endorses five hours of forest time every month to promote good mental health. Studies even showed that suburbs that are more heavily treed have residents with better heart and metabolic health. The same level of increase one would usually associate with a $20,000 rise in income.iv

With science on its side and governments the world over responding to our human need for nature, it seems clear that it’s something we could all use a little more of. Start with the little things—a morning walk around the block or some time out in the garden—and with warmer weather just around the corner, what better time to embrace the new, outdoorsy you.

i https://www.indexmundi.com/australia/urbanization.html

ii https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3520840/

iii http://www.phantomscreens.com/resource/getting-fresh-part-1-the-health-benefits-of-fresh-air/

iv https://www.nature.com/articles/srep11610

Housing prices off the boil

Housing prices off the boil.JPG

The Australian housing market appears to have reached a turning point, with prices falling 2.2 per cent since peaking in September 2017. This is welcome news for first home buyers; not so much for sellers and investors.

As always with residential property, it’s a tale of many markets with big differences between states, cities and even between suburbs. Before you make any property decisions, it’s important to look beyond the national figures to understand what is happening to prices in your neck of the woods and why.

A tale of many markets

Price falls over the past year have been greatest in Sydney (-5.6 per cent), Darwin (-4 per cent), Perth (-2.1 per cent) and Melbourne (-1.7) per cent. The standout performer is Hobart (+10.7 per cent), followed by Canberra (+2.3 per cent), Adelaide (+ 1 per cent) and Brisbane (+0.9 per cent). Regional areas are still rising (+1.6 per cent) as buyers look beyond the big cities.i

There are a variety of factors at play. The Australian Prudential Regulatory Authority (APRA) has imposed tighter lending standards on the banks and encouraged them to restrict higher risk lending, which has slowed market activity.

There has also been a fall in foreign investment. Last year, Chinese investment in local residential property fell 25 per cent, although Australia still ranks second only to the US as a favoured destination.ii

With fewer buyers in the market and an oversupply of new apartments in Sydney and Melbourne in particular, sellers are having to drop their asking price to compete.

Mortgage rates on the rise

More recently, three of the big four banks and many smaller lenders have lifted mortgage interest rates due to the increased cost of funding. Lenders source much of their funding from overseas markets where interest rates are rising, unlike here where the cash rate remains at an historically low 1.5 per cent.

This raises the bar for first home buyers and puts added pressure on existing borrowers who are already stretched to the limit.

Rates on interest-only loans, used mostly by investors, have been increasing for some time. Interest-only loans typically have a term of 1-5 years after which they revert to principal and interest payments. This has raised concerns that investors who took out loans at the peak of the housing boom may struggle to meet higher principal and interest payments. Forced sales could lead to further price falls.

However, as Reserve Bank Assistant Governor, Michele Bullock, recently said, “borrowers have been transitioning to principal and interest loans for the past couple of years without signs of widespread stress”.iii

Affordability a worry

Despite falling prices, housing affordability remains an issue, especially for first home buyers in Sydney and Melbourne. The median home value in Sydney is $855,287, almost twice as much as Hobart ($437,254) and more than twice the regional average ($368,366).

Affordability is measured by the share of income required for mortgage repayments. In June 2018, for borrowers with a 20 per cent deposit, the repayment required on the average mortgage amounted to 36.3 per cent of gross household income. Ten years ago, it was 51 per cent. That’s due largely to mortgage interest rates almost halving over the same period.iv

What does it mean for me?

For first home buyers, the biggest stumbling block is often saving a deposit as rising prices push desirable properties further out of reach. But with prices expected to fall over the next couple of years, time is on your side.

Homeowners planning to downsize have an opportunity to sell now near the market peak and buy a smaller property in a falling market. What’s more, if you are over 65 you can put up to $300,000 of the sale proceeds into your super for a significant tax saving.

Families looking to upsize to a larger home also need to weigh up whether it’s better to sell and buy now or wait and see if prices of larger homes fall further.

i https://www.corelogic.com.au/news/augusthomevalueindexresults

ii https://thenewdaily.com.au/money/property/2018/09/11/foreign-investment-real-estate/

iii https://www.rba.gov.au/speeches/2018/sp-ag-2018-09-10.html

iv https://www.corelogic.com.au/housingaffordability

Planning for the future of a special needs child

 While estate planning is essential for any parent, it takes on additional significance for the parents of a child with special needs. One of your biggest concerns is probably planning for their future care when you are no longer there to look after them.  There is a lot to consider and each child’s needs are unique, depending on the nature of their disability and the level of ongoing support they will need. Any plan you put in place is likely to consider things such as where they will live, who will care for them on a day to day basis and how you can safeguard their financial interests.  Not only do you need to make sure your child receives the same level of support in your absence, but you also want to set in place a strategy that is transparent and allows all your children to thrive.  As best you can, try to plan for the long haul, protecting your child from any future changes to circumstances or legislation as well as taking stock of how their personal needs will change over their lifetime. You also don’t want to jeopardise their eligibility for any government benefits.

While estate planning is essential for any parent, it takes on additional significance for the parents of a child with special needs. One of your biggest concerns is probably planning for their future care when you are no longer there to look after them.

There is a lot to consider and each child’s needs are unique, depending on the nature of their disability and the level of ongoing support they will need. Any plan you put in place is likely to consider things such as where they will live, who will care for them on a day to day basis and how you can safeguard their financial interests.

Not only do you need to make sure your child receives the same level of support in your absence, but you also want to set in place a strategy that is transparent and allows all your children to thrive.

As best you can, try to plan for the long haul, protecting your child from any future changes to circumstances or legislation as well as taking stock of how their personal needs will change over their lifetime. You also don’t want to jeopardise their eligibility for any government benefits.

The matter of trusts

One of the big concerns for parents is that their child may not be capable of managing their own finances. One way around this is to establish a testamentary trust as part of your Will.

If your child is severely disabled, over the age of 16, and you are concerned that the money you leave them could reduce their social security benefits, you might consider a Special Disability Trust. This will not only provide for them, but the money and income will not be subject to any means test as long as the amount invested is under an inflation-adjusted cap.

As at 1 July 2018, the cap is $669,750. Plus, you can spend up to $12,000 a year on expenses unrelated to their care and accommodation needs.

Other types of trust include a capital reserved trust, where the individual can receive income from the trust and use the trust’s asset such as the home during their lifetime, and a protective trust, where the trustee can apply income and capital to the trust over its lifetime if more funds are needed for their wellbeing.

Other considerations

You need to maintain a very long-term view and think about what will happen to your estate when your special needs child dies and whether they will be capable of making decisions on its distribution. It may be a good idea to have a clause in a trust that says the money should go to your surviving family members.

The choice of trustees is also important. In most cases, Australian law dictates that there will need to be more than one, and while it may seem natural to appoint your other children as trustees, in general it is wise to choose someone outside of the family to avoid conflicts of interest.

While appointing an external trustee can be a more expensive option, if you select the right person, you can have confidence in their empathy and financial acuity. With the correct structures in place, your child or their carers can also be involved in financial decisions, if appropriate.

Super plays a role

In some circumstances your super can also be used to provide ongoing support. If your child is considered to have a severe disability, you can pass your superannuation money on to them as an income stream regardless of their age.

It takes careful and considered planning to provide properly for a loved one with a disability, beyond your lifetime. It’s also important to review your plan frequently, making adjustments when legislation or your child’s circumstances change.

Young invincibles – the importance of insurance

Young invincibles – the importance of insurance.JPG

When you are young, healthy and just starting your working life the last thing on your mind is life insurance. In your 20s and 30s your financial focus is more likely to be on saving for a car, holidays, a home or the birth of a child. But failing to protect the lifestyle you are creating could have a devastating financial effect. 

Like many Australians young and old, it’s possible that you already have insurance cover in your superannuation fund without realising it. But that could be about to change. 

Under new legislation proposed with this year’s Budget, large numbers of super fund members are likely to lose their insurance cover. The legislation is still before the Senate but if the changes go ahead from July 1, 2019, those aged under 25 or with low super balances will be required to ‘opt-in’. 

When to consider insurance

The move to ‘opt-in’ insurance for young members has been generally welcomed, as some may have more insurance than they need at their age and stage of life. But there are concerns that a significant minority could be left underinsured. 

No matter how fit and healthy you are, accidents happen – on our roads, while playing sport or on the job. Insurance may be a necessity if you work in a hazardous occupation such as construction. Major illness and chronic health problems can also strike in your 20s and 30s. 

While Australians are marrying and establishing families later than previous generations, there are still plenty of people under 25 with a partner, and/or children, who would be financially disadvantaged if they were to die or be unable to work due to accident or illness. 

Even though Millennials may not have dependents yet, or the financial commitments their parents have, spending on rent, car loans, credit cards and daily expenses all require a steady income. 

So why the changes?

The Government’s Protecting Your Super package is designed to protect members’ savings from being eaten up by excess fees and insurance premiums. 

Most super funds currently make automatic deductions from members’ contributions to pay for life insurance. This is known as “opt-out”, as the onus is on members to cancel the insurance if they don’t want or need it. 

Typically, there are three types of insurance offered to members:

  • Death Cover or Life Insurance – part of the benefit your beneficiaries receive when you die.

  • Total and Permanent Disability (TPD) – pays you a benefit if you become seriously disabled and are unlikely to ever work again.

  • Income Protection Insurance – pays you an income stream for a specified period if you can't work due to temporary disability or illness.

Under the new rules, funds will only offer insurance on an ‘opt-in’ basis for new members who are under 25 years old, members with balances below $6,000 or those who have an account that has been inactive for 13 months. 

Good news and bad

Despite the good intentions of the new rules, the bad news is that insurance premiums are likely to increase for most members who retain cover. This is because under the present system younger, healthier members cross-subsidise insurance claims by older members. 

According to Price Warner, premiums are likely to increase by about 11 per cent on average.i Premium rates will vary considerably from fund to fund, depending on the benefit design, demographics of the membership, and changes to terms and conditions to deal with switching cover on and off. 

The good news is that there is time to consider your options. Funds are required to notify members with low balance or inactive accounts and outline what steps they can take if they have insurance and want to continue their cover. 

i ‘Federal Budget average premium increases’, Rice Warner, 31 July 2018, http://www.ricewarner.com/federal-budget-average-premium-increases/?utm_source=Email+Campaign&utm_medium=email&utm_campaign=42575-53602-Insight_Federal+Budget+Average+Premium+Increases_31.7.18

Lessons from the ‘rich list’

Lessons from the ‘rich list’.JPG

Most people who are intent on building their personal and business finances know there is no quick road to wealth. While some people dream about their lucky numbers finally being called, others are making every day count. 

Of course, not everyone can make it onto the Forbes rich list, and some individuals rise to wealth largely through privilege and circumstance. However, for many others, their position can be directly attributed to exceptional work habits and a determination to succeed. 

If you’re committed to delivering a serious boost to your finances, then cultivating the techniques favoured by those on the rich list can assist you to achieve your personal and professional goals. 

Having a strong work ethic

The wealthiest and most successful people in the world demonstrate a single-minded commitment to their goals; eating, sleeping and breathing their enterprises. You need look no further than Zhou Qunfei, the world’s richest self-made woman, who started out working in a factory by day and taking accounting classes by night. She proves that determination over a sustained period produces undeniable results. 

Pursue a dream

A number of very prosperous people don’t start out pursuing wealth; they pursue a passion. Consider Bill Gates or Elon Musk, who both conceived an exciting, innovative idea. Passion compels people to continue pushing for their goals. In a society where many people just pursue income, successful people use their knowledge and talent to turn their passion into a revenue-generating venture. 

Setting goals with a long-term view

Innovative ideas require big-picture thinking. The wealthiest people in the world didn’t stop after one success (or failure). They remained committed to their vision and focussed on the long term. Ultimately, individuals who have accumulated significant wealth tend to be entrepreneurs whose determination to ‘win’ motivates them to map out the future and set specific and achievable goals. 

Having support

Jeff Bezos, amazon CEO, has a notoriously rigorous hiring process. Why? Because he understands the importance of surrounding himself with other driven people. Successful people act intentionally to nurture valuable professional and personal relationships, putting time and energy into helping these relationships grow. 

Not being afraid to fail

Sir James Dyson, who literally made his fortune out of hot air, famously said ‘99% per cent of my life is failure’, in reference to the number of prototypes his company makes before they get it right. What he shows us is that failure is an inevitable part of the process and that each failure is an invaluable learning opportunity. Realising that the insights gained from failing have practical applications, successful people continually find inspiration for new ideas and devise ways to execute them. 

Making smart investments

Finally, there are many ways that affluent people go about growing and managing their wealth, and making smart financial investments is certainly a critical component of building capital. Whether you are looking to invest in the share market, a new venture or property, knowledge is power. It pays to do your homework and ask for expert advice where required. 

While, the extent to which your own mindset and habits dictate how successful you are cannot be understated, it’s always good to have an expert in your corner. We’re here to help you maximise your wealth and achieve your vision of success. 

Forbes 2018 top 5

Jeff Bezos $112B
Founder and Chief of Amazon
Attended Princeton and worked at a hedge fund before founding Amazon in 1994. 

Bill Gates $90B
Founder of Microsoft
Now manages the world’s largest private charitable foundation. 

Warren Buffet $84B
Investor
Bought his first stock at age 11. Intends to give more than 99% of his fortune to charity. 

Bernard Arnault & Family $72B
CEO of LVMH
Oversees an empire of brands including Lois Vutton and Sephora. 

Mark Zuckerberg $71B
CEO of Facebook
Dropped out of Harvard to found Facebook at the age of 19.