One of the principles of successful investing and building wealth is to make regular contributions – in this way, you buy when asset prices are low and you also buy when they are high. You don’t have to agonise over when to invest and, on average, your buying price will be lower over the long term.

This is called “dollar cost averaging” and many investors unknowingly benefit from it.

But before you can invest you first need to have saved some money to invest! It’s easy to get started.

Step 1

Many of us fall into the trap of paying everyone else first and then we get what’s left over. This not only diminishes our self-worth, but more often than not, there’s not much left over when everything else has been paid which can also be depressing.

Step one in establishing a regular savings plan is to pay you first. Even if it’s only 10% of what you receive… it’s yours (and you’re the one who’s worked hard for it!). Then you can focus on paying everyone else.

Step 2

Open a separate bank account to place that 10%. Online savings accounts offer better interest rates, low or no fees and they are easy to set up and maintain. Establish a regular automatic transfer from your everyday account so you don’t miss the money. And leave it there to build.

Step 3

While you are saving, start looking for opportunities to invest your money to earn a higher return. One option when starting out is to invest in a managed fund. Managed funds pool your savings with thousands of other investors, giving “small” investors access to a wide range of quality investments, managed on your behalf. These funds allow you to start investing with as little as $1000 which is built upon with monthly instalments that can be automatically transferred from your savings account.

This is where we come to the “science” of dollar cost averaging. By investing the same amount every month your contributions are purchasing units on a regular basis, irrespective of the current market price. Over time, the power of regular purchasing has shown that investments are bought at lower average prices, giving you more units for the same outlay, which again compound as you reinvest the returns.

Investing doesn’t diminish the importance of regular saving – after all you can’t invest money if you don’t save it first! Stop procrastinating and start building your wealth today.

Our team of award winning financial planners are available to discuss how saving and building wealth will open up many opportunities for you and help secure your future.
Call (02) 4926 2300 or email us.

Disclaimer

If saving, building wealth and investing are areas in which you would like more information, please do not hesitate to call the expert team at Leenane Templeton.

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Assets available to an SMSF include property, as well as shares and managed funds – however the usual superannuation rules continue to apply where the fund is purchasing an asset from a related party.

Some SMSF borrowing strategies

There are a number of strategies that enable individuals to take advantage of the rules.

Increasing the asset base.

Contributions rules place a limit on the amount of contributions that may be contributed to a fund. In addition, an investment in the SMSF borrowing arrangement is generally accounted for as net of liabilities. Where members are in a position to contribute assets such as property or shares this has the effect of enhancing SMSF borrowing.

Increased contributions.

Members may be able to transfer assets that they own into a fund, taking advantage of the borrowing rules. Members are then able to act as Trustee of the borrowing trust as well as the lender. The repayments made by the SMSF may then be contributed back into the fund by the member under the normal contribution rules.

Costs of finance

Financial products are readily available by lenders to take advantage of the rules allowing funds to borrow for investing.These products take into account the rules that only allow a loan to be secured against the investment it is funding, not total fund assets.

As a result of the higher risk profile, loans may attract a higher interest rate and require a deposit significantly higher than usually occurs with other standard investment loans. Trustees need to factor these risks and costs into their borrowing strategy.

The loan and the lender

SMSFs are able to use anybody as a lender, that is, they are able to obtain the loan from a bank, or other lending institutions, a member themselves, their business, a family member, company or trust. However while the law does not prevent the lender from being a related party, SMSFs must satisfy the sole purpose test and comply with existing investment restrictions such as those applying to in-house assets and prohibitions on acquiring certain assets from a related party of the fund.

Contact Leenane Templeton's professional staff to discuss how we can help you.

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Did you realise that some unfortunate super fund members face a 93 percent tax rate on certain super contributions? 

This breathtaking rate is triggered when fund members exceed the annual caps on both concessional and non-concessional contributions. 

Super Contributions that exceed the cap on concessional contributions count towards the cap on non-concessional contributions – and could push a member’s non-concessional contributions over the limit. 

Here’s how that hefty tax figure is calculated:

• Super Contributions that overshoot the concessional cap are taxed at 31.5 percent, in addition to the 15 percent standard contributions tax – bringing the tax take, so far, to 46.5 percent.
• Super Contributions that overshoot the non-concessional cap are taxed at 46.5 percent, bringing the possible tax total to 93 percent.

Excess contributions are, of course, highly topical at this time with many taxpayers now completing their 2009-10 tax returns, the Government’s halving of the cap on concessional contributions from 2009-10, and with the tax office’s recent updating of its online information regarding excess contributions. ¹

The tax office can, in “special circumstances”, disregard excess contributions or reallocate them to another financial year. But the ATO warns: “It isn’t enough that your circumstances were unusual for you.”

And the ATO explains that unintentionally exceeding the caps, misunderstanding the law or facts, or being given incorrect information does not “amount to special circumstances on their own”. 

Particularly as the amounts involved in excess contributions tax are potentially so large, any members who have overshot their caps might well consider gaining specialist professional advice. 

Come and talk with Leenane Templeton Chartered Accountants & Financial planners call 02 4926 230

Newcastle Financial Planner

Newcastle Chartered Accountant

Self Managed Super Fund

PLEASE READ OUR FULL  DISCLAIMER

Source:  Robin Bowerman, Head of Retail, Vanguard Investments Australia (September 2010)

¹ http://www.ato.gov.au/individuals/content.asp?doc=/content/00119316.htm

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