There are many reasons you might purchase a home later in life: perhaps you’re starting fresh post-divorce, or you own a home and have decided to buy a second property to help out your kidults.

Regardless, it comes down to the same thing: knowing what you’re getting into and being ready.

Buying later presents opportunities that younger house-hunters overlook as proximity to schools and playgrounds isn’t so important.

On the flipside, if later-life home-ownership figures in your future, you should be working with your financial adviser now – and here’s why.

Time

Our population is living and working longer. We can save more towards a home with longer to pay it off. But really, do you want to be stuck with mortgage repayments chewing through your income – after retirement?

What if you purchase just before retirement? Servicing a loan is relatively easy while gainfully employed, particularly with record low interest rates. Bad news is they won’t stay low forever. Rising interest combined with reducing income can quickly turn the dream into a financial nightmare.

Job security

According to the Australian Institute of Health and Welfare (AIHW), in the period 1984 – 2014, labour force participation of Australians aged 55 – 64 grew from 41% to 64%. Good news. The Australian Bureau of Statistics (ABS) for the period 2002 – 2010, reports “declining levels of full-time employment” among the same age group indicating greater numbers of older Australians working fewer hours.

Not so good. With fewer full-time job opportunities for those aged over 55, if you’re still considering a pre-retirement mortgage, be aware of:

Compromises

If your retirement goals include travel, hobbies or even a weekly round of golf, servicing a mortgage may overburden your budget, forcing you to cut back your spending and lifestyle.

Regardless of home ownership, the Australian Centre for Financial Studies (ACFI) reports that 20% of retirees’ average household expenditure exceeded income, leaving no alternative but to draw on savings or liquidate assets just to live.

Now, throw a mortgage into the mix …

Ongoing maintenance

Be realistic about your budget and your shopping list. Consider what mod-cons you genuinely need. And size does count! If, down the track, you can’t physically maintain your home, could you afford gardeners, cleaners, etc, while repaying a mortgage?

Superannuation

Ah, that warm glow lighting our path to retirement. You could use your super to buy a house but what will you live on? The age pension? Will that fund your desired lifestyle?

To quote the ABS, “… key factors will be people’s plans as they get older, including when and how they intend to retire and what factors will influence their decisions.”

We don’t always agree with government reports, but in this it’s spot-on.

Our longer life expectancy means retirement planning is more important than ever. Talking with your financial adviser as early as possible will help you set up a strategy for living – to retirement and beyond!

For more information about purchasing a property or retirement strategy, please call Leenane Templeton on (02) 4926 2300 or email success@leenanetempleton.com.au

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Concentration risk is the increase in investment risk that comes about from not sufficiently diversifying your portfolio. In other words, too much money is concentrated in too few assets, sectors or geographical markets.

This can happen:

• Intentionally, because you have a strong belief that a particular share or sector, such as resources, banks or property, is likely to outperform in the future.
• Unintentionally, through asset performance. One or two shares deliver spectacular gains, making the entire portfolio more sensitive to moves in just a couple of assets. Or maybe shares as a whole enjoy a period of strong growth. Even though you hold a large number of different shares, the increased exposure to one asset class increases the risk to your portfolio.
• Accidentally, through poor asset selection. Nine out of the ten top companies that make up the MSCI World Index also appear on the top ten list of the main US index, the S&P 500. Investing in two funds, one that tracks the world market and one that tracks the US market won’t deliver the level of diversification you might expect.

Managing your risk

The solution to concentration risk is our old friend, diversification.

• Appreciate the importance of asset allocation, the art of spreading your money across the main asset classes of shares, property, fixed interest and cash. Ensure your asset allocation matches your tolerance to investment risk.
• Diversify within each asset class. Holding the big four banks is not a diversified share portfolio. If property is your thing, buying four one-bedroom apartments in the same building, or even in the same area, creates a huge concentration risk.
• Rebalance your portfolio to keep it broadly in line with your ideal asset allocation. This may create a tax liability, but often it’s better to pay some tax than to carry too high a level of concentration risk.
• Understand each investment and its role in your portfolio. Does share fund A hold similar shares as share fund B? Do they both have the same strategy?
• Get a professional opinion. Even if you are confident in making your own investment decisions it’s wise to run them by a licensed adviser.

It’s surprisingly common for investors to develop an emotional attachment to particular shares or properties they own. Concentration risk can also increase over time due to lack of attention. Your financial planner will assess your portfolio for hidden concentration risk and help you achieve a better balance of investments.

For more information about managing your investments, contact our office on (02) 4926 2300 or email success@leenanetempleton.com.au

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For taxation purposes, there are three major types of expenditure property investors should be aware of, all of which are subject to different taxation treatments.

• Expenses that cannot be claimed (e.g. utilities charges, and acquisition and disposal costs).
• Expenses for which immediate deductions can be claimed (e.g. rates, insurance, legal expenses and repairs).
• Expenses for which deduction claims can be made over a number of income years (e.g. borrowing expenses such as stamp duty, title search fees and capital works).

When considering the deductibility of renovations, such as replacing a bathroom, the effective life of the existing structure must also be factored in. Houses are generally depreciated over a period of 40 years (at 2.5% per year), but the residual value of the existing structure is also taken into account.

Example

Tony owns a rental property built 20 years ago, and needs to replace the now obsolete bathroom at a cost of $20,000. The original value of the bathroom was assumed to be $8,000, with the result being depreciation of $4,000 (being 2.5% times 20 years times $8,000), and a residual value of $4,000. As a result, Tony will be able to claim a tax deduction for the $4,000 residual value, plus 2.5% of the renovation cost ($375), for a total deduction of $4,375 this income year.

Timely and quality maintenance of investment properties can provide significant benefits through the improvement of rental yields. However, for taxation purposes, the treatment of these expenses can vary, so it is worth discussing with your accountant or adviser before you commit to expenses.

For more information, contact us at Leenane Tempelton on 02 4926 2300 or email success@leenanetempleton.com.au

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So how do managed funds work, what types are available and what are the risks involved?

The Basics
When you invest in a managed fund, you're allocated a number of units based on how much you invest and the current price of each unit. For example, if you invest $5,000 and the unit price at the time is $1, you would own 5000 units.

If the unit price rises to $2, the investment will be worth $10,000 ($2 x 5000 units). Or if the unit price drops to 90 cents, the investment would then be worth $4,500 (90 cents x 5000 units).

The Benefits
Managed funds can be an effective way to make the most of your investment dollars because your contribution is pooled with the money of other investors. This delivers benefits such as:

• Asset diversification. This can help investors achieve a lower level of investment risk across their portfolio. Depending on the particular managed investment, it may invest in shares, property, fixed interest or cash, or a specific combination of these assets.
• Broader investment market access. Some markets, such as international markets, may otherwise be unavailable to you as an individual investor.
• A tailored portfolio. Your investments can be designed to suit your needs, whether you want to gain a regular income or focus on capital growth.
• Professional management of your money. A team of experienced investment managers will be in charge of your money. These managers are responsible for seeking out the best possible returns through careful selection of investments and by monitoring political and economic factors that may affect the performance of particular investment sectors.
• Professional investment administration. Managed funds are convenient for the investor because the manager handles the day-to-day fund administration.

The Returns
Here are two types of returns for managed funds: unit price growth and distribution income.

Unit price growth occurs when the value of the underlying investments in the fund have grown over the period of the investment. This results in an increase in the price of units in the fund.

Income is paid to unit holders when a managed fund makes a distribution. These are payments received during the course of your investment. They consist of the earnings the fund has generated over the period and may include capital gains (from the sale of fund shares or other fund investments) or income (from dividends or interest).

Most managed funds will give you the option of receiving your distributions as cash to your bank account, or re-investing them within the fund.

The Risks
There is a simple rule about risk which generally holds true for all investments: the higher the possible return, the greater the risk of loss over the short term. However, if you plan to invest over the long term, these risks can be reduced, even for more volatile investments such as shares.

For this reason, funds with a higher exposure to growth assets such as shares and property are best suited to those who are looking to invest for strong returns over longer time periods (greater than seven years) and who are prepared to experience short-term volatility along the way.

Funds with a higher exposure to more conservative investment types, such as Australian fixed interest, mortgages and cash, are less volatile but generally deliver lower returns.

Diversification can reduce the risk. By investing across a range of asset classes that experience good performance at different times, the higher returns you receive from one type of investment can help to offset lower or negative returns from another.

Investing in managed funds requires a medium-to-long term investment horizon, particularly those that include growth assets. Switching investments or redeeming the investment before this time elapses can result in you receiving less back than you originally invested.

The Performance
Try not to focus too much on past performance figures. Naturally, a fund’s track record is important but you do need to be careful. Simply because a fund has performed well in the past, does not guarantee it will do so in the future. This is where the quality of the management team and understanding how the fund invests is crucial, as different investment styles tend to perform differently across the economic cycle. If you would like to learn more about managed funds, give us a call.

For more information, contact us at Leenane Tempelton on 02 4926 2300 or email success@leenanetempleton.com.au

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As we approach retirement some people start to panic a little wondering if they are truly looking forward to the time of their life when they no longer have to work. All of a sudden something they have been dreaming of starts to seem real! Instead of worrying, have a read of the following tips and if necessary, act now. After all, it’s your future – and it could be here sooner than you think.

1: What do you want and how will you get it?

What are your goals and objectives for your retirement? Write out a plan that sees you enjoying the fruits of your labours. Then make sure your finances can achieve your goals. If not, do something about it now while you still have time. Be realistic and set achievable timeframes.

2: It’s not just about returns; remember the risks

Every investment has some degree of risk. Cash is considered the safest as there’s a good chance your money will still be in the bank when you need it. The downside is that it pays the lowest return; it isn’t tax effective; and doesn’t tend to keep pace with inflation. To achieve higher returns and make your money work harder, you need to take appropriate risk. Understand the differences between cash, fixed interest, shares and property and make your decisions wisely.

3: Share it around

To help reduce risk, share your investments across several asset classes and within those asset classes as well. The right balance will depend on your financial objectives, the amount of time you have available to invest, and your risk tolerance.

4: Don’t forget super…

Superannuation will be your bank account when you are no longer working so you should be considering ways to boost your superannuation balance prior to retirement. But be aware the tax benefits are not always equal so make sure you have a balance of inside-super and outside-super investments. 

5: …or tax

Tax is the trickiest area of all. Always make sure you get good advice on investing tax-effectively. A simple restructure of an underlying asset, investment vehicle or ownership structure could help you to minimise the amount of tax you pay and maximise your after-tax return.

6: Retirement can last another lifetime

With medical technology and improved lifestyles we are living much longer than our previous generations. The older you get, the longer you’re likely to live. If you’ve managed to survive early risks, such as accidents or illnesses, your life expectancy actually increases. Be prepared for a longer retirement than your parents. This means that your money must last longer, so don’t be too conservative with your investments, speak with one of Leenane Templetons financial advisers to discuss your investments and risk.

7: Stay cool

You are in this for the long term so when markets fluctuate and investments unexpectedly fall in value, don’t panic and sell. Sit down with your adviser, review your portfolio and stay focused on your long-term goals and objectives. 

8: Keep learning

You are never too old to learn. Financial advisers have an important role in giving you tailored guidance, but you still need to make your own informed decisions about your financial plan. Make sure you understand your plan and if not, ask questions or do some research.

To discuss your retirement
Call (02) 4926 2300 or email us. 

Our team of award winning financial planners are available to discuss your retirement needs. 

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Life in your 50's is great. You don’t have a huge mortgage, the kids have grown up and are not as dependent on you, your career has progressed… So what is next financially?

When you are in your 50s, you can see retirement on the horizon. Sure it might be 10-20 years off, but it is becoming more tangible. So if you haven’t already, you need to start some serious planning.

Decide on your lifestyle

Up until now you may have been reactionary in your lifestyle, with mortgage payments and work pressures being the biggest worries. But you need to start thinking about how and where you want to live for the next 30 or more years. Do you want to stay where you are? Downsize? Always wanted to move to the beach or bush?

Figure out how much you need

Once you have decided how and where you want to live, you will need to set up plans to achieve it. There are a couple of things you can look at to ensure you are on the right track:

Superannuation – Is your super invested appropriately? Do you need to contribute more now so that you have enough for the future?

Investments – If you have managed funds, shares or property, are they invested strategically to help accommodate your changing lifestyle?

Insurance – Do you have the right level of life and income insurance? Are you and your family covered if anything happens?

Daily finances – Are you spending money on things you don’t use? If the kids have moved out, are there ways you can scale back?

Start catching up now

You might find that you are further behind than you thought for your ideal retirement lifestyle. This happens to a lot of people but it is never too late to make a change. You could be at the peak of your earning potential, so that means you have a chance to save more and make up for lost time.

Get help

Everyone’s financial needs and goals are different and it’s worthwhile seeking professional advice before you make important financial decisions. Your financial planner can provide you with strategies to help make your ideal retirement lifestyle a reality.

Source: IOOF

Our expert financial planners are here to help with any financial questions you may have about your 50's. 
Call (02) 4926 2300 or email us. 

To discuss getting ahead in your 50's please give the team at Leenane Templeton a call. 

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The foundations of risk and return – Risk is integral to investing. This can be a frightening thought, but risk shouldn’t necessarily be feared, as without it there is less opportunity for reward. Quite simply, the higher the return you want from your investments over a particular period, the more short-term volatility (or risk) you have to accept in the value of your investments. Granted, if you’re happy to receive the bank deposit rate, you can put all your money in the bank, safe in the knowledge that the account balance will rise a small amount every day. But if you want higher returns, you’ll have to take on more risk and consider other investments, such as shares, fixed income, commodities and property.

Accepting short-term volatility for higher returns

Why do some investments offer higher returns than bank deposits? Each investment has different characteristics and offers varying potential levels of return. For example, a share’s return over a particular period is uncertain as the company’s profits are unpredictable, therefore share owners require a greater return than they would accept from bank deposits. What share investors are implicitly saying is “I want a higher return, but understand that I have to accept volatility in returns over the short term”.

Looking at risk from a longer-term perspective

Risk is the possibility or probability of loss. But if you’re talking about one of those frequent falls in a share price on a particular day, is that really an important loss? Firstly, it’s only a loss if you sell the investment. Secondly, most of the time these ’losses‘ are temporary and prices soon bounce back; this is the usual volatility of the stock market. The reason this is important is that the financial industry has defined an asset’s risk as the extent to which its price fluctuates; in other words, risk is the likelihood of an asset not achieving its long-term expected return over a short period.

Perhaps the risk that you should really care about is the possibility of an asset not achieving its expected return over the long term, rather than over the short term. In the case of equity share, such a situation might arise if the company in question goes out of business. So important risk relates to permanent loss of capital, not day-to-day losses of which the vast majority are temporary.

Instead of thinking of volatility as a risk (and therefore something to be concerned about), think of it as the cost of the longer-term return. And, if you’re able to ignore the fluctuations in the value of your investments from day-to-day and month-to-month, it’s a cost you won’t notice.

Diversification is a fundamental principle of investing

Avoiding permanent loss of capital requires careful analysis of the investment in question. But, if a company does go out of business, you can reduce the impact by having diversified your portfolio across a number of companies and even asset classes. 

For example, a simple multi-asset portfolio could include shares, government bonds, corporate bonds and cash. Given each asset class has its own expected return, they can be combined in different ways to target a particular return. If we assume that bank deposit rates are 0 per cent, the expected return from bonds is 5 per cent, and that from shares is 10 per cent; to aim for a return of 5 per cent, you can either invest the entire portfolio in bonds, or split the portfolio 50/50 between shares and bank deposits (or one of many other possible combinations).

Everyone will have a different attitude to risk and, therefore, the returns they require. By adjusting your combination of investments you can control the level of risk and affect your potential returns. This is known as asset allocation and is essential for effective portfolio management.

Source: Aberdeen-Asset

Call (02) 4926 2300 or email us here at

Leenane Templeton.

Speak to our financial planners to find out more about your investment options and the foundations of risk and return today.

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