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Different ways to invest your money - shares v cash
Ahhh that time again - getting ready for tax time
Sharing - what does it mean to you?
Great news for our over 45s! Especially if you love to travel!
How Cornerstone Debt services differ to traditional Mortgage BrokersWith hundreds of different loan products available in Australia it can be daunting to try to find which one is right for you. This is where mortgage brokers can assist their clients by comparing these products.
Different ways to invest your money- Shares vs cash
After strong performance throughout most of 2009 and early 2010, sharemarkets have embarked on another bout of volatility with the month of May seeing movements (up and down) of up to 3% in a day. Not surprisingly we are starting to get questions raised as to why investors should persevere with shares. So we thought it would be timely to discuss the nature of shares versus cash and the decision that each one of us have to make about how to invest our hard earned savings. In a very basic economic view of the world, there are three ways to invest your money- shares, property and cash. Cash is considered the safe haven of investing as the capital value does not change. You make money on your funds invested via interest (an income payment). If you are invested in a local bank this may generate you somewhere around the RBA Cash rate, currently 4.5%, (which is considered the risk free rate of return). If you shop around you may even get a better rate given some of the special deals around. If we consider the "costs" of having your money invested in cash we need to consider inflation which eats away at the real value of your capital, as well as tax - which diminishes the amount of return or income you receive. Cash therefore, whilst providing you with capital stability does not provide the "real return" that you might expect. However every portfolio must contain some cash for liquidity and security. Growth assets (shares and property) on the other hand provide you with two ways to earn money- income, from dividends or rental returns, and also capital growth. Capital growth is simply the value of the investment changing over time. Quite simply this is caused by demand and supply pushing prices up (or in the case of sharemarkets recently - pushing prices down). It is this change in capital value that causes some investors concern. We often say "consider the long term and not the short term" (which I am sure many of you are sick of hearing), but there is rationale behind this. Let’s first consider the income that a $100,000 Term Deposit has earned in the last 30 years versus the dividends from the Industrial index of Australian Shares. Income from a $100,000 investment in a term deposit vs the ASX 200 Industrials Accumulation Index
The above table shows that in the early days the term deposit income was quite consistant, and at a high level, however returns have dropped in recent years with lower interest rates available. The income return from share dividends has changed dramatically over the course of time. The tax credits you receive from these dividends (imputation credits) further increase income returns from shares. Income from shares has risen steadily over the years, whilst income from term deposits has actually fallen. When you add the impact of inflation to Term deposit results, the results are even worse. If we now turn consider the capital value of the investment, this is where things get interesting Capital & income from a $100,000 investment in a term deposit vs the ASX 200 Industrials Accumulation Index As you can see, the yellow line does move up and down representing the changes in value of the shares. There were particular dips in 1987 (sharemarket crash), 1992-94 (the recession we had to have), 2001-02 (IT crash and Iraq war) and finally in 2008-09. Even with these crashes included, the value of the investment in shares is still at $1,300,000 versus the investment in the term deposit which remains at $100,000 - although the real value is much less than this after allowing for inflation. Another point to take from the chart above , if you had have had all of your money tied up in shares over the last 2 years, you would have watched the value of your portfolio fall by just less than half which would have been devastating. The graphs remind us of the importance of a long term view and also the need for diversification. With a long term view of 10-30 yrs it is clear that share investing delivers handsome rewards, with rising dividend income and increased capital value. Over the short term though there can be periods where investing in shares seems like the wrong thing to do. As investors, not speculators, it pays to be well diversified (not having all your eggs in the one basket), invest according to your risk profile and take a long term view!!! Diversification is vitally important. We all get the message about eggs in baskets…What is important to note is that a number of investments are what we planners refer to as “negatively correlated”. In lay terms this simply means they perform differently over time. When shares go down, typically bonds perform well and vice versa. The philosophy of investing in shares (at least partially) is of equal importance to younger and older investors . The fact that we now live on average to age 84 suggests that we need to consider both the risks of investing (volatility), as well as the twin risks of inflation and tax. If you were to move all of your money in to a term deposit or cash upon reaching retirement the risk of inflation eating away your nest egg is real. A classic trade off exists between shares and cash. The risk of short term volatility but potentially higher rates of return over the long term versus the risk of no volatility but inflation reducing the value of your portfolio. The question for everyone therefore is how long do you need your money to last for? Are short term market movements that important? Do you have enough money to be able to afford no exposure to shares?The reality for most people is you need both cash and shares. How much is allocated to each depends on your goals, and appetite for risk. There is no one recipe for success. Ahh that time again -getting ready for tax time!
Can you take advantage of the Government co-contribution? If you earn under $31,920 & make a personal (after tax) contribution of $1,000, the government will also add $1,000 for you! Even if you earn up to around $55,000, it is still worth your while claiming this benefit. If you need the details of how to pay, please give us a call. Has your spouse earned less than $10,400 this year? If your spouse earns less than $10,400 & you make a personal spouse contribution to their super fund, you will receive a tax offset (rebate) equal to 18% of the first $3,000 of contribution made. Are you self employed & look like you will be paying tax this year? Consider making a tax deductible contribution to super to increase your tax deductions & decrease your tax bill! Money in your super is far better than money to the ATO! Please note that there are conditions to meet, so please call us first! Can you prepay interest on an investment loan? If you have an investment loan & pay the interest in advance, you can bring forward the tax deduction for the interest to this financial year? Do you subscribe to an industry publication or are you a member of a Professional body? See if you can prepay your subscription fees now & therefore claim in this financial year. Do you need new eqiupment/ tools for your job? Buy it now so that you can claim the expense in this financial year. Were you planning on making a charitable donation? If you make a donation of over $2, you can claim it as a tax deduction, do it now rather than waiting until July. Sharing- what does it mean to you?
Giving to others may be in the form of your time. We have many retiree clients whom donate their time to various organisations to help others. From the SES to reading at local nursing homes, it never ceases to amaze us the different selfless acts that many of our clients participate in. Giving to others may also be in the form of money. There are so many charities that do amazing work in our communities and they are feeling the pinch just like the rest of the community after the effects of the GFC. With growing interest from our clients, we wanted to introduce you to a new type of product that is being offered by Perpetual- The Perpetual Charitable Gift Fund. This fund offers you the ability to create your own gift account, named ie the Bob Brown Gift Fund, or you can remain anonymous. You can make a one off contribution or regular contributions into your fund. Each contribution you make is generally tax deductible. Rather than giving a one off donation directly to a charity, your gift account is then invested with the aim of creating a gift that lasts forever. The capital is carefully invested and income earned is distributed each year to various charities. You can recommend organisations which the Perpetual Foundation will consider when making grants from your gift account. They manage all of the regulatory compliance, reporting administration etc on your behalf. There is a minimum amount to open the account with, namely $20,000 (again this is tax deductible) and you can then make regular contributions at any time. You can also ask others to donate to your fund and they will be issued a receipt so that they can claim donations as a tax deduction also. If you are interested to find out whether this fund would be right for you, your family or a group, please contact your Adviser. Great news for our over 45s! Especially if you love to travel!
Simply logon to http://www.boomersonthego.com.au/, click join now & on the second page where you would usually enter your payment details, enter code word "CORNER". Happy travels! How Cornerstone debt services differ to traditional mortgage brokers
With hundreds of different loan products available in Australia it can be daunting to try to find which one is right for you. This is where mortgage brokers can assist their clients by comparing these products. |
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Boomers on the Go offer its members discounted prices on Tours, Holidays, Hotels and more from many reputable travel partners. Current member specials include 2 for 1 Eurpoean river cruises or closer to home, half price Murray river cruises. Usually $40 to join, Cornerstone have negotiated this on your behalf to join for free!! 
Extreme market volatility in recent years has caused many investors to reconsider their approach to investing. This should be no surprise to anyone, given the severity of the global economic conditions that have occurred. The dramatic fall of share markets world wide in 2008/09 has only been witnessed to that extent once before in history- and our last fall was worse than the Great Depression.
A few friendly reminders to get you ready for the end of financial year.
One of life's most precious gifts is the opportunity to share and give to others. Whether this is sharing with loved ones or making donations to people you have never met, many find so much joy from this gesture.
Boomers on the Go offer its members discounted prices on Tours, Holidays, Hotels and more from many reputable travel partners. Current member specials include 2 for 1 Eurpoean river cruises or closer to home, half price Murray river cruises. Usually $40 to join, Cornerstone have negotiated this on your behalf to join for free!!