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Financial Advice

December 15, 2023
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In Financial Advice, Financial Planning, Goals, Investments, Latest Updates, Money

Common Investment Pitfalls to Avoid

Investing, a realm filled with potential opportunities and pitfalls, demands careful consideration to navigate successfully. Each misstep along the way can serve as a valuable lesson, contributing to a more refined and robust investment strategy. Here are 20 crucial investment mistakes to be aware of, each of which plays a pivotal role in shaping a sound investment approach.

  • Setting Unrealistic Expectations: Investors must maintain realistic return expectations to stay committed to their long-term goals amidst market fluctuations.
  • Lack of Clear Investment Goals: Without clear long-term objectives, investors risk being swayed by short-term trends or the allure of the latest investment trends, losing sight of their primary financial ambitions.
  • Inadequate Diversification: Diversification is essential for risk management, as over-relying on a single stock can significantly impact a portfolio’s overall value.
  • Short-term Focus: A fixation on short-term market movements can lead to doubts about the original strategy, resulting in impulsive decisions.
  • Buying High and Selling Low: Emotional reactions to market volatility often harm overall investment performance.
  • Excessive Trading: Studies show that highly active traders typically underperform the broader stock market by an average of 6.5% annually.
  • High Fees: Ongoing fees can significantly eat into investment returns, especially over extended periods.
  • Overemphasis on Taxes: While tax strategies like tax-loss harvesting can enhance returns, making decisions solely based on tax implications may not always be beneficial.
  • Infrequent Investment Reviews: Regular portfolio evaluations, preferably quarterly or annually, ensure alignment with investment goals and highlight the need for rebalancing.
  • Misunderstanding Risk: Striking the right balance between too much and too little risk is crucial, as excessive risk can lead to discomfort, while insufficient risk may yield inadequate returns.
  • Unawareness of Performance: Many investors are not fully aware of their investment performance. Regularly reviewing returns, accounting for fees and inflation, is vital to assess progress towards investment goals.
  • Reactivity to Media: Short-term negative news can trigger fear, but it’s essential to maintain focus on the long-term trajectory.
  • Ignoring Inflation: Historical inflation averages around 4% annually, which can significantly erode purchasing power over time.
  • Attempted Market Timing: Trying to perfectly time the market is exceptionally challenging and often less profitable than remaining consistently invested.
  • Insufficient Due Diligence: Verifying an advisor’s credentials using online resources to review their history and any complaints is critical.
  • Incompatible Financial Advisor: Finding an advisor whose strategies align with one’s goals is crucial for a successful partnership.
  • Emotion-Driven Investing: Maintaining rationality during market fluctuations is essential to avoid emotional decision-making.
  • Chasing High Yields: High-yield investments often come with higher risks. It’s important to align investments with one’s risk tolerance.
  • Delaying Investment: Starting to invest early can lead to greater potential returns, as exemplified by comparing the outcomes of investing $200 monthly from different starting ages.
  • Not Controlling the Controllable: While market trends are unpredictable, investors can manage their contributions, leading to significant outcomes over time.

To avoid these common pitfalls, investors should seek financial advice, prioritise rational decision-making, and focus on long-term objectives. Financial goals, current income, spending habits, market conditions, and expected returns should guide portfolio construction. This approach helps investors steer clear of short-term market volatility and underscores the importance of consistent, long-term investments in wealth accumulation.

Designing and managing your investment portfolio can be complex; with our experience and understanding, we can help tailor an overall investment plan to suit your long-term goals.  Reach out to our financial advice team for strategic investment advice here.

Learn more here.

This information does not take into account the objectives, financial situation or needs of any person. Before making a decision, you should consider whether it is appropriate in light of your particular objectives, financial situation or needs.

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October 4, 2023
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In Estate Planning, Family, Financial Advice, Financial Planning, Latest Updates

The responsibilities and challenges of an estate executor

Being named the executor of an estate is both an honour and a burden. Entrusted with this pivotal role, one carries out the last wishes of a loved one, but the path is often strewn with complexities and unforeseen challenges.

Navigating the Executor’s Terrain

At first glance, the executor’s role might seem straightforward. However, in practice, it’s a demanding role that requires interaction with a myriad of entities, such as banks, real estate professionals, utility companies, the deceased’s superannuation fund, and the taxation office.

Furthermore, an executor’s duties are vast and varied. They encompass everything from overseeing funeral procedures, securing the death certificate, and notifying friends and family about the loss. They’re also tasked with locating the will, identifying beneficiaries, gathering a multitude of documents, settling estate debts, documenting estate assets, and initiating insurance and superannuation claims.

Yet, the process isn’t without potential pitfalls:

  • Executors face personal financial risks. Any oversight during the estate’s administration might lead to personal financial liabilities.
  • They often encounter hitches in procuring superannuation death benefits and in coordinating with fund trustees.
  • Executors bear responsibility for any losses stemming from estate asset mismanagement. This can include failure in securing and judiciously investing assets or lapses in notifying creditors, settling the deceased’s obligations, and recouping debts owed to the deceased.
  • They can incur financial penalties for unduly delaying estate administration or for hasty distributions.

Guidance for a Smoother Transition

For those in the process of drafting a will and designating an executor, a few proactive steps can immensely assist in the estate’s efficient management:

Collaborate with a knowledgeable probate lawyer or solicitor specialising in wills and estate management. Their insights can be invaluable, especially regarding local family and inheritance laws.

Given life’s unpredictability, regular updates to your will, insurance policies, and superannuation death benefit details are paramount.

It’s crucial to note that superannuation doesn’t fall within your estate and isn’t addressed in your will. Still, you can specify your wishes and arrangements concerning your super death benefit nominations in your will.

Seek guidance from your financial adviser and super fund to establish death nominations, thereby streamlining benefit acquisitions for beneficiaries.

If feasible, contemplate liquidating your entire death benefit from the super fund while still alive. This proactive step allows for immediate distribution based on your directives or deposits into a bank account, providing easy access for the executor upon your passing.

If you’re ever nominated as an executor by a loved one, it’s prudent to discuss these considerations with the person who drafted the will (the Testator). Collaboration with their legal advisor (and financial consultant if available is also advisable to ensure a comprehensive understanding of the responsibilities and challenges ahead.

The role of an executor is multifaceted, rife with both honour and intricate challenges. However, with a well-charted roadmap and diligent preparation, the process can be streamlined, ensuring a smoother transition for all involved.

This can be a complex discussion and should be undertaken with a trusted advice professional. Reach out to the Sherlock Wealth team here to get started.

Source: Matrix Planning Solutions

This information does not take into account the objectives, financial situation or needs of any person. Before making a decision, you should consider whether it is appropriate in light of your particular objectives, financial situation or needs.

 

September 25, 2023
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In ESG Investing, Financial Advice, Financial Planning, Goals, Investments, Latest Updates

Types of ethical investing plus the pros & cons

The investment technique known as ethical investing prioritises the investor’s moral, religious and social ideals over financial gain. This is because a growing number of investors have begun to demand social responsibility from the companies they invest in, primarily because of the rise in dubious and unlawful investment arrangements.

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September 25, 2023
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In Financial Advice, Goals, Investments, Latest Updates, Wealth

Rethinking Wealth: Beyond Money – The Evolving Concept of Prosperity

In today’s society, the notion of wealth extends beyond financial resources. As individuals seek a more balanced and fulfilling life, the concept of wealth has evolved to encompass various factors such as education, healthcare, job satisfaction, and social connections. This article explores the changing perception of wealth in contemporary Australia and highlights the importance of holistic well-being in defining prosperity.

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August 29, 2023
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In Estate Planning, Financial Advice, Latest Updates, Retirement, Self Managed Superannuation, Superannuation, Wealth

Trusts and the new super tax rules

Ensuring you’ve structured your finances tax-effectively is always a concern, but with new tax rules for super on the horizon, many people with large balances are considering alternative vehicles to save for retirement.

Unsurprisingly, this has sparked a renewed interest in an old favourite – trusts.

Trusts have always been popular in Australia, with the government’s Tax Avoidance Taskforce (Trusts) estimating more than one million were in place in 2022.

Separating ownership using a trust

The popularity of trusts for business, investment and estate planning purposes is due to both their flexibility and inherent benefits, particularly when it comes to managing your tax affairs.

At their heart, trusts are simply a formal relationship where a legal entity holds property or assets on behalf of another legal entity.

This separation means the trustee legally owns the assets, but the beneficiaries of the trust (such as family members) receive the income flowing from the assets.

A common example of a trust structure is a self managed super fund (SMSF), where the fund trustee is the legal owner of the fund’s assets, and the members receive investment returns earned on assets held within the SMSF trust.

Which trust is best?

There are many different types of trusts, with the appropriate structure depending on the financial goals you’re trying to achieve.

For small businesses and families, the most common trust is a discretionary (or family) trust. These vehicles are very flexible and can be used with immediate and extended family members, family companies or even charities.

In a discretionary trust, the trustee has absolute discretion on how both the income and capital of the trust are distributed to various beneficiaries.

This gives the trustee a great deal of flexibility when it comes time to allocate income to family members paying different marginal tax rates.

Advantages of a trust structure

Discretionary trusts offer tax, asset protection, estate planning and property holding benefits.

They can also assist with the accumulation of assets for younger generations within your family and provide opportunities for the discounting of capital gains.

For small businesses and farming operations, a discretionary trust can be used to provide valuable asset protection. If your business goes bankrupt or a beneficiary is divorced, creditors will be unable to access assets or property held within the trust as it is the legal owner of the assets.

Building wealth outside super

With new tax rules for super fund balances over $3 million being introduced, trusts also provide a useful tool to consider for continued wealth accumulation.

Unlike super funds, trusts don’t have annual contribution limits, restrictions on where you can invest or borrowing limits. Money can be added and removed from the trust as necessary, providing significant financial flexibility.

Discretionary trusts can also be used with vulnerable beneficiaries who may make unwise spending decisions. The trustee can decide to provide a spendthrift child or a family member with a gambling addiction regular income, but not large capital sums.

Holding ownership of assets within a trust is useful for estate management, as the assets will not be part of a deceased estate, avoiding the possibility of a Will being challenged.

Trusts aren’t always the solution

Although trust structures provide many benefits, there are also tax issues that need to be considered. For example, any trust income not distributed to beneficiaries is taxed at the top marginal rate.

Distributions to minor children are taxed at higher rates and a trust is unable to allocate tax losses to beneficiaries, so they must remain within the trust and be carried forward.

Trusts can be expensive to set up, administer and dissolve when they are no longer needed and the trustee’s actions are restricted by the terms of the trust deed.

If a family dispute arises, running a trust can become difficult and making changes once it is established isn’t easy.

If you would like to find out more about trusts and whether one is appropriate for your business or family, reach out to our experienced advice team here.

View Andrew’s website profile here or connect with him on LinkedIn.

Andrew Sherlock is the Owner & Head of Advice at Sherlock Wealth.

A Sydney-based financial planning firm, Sherlock Wealth has been helping successful families, business owners and individuals with their wealth creation and wealth protection needs for more than two generations.

A Chartered Accountant with a background in funds management, Andrew’s career spans more than 30 years. Andrew was one of the first people in Australia to obtain the Self-Managed Superannuation Specialist accreditation and is one of only a few advisers in Australia to be a Certified Investment Management Analyst. He is a lifetime member of the international MDRT Top of the Table and holds a BA Economics degree from Macquarie University with majors in accounting and finance.

Helping clients achieve their lifestyle goals through smart investing and asset management, wealth structures, and strategic planning are the cornerstones of what Andrew and the team at Sherlock Wealth provide.

Andrew can also be contacted at ask@sherlockwealth.com.

 

June 20, 2023
admin
In Estate Planning, Family, Financial Advice, Financial Planning, Latest Updates, Self Managed Superannuation

Who needs a testamentary trust?

While the escalating cost of living commands immediate attention as individuals grapple with mounting expenses, our shared wealth is steadily expanding, progressively transferring to the next generation at an accelerated pace.

In fact, the value of inheritances as well as gifts to family and friends, has doubled over the past two decades.i

A 2021 Productivity Commission report found that $120 billion was passed on in 2018 and that amount is expected to grow fourfold between now and 2050. In 2018, the value of the average inheritance was $125,000 while gifts averaged $8000 each.

So, there is a lot at stake and it means that estate planning – a strategy for dealing with your assets after you die – is vital to help fulfil your wishes and protect the interests of the people you care about.

One powerful tool in planning your estate is a testamentary trust, which only comes into effect after your death. It operates in a similar way to a discretionary family trust and your Will acts as the trust deed, providing instructions for the trust.

It allows you to control the distribution of your assets and provides a way of managing any tax implications for your beneficiaries. Testamentary trusts are often used to protect assets from unforeseen circumstances such as lawsuits, creditors and divorces and they can help to preserve a family’s wealth.

A testamentary trust can be useful for those with blended family relationships and children with complex needs. For example, a child with a disability who is unable to manage their own investments can be supported by the use of a trust. Testamentary trusts may also help to provide some certainty for parents that their young children will be provided for. They are also often used by philanthropists as a way of providing a legacy for a cause they support.

Choosing a trustee

If you are setting up a testamentary trust, you will need to appoint one or more trustees who will manage administration and distributions.

The trustee could be a family member (who may also be a beneficiary) or the role could be handed to an independent person or organisation.

Trustees should understand the tax situation of each of the beneficiaries to ensure that the timing and amount of distributions don’t inadvertently cause difficulties for them. Trustees must also lodge a tax return every year and maintain trust accounts and records.

As the ATO points out, for the trust to operate effectively, a high level of co-operation between family members may be important so that tax, financial and other information is shared.

The pros and cons

Whether or not you should set up a testamentary trust in your will depends on your own circumstances.

The positives include:

  • The ability to control the distribution of income
  • The possibility of some tax advantages for your beneficiaries
  • A level of protection for your assets from lawsuits, family breakdowns and business difficulties
  • A way of keep a family’s wealth intact into the future
  • Support for vulnerable beneficiaries such as those with special needs or lacking financial experience and minors
  • Can be used by anyone with assets to distribute, whatever the size of their estate

On the other hand, there are a number of considerations to be aware of such as:

  • The complex paperwork and reporting required
  • The cost to establish the trust and keep it running
  • The possibility of disputes among beneficiaries or with the trustee over the future of the trust, distributions, and its administration

Testamentary trusts are a valuable strategy to help ensure your wishes are followed. They can shape your legacy, provide fairly for your loved ones and protect assets.

Reach out to our team here to discuss more about establishing a testamentary trust and to see whether it is suitable for you.

View Andrew’s website profile here or connect with him on LinkedIn.

Andrew Sherlock is the Owner & Head of Advice at Sherlock Wealth.

A Sydney-based financial planning firm, Sherlock Wealth has been helping successful families, business owners and individuals with their wealth creation and wealth protection needs for more than two generations.

A Chartered Accountant with a background in funds management, Andrew’s career spans more than 30 years. Andrew was one of the first people in Australia to obtain the Self-Managed Superannuation Specialist accreditation and is one of only a few advisers in Australia to be a Certified Investment Management Analyst. He is a lifetime member of the international MDRT Top of the Table and holds a BA Economics degree from Macquarie University with majors in accounting and finance.

Helping clients achieve their lifestyle goals through smart investing and asset management, wealth structures, and strategic planning are the cornerstones of what Andrew and the team at Sherlock Wealth provide.

Andrew can also be contacted at ask@sherlockwealth.com.

 

 

i https://apo.org.au/node/315436

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