Transitioning into a retirement home is a significant life decision that involves careful planning and consideration.
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Retirement is a period most people eagerly anticipate. It’s that wonderful stage of life when you can finally unwind and spend your time as you please. You can even spend retirement focusing on the businesses you’ve been planning and have put off for so long.
Retirement is a period most people eagerly anticipate. It’s that wonderful stage of life when you can finally unwind and spend your time as you please. You can even spend retirement focusing on the businesses you’ve been planning and have put off for so long.
Understanding cash flow can be the difference between a solid long-term investment and a costly mistake. So do your research – and get good advice before you buy.
Whenever there is a disaster here or overseas, Australians rush to donate their time, household goods and cash. However, we still lag other countries when it comes to giving money.
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.
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.
(Feedsy Exclusive)
This article will help to ease some fears about market volatility and outline a behavioural approach to address emotional decision-making. Hopefully, this information will assuage fears that many investors have experienced over the past several months.
Like any other insurance policy, life insurance has many variations to meet different users’ needs. Thus, before choosing one, you must determine what you need in a life insurance policy.
By Andrew Sherlock, Head of Advice, Sherlock Wealth
If you are wanting to maximise your superannuation contributions, it is important to get this done before the end of the financial year.
What are the best ways to boost your retirement savings?
- Contribute a portion of your before-tax income to your super account. When you make a voluntary personal contribution, you may even be able to claim it as a tax deduction.
- Make a carry-forward contribution. This can be done if you have any unused concessional contribution amounts from previous financial years and your super balance is less than $500,000. This is a great way to offset your income if you have higher-than-usual earnings in the year.
- Arrange tax-effective contributions through salary sacrifice. The Australian Taxation Office requires these arrangements to be documented prior to commencement, so if this is something you are interested in, ensure you take the time to discuss it with your employer.
- Make non-concessional super contributions. If you have spare cash, have received an inheritance or have additional personal savings but have reached your concessional contributions limit, voluntary non-concessional contributions can be a good solution.
- Downsizer contributions are another option if you’re aged 55 and over and plan to sell your home. You can contribute up to $300,000($600,000 for a couple) from your sale proceeds.
- You can also make a contribution into your low-income spouse’s super account, which could provide you with a tax offset.
What are non-concessional super contributions?
Non-concessional super contributions are payments to your super from your savings or from income you have already paid tax on. These are not taxed when they are received by your super fund. Although you cannot claim a tax deduction for non-concessional contributions, they can be a great way to get money into the lower taxed super system.
How does this reduce my tax bill?
Making extra contributions before the end of the financial year can give your retirement savings a healthy boost, but it also has potential to reduce your tax bill.
- Concessional contributions are taxed at only 15 percent, which for most people is lower than their marginal tax rate. In this case, you benefit by paying less tax compared to receiving the money as normal income.
- If you earn more than $250,000, you may be required to pay additional tax under the Division 293 tax rules.
- Some voluntary personal contributions may also provide a tax deduction, while the investment returns you earn on your super are only taxed at 15 percent.
Watch your annual contribution limit
It’s important to check where you stand with your annual contribution caps. These are the limits on how much you can add to your super account each year. If you exceed them, you will pay extra tax.
- For concessional contributions, the current annual cap is $27,500 and this applies to everyone.
- When it comes to non-concessional contributions, for most people under the age of 75 the annual limit is $110,000. Your personal cap may be different, particularly if you already have a large amount in super, so it’s a good idea to talk to your adviser before contributing.
- There may be an opportunity to bring forward up to three years of your non-concessional caps so you can contribute up to $330,000 before the EOFY.
As always, we’re here to help. If you have any questions or would like to discuss EOFY super strategies or your eligibility to make contributions, please don’t hesitate to reach out to us here.
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.
Volatility is part and parcel of investing so it’s important to put it into perspective and look at the full picture when thinking about your wealth, rather than focus on day-to-day market swings.
