The importance of maintaining good health, is undeniable. The same goes for your finances! As both accountants and financial planners, we recommend that you go back to basics and undertake a common-sense review of your financial affairs, including investments.




Don’t be preoccupied with minor fluctuations in the markets on a daily basis, but at least every three months review your position to ensure that you are building a worthwhile investment portfolio. Review your investments with an advisor who is not simply commission oriented, and has the necessary knowledge to ensure that your portfolio is in line with the changes constantly going on throughout the world. For example, if you have shares in your portfolio, you need to recognise the right time to buy well priced investments, and when is the right time to off-load a “dog”. Even if you decide that no action is required at the time, at least you have made the effort to understand your current position.


If you are interested in property, what is your understanding of the current residential, commercial and industrial market? Where do you expect values to be in five years from now? Are you happy with the yields properties have been returning? Are you looking just in your own backyard, or taking into consideration locations in other states? Do you understand how to maximise the building depreciation allowance claims for tax purposes? It is essential to have access to constantly updated research to make informed decisions, rather than reacting on advice from family or friends.





It is essential to maintain a well-diversified portfolio –  don’t put all your eggs in one basket. This is a simple but fundamental rule!  Placing several investments in only one class (whether it is property, blue chip shares or something more exotic) is not diversification. Not all investments go through market fluctuations at the same time.  You can actually generate more consistent returns if you invest in assets that tend to behave differently at different times.  That is diversifying.





We have experienced periods of relatively low inflation and low interest rates over recent years, unlike previous decades. Many investors don’t recognise the importance of real interest rate (i.e. the difference between interest and the actual inflation rate at the time). This helps establish the benchmark for the rate of return you should expect for a particular investment.


Where do you think interest rates will be in 12 months time? How will it affect your cashflow and tax liability, should rates increase by a couple of percent? Should you be locking in fixed rates for the next few years? Over the last 20 years we have seen real interest rates in general range from around 1% up to 11%.  It is therefore absolutely critical to investors to be aware of the real interest (after the effects of inflation) that they are earning after tax.





If you want to enjoy your retirement years you will need to be sure that you have the necessary savings to do so.  You simply won’t be able to rely upon the government to provide for you. As the Australian population continues to age, then it becomes increasingly more important to plan at least 25 years ahead for a retirement filled with “peace of mind”. Develop an investment plan now!  It is never too early to start planning for your retirement years no matter what your age. Those thinking of retiring in the next ten years should begin their succession planning this year, even if it is only gathering some initial financial advice.





Don’t ignore realising capital profits on your more successful investments along the way (by selling some, or all of it) even if it means that you may not make quite as much, if you had held a little longer. You may have some tax to pay, but that it may be better than losing ground down the track. Learn to focus on the profit that you have realised, rather than the extra profit you might make in the future.


Understand that you can live off “realised” capital gains (buy selectively selling assets at a profit) just as well as you can off income.  Many people have grown up with the idea it is inappropriate to sell down some capital to fund retirement, because they ignore the capital growth component in their financial planning.  Instead they focus solely on earning income from their investments, which is generally taxed in full at their marginal rate. Remember that generally the maximum tax rate on capital gains is only around 23% which is much less than the 46.5% maximum rate on other income. And when you die, you can’t take your capital with you!


Professional tax advice is essential, to help understand the taxes affecting your investments, both income and capital gains taxes. Particularly when deciding whether to invest, or sell. Sometimes what appears to be a good profit is not so attractive when you consider the tax implications in that particular financial year. Also be aware of the other transaction costs such as stamp duty upon purchase, agent’s brokerage fees, etc. The timing of when to buy and sell an asset is also crucial. So your advisors need to be registered to provide both tax, and investment advice.





Negative gearing can still be worthwhile, even though it is not as attractive during current periods of low inflation and interest rates (compared to those we experienced in the 1980’s). This tool can be used for real estate, as well as equities. Careful planning considering liquidity and tax position (over say a minimum five to ten year period) should give you the confidence to borrow within your means.  But make sure you are selective when acquiring an asset – it must be a worthwhile investment for the long term, not just a strategic tax deduction today. In times like these (where the banks’ lending policies have tightened and many find it difficult to raise capital) those people who have low levels of gearing may be in a tremendous position to take advantage of opportunities to acquire assets for the long term.





Ensure you understand how franked dividends (with the 30% tax credit) affects your income and tax position.  Where you hold shares in your self managed superfund, the tax advantage can be even more attractive!  If you do not yet hold any shares, at least start watching the market regularly to gain an insight!





Australia is only a very small part of the business world, less that 3%.  Opportunities do exist, with the right advice, to invest some of your portfolio overseas where there are opportunities both now and in the future.  You need to assess exactly how much risk you are willing to take, and what you are comfortable investing in. Investing in other counties at different times in their economic cycle gives you the chance to overcome the limitations of the local economic cycle. However you need to seek professional help (and be prepared to pay for it) to invest wisely.





Make sure your investment strategy, cashflow budgeting, business plan and tax planning are interrelated. This means choosing an accounting/financial advisor who can understand your situation, and recommend appropriate action given all four important parameters. We have based our practice, on providing exactly this level of service!

Leave a Reply

Your email address will not be published. Required fields are marked *

clear formPost comment