- Posted by: Nick Lucey
- Category: Advice, Banking, Budgeting, Equity, Financial Planning, Forecasting, Investments, money, Mortgage Broking, Purchasing Property, Saving, Superannuation, Tips & Tricks
Do You Understand Your Current Financial Position?
Most people don’t review their finances until its too late – but it’s never too early to conduct a review! The more you understand your current financial position, the better choices you will make when investing your money and the better the outcomes you will get.
Learn More About Your Super
Superannuation is likely to be your main source of retirement income, so it’s important to understand how much you have now, and how much you’re likely to have by the time you get to retirement.
Not Sure How Much You Have?
This quick check can help you find out how much you have:
- Do you have more than one super account?
- How many do you have?
- Do you know where they all are?
- Do you have your latest super statements or do you have online access to your accounts?
If you couldn’t answer the above questions – or aren’t sure where to start – then check and manage your super online by creating a myGov account and linking it to the ATO. Once setup, you can use myGov to find out if you have any lost or unclaimed super, combine multiple super accounts together, and manage and monitor your accounts online.
It’s easier to get a snapshot of your super future if you bring all your super accounts together.
Know Your Investment Options
Before you start investing, it helps to have an idea of why you want to invest, how long you’ll invest for and your attitude to risk. There are many types of investments to choose from, so selecting one that will help you reach your particular goals is essential. Professional financial advice is always a good place to start.
You can invest in:
- Cash (e.g. savings accounts and term deposits) – Low risk, possibly low returns
- Fixed income (e.g. bonds and debentures) – Low risk, investments can be linked to inflation rate
- Property (e.g. buildings, land and factories) – Moderate to high risk
- Equities (e.g. shares) – High risk due to numerous economic and global factors
Click here to use AMP’s Investor Style calculator to help you better understand your investment style.
Investing Through Your Super Fund
You probably already have money in a super fund. But do you know how it’s invested? Some asset classes do better than others, delivering higher returns but at higher risk:
- Conservative or cash options (investing mostly in fixed interest and cash) – generally suit investors who don’t want to take on much risk
- Aggressive or growth options (investing mostly in shares or property) – tend to suit investors who want to see high returns and are prepared for fluctuations in the share market
- Balanced options – usually have a mix of conservative (lower risk) and aggressive (higher risk) options.
The Benefits Of Buying Property As An Investment
When you invest in property, you can benefit from:
- An increase in the value of your property over time
- An additional source of income once the property becomes positively geared
- Tax advantages.
But like all investments, make sure you can cover any loan repayments without it affecting your lifestyle. You should also keep in mind that the value of your property can go down, as well as up.
Consider The Tax Implications
When you’re thinking about investing, it’s also important to think about the potential tax implications.
Tax laws are complex and can change, so it’s important to talk to a financial adviser before you make your investment choice.
Using The Equity In Your Home
There can be a range of benefits and risks in releasing the equity in your home and using it for investment; you could:
- Have an opportunity to build wealth more quickly
- Benefit from gearing
- Pay off your home loan sooner using debt recycling, provided you can manage the risks involved
- Risk losing your entire property if you can’t meet loan repayments.
Borrowing against the value of your home – which is how you access your equity – may enable you to buy an investment sooner than if you had to save the money. Owning additional assets can help you build wealth more quickly, although investing usually involves risks.
In addition to your investment potentially increasing in value over time, any expenses related to owning the investment – including loan interest charges – are generally tax deductible.
A negatively geared investment can provide tax benefits, while a positively geared investment effectively pays for itself and may generate income – although extra income usually means you’ll pay more tax.
What’s more, owning an investment gives you the opportunity to generate an extra source of income down the track. A strategy like debt recycling can help you pay off your home loan sooner, using the income from your investments.
Of course, you need to consider the risks involved first. For example, it’s important to understand that when you borrow against the equity in your property your overall level of debt increases. That means you’d have more financial responsibility and may also risk losing your property if you were unable to meet loan repayments.