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Welcome to this edition of Your Financial Future which reviews the June 2005 quarter. In this issue, we discuss how you can use insurance to protect your wealth and ask the question: "Which suits you better: shares or managed funds?"
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We also continue our exposé of Financial Planning myths, introduce you to Tom Nguyen, one of the Financial Planners on hand to help you secure your financial future and feature Perennial Value Management, one of the fund managers which may be looking after your investments.
Protecting your wealth through insurance
What would happen if you passed away suddenly or were badly injured? Would your family, already placed under emotional distress, also face financial problems having lost you as their bread winner? As a member of this Scheme, you already enjoy some insurance cover. But would it be enough if the unexpected happened? Would your spouse be able to support your family? What changes would your family have to make to manage things financially?
As unpleasant as these questions are, they are important questions and by asking them now, you could prevent you and your family from suffering unnecessary hardship in the future.
Insurance is considered a vital part of any wealth creation plan. And as Andrew Wells, a senior Financial Planner at Chifley, asks: "What is the point of working to secure your financial future without having measures in place to protect it? Investing in insurance is about investing in peace of mind and it helps you protect your financial security and that of your family in the event of sickness, injury, disablement or death."
Life and Total and Permanent Disability (TPD) insurance
This cover will pay a lump sum if you die or become totally and permanently disabled. At a minimum, you should insure for a lump sum sufficient to discharge any outstanding debts. You could also take cover which provides a reasonable lump sum which can be invested to help meet any ongoing regular income needs of your survivors.
Income Protection
Income Protection insurance helps replace your regular salary or earnings if you are unable to work for a period of time due to illness or accident, by providing a regular income stream for a set period of time.
You select the:
- Percentage of current gross salary or earnings that you wish to ensure, up to a maximum of 75%.
- Waiting period (from 14 days to 24 months) that applies before the insurer starts paying you an income stream.
- Length of time over which the benefit is paid - for example two years, five years or to 65 years old.
The premium you pay will be affected by these variables. However, premiums for Income Protection are tax deductible and benefit payments will form part of your assessable income.
Super and insurance
One way to obtain life, TPD or Income Protection insurance is through your super Scheme. The benefit of doing this is that the premiums are paid from your superannuation contributions, meaning that you don't pay for the cost of the insurance directly. If you don't want your super savings to be reduced by insurance premiums, you can make a contribution towards your super to pay for insurance. A tax-effective way of doing this is to pay for your premiums using pre-tax dollars via salary sacrifice contributions. You also get to take advantage of the wholesale insurance rates your Scheme has negotiated which are among the cheapest insurance rates available.
Review your insurance needs regularly
Taking insurance isn't a once off event. As you move along the path to retirement, part of your planning process should include regular reviews of your insurance needs to ensure that you aren't over or under insured as your needs and circumstances change.
For more information on insurance, contact Chifley Financial Services on 1800 800 002. One of our Financial Planners can work with you to determine whether you have the best cover to meet your particular circumstances.
The Myths of Financial Planning
In this day of financial information overload, it's often difficult to discern fact from fiction. For this reason, in each issue of Your Financial Future, we expose another Financial Planning myth to help guide you through the maze of information out there in the marketplace.
Myth: A financial plan is nothing more than a portfolio of investments
Establishing a financial plan is only the first step in the ongoing process of achieving your financial goals. There's much more to it than simply selecting a portfolio of investments. A good financial plan needs to be designed for the long-term and around your personal circumstances.
Timeframe
Your plan should cover at least five years, using projections of inflation, investment earnings and likely lifespan to help plan for your future. The only certainty in life is change, so your plan needs to be dynamic. It should include a built-in review system to ensure that it remains appropriate to your circumstances and the changing legislative, economic and investment environment. Because you are planning for the long-term, your plan must be flexible. When a change to your plan is called for, you should be able to switch between investments at little or no cost.
Scope
Your plan should take into account the interaction between your investments and the many factors which influence your portfolio over time. These factors can include:
- Your investment timeframe
- Your need for cash flow to meet expenditure needs
- Your taxation strategies
- How you will provide for your retirement
- How much risk you are comfortable with
- Your need for income protection insurance, trauma and life insurance
- Other financial and personal considerations
- The environment in which all these factors operate.
It is frequently the interaction between these factors, rather than the individual investments that you choose, that determines your most suitable tax structure, or how to maximise your pension entitlements, or the management of your cash flow. This is why you should focus less on the particular products available and more on the strategies that can help you achieve your goals.
Checklist: What your financial plan should do
- Look forward five years or more, including inflation and earnings projections
- Be flexible
- Have a built-in review system
- Offer little or no cost switching of investments
- Consider tax and pension entitlement strategies
- Be within your risk profile
- Cover your insurance needs
- Take into account your personal and financial considerations
- Focus on strategies rather than products.
If you'd like to consider putting together a financial plan, contact Chifley's Financial Planners on 1800 800 002.
Fair Go Winter Special
The Fair Go Member Benefits Program is pleased to provide you with…
A Winter Special at the Novotel Northbeach at Wollongong
The Novotel Northbeach is offering an exclusive rate for Fair Go members
· Overnight accommodation in a standard room at $185*
· Complimentary bottle of red wine and cheese platter on arrival
Members must quote "Fair Go Winter Special" when making the booking and bookings must be made direct through hotel reservations on (02) 4224 3111.
* per room per night including GST. Normally the room rate is $250 per night.
Conditions apply. The offer is valid until 31st August 2005 and exclusive to Fair Go members only. Subject to availability. Not valid with any other offer. Rate is room only and is based on a standard room.
Attention snow bunnies and sun lovers!!!
 As part of the Fair Go program, we've also secured some fantastic holiday deals for you.
For ski lovers…
The Snow Travel Company is offering Fair Go members a 10% discount off accommodation at a range of Australian and New Zealand ski resorts. And, there are extra savings on top of this, such as discounted lifts, lessons and hire, free meals and kids being allowed to stay free at certain resorts.
For more information on these great offerings, click here or call 1300 660 690, but don't forget to quote "Fair Go Member" to receive your 10% discount.
For sun lovers…
 | As a Fair Go member, you could save up to 65% on your next holiday at one of over 38 BreakFree resorts located in Australia's favourite holiday destinations.
For more information, click here
or call 1800 465 326 and quote "MEMBERBenefits". Packages change each month so look regularly to find the deal that suits you.
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Which suits you better: shares or managed funds?
Share investments have generally outperformed other types of investments over the longer-term. But if you want to invest in stocks, you'll have to decide whether to do this directly yourself or through a managed fund.
Chifley's Manager of Wealth Planning, Andrew Whelan, says: "Each has its pros and cons and much depends on how much work and control you'd like to take on. But whatever you do, get some advice first."
Andrew notes that if you choose the managed fund route, you hand over your money to a financial expert who has the resources, skills and experience to do the job - and you don't have to spend hours researching and monitoring the share market and different stocks.
Your money is pooled with that of thousands of other investors, boosting the manager's buying power and spreading the costs of managing the portfolio. As a large player, the manager may also get transaction discounts and is likely to be offered access to floats and other offers which are not always open to individuals.
On your own, you might only be able to afford a handful of shares. The fund manager, on the other hand, can buy a large number of shares in different industry sectors, thus lessening the impact if one share or sector underperforms.
However, Andrew cautions that by going the managed funds route, you'll be losing direct control over the individual share investments and you'll also have to pay the manager a fee for doing the job. You can, though, gain valuable diversification that is difficult to achieve on your own.
He says the FuturePlus* Premium Wrap, which is available to you as a member of FuturePlus Super, allows you to invest in both direct shares and managed funds for both your super and non-super investments.
Need further advice?
Speak to a Chifley Financial Planner today who can help you decide, free of charge, which route is best suited to your needs and personality. Contact Chifley Financial Services on 1800 800 002.
* FuturePlus Financial Services Pty Limited (ABN 90 080 972 630) is an Australian Financial Services Licensee (AFSL 238445) and is the service provider for Chifley Financial Service Limited.
About your fund managers
FuturePlus Super's Trustee utilises a multi-manager approach to investments in order to obtain the best returns for you.
We do this because research has found that using several carefully selected investment managers in one portfolio will produce a better result, more consistently and with lower volatility, than a single manager over any reasonable period.
However, we know that managers use different styles of investment and some styles perform better at different times of the investment cycle. That's why we take great care in how we combine managers and their styles to ensure that your share portfolio is not biased in any style direction.
One of the fund managers looking after your Australian share investments is Perennial Investment Partners. Part-owned by IOOF, it has $13.8 billion in funds under management.
Perennial Value Management consists of a dedicated team of six portfolio managers and analysts. Its managing director John Murray has been involved in investment management for 18 years. Key staff members are kept motivated because they can earn equity in the company if they deliver investment returns which beat their industry benchmarks over set periods.
Perennial is a specialist active Australian equities manager. Its investment process is based on a 'value', bottom-up stock picking investment style. It aims to buy good businesses that are undervalued now, but which it believes will be recognised by the market and re-rated later, leading to a growth in their share price.
In addition to its ability to perform, Perennial was chosen because its style complements that of our other Australian equity managers, such as ABN AMRO, which uses a "growth" style of investing. Growth investors look at earnings and productivity growth before buying a share. They don't mind paying the full price or even a premium for stocks which they believe will show strong growth in the future.
Financial Planner profile: meet Tom Nguyen
Chifley Financial Planner Tom Nguyen sees his as a "privileged" role. "Every day people come in and share their lives with me," he says. "In addition to being technically proficient, in order to provide good advice, a financial planner must be able to communicate with and relate to the client."
Tom adds: "There are varying perceptions out there about financial planning and financial planners. A lot of new-age planners have different ideas about what financial planning is about. They take themselves seriously as professionals and are moving away from "pushing products" to thinking about the bigger picture, the total client. This is the general direction of the financial planning industry, slowly maybe, but surely.
"Most accountants deal only with their clients' tax situation and solicitors look after the legal aspects. Financial planners tie everything together for the client, taking into account the economy, the client's lifestyle, goals and dreams, taxation, retirement plans, and so on.
"It's all encompassing and helps clients to get a handle on or to improve their situation. I find it very rewarding."
As part of being a financial planner, Tom sees his role more or less as that of a guide. "I help my clients to understand the planning process and to take control of their financial situation." he says.
"Bad decisions are commonly a result of insufficient information or misinformation and trying to solve problems last-minute under stress. A lot of this could be avoided by having a plan in place."
Tom started his career in financial planning five years ago and hasn't looked back since. He joined the company almost three years ago. He has completed his Diploma in Financial Planning and continues to further his studies.
Free Seminars
Are you looking to set aside some money for a house, a holiday or perhaps for your children's education? Would you like to know more about investment options, risk and return and managed funds? Are you wondering whether you will have enough money to retire on?
You could get the answers to these questions, and more, by attending one of the free wealth creation or pre-retirement planning seminars we are running at a venue close to you. To find out more, click click here, or contact Member Services on 1800 067 059.
Investment and market commentary
Do you know what happened in investment markets during the past financial year? To find out what the big story was in 2004/05, please click here.
Chifley Financial Services Limited
Ground Floor
28 Margaret Street
Sydney, NSW 2000
Member Services
T: 1800 067 059
F: (02) 9273 0033
Financial Planning
T: 1800 800 002
This document was prepared for the exclusive use of members of FuturePlus Super by Chifley Financial Services Limited (ABN 75 053 704 06) as the Approved Trustee of FuturePlus Super and an Australian Financial Services Licensee (AFSL 231148).
Please note that the information contained herein is of a general nature only. It has not been prepared taking into account your particular investment objectives, financial situation and particular needs. You should assess whether the advice is appropriate to your individual investment objectives, financial situation and particular needs. Before making an investment decision, you should seek the assistance of a professional adviser.
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