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Welcome to the July 2007 edition of Your Financial Future. In this issue, we explain the difference between saving and investing as well as why it's now important for you to provide the Fund with your Tax File Number.
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We also report on the recent Budget "gift" to those who qualified for the Super Co-contributions in the 2005/2006 financial year and remind you why super is now better than ever before.
In addition to exposing the myth that it is better to invest in the asset classes or funds that have shown the biggest gains over the past year, we also encourage you to be forward thinking about your finances.
And, as usual, we provide updates on the latest offers from the Fair Go Member Benefits program, and update you on how the different asset classes and investment markets have performed in the past quarter.
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Hear from our financial planners online
Visit www.chifley.com to hear about the latest on the super reforms and more from our financial planners.
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Are you saving or investing?
We can help you with more than just your super
| Looking for a low cost flexible home loan? We can help you. |
| Would you like to build an investment portfolio? We can help you. |
| Interested in borrowing to invest? We can help you. |
| Need insurance? We can help you. |
| Looking to create an estate plan i.e. a plan to protect your assets in the event of your death? We can help you. |
Call 1800 800 002 for more information.
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Why is it that many people invest their money but only some become wealthy? One reason is that many people make the mistake of treating their investments as savings. But what's the difference?
Saving is when we put aside some of the money we earn, usually in a bank account, to provide for the future. This kind of saving implies safety and conservatism and is often aimed at satisfying short-term goals such as paying for a car or an overseas holiday.
But saving is not the best strategy if you want to build up long-term wealth.
To build long-term wealth, you need to take the next step, which is to invest your savings. While cash is a safe investment, the interest earned is often eaten away by inflation and tax, leaving you with very little growth over the long-term.
In contrast, there are a host of other investment avenues that tend to show stronger gains over the long-term, such as shares and property. Not only do they attract interest, rental income or dividends, but they can also grow in capital value over the long-term.
Some also have tax advantages. You may have to pay tax on any interest earned on cash in the bank, but if you invest in Australian shares, for example, you could benefit from "franking credits". This means that if a company has paid tax on its profits and distributes these profits to shareholders as dividends, the shareholders get a tax credit equal to the amount of tax already paid by the company.
Investing via super also has significant tax advantages. Any pre-tax contributions you make to super (that is, Salary Sacrifice), and any earnings on your money while it's invested in super, are taxed at a maximum rate of 15%. This, of course, is significantly below the average tax rate of 31.5% (for those with incomes between $30,000 and $75,000 per year for the 2007/08 year). In addition, there is no tax payable on your super if you take it out after you turn 60.
The investment process, however, does carry with it some risks which can scare many of us off. The amount of expected return is based on the amount of risk you take with your money. Generally, the higher the risk of losing money, the higher the expected return. For less risk, an investor will expect a smaller return.
The risk with shares, for example, is that their prices may drop. That said, while share markets do go up and down, over the long-term they have gained far more than they have lost, and the same can be said about property prices.
One way to reduce these risks is to invest for the long-term as this helps ride out the short-term changes or volatility in their value or price. Your risks can be greatly reduced because you have time to ride out the fluctuations and benefit from the higher long-term returns.
Another way to reduce the risks involved in investments is through diversification, that is, to not keep all your eggs in one basket. This means spreading your risks across different types of asset classes, ranging from shares and property to fixed interest. It also means spreading your exposure across different geographical markets, regions or industry sectors, as well as across different fund managers and investment styles. When one area or manager isn't performing another may be booming, helping you to absorb any knocks in the short-term.
The way you spread your investments across different asset classes can also help reduce your risks. If, for example, you don't want to take on too much risk, you might put a greater proportion of your assets into more conservative asset classes, such as fixed interest and cash, although these may produce lower returns in the long-term.
If you'd like to find out more about how you can invest your money, please call 1800 067 059 to attend one of our wealth creation seminars. As a member of this Fund, you may also consult one of our financial planners at no additional cost to yourself and without obligation.
Super loans for our super members.
If you're a super member, now you can have a super home loan!
You can have a Chifley super loan with a competitive rate of interest right now. How?
Easy. Chifley's services are designed to benefit members, not shareholders, so we can offer our home loans at very competitive interest rates.
| Application fee |
Zero |
| Monthly accounting fee |
Zip |
| Split loan fee |
zilch |
| Electronic redraw fee |
Nil |
Chifley Homes Loans are 5 star rated.
And now, we're not the only ones who believe our loans are super.
Chifley's Super Mortgage Loan and Super Investment Loan have been rated "superior value" and awarded 5 stars by CANNEX, the independent financial services monitoring agency.
A CANNEX 5 star rating places Chifley within the top 5% of home loan products, a pretty super endorsement when you consider there are over 2,000 products in the mortgage category.
Why not apply for a super home loan today?
So if you're interested in a loan for a new home, an investment or if you simply want to re-finance your existing loan, why waste your money on higher rates or unnecessary fees?
Talk to Chifley instead. Call us on 1800 800 002 or check out our website
here to find out about our 5 star, fee free*, low-rate super loans.
Terms and conditions apply. Fees, charges and all loan details will be disclosed in the loan contract. Some charges such as valuation fees and costs charged by the lender's solicitors are payable. These charges may be non-refundable should they be incurred and the loan is not proceeded with. An early repayment fee may be payable. Chifley Financial Services Limited (ABN 75 053 704 706, AFSL: 231148), trading as Chifley Home Loans, provides services through an agreement with Select Credit Union Ltd (ABN: 20 058 538 140, AFSL: 238257). Chifley Financial Services Ltd does not guarantee the obligations of Select Credit Union Ltd.
General Insurance
Quality cover, competitive prices and service by people who care about their clients.
Due to the large number of enquiries for insurance from individuals, Chifley Insurance Brokers is pleased to announce that we now provide a suite of policies specifically structured for individuals.
They are:
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Two Home and/or Contents Policies | Choose between Standard (Defined Events) coverage or pay a little extra and receive a broader accidental damage cover which incorporates cover for most items whilst you are away from the home.
Increase your excess to save $$
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Comprehensive Motor Vehicle | For all of us who own a car or cars:
- Restrict your drivers to those over 30 years and save $$
- Increase your excess and save $$
Pay a little extra to:
- Have a hire car for up to 14 days while your car is being repaired after an accident
- Claim against glass damage without paying your excess or losing your no claim bonus
- Protect your maximum no claim bonus in the event of an at-fault claim
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Landlords | For those people with investment properties, this automatically covers you for:
- Deliberate damage by your tenant
- Malicious damage by your tenant
- Rent default if your tenant leaves owing rent
- Theft by your tenant
- Legal Liability $20,000,000
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Travel | Worldwide cover for the traveller |
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Caravan and Boat (Pleasure craft) | For the recreational enthusiast
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For an obligation free quote please call 1300 562 774.
Super is now Better
The Government's Better Super reforms, initially called Simplified Super, have now been passed into law and many of the changes came into effect on 1 July, 2007.
The reforms make super one of the most attractive savings mechanisms available, largely because they have removed the tax payable on your super if you take it out after you turn 60.
Super is already concessionally taxed in other ways. Both pre-tax contributions made by yourself and contributions paid by your employer (including the Superannuation Guarantee) are taxed at 15%, which may be a much lower tax rate than the one you pay on other earnings. In addition, the earnings on your investments while invested in super are taxed at a maximum rate of 15%, whereas earnings outside of super may be, depending on your circumstances, taxed at the highest marginal tax rate.
However, there is a limit to how much you and your employer can contribute on a pre-tax or salary sacrifice basis. If you are under age 50, this limit is $50,000 per year. For anyone 50 or older this limit is $100,000 for each year you are over 50 until 1 July 2012. Thereafter the limit is $50,000 regardless of age.
The changes in brief from 1 July 2007 include:
- All superannuation benefits paid from a taxed source (i.e. your Fund), such as lump sums or income streams, are tax free for people aged 60 and over.
- Reasonable Benefit Limits (RBLs) have been abolished.
- Age based limits on pre-tax contributions (concessional contributions) to super have been removed and new limits introduced.
- New contribution limits have been introduced for undeducted or after-tax contributions
(non-concessional contributions).
- Top tax rates will be applied if you don't provide your Tax File Number to the Fund.
- Taxation of the super benefits of those aged under 60 has been simplified.
- There will be no forced payment of benefits out of a super fund after age 65.
- The rules relating to pensions have been simplified.
- Age Pension Assets Test Taper rate will be changing from 20 September 2007.
If you'd like more information on how you can use these changes to your advantage, you are welcome to attend one of our wealth creation or pre-retirement planning seminars. You can also phone Member Services on 1800 067 059.
We need your Tax File Number
Please note that from 1 July 2007 if the Fund does not have your Tax File Number (TFN):
- the Fund won't be able to accept any personal contributions made by you or your spouse from after-tax money;
- you may miss out on Super Co-contribution payments you could be eligible for; and
- you could pay up to 46.5% tax on some of your super contributions.
You are not obligated to provide your TFN to the Fund, of course, but not doing so may result in you having less money saved into your super account when you retire.
If you haven't previously provided us with your TFN, the Australian Tax Office may have written to you recently advising that it intended to give your TFN to the Fund. If it hasn't, you may provide your TFN to the Fund, by calling Member Services on 1800 067 059 or your employer can pass it on to the Fund with your permission.
If you don't know your TFN, you can call the Australian Taxation Office on 13 28 61 or talk to your HR or payroll department. You should also check your Fund Member Benefit Statement to ensure that your TFN is correctly recorded.
Budget gift
If you or your spouse are one of the 1.2 million Australians who made a super contribution that qualified for the Government Super Co-contribution in the 2005/06 financial year, there's some good news for you.
In the Federal Budget in May 2007, the Government announced a once-off doubling of its Super Co-contribution for that financial year only.
So for example, if you were eligible for a $1,500 Government Co-contribution for 2005/06, you will now receive an additional $1,500 from the Government, bringing the total Government contribution to $3,000. If you were eligible for a $500 Co-contribution, you will get a total of $1,000.
There are no forms to fill out. The Australian Tax Office will pay your Co-contributions into your super account automatically, as long as you have completed your tax return for the 2005/2006 tax year.
The Co-contribution initiative, introduced in 2003 and extended in 2004, currently matches voluntary super contributions of up to $1,000 made by those earning up to $58,980, with the maximum $1,500 Co-contribution applicable to those earning up to $28,980. You can contact Member Services on 1800 067 059 if you'd like to find out more about this initiative.
The myths of financial planning
In these days of financial information overload, it's often difficult to discern fact from fiction. For this reason, we expose a financial planning myth in each issue of Your Financial Future to help guide you through the maze of information out there in the marketplace.
Myth: I'll invest in the asset classes or funds that have shown the biggest gains.
Investing in the asset class or funds that had the best performance last year may be a big mistake! It's called chasing returns.
Consider the chart below which shows the main asset classes and their percentage returns each year for the 20 years to December 2006. It also tracks the erratic movement between asset classes that would have occurred if you had chased the previous year's best performing sector. You will see how unlikely it is for the same asset class to have the best performance for two years running. So if you invest in the asset that performed the best last year, it is unlikely to have the best performance again.
Performance indices used to compile this table are: Australian shares - All
Ordinaries Accumulation Index; International shares - MSCI World Gross
Accumulation Index ($A); Property - Listed Property Trust Accumulation Index;
Australian Bonds - Commonwealth Bank Bond Accumulation Index;
Cash - UBS Warburg Australia Bank Bill Index. All earnings are reinvested but
do not take into account the impact of tax and fees on earnings. This example
is based on historical performance and is not indicative of future performance
(future performance is not guaranteed and is dependent upon economic
conditions, investment management and future taxation). The Balanced
column refers to a portfolio mix of 30% Australian shares, 20% international
shares, 10% Property, 30% Australian Bonds, and 10% Cash.
If you had chased last year's winners for the past 20 years, you would have received an average investment return of 9.91% per annum.
Compare that result to the compound average return for the balanced investment strategy (see last column) and you'll see that if you had chosen this diversified strategy, you would have been better off!
That's because diversification allows you to spread your money across different investments to reduce risk.
Diversification can provide you with exposure to many different types of asset classes, ranging from shares and property to fixed interest and cash. It also allows you to spread your risk across different geographical markets, regions or industry sectors, and across different fund managers and investment styles.
Diversification is basically a strategy of not putting all your eggs into one basket. It recognises that at times an asset class, region or fund manager's style may not perform for various reasons. While this is happening, other parts of your portfolio may be doing well. Diversification helps even out the overall performance of a portfolio and absorb any market falls in the short-term.
That's also why the Fund uses a multi-manager approach to investments. Research shows 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.
This is because different managers use different styles of investment and some styles perform better at different times of the investment cycle. By combining these different managers, we are able to remove style bias from your portfolios.
What the above table also highlights is that it is important to stick with your investment strategy, whatever that may be. You should only change your investments when your circumstances or financial goals change, not in response to market movements.
If your circumstances or financial goals have changed and you'd like to review your current investment strategy, please call 1800 800 002 to book an appointment with your financial planner. This advice is available at no additional cost to you and without obligation.
Investment and market commentary
Click here for commentary on how investment markets performed over the June 2007 quarter.
Plan to meet a planner
We all plan things such as holidays, weekends, and get-togethers with family and friends. We keep an eye on our health by visiting our doctor and dentist. Yet how much planning and forward thinking do we provide for our finances and our retirement? We work hard for our money and we should make sure that it works hard for us. Financial planning is all about getting the most out of your money.
As a member of the Fund, you have access to our team of qualified financial planners dedicated to help you build up your wealth and they will help you look at how to lower your investment risks and how to minimise tax for example.
And because your circumstances are different to those of your colleagues and friends, our financial planners will help you develop a strategy that is suitable to your unique needs and risk tolerance. They will also be available for further consultation as your needs change over time.
So how much does this cost? Because you are a member of this Fund, this service is provided at no additional charge and without obligation. And as all our planners earn salaries, they will not receive any commissions for their advice.
To find out more about our financial planning services, please call the Member Services team in 1800 067 059.
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