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CPW Newsletter – Second Issue (Full)

CPW Newsletter – Second Issue (Full)

CPW Newsletter: Second Issue

August 2016

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Welcome to the second issue of the Cambridge Private Wealth newsletter.

The more I read and observe, the more deluded I find the share markets. It is easy to become part of the hype when prices are going up, but reality is shares are generally highly overvalued. I have stressed caution on this to you for a while. An example of an article I read today was called ‘Delaying Judgement Day: The Lure of Short Term Returns’ , written by Martin Conlon, the Head of Equities for Schroders. Essentially, he outlined the fact that ‘cheap’ money has kept afloat many companies that would otherwise not be in business and has blown up bubbles in most asset classes. The more these assets get blown up the worse the judgement day will become.

One of my clients stated to me that he feels depressed after seeing me, due to my dire outlook. Of course, he said this in jest (I hope), but I do understand what he is saying. My response is, I actually am very positive on life and your future, but of course I am realistic about the economic world at the moment.

My belief – Stay cautious, take profits when available, increase cash and have a backing of gold. If this is not already in place, I will contact you shortly to discuss this.

As always, if you can think of any family or friends who might be interested in good, realistic financial planning advice, please pass on my details or direct them to our website: www.cambridgeprivate.com.au

Talk to you soon,

Anthony Walker
Principal Adviser

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Investing for your kids, grandkids, nephews or nieces.

Recently, I read an article in the Australian Financial Review, which pointed out that 1-in-7 parents that have children going to private schools use credit cards to pay the fees.

This is something I have discussed with many of my clients; all is never what it seems with many parents, and the overhanging could be hurting their finances.

Preparing for your child’s education, is vitally important, but often ignored.

I would like to offer you five options, out of the many out there, to put money away for your under 18, kids, grandkids nephews or nieces, for their benefit in the future:

1. Opening an account at the bank through a friendly personal banker.

To note: earnings above $417 are taxed at 66%!! So setting up a family trust and distributing to minors (under 18) is not the greatest idea.

2. Investment Bonds.

These are a form of investment that are:

  • Free of any Capital Gains Tax after 10 years (also free within 10 years if drawn out for education related expenses);
  • Tax is paid within the bond, so none of the earnings have to be declared. The earnings are tax at a maximum of 30% within this structure;
  • You can place funds into this investment structure each year and these contributions can increase by 25% on the previous year’s amounts;
  • The investment can be automatically transferred to the beneficiary (eg son) at a pre-set age (eg 21).

A final note about the Australian Scholarship Group:

As a side note, I would be sceptical of the Australian Scholarship Group (education bond vehicle) and the like trying to flog their product. You may have had calls from these guys before. I advise not investing through them. If you already have investments through them come and see me to discuss your options.

3. Increase the pay down your home loan debt.

With the plan of drawing it back out at, for example, the high school age of the child. Perhaps segregating this debt for all other debt allows knowledge of the reasoning and increases the discipline. Unfortunately, we all become illdisciplined so would still consider option 2 is a better solution.

4. Place more funds into super and draw out upon the child reaching a certain age.

This is tax effective but it needs to be noted this is more for the grandparents due to the inability to draw on super until retirement age.

5. Gearing

Depending on income, willingness and opportunity to pay debt down, and working status this could possibly be used. If working, tax deductible debt can be useful: but of course if the funds are being built up for a beneficiary, then capital gains tax is payable upon transfer to another owner or sale unlike option 2. There are methods of reducing or nullifying tax issues, but certainly it carries a short term risk, and a tax risk; if not done properly or in the right circumstance.

If you, your friends or family members need an investment strategy for kids; want to find out more about super paying for life insurance, or fixed interest investments; call us on 0481 554 415, or email us at info@cambridgeprivate.com.au for a complimentary initial consultation.

Life insurance – let your super pay for it

Superannuation in Australia has provided people with effective means to support themselves in their retirement.

While a combination of compulsory employer contributions and recommended salary sacrifice has been the policy implemented by successive Australian governments to deal with the costs of caring for an ageing population, superannuation has also provided a number of other built-in advantages for members.

For example, did you know that you can finance your life insurance through your superannuation? Indeed more and more Australians are looking to their super funds to access affordable and convenient life insurance benefits. Over 80 percent of superannuation members use their funds to access default insurance cover, according to financial information site Canstar.

They do so for a number of reasons:

Lower premium costs

Life insurance as part of superannuation is bought in bulk by the fund as group insurance, thereby lowering the overall cost. This is usually passed onto the buyer and the cost of premiums are likely to be a great deal lower than if you bought stand-alone life insurance. You also pay for your premiums with pre-tax money through a super fund rather than with tax money when you pay for a separate, non-super fund policy.

Convenience

Having life insurance within your super funds is convenient and easy, helping you manage your financial future with less hassle.

No medical test

Under the provision of “automatic acceptance,” there usually is no requirement for a medical examination to take out the basic level of cover.

However, while there are many benefits to accessing life insurance through your superannuation, there are some pitfalls which need to be taken into consideration.

  • Possible limits on the death benefit. The value of the payout may not be enough for your dependants to cover debts, such as expensive mortgages, without your wage.
  • Tax consequences. Taxation may or may not be an issue with life insurance contained within a superannuation fund, depending on the fund. Nominally taxed at 15 percent within the fund, superannuation contributions paid to the insurance premiums (or part thereof) may be tax deductible.
  • Delay in payment. As the insurance payout will go to the fund first for distribution to your beneficiaries, this may result in some delay before the lump sum is paid out.
  • May affect super payout. it is important to maintain a balance between payments made into the life insurance and the superannuation. After all, the superannuation is designed to fund your retirement and pay for big ticket items such as overseas trips, paying off your mortgage, or contributing towards other big expenses such as children’s or grandchildren’s education.

Taking out life insurance through your superannuation may be a great alternative to taking out one through a separate insurance agency and may well work out to be cheaper and more convenient. However, the balance of super contributions and life insurance premiums needs to be managed carefully to ensure a steady financial future for your dependants.

Like the idea of life insurance through your super? Call us on 0481 554 415, or email us at info@cambridgeprivate.com.au to discuss the options available to you and how to go about applying for this affordable option, and for your complimentary initial consultation.

From Our Trusted Partners

Is fixed interest a boring investment? Have a listen to the reasoning for fixed interest from PIMCO.

The boring part of a portfolio is fixed interest, but certainly an important part as you head into or progress through retirement. Having a portfolio that is highly volatile can be highly detrimental to a portfolio in retirement as you take income from a possible depleting asset, so the need for fixed interest amongst other asset classes is important.

If you, your friends or family members need an investment strategy for kids; want to find out more about super paying for life insurance, or fixed interest investments; call us on 0481 554 415, or email us at info@cambridgeprivate.com.au for a complimentary initial consultation.

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Cambridge Private Wealth Pty Ltd (ACN 607 806 244), Authorised Representative and Credit Representative of Charter Financial Planning, Australian Financial Services Licensee and Australian Credit Licensee.

General Advice Warning – This newsletter contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider you financial situation and needs before making any decisions based on this information.