Strategy Talk | April 2019

“Winter is coming!”. Time to stack the firewood, place the draft snakes and reach for the big pot recipe book. Now that we’re warm and cozy, it’s time to refresh ourselves on some time-tested money tips and pearls of wisdom. In this month’s edition of Strategy Talk, we’re going back to basics.

9 TRIED & TRUE MONEY TIPS

Life gets so busy and the months soon roll into years when suddenly you find that your finances are off track and you’re nowhere near achieving your goals. Instead of thinking it’s all too hard take a few moments to review the following tips.

Set your goals using the S.M.A.R.T. principle:

• Specific: What exactly do you want and how are you going to do?

• Measureable: If it can’t be measured, you can’t manage it.

• Attainable: Can it be achieved in your situation?

• Realistic: Is the goal beyond your capacity?

• Timeline: How long will it take to achieve the goal?

Learn from The Richest Man in Babylon
The foundation of this time-honoured book is to pay the most important person first – you! Preferably save at least 10% of your earnings; more if you can.

Manage your debt
Not all debt is bad so make sure you know the difference. Manageable debt that helps you improve an asset or increase income can be a better choice.

It’s time, not timing
It is impossible to know when it’s the “right time” to invest. Start now and invest regularly to benefit from market ups and the downs.

Spread it around
Invest your money in a variety of assets. This can help to reduce the risk and increase the benefits.

Be patient
Try not to focus on daily financial reports. Worrying as your investments seesaw is not conducive to smart money management. Invest well and for the long term.

But stay focused
Regular reviews, say half-yearly, are a good idea. Revisiting results after a set timeframe reduces knee-jerk reactions that you may regret later.

Don’t become a statistic
Fraudsters are getting smarter. If you are promised something that seems too good to be true, it probably is. Always check with us before investing.

Refer to a professional
Managing money is an emotionally-charged exercise. A financial planner will help to reduce your stress, so you can relax and enjoy the whole experience. If you need a hand, give us a call.

FINANCIAL PEARLS OF WISDOM

As we approach retirement some people start to panic a little wondering if they are truly looking forward to the time of their life when they no longer have to work. All of a sudden something they have been pining for is becoming real!

Instead of worrying, have a read of the following tips and if necessary, act now. After all, it’s your future – and it could be here sooner than you think.

1) What do you want and how will you get it?
What are your goals and objectives for your retirement? Write out a plan that sees you enjoying the fruits of your labours. Then make sure your finances can achieve your goals. If not, do something about it now while you still have time. Be realistic and set achievable timeframes.

2) It’s not just about returns; remember the risks
Every investment has some degree of risk. Cash is considered the safest as there’s a good chance your money will still be in the bank when you need it. The downside is that it pays the lowest return; it isn’t tax effective; and doesn’t tend to keep pace with inflation. To achieve higher returns and make your money work harder, you need to take appropriate risk. Understand the differences between the various investment assets available and make your decisions wisely.

3) Share it around
To help reduce risk, share your investments across several asset classes - and within those asset classes as well. The right balance will depend on your financial objectives, the amount of time you have available to invest, and your risk tolerance.

4) Don’t forget super...
Superannuation will be your bank account when you are no longer working so you should be considering ways to boost your superannuation balance prior to retirement. But be aware the tax benefits are not always equal so make sure you have a balance of inside-super and outside-super investments.

5) ...or tax
Tax is the trickiest area of all. Always make sure you get good advice on investing tax-effectively. A simple restructure of an underlying asset, investment vehicle or ownership structure can help you to minimise the amount of tax you pay and maximise your after-tax return.

6) Retirement can last another lifetime
With medical technology and improved lifestyles we are living much longer than previous generations. The older you get, the longer you’re likely to live. Being prepared for a longer retirement means that your money must last longer, so don’t be too conservative with your investments.

7) Stay cool
You are in this for the long term so when markets fluctuate and investments unexpectedly fall in value, don’t panic and sell. Sit down with your adviser, review your portfolio and stay focused on your long-term goals and objectives.

8) Keep learning
You are never too old to learn. Financial advisers have an important role in giving you tailored guidance, but you still need to make your own informed decisions about your financial plan. Make sure you understand everything and if not, ask us questions or do some research.

DOLLAR COST AVERAGING 101

It’s easier to show how this works, than explain it. Here’s an example of investing $250 a month for 12 months into a hypothetical managed fund.

Month	Unit Price	Units Purchased
1	$3.00	83.33
2	$2.80	89.29
3	$2.50	100.00
4	$2.60	96.15
5	$2.10	119.05
6	$1.98	126.26
7	$2.30	108.70
8	$2.45	102.04
9	$2.80	89.29
10	$3.00	83.33
11	$2.95	84.75
12	$3.00	83.33
Total		1,165.52

At the end of the investment period, $3,000 has been added to the portfolio, but because more units were purchased when the market was down, the investor has bought 165 more units than they would have if they had invested everything on day 1. At the end of the time the value of the investment stands at $3,496.56 ($1,165.52 x $3). This is a 16.6% return - even though the unit price has only come back to its starting point.

Dollar cost averaging doesn’t always provide the best outcome or generate a positive return. In a rising market, there will often be periods when it doesn’t pay off. In turbulent times, when markets are flat or declining, dollar cost averaging into a diversified managed fund may well be the sensible way to unearth those hidden bargains.