Professional Investment Services

Insights into Successful Investing - Seek Advice

This article is a continuation of the "Insights into Successful Investing" article that appeared in the August edition of Timely Tips.

What do you get from your financial adviser?

So what are the most important services you get from a financial adviser?

A holistic approach

A financial adviser can help you take a holistic approach to your finances. They help you to understand your existing financial position, clarify what your goals are and devise a strategy to help you achieve them. Most importantly, they build a financial plan that is about you - your age, your plans, your investment experience, your risk tolerance and your lifestyle.

That means that all your financial decisions fit into a logical framework and that the products and services you choose work together to meet your needs.

Asset allocation

Asset allocation is the art and science of allocating your investment between shares, property, bonds, cash and other asset classes. Many different experts believe asset allocation is the single most important investment decision.

Your financial adviser can work with you to devise an asset allocation structure that suits you, helping you use the mix of growth and defensive assets that meet your needs. Ongoing consultation with your adviser also helps you to stick with your asset allocation strategy in the face of short-term events, such as the tendency to become too defensive when markets are falling or too aggressive when they are rising.

Security selection

Your financial adviser has access to the latest professionally-compiled research that allows them to compare these products against each other. That means they can choose the best products for you both in terms of performance, fees and in terms of quality of management and how they fit into your portfolio.

An education

One final and often misunderstood role of a financial adviser is to help you learn more about investing. No-one will do it better because they are by your side as you make crucial life and investment decisions.

It makes sense to hire an expert and even more sense to learn from them.

Source: BT Financial Group - Extract from "Ten Investing Truths "

What happens to my super if I die?

Superannuation is fast becoming a valuable asset to many Australians. It is therefore important that a member carefully plan how they wish their superannuation to be distributed upon their death. This will ensure that it is distributed in the most tax-effective manner possible.

Superannuation benefits are not owned by the member and do not automatically form part of his or her estate upon death.

Until recently, the trustees of a superannuation fund have had absolute discretion as to whom the deceased's superannuation benefits were paid. The trustees could distribute the member's benefits to his or her estate, or instead pay it directly to the member's dependants.

Binding death nominations have recently been introduced to remove trustee discretion regarding payment of superannuation death benefits. Even though binding death nominations
are not mandatory, the trustees of a fund must abide by the nomination as long as it has not expired, has been properly executed, the beneficiaries nominated are "eligible dependants" of the deceased member, and the allocation to each beneficiary is clear.

In the absence of a binding death nomination the trustees continue to have absolute discretion.

It is important to note that a binding death nomination will generally lapse after 3 years from the date of execution, unless renewed.

Source: Professional Investment Services

What is the difference between a tax deduction and a tax offset?

Tax deductions are items of expenditure or allowances that are deducted from an individual's (or a taxable entity, such as a company's) assessable income in order to determine the amount of income on which tax will be calculated (referred to as taxable income).

Deductions may include a range of general or specific deductions and will generally include expenses incurred in gaining or producing assessable income, or expenses necessarily incurred in carrying on a business for the purposes of gaining or producing assessable income.

Examples of deductions include rent paid to lease a business premise, interest paid on money borrowed for investment purposes, expenses incurred in repairing an investment property, premiums paid for salary continuance insurance, contributions to superannuation made by an employer or a self-employed person (subject to age based limits), donations to certain charities, and the like.

By way of example, let's look at Jonathan's financial position. His assessable income is made up of the following:

Salary $45,000

Investment income $ 7,500

Assessable income $52,500

Jonathan is able to claim a number of deductions including:

Work related expenses $ 2,200

Interest on investment loan $10,000

Donations to charity $ 1,500

Total deductions $13,700

From this example, Jonathan's taxable income will be $38,800. Based on the 2005/06 tax scales, Jonathan will pay $7,500 in tax, plus the Medicare levy.

Turning now to tax offsets (or tax rebates as they are also commonly known). Where a deduction reduces the amount of income on which tax is calculated, a tax offset is deducted from the actual amount of tax payable.

Tax offsets may arise for a variety of reasons and include such things as a dependants offset, low income and senior Australians offsets, superannuation pension offset, medical expenses offset, mature age workers offset, and others.

If we take the example above and assume that Jonathan is over 55 years of age and qualifies for the mature age workers offset by being over 55, receives income from employment of less than $53,000, and lodges a tax return - he will qualify for a tax offset of $500.

So instead of Jonathan having to pay $7,500 in tax, the offset of $500 will reduce his tax payable to $7,000.

Tax offsets are available for a multitude of purposes and can deliver significant savings to taxpayers where they qualify. It is very important to ensure you get reliable taxation advice to ensure that you are receiving maximum entitlement to deductions as well as tax offsets that you may be entitled to.

Source: Professional Investment Services