Thank You For Giving Us a Why

Another year is nearly over and as we begin to wind down for 2018, we are already looking towards a new year in anticipation of what is possible.

It is about this time of year that we at the Schuh Group (just like you), take a moment to stop and rewind on the year that was. This year, like many, has been a big year of growth and reward for the entire Schuh Group team and clients. It is also the year that we decided to document some of our history.

Having grown from humble beginnings that saw a young and enthusiastic Cos blaze his own path in the Accounting sector, Schuh Group is now a family business built on a brand of trust and loyalty.

With Dominique joining the fold over the years, Schuh Group offers clients a full-service offering that includes Business Consulting, Wealth Advisory, Accounting, Property Advice, and Estate Planning. Our evolution has come with our goal to ensure that our clients have access to the most objective and beneficial information for long-term wealth building and financial security.

We believe that money is important and when looked after correctly it can give you freedom of choice - it is a resource that can allow you the opportunity to focus on what is important to you - like being able to spend time with the people you love, doing the things that make you happy because you have enough money to comfortably meet your obligations.

This is our goal. This is our passion. This is why we do what we do.

Today we would like to share something new with you – the story of where we started, how we have evolved and why every day we continue with the desire and purpose of serving you.

Thank you for your custom, we look forward to continuing to serve you into the future.

As we head towards the end of the calendar year, the break over Christmas sometimes provides an opportunity for us to take stock. For some of us, that may mean a reflection on our plans for retirement. It is important to note, however, that retirement is about more than just having enough money to live on, it's also about having something to live for.


Here are a few statistics: in Australia, the cohort with the highest divorce rate is between the ages of 55-64-year-olds, while the average age of women first becoming widows is 59. These figures perhaps tell the tale of men who "laid it all on the field" during their careers and then moved to the next stage of life without being prepared for it.

Studies show that those people who enjoy the most satisfying retirement are those who follow the steps below:

1. Having a positive attitude. This enables people to roll with the punches better during the retirement years and adapt to the whole gambit of changes the occur, both physically and mentally.

2. Having a clear vision of the kind of life you'd like. Far too many pre-retirees make the mistake of thinking that the financial plan and the retirement plan are the same thing–that the life part will take care of itself. This stage of your life deserves a more holistic look and plan than simply assuming that you are beginning a thirty-year-long weekend. What do you actually want your life to look like?

3. An active social network. As you get older, your social support network becomes increasingly important. You draw your social support network from a much broader social network. Successful retirees generally have robust social networks that provide them with friendship, fulfilling activities and life structure.

4. A balanced approach to leisure. Leisure is a fundamental human need. We use it to recharge our batteries, to act as a diversion in our lives, to create excitement, anticipation or simply to rest and contemplate. Things change, however, when leisure becomes the central focus of our lives. Leisure, by its very nature, loses its luster when it is the norm in our life rather than the diversion. For many retirees, the idea of leisure is associated with "not having to do anything". In the end, a lack of stimulation affects our mental and emotional state and then ultimately our physical well being. Successful retirees balance their leisure over many different activities and take the opportunity to do new things and not get into a rut.

5. Maintaining financial comfort. Some retirees feel that a happy retirement is guaranteed by financial security. However, there is no price tag on successful retirement. As someone once said, "having a million dollars is NOT a retirement plan!" Financial comfort refers to being able to manage your life in a satisfying and fulfilling way using the financial resources that you have. It's important to note that money in retirement is only an enabler, and for most of us, the things that are really important generally involve other people.

We hope these points have given you some food for thought as we head towards the end of the year. And if you'd like to talk to us more about any of these ideas, we're only an email or a phone call away.

Why You Need a Will

As another year rolls into the last months and we embark on a new year to come, it can be a time of reflection for many people. Taking stock of the year and your life may include everything and anything from business and career to family and health. And one of the best ways to reflect on what is important and organise yourself is to review, update or create your Will.



Wills aren't just for people who own property or have lots of money. Making a Will is a positive step you can take to:
1. Provide for the people you care about
2. Leave particular items to certain people
3. Appoint a person you trust to carry out the instructions in your will (your executor)
4. Leave any other instructions you may have (for example, about your funeral arrangements)
5. Make a gift to charity, if you wish.

Making a Will removes the doubts and difficulties that can arise when there is no evidence of the deceased person's wishes. After your death, your property and belongings are referred to as your estate. If you'd like your estate assets to be directed to specific people or charities after you're gone, then a Will is undoubtedly the best way to ensure that this happens. These are a few of our most frequently asked questions to support you when compiling your Will:

When considering your Will/estate, what are the top 5 most important things to focus on?
1. What people would you like to provide for from your estate? Who are your beneficiaries?
2. Who would you like to administer (be responsible for) your estate on your behalf? i.e. your Executor
3. If you have children under the age of 18, whom would you like to nominate as their guardians?
4. Are you likely to have tax payable on your estate and have you ensured that this is minimised?
5. Is there a chance that you've left someone out of your Will who may be entitled to something? Do you feel this person may contest your Will?

What is the process to make a Will legal?
You must be over age 18, of sound mind and you need to nominate in writing where you'd like your assets to go after you pass away.

Are the Self-Will kits at the post office ok to use?
We always recommend getting a Will done through a Solicitor in order to make sure nothing is missed.

I don't have a lot of assets is it really important for me to have a Will?
If you want to make sure the assets you do have (even sentimental items such as jewellery or antiques) are directed where you'd like them to end up after you pass away, it's still important for you to outline your wishes in a Will document. Even if you don't have a large estate, the best way to be directive about what you do have is through a Will.

If I don't have a Will, what happens?
If you don't have a Will and you pass away, you're deemed to have died "intestate". When this happens, the Public Trustee will step in and decide where your assets will be directed, regardless of what your true wishes may have been. The Public Trustee will take into account your family relationships and blood relative relationships and direct your estate towards those who have a legal claim on it. This can differ slightly from one State to another.

Who should I share the details of my Will with?

Your solicitor will be aware of them if they've helped you compile your Will, but it's also a good idea to run the contents past your accountant and financial planner in case there are any tax consequences that need to be factored into their planning for you. You should also inform your Executor of what your wishes are.

How do I choose the right Executor of my Will?

Consider someone who will act in your best interests while also being capable of fulfilling the role. You should ideally discuss your Will with your executor first to ensure they're aware of their responsibilities and what's involved. Someone with some financial and administrative experience is an advantage.

If you would like to take advantage of an obligation-free review of your current Estate Plan or would like support in compiling your Will contact us today on 5482 2855.
How far do we get without commitment and perseverance? Any task we begin in life is going to require some commitment and perseverance if we wish to pursue it thoroughly. That commitment may begin early in life. As children, we may show an interest to pursue a particular sport or hobby, alternatively, our parents may force us into various activities they think we should pursue!

How long any of these endeavours will last, largely depends on whether we find them fulfilling in some way or how much persistence we have. As children, we can be fickle. Toys can fly out of the cot over the slightest thing. We lack any real experience. Our inability to rationalise time or where resources come from, allow us to get away with being fickle. As a child, we may well give something up at a moment's notice or not find ourselves sufficiently motivated.

That luxury of having support provided for by parents instead of having to sweep chimneys for our keep is particularly valuable before we're in the real world. It provides a platform to determine what we'd like to dedicate our time to. Hopefully a task rewarding enough in some way to remain motivated for. The older we get, the less fickle we can afford to be. Commitment and perseverance become more important in achieving goals – as long as we're actually on the right path. In the 2016 book, Grit: The Power of Passion and Perseverance, author Angela Duckworth challenges the idea that it's talent that propels us towards success in life. Instead of talent, it's grit that's the most reliable predictor of success.

Duckworth developed her own questionnaire that measured this intangible thing called grit. Her questionnaire reliably predicted things such as who might graduate from West Point military academy, or which competitors would get the furthest during the US National Spelling Bee.

What exactly was grit?

First, these exemplars were unusually resilient and hardworking. Second, they knew in a very, very deep way what it was they wanted. They not only had determination, they had direction. And skipping around from one kind of pursuit to another-from one skill set to an entirely different one-that's not what gritty people do.

When we're investing, it's no different. The primary hurdle is settling on an investment philosophy. Importantly, one that works and has evidence behind it. The second thing is sticking with it. Investing has nothing to do with talent, nor are gains just handed out for making an appearance on the first day. You also don't get the choice of when you show up to collect the gains before leaving again. If only it was that easy. No one can predict when they'll appear – so it's important that an investor be prepared to commit to a long-term endeavour and have the persistence to ride out all types of markets.

Often some of the best gains will come in short spurts, as the following chart shows. Take away the best day on the ASX 300 between 2001-2017 and the average annual return over that timeframe falls 0.35%. Take away the best five days between 2001-2017 and the average annual return falls 1.61%.

As the chart shows, if an investor starts with $1,000 in 2001, by 2017 they've left behind over $800 if they missed those best five days. That doesn't seem a huge amount, but start with $100,000 and then it's over $80,000 left on the plate. The ability to commit to the process and persevere provides rewards, you just don't know when they'll appear – that's why perseverance is required.

When we look at returns on a monthly basis over the same time frame, we find that the majority of months are positive. Over 63% of the time, but there are some concerning outliers to the left.

As you might expect, those three worst months came during the financial crisis. It's never pleasant to see those sorts of declines are possible and it's even less pleasant to experience them, but it's important to acknowledge and understand they happen. It's doubly important to understand they're not fatal. The investors who doubted there would ever be a recovery after 2008 eventually lost their nerve and crystallised their loss at the worst possible time. When an investor encounters these periods, it is beneficial they have the grit required to emerge out the other side. It's also important they understand their portfolio isn't just their local equity index, holding a diversified portfolio means these months are never that extreme.

Is there anything else to be learned from the distributions of monthly returns? Well, some of the worst losses tend to cluster. There are sixteen instances of two or more consecutive negative months and six instances of three or more consecutive negative months. Is this an indicator of anything? Can you turn your mind to predicting the bad stretches, extending perseverance and grit to figuring out when to get out of the market ahead of the declines?

It would be folly to try. The last month of 2002 and the first two months of 2003 were all negative, surely that was the beginning of something bad? No, over the next 23 months, only three were negative. Or there were the last two months of 2011 which were negative. Maybe that would be the start of a bad run? Wrong again. There was only one negative month in the next fourteen.

As the old saying goes, "it's time in the market, not timing the market that counts". The gains are there, but it takes grit and perseverance to endure the declines, the volatility and the months of mundane sideways movement that will test an investor's resolve.

In the past few weeks, our politicians have continued to make a lot of noise, but one issue that's simmering quietly in the background is that of franking credits and proposed changes under a Bill Shorten government.


Put simply, a franking credit is a tax credit that can be attached to dividends paid to shareholders. Franking credits are designed to offset the income tax already paid by the underlying share or company, and the intention is for the shareholder to pay their own individual rate of tax on the profits instead. The aim is to prevent double taxation (i.e. paying tax twice on the same income).

The Leader of the Opposition, Bill Shorten, has proposed abolishing franking credit refunds. It is important to note that he is not proposing to abolish franking credits but simply preventing investors from claiming a cash refund from franking credits that they cannot offset against income tax.

An exception to this will be those who the Labor government terms "pensioners," who will still be able to access cash refunds from excess dividend imputation credits. Under the Pensioner Guarantee, every recipient of an Australian Government pension or allowance (including Age Pension, Disability Support Pension, Carer Payment, Parenting Payment, Newstart and Sickness Allowance) with individual shareholdings will be protected from the abolition of cash refunds for excess franking credits. Self-managed superannuation funds with at least one pensioner or allowance recipient before 28 March 2018 will also be exempt from the changes.

The biggest issue with this proposed legislation is for those people who are self-funded in retirement, with significant portfolio investments in Australian shares, who access those shares through a self-managed super fund. The issue is further compounded for those whose fund is in pension mode, where they receive the franking credits refund as cash as there is no taxable income to be offset. By receiving the franking credits as cash in an SMSF, the benefit of the franking credits is more obvious to members. However, even those in an industry and retail super funds will be affected, but the benefits of franking credits are less obvious when they get "washed through" both the accumulation portion and the pension portion of the whole collective fund.

So what is to be done?

Firstly, be aware of what the ALP proposals are and how they would impact you. Secondly, we may see people slightly adjusting their retirement portfolios away from Australian shares in order to be less impacted by these proposed changes. This would be a great shame if people are forced to make investments decisions based on tax implications rather than the merits of the actual investment.

Time will tell, but the outcome of the 2019 election may have more riding on it than people are aware of.
It's not too many weeks now before Christmas will be upon us, and most people have some downtime over the Christmas/New Year period. And while that's a great time to relax and catch up with the family, it's also an opportunity to stake stock of your finances. This week, we'd like to talk about getting your financial house in order.



To begin with, we'd suggest making a list: List out all of your income from work-related activities, as well as any passive income you may be receiving from investments. Then also list out all of your expenses, both on the personal side as well as on the business/investment side. How does this stack up and are you happy with the figures?

Next, list out all of your assets and liabilities. Include your home, vehicles, investments, superannuation, as well as any mortgages, overdrafts and credit card loans. Now, how do your assets and liabilities look?

In short, if you have more income and assets than expenses and liabilities, you're on the right path. The next step is to analyse how much of your income you're actually putting aside, and how much you're losing each month. This takes some time to look more closely at your "inventory." Do you have any assets that are actually sucking your income away? An Example might be a boat that you barely use, but is costing you money each year in registration and insurance. Now is the time to assess if those "assets" are actually not just hidden expenses, that you may actually be better off selling. Real assets are ones that increase in value over time or put money in your pocket.

Have a look at what you've been able to save over the year. Paying down a home loan or investment debt is almost like a form of "forced saving", but so is putting money into superannuation. Also take the time to get your tax work together if you haven't already, and submit that to your accountant. If you're entitled to a refund, the quicker your work comes in the quicker your turnaround time will be. And certainly, don't forget to dig out your Wills and enduring powers of attorney over the break. Check to see that your wishes are reflected in those documents and that you have the right people acting for you in the right roles. Is your executor still the best person to be in that role? Do you have young children that need guardians nominated for them? Run through these scenarios and make the changes as you need to.

As always, we're only an email or a phone call away, so please don't hesitate to contact us if you have any questions about getting your financial house in order and keeping it that way.

Recent Market Activity = Time & Patience

This week we'd like to comment further on the recent market instability, while also trying to introduce some perspective into the narrative.


In Leo Tolstoy's great novel 'War and Peace', a Russian general charged with defeating Napoleon and expelling the French from Russian soil argued against rushing into battle, saying the strongest of all warriors were "time and patience". It's an observation worth recalling as the media runs thousands of words analysing the causes and consequences of the latest share market dip. It's also worth using the historical example of the Global Financial Crisis of 2008 to highlight some important facts.

The GFC, as it's known in Australia and New Zealand, is widely considered by economists to have been the worst financial crisis since the Great Depression.

What began as a breakdown in the US subprime mortgage market morphed into a series of credit shocks, bank crashes and a deep recession in much of the developed world. The climax of the crisis was the collapse of US investment bank Lehman Brothers in September 2008, triggering a bailout of the banking system and extraordinary fiscal and monetary stimulus by governments and central banks.

For investors, it was clearly an anxious time. Global equity markets plunged by 40% or more. By late 2008 Queen Elizabeth, whose personal fortune had fallen by more than $50 million, demanded economists explain why they hadn't seen the crisis coming.

At the World Economic Forum in the Swiss town of Davos in early 2009, the most popular session was one in which a panel of economic experts, many of whom had not predicted in the first place, lined up to provide their analysis of why the crisis had occurred and what would most likely happen next.

In terms of economic analysis, there clearly was a spectrum of opinion. Some blamed lax regulations; others too much regulation. Many cited excessive debt, irresponsible lending, complex financial products, compromised rating agencies, an over-reliance on mathematical models or just plain old greed.

But aside from a temporary seizure in short-term money markets, where banks lend to each other, global share and bond markets performed as you would expect at a time of heightened uncertainty. Prices adjusted lower as investors demanded a higher expected return for the risk of investing.

In mid-March 2009, sentiment started to turn. By the end of that year, the Australian benchmark S&P/ASX 300 Index had risen 37.6%, recovering just as dramatically from the near 39% plunge it had suffered the previous year. The New Zealand market rebounded by more than 19% after a near 34% decline in 2008.

By the end of 2017, the Australian index had delivered an annualised return of 4.0% even to someone who had begun investing just before the crisis began. Using a global balanced strategy of 60% equity and 40% fixed interest, the return was 5.2%.

By the end of the same period, an investor who had begun investing in the New Zealand market at the start of 2008 would still have experienced a 7.6% annualised return by the end of 2017. Using the same global balanced strategy, the New Zealand dollar return was 5.4%.

The lessons from this experience are familiar. Emotions are hard to keep in check during a crisis. There can be an overwhelming compulsion among investors to "do something". But, as it turned out, those who listened to their advisors and stayed disciplined within the asset allocation designed for them have done considerably better than many people who capitulated and went to cash in 2008-2009.

Think of two people reluctantly encouraged to take a rollercoaster ride. One of them focuses on every sharp turn and sudden decline, his sense of terror compounded by the attention he is paying to the screams of those around him. The second person focuses on a static point on the horizon and tells herself the ride will soon be over.
The arguments over the causes and consequences of the GFC will go on and on. But as investors, there's much to be said for focusing on what we can control.

Timing the market is tough, as is basing an investment strategy on economic or market forecasts. But we can do ourselves a favour, both materially and emotionally, by accepting that volatility is a normal part of investing and by sticking to a well-thought-out investment plan agreed upon in less stressful times. Like Tolstoy's general said, the strongest warriors are time and patience.

Who is Controlling the Finances in Your Life?

In many aspects of our lives we'll find ourselves either pursuing areas of expertise or delegating to those who can better utilise their skills for an improved outcome. Alternatively, you can watch DIY Youtube videos for guidance.



Setting aside internet expertise, these skills are often what forms our jobs or careers. A specific skill that we've honed, or a set of skills we've specialised in, so we can perform a role and contribute in a way that's valuable to a team. There's no need to know everything because if your workplace is focused on a goal, you may find people around you with another set of skills, equally as valuable to the common cause. The person sitting next to you in the office or standing next to you at a work-site may not do what you do, but they're equally complementary to the business.

This also happens in our personal lives. While we don't recruit partners based on their cooking or gardening skills (who knows, maybe that's why Gordon Ramsey's wife puts up with him), when in a relationship each partner may gravitate to areas they feel comfortable or where they feel have some expertise. Consequently, the other partner may pull back from the same area, feeling they have nothing to add. This can lead to one person having a greater amount of control over the finances.

It could be argued this is just another division of duties and one of the partners focusing on an area where they feel comfortable. However, there's a slight difference between business, the sporting field or the community organisation and your personal life. If the person beside you in the office leaves, they can be replaced by a new employee, player or volunteer with those specific skills needed. Meaning there's no requirement for you to step into their role.

Now consider this:

A divorce, a death, an illness or an injury may, remove one party from the relationship or render them instantly unable to continue with the financial undertakings. In the US 50% of first marriages end in divorce, while in 75% of marriages that end with a death, it's the female partner left behind.

What if the partner left behind is the one who didn't deal with the finances?

A 2015 study by US academics Adrian Ward & John Lynch Jr, titled 'On a Need-to-Know Basis: How the Distribution of Responsibility Between Couples Shapes Financial Literacy and Financial Outcomes' suggests this is a real problem. The partner who handles the household finances gets smarter and their money skills more valuable over time, while the spouse who defers on financial matters does not. Clearly anyone can quickly pick up cooking, laundry or start the hedge trimmer if needed, but finances can be daunting and difficult if there's no familiarity there. And in contrast to an investment portfolio, which generally works better the less you touch it, general finances don't do well when left alone. A lack of financial knowledge can be paralysing if a person is suddenly confronted with financial demands.

This exposes vulnerabilities. Who does the person turn to initially if they are now in charge of finances? Maybe there's a family member offering to help whose intentions are less than honourable. Maybe they won't be able to decipher a scam or know who to trust if attempting to seek financial or investment advice. Maybe they later enter into another relationship and again allow the financial responsibilities to be taken by the other party.

The academics suggest that in a relationship, an individual is no longer an individual, but part of an interdependent system where each partner relies on the expertise of the other. Essentially there's no need for them to know or understand a skill, they only need to know who knows it.

So what is the answer? When you're unsure, don't forget about the team of professionals you have at your fingertips. It is part of our job to keep you informed of your position and increase your level of learning. Never stop asking questions!

Schuh Group Business Planning
& Wealth Creation Seminar

We will be hosting a business planning and wealth creation seminar on the 31st of October, to be conducted by our accountants Cos Schuh and Danielle Maudsley, along with our financial planner Dominque Schuh.
Do you have an interest in learning about working on your business not just in your business? What does that picture look like? How do I build assets outsides of my business? If these questions are relevant to you we warmly invite you to join us. The following topics will be covered :

1. What are you building? Something to sell or a cash cow?
2. Business and Tax planning - when to do it and what to consider
3. Timely considerations throughout the year
4. Reliable Investment Strategies for building assets outside of the business

Refreshments will be served after the seminar presentation If you are interested in attending, please RSVP to Marie at Schuh Group on 4162 1422 by Friday 26th October. Please bring along friends and family who may be interested in this topic we look forward to seeing you there!

The details for the seminar are:
Date: Wednesday 31st October 2018
Time: 6.00pm
Venue: "White Room" Kingaroy RSL, 126 Kingaroy Street, Kingaroy.

 

The last week or so has seen the Australian share market drop to a 6 month low, with the ASX200 finishing at 5,837.1 points on Monday. And while this may be a worrying sign for some, for others this dip in prices also presents a better buying opportunity than what was on offer just a few weeks ago.


In a nutshell, our financial sector continues to struggle due to a concoction of international factors: US stocks falling heavily, the US Federal Reserve hiking interest rates and trade tensions between the Trump administration and China escalates. Right now Australia is basically at the mercy of what is happening overseas, but our own Royal Commission isn't helping our banking shares either.

On the upside, energy stocks, have closed higher supported by oil prices due to supply concerns. This is due to international pressure on Saudi Arabia over the disappearance of a prominent Saudi journalist has stoked worries about geopolitical tensions. Telecommunication stocks also rallied late on Monday to join the energy shares as the only sectors in positive territory.

The US benchmark S&P 500 had snapped a six-day losing streak on Friday, while the Nasdaq and Dow also finished the session higher, but analysts have warned that until the US and China reach a trade deal, the rebound in the stockmarket could be vulnerable, with investors anxious about the impact of tariffs on corporate profits.

So what is to be made of all of this?

History and time tell us that we've just passed the ten year anniversary of the Lehmann Brothers collapse – a pivotal moment during the GFC downturn. At that time no one really knew if it was the beginning of the end, an ongoing crisis or not far from a recovery. History shows the market bottom took another six months and if investors could stand the uncertainty, they also got the recovery. The majority of what people know of investing is arrived at through media reports, where the market has $50 billion 'wiped' in a day. Where people are ripped off left, right and centre. Those are the ongoing disaster stories. The balance? The success stories the media focus on Are usually get rich quick schemes or strategies built on sand.

For those who want the best long-term investment journey available, an important element is having emotional resilience and a knowledge base that aligns with an evidence-based investment philosophy. We believe this is the most important component that gives someone a better chance of success. So, with the market moving around, hang in there and look for buying opportunities with excess cash.
This week we're continuing our education theme on insurance, and we'll branch into one of the more common types of insurance, that of income protection. The fundamental starting point with this topic is the notion that our greatest asset is always our own ability to earn an income. It's that income that generally funds everything else in our lives – our other assets, and our paid experiences with our families. So when that income dries up for a period of time, there are often many other knock-on effects.


Income protection is a form of insurance that provides a replacement income stream for a period of time that you're unable to work or generate your own income. The premiums are tax deductible but the insurance benefit amount is taxable at claim time.
This type of insurance can be held both inside and outside superannuation, but we'd always suggest holding a policy outside super is your best option. This is due to the tax deductibility of claims, as well as the ease at claim time. And speaking of claim time, you are eligible to receive a claim payment as long as you've been off work for a certain period of time (this is the waiting period) and you're unable to earn an income yourself during this time. This claim payment will continue for as long as you are unable to work, or for as long as your policy benefit period indicates – whichever is shorter.

Income protection gives you 24/7 coverage, and for this reason, it's important to those people working for wages as well as those people who are self-employed. If you're self-employed, you won't be covered by WorkCover, so an income protection policy is a vital and prudent safety net.
The types of factors that will make your premiums either more or less expensive are your age, sex, occupation, smoker status, and general health. And for this reason, we'd suggest locking in your income protection at a time when your health is most likely to be sound – generally while people are younger.

An income protection policy is a great way to put a floor in any financial plan for those who are earning an income. If you've got an old policy, it may be worth checking to see if a better option is now available on the market, or, it may even be best to stay with your existing cover if you've developed some health issues over the years. Either way, if you'd like a second opinion on this or any of your other insurances, please don't hesitate to contact us.

How long could your family survive financially if you were suddenly unable to work? This week we'll continue our discussion on insurances, but focus on Total and Permanent Disability or TPD insurance. It's a topic that not everyone is interested in or enjoys discussing, but it's our belief that any sound financial plan takes into consideration a "safety net" for when it all goes wrong, and for many people, that safety net is insurance.



There are a few fundamental ideas that go hand in hand with insurances: firstly, we need to recognise that our biggest single asset is our own ability to earn an income over the timeframe of our working life. This is called our "human capital." If you stop working at age 40, either through death or disability, and you would normally be earning $80,000 per year through to age 60, your family has just missed out on 20 years of that $80,000, or $1.6M to be exact, assuming no further pay increases! This lost working capacity is the real asset that has been lost in this type of event.

The second fundamental concept to be clear on is the idea that income only comes to form one of two areas: either your "capital at work", meaning your investments working to generate an income for you, or a "person at work." If a person is not able to work to generate their own income, the only reliable fall-back position is the amount of investments you hold.

For this reason, we'd suggest an amount of TPD insurance is a prudent move for most people of working age. TPD insurance is a lump sum amount that pays out if a person is unable to work and will never be able to work again in the occupation they are trained for and experienced in. For example, if you're a truck driver and you suffer a back injury that stops you from being able to sit in your truck and drive, you would be eligible for a TPD claim.

TPD can be held either inside superannuation or outside super, and premiums vary depending on your age, smoker status, sex, and occupation. In reality, most people direct these claim amounts towards a combination of debt reduction, medical expenses and lost earnings.

We never want to imagine things going wrong, but if they do it is best to know that you are covered. Money should never add stress to your life especially when your health is in question. At Schuh Group we are passionate about providing our clients with the best opportunities in life. We take the stress out of money to ensure that you are always covered. If you'd like an obligation-free second opinion of your disability insurance position or any other concerns do not hesitate to contact us.

How long could you last financially if you lost your job, or worse, couldn't work at all?

Research from Zurich says nearly 60% of us would be looking behind the couch within three months, while a recent survey by an insurance comparison website found it was closer to half of Australians. Of course, this data comes from fairly minimal surveys sizes, but these often consistent findings do point to the high levels of risk many Australians carry.

Our elevated house prices are underpinned by high debt levels – our housing debt to disposable income is still near an all-time high, around 140%. Go back nearly 20 years ago, to 1999 and it was 76%. These kinds of debt increases are further partnered with other ongoing commitments that quickly drain the weekly income.

Forget your house or car, generating the income to pay for them along with the food on your table (and all the other bills) is your most important asset. The two most obvious options to protect yourself are a consistent savings plan and insurance.

However, saving won't be anything more than a short-term bridge because it would often be impossible to save what insurance could cover in the event of illness or injury. When it comes to considering insurance the worst thing to think is "it can't happen to me". Walk into any hospital and you'll find people in shock that a permanent injury or serious illness has struck them down.

In Australia, while cancer and cardiovascular disease deaths are down, more people are living with their after-effects, which inevitably impact their employment and income. For a 40-year-old male, there's a 28% chance they'll suffer a disability or medical trauma by 65, while for a 40-year-old female there's a 23% chance.

No one knows if (or when) they may suffer a serious health issue, but everyone can plan in the event of it. It might remove that concern about what happens after three months without an income. If you would like an obligation free review of your current insurance program, or if you'd like to talk more about how life or disability insurance would apply to you, please contact the team at Schuh Group.

The Cost of Doom & Gloom

We've certainly been hearing a lot of doom and gloom in the news lately. If it's not something to do with our politicians, it's a focus on the housing crisis or the teetering global economy. It manages to infect and infiltrate various areas of life, and when people become obsessed with the bad news, it can begin to play into their decision making.

Repeatedly hearing about something in the news may trigger a question about why these things have happened or are happening. We'll all reach our own conclusions about these things. Maybe those conclusions will be reached with our own introspection or we'll look to external sources to help us define the root cause.

Maybe discussions with friends and family. Maybe history books. Maybe works of fiction. Maybe a religious text. Maybe the news media.

If you're going external, it's inevitable there will be some sort of vested interest looking to influence you toward their way of thinking. When that external source is the news media, there's no question about it. Though for the most part, a lot of that influencing has been done. With readerships and viewing figures falling off a cliff, media has more than ever started catering to their silos. The smaller groups of intensely loyal people who they know will return, wanting to hear a specific message day in, day out. That's fine and there's nothing wrong with that. Except when it involves tomorrow.

Tomorrow is the unknown and no matter your views about the happenings of today, the one certainty about tomorrow is you don't know what's coming next. Over the past decade this lesson has been learned time and again.

Go back before Barrack Obama was elected and his vocal opponents were telling anyone who'd listen he'd unleash a bigger financial Armageddon than the world had seen in the year he was elected. Donald Trump? Same deal. There's always been someone catering to the dystopic tomorrow of a political entity and how that person will wreck your future unless you heed their warnings. Sometimes, it's not even politically linked, 'the end is nigh' is just someone's business model.

A few years ago, we had a prospective client engage our services. They needed some help getting their superannuation in order. We took a look and it was certainly in a shabby state. Sitting in a high fee bank platform, with a couple of high fee funds, it was poorly diversified with an asset allocation that made no sense.

Was it going to serve their needs in retirement? No, but we soon found the consideration wasn't retirement.

The person had developed a certain belief about the future. The US economy was heading for imminent disaster and that would cause economic collapse around the world. The person wanted to know what investment solutions we could offer to comfort their belief the financial world would end. We explained that's not what we do, offered some explanation and we never heard from them again.

We can only speculate how they'd arrived at this belief, but it probably wasn't by their own hand. This way of thinking isn't uncommon in some sections of the internet. What does it matter? Well adjusting your money to whatever worldview you're currently holding comes with a cost.

After doing some calculations on how that person's portfolio would have performed against a basic 40/60 portfolio over the past few years, we arrived at the cost.

13.18% of underperformance over the past three and a bit years. And this is only based on portfolio value at the time, factoring no contributions, nor the excess fees being charged. Of course, anyone sitting around waiting for the disaster will tell you "well it hasn't happened, just wait until it does."

Dates come and go, time marches on. There are plenty of investors sitting around waiting for the next disaster, but it's arguable that more money will be forgone waiting for a crash than will ever be lost in a crash.

A 35% increase in your portfolio will take a 25% fall to wipe out.

A 50% increase in your portfolio will take a 33% fall to wipe out.

Keeping this in context, only once since 1990 has there been a fall on the ASX that exceeded both of those falls in a 12-month period starting December 2007 the ASX took a 40.38% hit. The next largest was 17.51% starting January 1990.

Yet no one sits 100% in equities, or they shouldn't. That 40/60 portfolio above is up 24.64% since the inception date. It will need a 19.77% fall to get back to where it started. That's happened only once in a 12-month period since 1990, again starting December 2007, down 20.61%.

The next worst 12-month period for that portfolio? Down 8.61% starting February 1994.

None of these outcomes are particularly palatable, but 'the big ones' most often talked about are a rarity. Yet some are willing to bet their whole retirement on one-off events, forecast by people they don't know, and whose motivations are sometimes questionable. Always remember, there's a cost to inactivity.

 

Protecting Your Business Now, & in the Future

This week's article is directed towards small business owners, and specifically around protection for the business asset. There's a saying that a "business is the length and breadth of the shadow cast by the business owner," and we feel this is completely true. We also feel that most business owners don't understand the inherent risks in their businesses, namely the risks around themselves and their key people. What happens to the continuity of the business if something happens to the business owner or a key person? As with any business, we feel it is a prudent strategy to try to reduce risk where possible.



The risks inherent in a small business can be classified into three categories: Debt risks, key person risk, and ownership risk.

Debt Risk:

This occurs when a life event, either death or disability happens to a business owner and the value of the business drops, leaving an existing debt position exposed. This is further compounded by most business owners giving personal guarantees to lenders for finance needed in the business. For example, if a Mum and Dad business is worth $700,000 as a going concern, and there's a $300,000 business debt, the risk to that business being able to continue in the event of death or disability is extremely high.

Key Person Risk:

This occurs when the success of a business is closely reliant on a small number of people. If something happens to one of those people, there is an inevitable drop in the profitability of the business. For example, if a business is being run by a managing director who knows the ins and outs of the business extremely well, the cost to the business can be huge if something happens to that person and the business is forced to find a replacement, and then train that replacement into the role. The cost is far greater than the outgoing salary expense.

Ownership Risk:

Let's assume the business is being run through a partnership model, and there are two partners involved. Let's also assume each partner has a spouse who isn't involved in the business. In this case, if one of the partners died suddenly or was disabled, the remaining partner is then in business with that person's spouse. This is not always the desired outcome! The continuity of the business and the provision for two families is then completely at stake.

For all of these risks, we'd suggest a strategic amount of life and disability insurance is the best course of action, and a prudent measure to take. The business can fund the premiums and in many cases these can be tax deductible, making them even more worthwhile. As with any insurance, there is a cost to having the policies in place but there's also a cost to not having them, which is always much more severe.

What You Need to Know About Salary Sacrificing

"Salary sacrificing" is the sort of term that gets bandied around on a regular basis, but not many people can actually explain how it works or how it might be useful to their situation. This week we plan on doing just that.
In essence, salary sacrificing is an arrangement between you and your employer where a portion of your pre-tax salary is used to provide benefits of a similar value. This may include things like cars, computers, school fees and super contributions. Our favorite form of salary sacrificing is the type that sends money towards superannuation, and this is where you and your employer agree to pay a portion of your pre-tax salary as an additional concessional contribution to your superannuation account. This is typically a tax-effective strategy if you earn more than $37,000 a year.

So how does it work? If you decide to salary sacrifice into super you will need to ask your employer to redirect a portion of your pre-tax pay to your super fund. Like your employer superannuation guarantee (SG) contributions, salary sacrificed contributions are taxed at a rate of 15% when they are received by the fund. For most people, this will be much lower than their marginal tax rate which is why these contributions are known as "concessional contributions."

Let's have a closer look at some numbers to help illustrate this for an employee with a $90,000 salary. Let's assume this person decides to direct $10,000 of their pay into superannuation, and in doing so they will save $3,450 in tax, with the extra money going into their super fund:

From this example, we can see this person's take-home pay will drop by $6,550, they will save $1,950 in tax on income and super and they will have an extra $8,500 in their super.
If you think this type of strategy might apply to you or if you'd like further ideas on this, please don't hesitate to contact us. We're only a phone call or email away.

***Information sourced from the ASIC MoneySmart Website for more information visit www.moneysmart.gov.au

How to Effectively Manage Cashflow

We often bandy around the phrase "cashflow" but it's probably time we took a deeper dive into this concept. "Cashflow" refers to the amount of money coming into your accounts or your business, as well as the amount that's going out. Understanding your cashflow and the patterns around this will only help to improve your money management as well as your sense of control around your finances.


We'll begin by breaking it down into two key areas: Personal Cashflow and Cashflow for businesses.

Personal Cashflow:
This really relates to what's coming in and going out of the household as well as the timing around that flow of money. For example, people who only get paid monthly may have a tougher time budgeting than someone who gets paid each fortnight, simply because money is coming in less frequently.

Assuming you've done your budget and you're clear on your income and expense amounts, the best way to manage your personal cashflow is to use a number of different bank accounts for different purposes. This idea isn't new – in generations, gone past people "saved" into jam jars for different purposes. For example, let's say you've done your budget for the year and you've found it costs you $12,000 for your fixed house expenses (utilities, internet, phone etc). To cover this with your regular cashflow you should set up a separate "bills" account, that has a regular amount deposited into it to cover the $12,000 requirement. If this payment happens fortnightly you'd be paying $462 per fortnight into your bills account so that you know the full amount is covered for the year, and you don't have to go looking for the money when the bills are due.

Depending on what's important to you, you might set up your accounts along these lines, but there are no limits to the number of bank accounts that you might use:

Business cashflow:
For business cashflow the same concept applies, but many small businesses struggle with the requirements for quarterly BAS payments. The best way to overcome this is to have a separate "BAS" account where money is set aside for the regular BAS payments, so you're not caught short each quarter.
If any of these ideas appeal to you or if you'd like assistance with your cashflow, please don't hesitate to contact us. We're only a phone call or email away.

We've recently spent some time discussing the importance of defining your relationship with money and then getting clear on how to make a start with an investment plan. One of the most important areas of any financial plan though is our spending habits. That's right, it's the love-hate relationship that most of have with money on a regular basis, but our spending habits can either make or break our financial futures.


As a very general rule, most people will spend what they have available. This is the reason that superannuation was mandated by governments all around the world just a few decades ago – in the space of a generation or two, we seemed to have lost our ability to set money aside for a rainy day. So instead of governments relying on people to do their own saving, they made it compulsory for a specific amount of our wages to be kept out of circulation until we needed it – usually when we stopped earning income from employment.

This is an important point: particularly in Australia, we're not very good at saving money. We like to live for today and not save for tomorrow, as it turns out. But if you really want to get ahead with your finances, it's the bit of money you're able to save and set aside that will really give you financial freedom in the future.

So how do you start saving and then get better at it over time? The key is to get clear on where your money is coming from and also going to, namely by doing a budget. Many banks will now offer a breakdown of our spending habits through their data analysis of our bank accounts, but a good old fashioned budget spreadsheet will also work just fine. You can download one from us here, to get you started. Start by listing everything and if you're unsure about certain expenses, round them up. It's always better to overestimate what's going out the door rather than to underestimate it.

Once you've listed your income and expenses, see if there's anything left over. If there is, you then need to decide what it's best to do with this surplus, and we would suggest either debt reduction or investing are your best two financial alternatives. But if you don't have a surplus in the first place, you need to find a way to carve one out. This can usually be achieved by adding in a savings component as an "expense" to your current budget, which doesn't have to be a big amount but just something to get you started.

As a minimum, we'd suggest setting up an online savings account with an institution that's different to the one you normally use for your everyday banking, and automatically transferring a regular amount into this new account. You'll be surprised at just how quickly the regular income amounts will build up. Importantly, you'll also notice that your regular spending adjusts down to accommodate having less money readily in circulation.

How you treat your saving and spending habits will really depend on what you're trying to achieve with your money. But it's necessary to understand how most of us are naturally wired – we spend what we have, so savings need to be forced on most of us. Take the time to analyze what you may be able to pull out of circulation because most of the time, you won't even miss it, and you'll be pleased that you did.
It may come as a surprise to learn that the biggest regret most people have with their investing is not where they've placed their money. Nor is it the fees they've paid or the types of investments they've made. Instead, the number one regret people have with their investing is that they didn't start sooner.


When we make investment projections for our clients, we often look at what the projected result will be based on a number of years of investment timeframe. For example, if we invested $100,000 for 10 years and received 5% as an annual rate of return over that time, the end result may be around $163,000. Sometimes a client will answer by saying "that's all well and good, I just have to live long enough!" and while this is true, it's not the whole part of the story. The other way to extend your investment timeframe is to begin at an earlier start date rather than wait until all the stars have aligned perfectly.

So how do you start an investment plan earlier in life, particularly when that timing usually lines up with having the most financial commitments? There are certainly a lot of drains on cashflow in the younger years – you may have mortgage repayments, kids to put through school, and simple living costs thrown in on top. It's not always easy to find that little bit "extra" to put towards an investment.

The message we'd like give this week is that you don't necessarily have to start your investing with a large amount, but you do have to start! One practical investment amount for many people is that chunk of money that comes back into circulation after doing a tax return. But for this idea to work, you need to be willing to set that amount aside, rather than bringing it back into circulation for spending. This is generally possible to do, provided you remember you've already been without that money for 12 months and the world hasn't stopped spinning.

Did you know the average tax return figure in Australia is $2,300? So let's see what this can grow to over time:

If you invest your $2,300 and add to it every year with the same amount of tax return income, and you hold that investment for 10 years earning just a 5% rate of return, your lump sum at the end of 10 years is now almost $33,000. If you're a couple and both working and you apply this idea, your investment amount is doubled. This is before assuming that the average tax return figure will likely increase over time. So who wouldn't like a $66,000 lump sum that you've generated from money that you haven't missed in the first place?

Our suggestion is to make a start with your investing and to also make use of the resources available to you to do so. If you've felt hesitant about committing to an investment plan, however small, ask yourself the question "If not you, who? And if not now, when?" And if you've got any questions at all about this or any of our other ideas, please don't hesitate to contact us for help on your personal position.

How Your Values Influence Your Wealth

We spend a lot of time discussing what the best strategies and tips are for growing your wealth position, but one thing we need to get clear on is why you're building or preserving wealth in the first place? This is a really important question - What does money mean to you? What's important to you about money?

When we lift the lid on these issues, we find that everyone has a different position on what they really want from their finances. Depending on your early relationships with money and how you were raised, you may hold "accumulating" as your main priority. This is not uncommon at all, and this mindset assists with creating a sense of security as well as achievement. On the other hand, some people are more disconnected from the idea that money can buy you nice things and therefore happiness.

At Schuh Group, our values around money stem from the understanding that the resource of money gives you choices, but that's as much as it can do for you. It's what you do with those choices that will give you the greatest sense of achievement and eventually contentment.

So to begin this line of thinking, ask yourself what's important to you about money in the first place. If the important things in life for you are family, health and experiences, then money can assist with this and your goals may be centred around providing for your children and family members. On the other hand, if you're interested in the perceived prestige that having money may offer, your goals will be more strongly aligned with making your financial resources work hard for you.

There's not necessarily a right or wrong answer to this as each person is different. We would however encourage you to get clear on what your priorities are, so that your wealth accumulation path can closely align with this. And if you're unsure of your priorities, remember the old saying that "your real interests lie in where you spend your time and where you spend your money." Scroll back through your bank statements and your calendar for some answers.

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