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

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.

Why You Must Always Pay Yourself

This week's topic – the importance of paying yourself - can be more complicated than it seems on first glance. Paying ourselves sounds logical, particularly when you're working for a set income paid to you at regular intervals. But the real question comes down to what you actually do with that regular income, and how it's getting utilised.

As we've said in previous weekly episodes, we strongly recommend doing a cashflow budget in order to get really clear on how your money is tracking and what your cost of living is, particularly when it comes to those non-negotiable fixed costs such as bills that we can't get away from. After the budget is completed, it's then time to look at how you're using your surplus cashflow, or the amount that may be left over after your bills are paid. This is also related to how you've arranged your personal bank accounts. 

An easy way to organize your accounts is to have the following arrangement, or something similar:

1. A bills and everyday account

2. A personal spending account

3. Online savings accounts for different purposes (such as travel, school fees etc)

4. Investments and superannuation

The amount that gets directed into each of these accounts really depends on your cashflow surplus, but the most important aspect is that some money is diverted out of circulation from the everyday account, and into other areas. It's also best if this arrangement is done automatically so you get used to only using what's in the everyday account for your regular expenses.

In the case of a couple, it's best if each person has their own personal spending account and they have full discretion over what they spend that money on. This way, there are no arguments over who spent what – if you want that pair of shoes, you can buy them with no guilt, provided there's money in your personal spending account to cover them.

And of course, you should certainly make an effort to pay some money into an investment account as well as your superannuation. Salary sacrificing into super is a great and simple way to do this, and it has the added benefit of saving you some tax in the process.

Paying money into super is particularly important if you're self-employed – don't overlook this! You pay your employees superannuation and it's just as important to pay yourself on a regular basis. Fast forward 10 years and you'll certainly be pleased you put some money aside.

For business owners, it's an easy trap to fall into to not pay yourself a correct wage or to simply not pay yourself at all. The downside of this approach is that you're really running your business as though you've "bought yourself a job." By not paying yourself a regular wage, you avoid having to make a higher profit amount, but you also reduce the end value of your business in the eyes of a potential buyer.

Consider if someone came along and wanted to buy your business – one of their questions may be whether the business could, in fact, be run by a manager. If there's not enough room for the owner to draw an income, there won't be enough room for the expense of a manager to be covered either. This has the effect of then reducing the overall value of your business asset. Therefore, challenge yourself to draw a regular wage from the business and aim to have the capacity to increase this over time.

If you'd like to know more about this concept please don't hesitate to contact us. We're only a phone call or email away.

The Latest Legislative Changes for Business

If you're in business or find yourself in a decision making role in someone else's business, then this week's content is for you. There's an old saying that "the more things change, the more they stay the same," and while that's partly true, there are some important changes that have come into play for businesses with the beginning of the new financial year. Here are a few that may be having an impact on you and are worth knowing.

National Minimum Wages Increase
From 1 July 2018, the national minimum wage has increased in Australia by 3.5% - the new national minimum wage is $719.20 per week, for a 38-hour week, or $18.93 per hour. The increase applies from the first full pay period starting on or after 1 July 2018, for employees on the national minimum wage or a modern award. So, if you're paying your employees minimum award rates, you need to have made an adjustment upwards.

Single Touch Payroll
From 1 July 2018, the Australian Taxation Office (ATO) has introduced the Single Touch Payroll (STP). If you employ 20 or more employees, you will need to report to the ATO each time you pay your employees. The information you need to send to the ATO includes your employees' salaries and wages, allowances, deductions (for example, workplace giving) and other payments, pay as you go (PAYG) withholding and superannuation.

Updates to the National Privacy Act – Data Breach Changes
From 22 February 2018, businesses with an annual turnover of more than $3 million are required to comply with the Notifiable Data Breaches scheme under the Privacy Act 1988. A data breach occurs when unauthorized personal information is accessed or released. If the breach is likely to cause serious harm to an individual, businesses are obligated to notify both the individual involved, and the Office of Australian Information Commissioner (OAIC).

Changes to Gift Card Expiry Dates and Fees for NSW
And finally some good news for shoppers! You may like to buy your gift cards when you're visiting NSW in future, as gift cards and gift vouchers purchased in NSW will have a three-year expiry date as of 31 March 2018. NSW businesses that issue gift cards or gift vouchers will need to honour the purchase if it's within that period. Businesses issuing gift cards or gift vouchers prior to this date are not affected by the changes. We're not actually sure whether those gift cards can be used interstate with the same three-year conditions, but it's worth a try!

If any of the above changes affect your business and you'd like to know more, please don't hesitate to contact us. We're only a phone call or email away.
Anyone who has spoken to their parents or grandparents about the cost of living will be familiar with the idea that the relative value of money has changed over time. Most people are aware that prices for the same object gradually increase, although we often only hear about how this affects the property market. Unfortunately, the cost of living also goes up over time, and this is what inflation does. The value of a dollar today is not worth what it was last year, and this difference increases over time.

To put this in perspective, we need to keep in mind the concept of "real rate of return." This refers to what your investments are really returning for you over time, once inflation has been taken into consideration.

To use a real example, let's look at the history of the Australian share market versus inflation. For the past 30 years, the Australian share market has given an annual return of 8.4%, meaning that a $10,000 investment made 30 years ago would have grown to be worth $113,405 today. By comparison, the rate of inflation we've had over that time has been 3.0%. For investors, the real "take home return" you've had over that time is the difference between the two measures being 5.4%, or that same $10,000 has really grown to $89,374.

So what does this really mean for investors? The only way to reduce the negative impact of inflation is to place a portion of your total investment amount in assets that will also go up in value over time, such as through shares and property. Investing in cash and term deposits, unfortunately, doesn't fit this bill, as the return to the investor only comes from income (interest). To again use the 30-year figures to illustrate this, if an investor placed that same $10,000 investment in cash 30 years ago, the return would have been 6.4% or an increase to $65,127. However, this drops to just 3.4% or $41,096 once inflation is taken into account.

Hopefully, this illustration confirms why the savvy investor needs to take into consideration the negative effects of inflation on real returns. The best way to combat this is to include some exposure to shares and property in your overall mix of assets. Inflation is the "silent killer" of long-term results, so set your allocations right in order to reduce the impact on your overall outcomes.

How to Grow a Wealth Mindset

For those who are interested in building your knowledge level around wealth, this week's post is for you! Here at Schuh Group, we encourage you to become as educated as possible in the field of investing and money management. Some of this can be achieved through talking to those who are "in the know" while some information is best delivered by books and publications.

This week we'll be sharing our recommendations on which books will help you grow your wealth mindset and give you the best value for your time.

1. The Barefoot Investor, by Scott Pape

This book is a great place to start. It outlines a number of "money fundamentals" that may seem basic at first but are incredibly important habits to put in place. It's no accident that people who accumulate significant amounts over time generally spend less than what they earn, and invest the surplus in solid investments.

2. The Little Book of Common Sense Investing, by John C. Bogle

For a no-nonsense overview of the pros and cons of the sharemarket, this book has stood the test of time. It outlines why investing for the long term in a broad mix of assets and at a low cost is undoubtedly the best approach to take.

3. The Investment Answer, by Daniel C. Goldie and Gordon S. Murray

If you only read one book on investing in the share market, make it this one! The Investment Answer dispels the long-held myths about investment "out performance" and gives the reader statistical historical evidence on why a broad asset class investment mix is the best way to go.

4. Think and Grow Rich, by Napoleon Hill

When it comes to cultivating a wealth mindset, there are few better books than this tried and tested publication by Napoleon Hill. Think and Grow Rich gives you a guide on how to visualize increasing your wealth, and then how to methodically go about achieving that.

If you'd like to discuss any of these books in more detail, please contact our office. Happy reading from the Schuh group Team.

Happy New Financial Year!

This week we wanted to take a pause and ask you what does the new financial year mean for you?

For some, you may have just let out a big sigh of relief having gotten through the last one without any problems and are just happy that now you can leave it again until around April or May next year as the deadlines loom again. Or maybe you are thinking, no, this year I am going to keep on top of it all and start looking at some strategies now that can help me create wealth and keep on top of it all. The truth is that the right strategy is whatever works for you, your business and your goals.

Wealth and money are subjects that are personal for each of us. For some it may be about financial wealth, starting a portfolio, contributing more to super for retirement or looking at some ways to try and minimise tax. For others it may be more holistic, looking at all of these financial areas in conjunction with lifestyle goals and aspirations for the future and combining a long-term strategy with short-term objectives.

No matter what it all means to you, right now, the first week of the financial year is a great time to sit and reflect on your goals and strategies for the coming year. Over the coming weeks and months, we will be sharing a number of strategies with you to support you to continue to grow and prosper in life and business.

And our first tip this week – do your tax return early!

Start this financial year on the right foot and book in now to get your tax return complete. This will ensure that you are able to gather all the information your accountant may need before tax deadlines loom and if you are due to get a return then the money is better sitting in your pocket working for you. 

If you are ready to book in now or want to discuss any other financial worries, please contact us via email or just give us a call on 54822855.

The Wonderful World of the Share Market

Following on from last week, we'd like to take a dive into the wonderful world of the share market – a place that seems to give investors both good and bad sensations. 

Once you understand that buying shares is the same as becoming a part owner of a company, it's somewhat easier to understand how prices can move up and down each day. This is a reflection of what all the participants in the market feel a particular company is worth at any one moment, based on the knowledge they have at that time. There are different approaches you can take to investing in shares. Some people prefer to actively trade their share investments on a regular basis, sometimes multiple times per day. Others will take a longer-term position and buy into an investment in the belief that returns will gradually go up over time.

Our preferred investment approach is to hold a very large spread of shares and to access these shares at a low cost. We also feel it's best to only enter the share market if you can afford to buy into these investments and hold them for at least 5 years. This is to allow for the natural market movement an investor will experience over that time. We also know that history rewards those who are patient and disciplined in their investment approach. Below is the returns history of our Australian share market over the last 118 years. At an average return of 13.2% per year, making a long-term investment in the share market certainly makes a lot of sense.

If you'd like to discuss your investment options more with us, just remember we're only a phone call or an email away.

What's Your Investment Type?

What better way to finish off the financial year than with some consideration about investments? This week we'd like to broadly discuss the different types of asset classes and how these may or may not be right for you, depending on your circumstances and preferences.

Investment Types
Broadly speaking, there are four main types of investments available to everyone. These include:
1. Cash: money in the bank, savings accounts, and term deposits.
Pros: There's a lot of certainty around having money in the back. It's easily accessible and doesn't drop in capital value. This is a low-risk investment.
Cons: This type of investment also has low long-term returns, particularly in the current low rate environment. Cash also doesn't protect against inflation as there is no underlying capital growth unless you physically add more to it.

2.  Interest: Government or semi-government bonds, or corporate bonds. These investments are issued by these organisations in an attempt to raise funds and with the promise of a fixed return to the investor.
Pros: This is still considered a "safe" investment but it generally offers a better return than straight cash investments. Long-term averages have fixed interest returns sitting at around 2% higher than cash.
Cons: Bonds can be traded on the bond exchange, meaning they can drop in capital value. Risks are also associated with lower grade bonds, meaning the issuing source may have difficulty in paying you back your initial investment amount.

3. Property: This class of asset includes residential properties, commercial or industrial premises, vacant land, and listed property companies.
Pros: We and see it and touch it! The property also gives you returns from two areas, both capital growth in the value of the property as well as some income by way of rent. These returns are generally higher than both cash and fixed interest. You can also use your equity in properties to borrow against.
Cons: Property values can drop and stay down for some time. There are also high transaction costs in buying and selling these, namely from stamp duty, capital gains tax and agent fees. Property can also often take some time to sell.

4. Shares: An ownership stake in a company is purchased by an investor, allowing them to share in the growth of that company as well as a portion of the profits, by way of dividends.?
Pros: This asset class gives the highest long-term rate of return, slightly edging out property. It's easy and cheap to sell shares if you need money quickly, and it's also simple to spread your share investment out, thereby reducing your risk. As an investor, you also generally receive your returns from two areas – growth and income.
Cons: Shares move up and down on a daily basis, thanks to the daily nature of the share market. They can drop in value quickly and take some time to return to previous highs. Because of the ease of buying and selling shares, some investors panic and sell when markets are down, thus crystallising their loss at the wrong time.

So, which one of these is right for you? For most people, the best investment strategy is to have a mix of all of the above. If your wealth accumulation is your goal, then having a focus on shares and property will be your best overall strategy. But if you can't stand the possible up-and-down movements of this type of investment, head towards the smoother ride from cash and bonds. Just remember, risk and return are related, and relatively good long-term returns can't be achieved without taking on some risk with your investments.

If you'd like to discuss your investment options more with us, just remember we're only a phone call or an email away.

Investing 101 - Making Sense of Investment Terms

When it comes to investing, it can be a minefield for both the amateur investor and the professional alike. But one point to remember is that not all investments are created equal, and those that suit you the best may depend on your stage in life, and how comfortable you are in taking on risk.

Here are a few fundamentals to consider:

1. Assets can be divided between roughly two categories: "defensive" and "growth".
The defensive side of things provides a buffer for you and has less volatility (up and down movement) and is generally associated with investments such as cash, term deposits and bonds. This is the safe stuff and has a lower associated risk, as well as a lower return. The "growth" side of things is made up of property, Australian and international shares, and commodities. The return from these types of assets generally comes from two areas – the increase in the value of the investment as well as the income they generate through dividends or rent.

2. Risk and return are related
Evidence from investors and academics points to one undeniable conclusion: returns come from risk. Investment rewards are rarely accomplished without taking a risk, but not all risks carry a reliable reward. Everything we have learned about expected returns in the share markets can be summarised in three dimensions:

a) Shares are riskier than bonds. In turn, they offer higher expected returns as a reward.
b) Small companies have higher expected returns than large companies. This makes sense because small companies are more of an unknown quantity.
c) Lower priced 'value' shares offer higher expected returns than higher priced 'growth' shares. A value share is one that is out of favour for one reason or another. The level of exposure to these areas will determine the risk and reward for an investor.

3. Diversification reduces investment risk
Investing without diversification is exposing yourself to unnecessary risk. Avoidable risks are holding too few shares, speculating on specific industry sectors or countries and following the predictions of others. These are risks that don't provide a reliable reward.

By spreading your investments across different types of asset classes you can build a total portfolio for all conditions. This is because while one asset class is performing poorly, another may be doing well. This is not to say diversification is complete protection, but it is insulation to reduce volatility. We hope you have found some useful tips in this week's "Money in Life" series. Remember not to leave these items to the last minute and also know that we're only an email or phone call away if you would like to seek advice on any of the above.

Much has been going on in the background with the Banking Royal Commission of late, and we feel it would be timely to comment on how this relates to your superannuation funds. As we've mentioned in previous weeks, we're big fans of the wealth accumulation benefits that the superannuation system offers, mainly through tax savings on both contributions and the underlying investments your super holds.

What we're not a fan of is the vertical integration system that many institutional super funds have been using for years, and the negative impact this has had on some people's superannuation fund balances. Sadly, we have witnessed several devastating occurrences when assisting and representing clients who have previously been serviced by the bank and institutional financial planners.

Many (but not all), of the problems highlighted, have stemmed from the vertical integration model that exists within the major banks and institutions. They employ the advisers whom the clients deal with. They own the platforms that host the clients' money. They own and manage the funds where the clients' money is invested. The conflict of interest is immediately apparent. The adviser will inevitably be incentivised to keep a client's money within the corporate structure. As an ASIC report from earlier this year found:

While the big institutions' approved product lists were made up of 21% of in-house products and 79% of external products, when a client's money was invested, 68% of the time it went to their in-house products.

And what happens when the bank or institution is placed before a client? Only 25% of the advice given by the big institutions was considered to be compliant by ASIC. 65% was considered non-compliant, with 10% considered non-compliant with significant concerns. The issue of non-compliance partially stemmed from recommending new financial products when there was no demonstration that a client would be better off.

So how does this relate to your superannuation and why does it matter? When most Australians reach retirement, superannuation is the biggest asset they have alongside their house. It's also the most accessible when it comes to funding income in the retirement years. This means that the more you have in super the better, and you also get a benefit from a higher performance, relative to the risk of the investments.

So what should you do about your super in light of what we're learning from the royal commission?

1. Ask for a second opinion on your fund if you don't know how to look up the fees and performance data or what this actually means for you.
2. Get clear on the type of fund that will work best for you. This might be a basic industry fund, a retail fund with more flexibility, or a Self Managed Super Fund, depending on your goals.
3. Review your super regularly against a reputable benchmark. This is not a set-and-forget asset for you, so make sure you're receiving what you're entitled to.

As always, if you are unclear about your position in relation to your super, make it a priority to seek professional advice. The laws around super are extremely tight, and at best, there are serious penalties for non-compliance, at worst you could well be leaving yourself in a worse financial position during your retirement years.

Choosing the Best Super Fund for You

We talk about Super a lot when it comes to tax planning and wealth creation, but you certainly want to make sure you've got the right vehicle for the job. If you get the selection right, you'll have many happy years of investment returns ticking away in the background. 

If, on the other hand, you get it wrong, you'll literally see thousands of dollars pass you by over the lifetime of your fund. Here are a few things you need to be aware of:

1. Understand the different types of funds available. These fall into three broad categories:
Industry Super funds (including government funds) - In a nutshell, Industry Super Funds are generally lower cost options with a reasonable amount of investment choice. They would appeal to the investor who has a low level of complexity, doesn't what much involvement with their super, and is after lower fees. Where these types of funds won't suit is if your situation is more complex, or if you're wanting a higher degree of control and transparency over the underlying investments you're holding. Our opinion is that these funds are ok for many people in the accumulation phase, but they are less than optimal when it comes to drawing a pension.

Retail super funds - Retail Super Funds come with a higher level of control as well as transparency, meaning you can see what you're invested in most of the time. These funds are often administered through a specific super fund company, many of which are owned by banks or investment companies. This type of fund would appeal to those who like more involvement with their super funds, but who don't need the complexity of an SMSF. The fees can sometimes be higher than an industry fund, so the returns also need to be higher for this to be the best option.

Self Managed Super Funds (SMSF's) - An SMSF is the most complex type of super fund available but they still operate under exactly the same super legislation as the other fund options. The pros of this fund are ultimate control and transparency as well as some additional investment options (such as investment properties).
The cons come in the form of annual tax returns and audits that need to be completed, as well as a possible time commitment to managing the fund. We'd suggest a starting balance of at least $200,000 to make this option worthwhile.

2. Look at the investment options, fees, and performance
When it comes to investment options, these will vary greatly depending on the type of fund you have. But take the time to research what's available and most importantly, consider the asset allocation of your investments. If you're still a long way from being able to access your super, make use of a higher risk option so you can get your returns up over time. Also look at the fees you're being charged and consider if these are value for money. You'll likely encounter administration fees and investment fees, but the ones you really want to avoid are contribution fees or performance fees – these are a gouge. There's also a lot of information online about the relative performance of your super investments and it certainly pays to check this out. If you're after a comparison as to what your fund should have earned, just let us know and we can provide this.

3. Insurances – don't forget these
Lastly, don't forget your insurances. You may automatically have some of these issued in a super fund and many of these insurances are quite a low cost. Weigh up what you think you might need versus what you have in your super funds before you go and change funds quickly – you may just lose the cheapest insurance you had by doing so.

This is a short summary of some considerations for your super funds, but please let us know if you need help in this area. Super is a vital part of your wealth creation journey and it pays to get it right.



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We take an holistic approach to assesses your overall financial position in the context of your goals. We will ensure you are able to not only meet your short term goals, but also investigate the best approach for your business in the long term.


Wealth Advice

We help you plan for the future, from wealth accumulation, debt management & superannuation, through to self-managed Super & retirement & estate planning. Improve your tax effectiveness & create a financial road map to get you to where you want to be.