Your tolerance towards risk

One of the key steps in deciding which assets to invest in is determining your tolerance towards risk. As an investor, you need to decide how much risk is too much, for the return that you are trying to achieve. As potential returns from different asset classes increases, the underlying risk also increases. For asset returns in Australia, click here.

The asset types available to you typically fall into one of two categories: defensive or growth. Those in the defensive group (cash and fixed income) normally consist of a return and risk level lower than that of the growth group (property and equity). Also, growth assets tend to have higher capital gains than defensive assets. However, the volatility of returns (how much they differ from the average) is greater for growth assets.

Cash

Being the least risky asset class, cash can be invested at the current market interest rates such as those provided by banks. As there is virtually no risk, they grow at the risk free rate. Currently at a record low due to the coronavirus pandemic at just above 0%, these rates offer a sure, minimal return. Before 2020, the target cash rate set by the RBA has been between 2% and 3%.

Fixed income

Fixed income assets, also known as bonds, are a bit riskier than cash. As such, they offer a return that is slightly higher, depending on the issuer. With an average return over the past years prior to Covid-19 between 3% and 5%, these assets carry credit risk. This is the risk that the issuer (company) is unable to meet the timely payments to the holder (investor).

Property

As the least risky growth asset, property assets have been producing an average of between 5% and 7%. Averages in annual returns is highly related to the location of the property (cities, growing suburbs, etc.). The Australian housing market has been growing over the recent decades, with some saying that there is a housing price bubble.

Equity

The riskiest asset class in this list is equity, or shares. This includes both domestic and international shares, with average returns between 7% and 11%. With the greatest level of volatility, these assets carry the greatest risk but offer the highest potential returns. Diversification, the act of not putting all your wealth into one asset type/sector, is key when investing in equity. However, macro scale events such as Covid19 can cause widescale losses.

Your risk preferences are a guide

How willing you are to bear risk is vital in knowing which assets you should invest in. This is often linked to what life stage you are at. Completing a risk profile will help demonstrate your risk levels and how to allocate your wealth. Endorphin Wealth keeps your preferences in mind when helping you plan for the future that you want.

 

Here at Endorphin Wealth, we are not licensed or owned by the big banks and financial institutions, so the advice and wealth management we provide is always in our client’s best interests. We have the advantage of being able to access a range of products from different providers that can be tailored to our client’s goals and needs. We have offices located in Sydney and Melbourne, where you will be able to find a financial advisor that is suitable for you.

For an obligation free conversation about your financial future, please contact us on 03 9190 8964 or at advice@endorphinwealth.com.au

What is a Self-Managed Super Fund (SMSF)?

A Self-Managed Super Fund (SMSF) is essentially a private super fund that you manage yourself or with the assistance of a financial advisor. Instead of putting money into a retail or industry super fund, you can make contributions into your own fund and invest in the assets that are most appropriate to your plan.

The team at Endorphin Wealth have been advising their clients for many years on their SMSFs. We can assist you to:

  • Consider if establishing an SMSF is appropriate in your circumstances,
  • Provide advice and ongoing management for the investments and insurance policies within your SMSF, and
  • Assist with winding up or considering alternative options if your existing SMSF is no longer appropriate.

The Australian Prudential Regulation Authority’s (APRA) recent statistics on SMSF funds showed there were 595,840 SMSFs operating in Australia, holding $712 billion in assets. More people are setting up SMSFs due to recent findings that have shown that retail super funds lack clarity with their investments and have a tendency to focus on profit rather than the interests of members.

Should I invest in an SMSF?

In recent years, the Australian Securities and Investments Commission (ASIC) conducted an online survey of 457 SMSF members who had set up their own fund in the preceding five years. The results showed that they were unaware of a large number of risks and responsibilities that comes with running their own SMSF.

The main reason for setting up an SMSF is greater control over investment decisions. However, according to ASIC, around one-third of SMSF trustees are unsure about what is required to run their own fund and the benefits of diversification.

In one case, an SMSF member, believing the property market was “over-inflated” and the stock market was too “risky”, held 100 per cent of their SMSF balance in cash, hoping to invest in property “in maybe three or four years”.

Survey respondents reported mis-judgement of their expectations and actual experiences as SMSF members in a number of key areas, including:

  • the risk and responsibilities of running an SMSF, and
  • costs to set up and run an SMSF,
  • time spent on administering an SMSF,
  • individual understanding of SMSFs and their legal responsibilities as SMSF trustees.

Risks and responsibilities of running an SMSF

All members of an SMSF are responsible for the fund’s decisions and for complying with the law.

These responsibilities come with risks:

  • You are personally liable for all the fund’s decisions — even if you get help from a professional, or if another member made the decision.
  • Your investments may not bring the returns you expect.
  • You are responsible for managing the fund even if your circumstances change — for example if you lose your job.
  • There may be a negative impact on your SMSF if there is a relationship breakdown between members, or if a member dies or becomes ill.
  • If you lose money through theft or fraud, you won’t have access to any special compensation schemes or to the Australian Financial Complaints Authority (AFCA).
  • You could lose insurance if you’re moving from an industry or retail super fund to an SMSF. See consolidating super funds.

The ATO can conduct a random audit of an SMSF at any time. The penalties for non-compliance are high and receiving a notice of non-compliance from the ATO usually has devastating tax consequences.

Costs of setting up and running an SMSF

Individuals looking to set up an SMSF need to factor in all costs to start and run their SMSF including amounts to cover any initial and/or ongoing advice, as well as start-up costs, including the appointment of the trustee and registration of the fund.

The annual cost of running the fund, including accounting, auditing and reporting costs. This ensures the fund is compliant, and members are able to extract relevant information during any period of the financial year.

Time spent on SMSF administration

The time required to manage and administer an SMSF can be significant. This will often depend on the type of investor your activity when managing your SMSF investment portfolio. Having said that, 38% of respondents in the ASIC survey said running an SMSF was more time consuming than they expected. On average, SMSF trustees spend eight hours a month managing an SMSF.

All SMSF trustees will need to undertake some level of regular investment research on their investment options. This includes ongoing monitoring of the investment strategy and the performance of current and future investments. They may also need to organise annual valuations of assets such as direct property investments.

Trustees also need to be mindful that they meet their regular reporting obligations. This ensures the fund is compliant and are updated on changes in regulation or super laws.

Trustees would be responsible and will be held accountable, for their SMSF at all times.

Understanding of SMSF and legal responsibilities as a trustee

SMSF trustees must have sufficient financial knowledge. This is to make choices that are in line with their fund’s investment strategy. Individuals should also be made aware they – not their financial adviser, accountant or lawyer –are legally responsible for their SMSF.

You need the financial and legal knowledge and skills to:

  • understand different investment markets, and build and manage a diversified portfolio
  • set and manage an investment strategy that meets your risk tolerance and retirement needs
  • comply with tax, super and investment regulations and laws
  • organise insurance for fund members

If you want to know more about Self-Managed Super Funds or starting up your own SMSF, please contact Endorphin Wealth via phone at  (03) 9190 8964 or at advice@endorphinwealth.com.au .

Changes to Income Protection Insurance

On the 31 March 2020, the Australian Prudential Regulation Authority (APRA) announced that life companies have been keeping income protection premiums at unsustainably low levels to compete for customers. APRA expects life companies to change and review these policies. They will focus on long term sustainability and making sure products continue to meet the needs of consumers. As such, insurance companies have stopped selling ‘agree value’ policies. These policies are based on the income you earn at the start of the cover, despite any future change in income.

What is Income Protection?

Income protection pays part of your income if you are unable to work for a period of time. The cause could be due to injury or sickness and repayments could be up to 75% of your annual income. These policies have a waiting period and a payment period. The waiting period is the time you must wait from when you make a valid claim, to the time you are able to start receiving payments. The payment period is the period during which you are unable to work that is covered. The industry is putting into place new terms and conditions. This is causing changes to the policies, affecting the amount of premiums you pay.

What will happen to my existing policies?

Current retail policies with ‘Guarantee of Renewability’ in the policy wording, is automatically renewed each year. Thus, your policy will continue with no changes.

Any other APRA changes?

With effect from 1 October 2021, APRA expects that life companies will offer new income protection contracts where:

  • The insured income will be based on your annual income at the time you make a claim. It is unchangeable for more than 12 months
  • In the first 6 months, up to 90% of income repayments could be distributed and 70% thereafter. There are no limits on the monthly benefit
  • Insurance providers must have adequate risk management processes to reduce the risks involved with long term payment periods

APRA has deferred the following measure until 1 October 2022:

  • 5 year renewal term – renewal will not be medically underwritten however declaration of income, occupation and pastime details is needed

Are policies which meet APRA’s new measures available now?

Yes, life companies are starting to release new income protection policies which meet these guidelines. However, most insurers will launch these new policies with new Product Disclosure Statements, from 1 October 2021.

If you need any more information about these changes, please contact Endorphin Wealth via phone at  (03) 9190 8964 or at advice@endorphinwealth.com.au .

Endorphin Wealth welcomes Steven Alesi

We are excited to announce that Endorphin Wealth has expanded the team in the Melbourne office – welcoming Steven Alesi. Steve officially joins us as an Implementation Officer, whilst also currently completing his Bachelor of Commerce.

Initially, I joined Endorphin Wealth Management as an intern, where I was deeply immersed into the world of financial advice.

I find it extremely fulfilling to see the various ways our advisors support and guide clients, helping them become more confident about their lifestyle and financial goals – Steven Alesi

Steven Alesi

Steven has already impressed us with his ability and dedication to helping us provide goal-based advice to our clients. See below Steven’s email and LinkedIn. If you would like to find out more about the services Endorphin Wealth provides, please contact us via phone (03) 9190 8964 or email advice@endorphinwealth.com.au.

steven@endorphinwealth.com.au

Steven Alesi | LinkedIn

Endorphin Wealth Introduces Kristy Farrell

We are thrilled to introduce you to one of the hardest working members of Endorphin Wealth’s team – Kristy Farrell. Kristy has been working at Endorphin Wealth as our Financial Reporting & Accounts Officer for a few years, having undertaken her Diploma of Business Management.

I gained a passion for providing essential support to the operations of a business, through my previous roles in administration and accounts.

I love that my position at Endorphin Wealth helps keep the cogs of the business turning in the background, and I get to play with numbers, data and reports that helps support the management team in making vital decisions for the business – Kristy Farrell

Kristy Farrell

Kristy is always impressing us with her ability and dedication to helping us provide goals-based advice to our clients. See below Kristy’s email and LinkedIn. If you would like to find out more about the services Endorphin Wealth provides, please contact us via phone (03) 9190 8964 or email advice@endorphinwealth.com.au.

kristy@endorphinwealth.com.au

Kristy Farrell | LinkedIn

Can you afford to retire early?

Many Australians caught in the nine-to-five grind of working for a living, dream of the possibility to retire early. Spending their days travelling or playing golf or doing nothing much at all.

There’s even a name for it these days.

The Financial Independence, Retire Early (FIRE) movement

The FIRE movement is making more and more young Australians start to question exactly what it takes to retire early. Yet without winning the lottery or suddenly inheriting a fortune from a long, lost relative, how possible is it to structure your finances, so you never have to work again?

According to the Australian Bureau of Statistics, the average Australian retirement age is just 55.4 years[1]. This makes it seem that early retirement is somewhat the norm for Australians. However, this number is dragged down by partners who stop work while their spouses support them financially, and people forced into early retirement by redundancy or medical issues.

So, how plausible is it to stop working sooner rather than later?

The answer depends on how soon you start setting goals and saving for your retirement. Also the type of retirement you dream of, where you are hoping to live, and whether you have children or other dependents you need to support. It’s also more achievable if you can structure your life so you are still earning at least some income, whether from a positively geared investment portfolio, a hobby or something you love doing and would do anyway.

The Association of Superannuation Funds of Australia (ASFA) currently suggests a couple who own their own home require $62,000 a year ($640,000 in savings)[2], to enjoy a comfortable retirement in Australia. At the other end of the scale, some people are eager to retire overseas, to a country such as Indonesia, where living expenses can be a fraction of what they are in Australia.

The key to deciding whether you can retire early depends on just how determined you are to achieve it.

You need to think through your lifestyle requirements and work out if you need a simple caravan and campsite in rural or regional Australia, or whether you want a five-bedroom home in leafy metropolitan suburbia. You’ll also need to make sure your retirement savings are invested in quality assets that will continue to generate a strong, consistent level of income.

As your financial planner, we can help you with this.

A good tip is to keep your options open and your job skills up to date, in case you have a change of heart and decide you do want to go back to work, even if only on a part-time basis. In fact, you might be better off taking what is increasingly referred to as a mature age ‘Gap Year’ and try out what it’s like living overseas or spending all day on the beach before you quit your job.

While being permanently retired and free to live each day as you choose does sound wonderful, and it’s still important to set yourself goals while in retirement. As always, the earlier you start setting goals and putting financial plans into place to achieve your early retirement dreams, the better.

Here at Endorphin Wealth, we are not licensed or owned by the big banks and financial institutions, so the advice we provide is always in our client’s best interests. We have the advantage of being able to access a range of products from different providers that can be tailored to our client’s goals and needs.

For an obligation free conversation about your financial future, please contact us on 03 9190 8964 or at advice@endorphinwealth.com.au

 

[1] https://www.abs.gov.au/statistics/labour/employment-and-unemployment/retirement-and-retirement-intentions-australia/latest-release

[2] https://www.superannuation.asn.au/resources/retirement-standard

Endorphin Wealth welcomes Christine Webb

We are excited to announce that Endorphin Wealth has expanded the team in the Melbourne office – welcoming Christine Webb. Christine officially joins us as our Support Team Manager, having over 6 years of experience in the financial planning industry.

Christine has also completed her Diploma of Financial Planning with Kaplan Professional.

My experience in the financial planning industry ranges from working in boutique firms to large organisations.

I enjoy building relationships with clients and I look forward to working with the team to ensure we provide the highest level of support for a superior client experience – Christine Webb

Christine Webb

Christine has already impressed us with her ability and dedication to helping Endorphin Wealth provide goal-based advice to our clients. See below Christine’s email. If you would like to find out more about the services Endorphin Wealth provides, please contact us via phone (03) 9190 8964 or email advice@endorphinwealth.com.au.

chris@endorphinwealth.com.au

Endorphin Wealth welcomes Matthew Wallder

We are thrilled to announce that Endorphin Wealth has expanded the team in the Melbourne office – welcoming Matthew Wallder. Matt officially joins us as an Investment and Compliance Officer, having initially worked as a financial intern.

Matt is currently studying a Bachelor of Commerce at Monash University with a specialization in finance.

I enjoy assisting the advisers to provide advice to our clients, and find it rewarding seeing the positive impact it has on our client’s lives

My key interests in my studies so far are financial advisory, portfolio management, securities trading and corporate finance – Matthew Wallder

Matthew Wallder

Matt has already impressed us with his ability and dedication to helping Endorphin Wealth provide goal-based advice to our clients. See below his LinkedIn profile and his email. If you would like to find out more about the services Endorphin Wealth provides, please contact us via phone (03) 9190 8964 or email advice@endorphinwealth.com.au.

Matthew Wallder

matt@endorphinwealth.com.au

2021-22 Federal Budget

Federal Budget Summary

On the 11th of May, treasurer Josh Frydenberg delivered his third and maybe his most important federal budget. Australia has emerged from the pandemic relatively unharmed. This year’s budget aims to reinforce that resilience through economic growth and stimulation.

Referred to as the ‘pandemic budget’, this year’s federal budget saw major changes around aged care, health, infrastructure, tax changes and superannuation shifts. These changes are made with the goal of reducing tax strain for individuals and businesses. As a result, it aims to drive down unemployment and support consumer confidence.

Please see our summary below on some of the key highlights, if you have any questions, we are happy to help!

 

Tax Flexibility and Clarity

  • Low and middle-income tax offset (LMITO) is to be kept for 2021/2022. The LMITO is a tax rebate of up to $1,080 offered to low and middle-income earners. Taxpayers with a taxable income of between $48,000 and $90,000 are eligible for the maximum offset of $1,080. Those with taxable income of between $90,000 and $126,000 are also eligible, on a reduced scale.
  • Also, Taxpayers will now be able to self asses the effective lives of certain intangible depreciating assets. This includes items such as patents, registered designs, copyrights, and in-house software.
  • In addition, the government will provide capital funding to the ATO to build an online system. It’s goal will be to increase transparency and reporting clarity for not-for-profits claiming income tax exemptions.
  • From 1st of July 2022, corporate income derived from Australian medical and biotechnology patents will be taxed at a concessional effective corporate tax rate of 17%

Josh Frydenberg delivering the 2021-22 Federal Budget in Government house

 

Aged Care Security

  • Access to lump sums under the pension loans scheme. This is a reverse mortgage type loan provided by the government, designed to assist retirees to boost their retirement income. This will be done by unlocking equity in their Australian property. Older Australians can receive regular fortnightly payments, with payments accruing as a debt against their property.
  • In response to the Royal Commission into Aged Care Quality and Safety, the government is investing $17.7 billion over the next five years to improve the aged care sector.
  • Further, a new star rating will be implemented. This will allow aged care recipients and their families to compare aged care providers on performance, quality, and safety.

 

Superannuation

  • The downsizer contributions age has been reduced from 65 to 60. This will allow an after-tax contribution of up to $300,000 per person when the family home is sold.
  • Also, this year’s budget removes the current $450 per month minimum income threshold. These workers will now have Superannuation Guarantee paid by their employer.
  • In addition, from July 2022, individuals up to the age of 74 years old will be allowed to make or receive non-concessional or salary sacrifice super contributions without meeting their work test.

 

For further information check out the following links:

Budget.gov.au | 2021-22 Budget

 

Here at Endorphin Wealth, we are not licensed or owned by the big banks and financial institutions, so the advice we provide is always in our client’s best interests. We have the advantage of being able to access a range of products from different providers that can be tailored to our client’s goals and needs.

For an obligation free conversation about your financial future, please contact us on 03 9190 8964 or at advice@endorphinwealth.com.au

Ethical Investing For Your Financial Future

Ethical investing is being driven by the growing awareness and acceptance of climate changereducing water sources and other sustainable issues. As such, there has been a significant shift over the past decade in investor preferences towards ethical investing. This trend has been seen across all types of investing, including managed funds, development projects and other sectors such as R&D 

Ethical investing does not lead to lower returns

Ethical investment options are increasing in number as well as in profitability. Millennials have been observed as the group who is pushing the strongest towards responsible investing. They will make up most of the workforce in Australia in the next couple of decades. As time passes, they will gain more influence in market movements and project developments.  

There is a misconception that an investor gives up some of their returns when ethically investing. This is not true. Returns on ethically invested share funds over the decade have produced an average return greater than 6% per annum (up to 2018). See here for a list of high-performing ethical investment funds. One reason for this is that countries are shifting to more environmentally friendly and renewable solutions. As this occurs, ethical companies are able to gain access to more projects which allows them to make more revenue.

Sectors are moving towards being more ethical

Lately, housing development has been placing greater emphasis on its impact on the social community. Investors are looking at contributing to the community and avoiding creating problems. As a result, developers have shifted towards creating projects that consider these preferences. Similarly in R&D, technology and other sectors, sustainable and ethical incentives are driving the industry. In developing and emerging markets there is a growing acceptance of this fact.  

Ethical practices undertaken by these developers and companies are often well ahead of their regulatory bodies. As regulations change or become more ethically centralised, these companies do not have to adapt as much as other companies. Therefore, this shows the value of proactive business strategies. As such, this makes them more profitable in the long run too.  

But what does this mean for you? Nothing, or everything! Your investment preferences are your own. It is important though to know that having ethical preferences does not limit your returns. Our team at Endorphin Wealth are here to help assist you achieve your lifestyle and financial goals. We ensure that you are happy with where your wealth is invested. Feel free to contact one of our advisors who can help work with you to achieve this.   

The team at Endorphin Wealth Management is here to help you achieve a positive outlook on your financial situation.

For an obligation free discussion, call us on 03 9190 8964, or schedule a meeting at endorphinwealth.com.au/contact/