Jacqueline Barton

Retirement can be a time of immense freedom and opportunity, but it’s important to remember that it’s also a major life transition. While it’s important to focus on what you want to do during retirement, it’s equally important to be aware of what you shouldn’t do.

Here are a few things to avoid when you retire[1]:

1. Don’t overspend: It’s important to remember your financial situation during retirement. While you may have more free time and fewer financial obligations, it’s still important to budget and plan for the future.
2. Don’t isolate yourself: Retirement can often lead to reduced social interaction, which can be detrimental to both physical and mental health. Staying connected with friends, family, and the community is essential.
3. Don’t stop learning: Retirement provides an excellent opportunity to pursue new interests and learn new skills. By staying intellectually engaged, you can keep your mind sharp and continue to grow.
4. Don’t neglect your health: While retirement can provide more free time for exercise and healthy habits, it’s important to continue to prioritise your physical and mental health.
5. Don’t lose your sense of purpose: Retirement can often lead to a loss of identity and purpose. It’s important to continue setting goals and pursuing meaningful activities to maintain a sense of purpose and fulfilment.

By avoiding these common mistakes, you can make the most of your retirement and lead a happy and fulfilling life.

[1] https://retirementtipsandtricks.com/how-to-structure-your-retirement-day/

Ever glanced at a list of different managed funds and wondered why some have remarkably low fees compared to others? Chances are, the ones with lower fees are index funds, also known as passive funds, while the higher fees are generally associated with active funds.

Over the last couple of decades, index investing has become increasingly popular, with big players like Vanguard and Blackrock managing trillions of dollars in assets.

Before we dive into the reasons and consequences of this trend, let’s break down the two main investment styles[1]:

• Active Investing:
  • Involves investment managers or private investors analysing securities, forming opinions on their value, and deciding which securities to include in the portfolio.
  • Investors pay fees for the fund manager’s expertise.
• Index Investing:
  • Builds a portfolio to mimic an index, like the ASX200 or S&P500.
  • Portfolio holdings mirror the securities and weightings of the relevant index.
  • Changes to the portfolio occur during set intervals or due to events like mergers.

So, why has index investing gained so much ground?

1. Lower Fees:
   • Index investments generally have much lower fees compared to active investments.
2. Performance Challenges:
   • Active investments struggle to consistently outperform benchmark indexes over the long term.

1. • The S&P Index Versus Active scorecard (SPIVA) reveals that a significant percentage of active managers underperform the index, even after factoring in fees.

For instance, at the end of 2022, 58% of Australian General Equity funds returned below the index. Over 5-, 10-, and 15-year horizons, the underperformance proportions were 81%, 78%, and 83%, respectively[2]. Similar trends are observed in international equity markets.

While choosing index funds may seem logical, it’s essential to consider their underlying premise. Returns come from income (like dividends) and changes in capital value over time. However, for the latter to happen, there must be market activity – investors need to be trading shares. If everyone exclusively invested in indexes, the market would cease to exist.

Index investing doesn’t screen shares, meaning investors get exposure to both ‘good’ and ‘bad’ companies. Also, there are no exclusions based on environmental, social, or governance (ESG) criteria, which some investors prioritise.

In the active versus index debate, there’s no clear right or wrong. Many investor portfolios combine both approaches. Index funds or Exchange Traded Funds (ETFs) are often used for broad exposure, while active investment may be reserved for specialised exposure, such as smaller companies, property, or infrastructure.

Regardless of your choice, whether active, index, or a mix of the two, the fundamental principles of investing still apply: diversification and time in the market are key to building long-term wealth.

[1] https://www.morganstanley.com/articles/active-vs-passive-investing

[2] https://www.spglobal.com/spdji/en/documents/spiva/spiva-australia-year-end-2022.pdf

Personal concessional contributions are contributions into your superannuation fund from your pre-tax income and are tax deductable. Your concessional cap is the maximum amount of before-tax contributions you can make to your super each year without penalties and includes mandatory contributions made by your employer, amounts salary sacrificed by you and personal deductible contributions.

If certain requirements are met, unused concessional cap amounts from previous years can be carried forward for up to five years. The 2023/24 financial year is the last opportunity to use any unused concessional contributions cap from the 2018/19 financial year.

Carry forward super contributions

Carry forward super contributions are for before-tax contributions, enabling you to make up for past years when you may not have utilised all your concessional contributions cap. Broadly speaking, personal concessional contributions reduce your taxable income and tax payable.

To be able to carry forward super contributions, you need to be under age 67 (or under age 75 if you have met the work test requirement), and your total super balance needs to be under $500,000 at the previous 30 June. You can use MyGov to check your total superannuation balance on previous 30 June and to find out  the amount of unused concessional contributions cap that is available to you.

When determining the amount of unused cap available for the current financial year, consider any future concessional contributions you or your employer intend to make for that year.

It’s also important to remember that you can’t access your super until you meet a condition of release, such as reaching preservation age and retiring or attaining age 65.

To use up carried-forward concessional cap amounts, you may want to make salary sacrifice or personal deductible contributions to super. Carry-forward contributions can help to reduce your taxable income for the year in which you make them. The strategy may be beneficial if you are a middle to high income earner or if you have realized large capital gains by selling down certain assets in the financial year. If carefully planned, the strategy can result in potential tax savings.

Contact us if you’re unsure about whether you’re eligible or if you have any other questions about how to make the most of your super.

Saving for a house? You know how it goes; cut back on dinners out and weekends away, and as for that overseas holiday – forget it! Getting a deposit together while paying rent feels like putting your life on hold.

But does it have to?

Imagine travelling the world without accommodation costs. Now, imagine living in Amsterdam! Outback Queensland! Upstate New York!

Welcome to the world of house-sitting. In recent years, house-sitting has emerged as a cost-effective, and adventurous way of seeing the world while saving.

How does it work?

• Join a reputable online platform such as TrustedHousesitters[1] or MindMyHouse[2].
• Complete the profile questionnaire about:
  • who you are,
  • your occupation,
  • experience caring for animals,
  • hobbies,
  • references.
• Search the platform’s listings for opportunities where and when you want to travel. Having identified a suitable match, you and the homeowner communicate and agree on the terms.
• Make your way to the property and complete the house-sit. Homeowners provide a handbook of emergency contacts, local shops, restaurants, activities, and much more. Some even include the use of a car. In exchange, you mind the property and care for pets. You might also be asked to perform other tasks like watering gardens, collecting mail, etc.

Pros of house-sitting

Besides living free of rent and utilities costs, house-sitting offers benefits like:

• living in residential neighbourhoods and enjoying life as a local.
• pet companionship.
• flexibility of travel destinations and dates.

• experiencing different cultures and lifestyles.

Think it sounds like a win-win? Read on…

Cons of house-sitting

When considering house-sitting, be aware of the downsides, such as:

• Commitment: house-sitting is not a carefree holiday. You’re responsible for someone else’s property and pets. You’ll be expected to manage any problems that arise, including pet health issues.
• Duration: assignments may range from a few days to a couple of months. If you can’t commit to the entire stay, you must be upfront with the homeowner before accepting the assignment.
• Calendar: assignments generally don’t connect seamlessly; ensure you have alternative accommodation between house-sits.
• Have a Plan B: assignments cancelled or changed at short notice can disrupt your travel plans. Flexibility, including alternative accommodation, is essential.
• Competition: popular locations can attract interest from numerous house-sitters. Homeowners will select the house-sitter they feel is most suitable for their assignment.

House-sitting, as a ticket to experiencing an inexpensive and varied life, speaks for itself.

If you can work from home, love interacting with animals and are keen to travel, how much could you save towards your own home if you didn’t have rent or utilities bills?

What if you chose a house-sit close to home? Think: no travel costs, continue working as normal, staying close to friends and family. How quickly would your savings grow, then?

House-sitting may well be the financial opportunity you’re seeking!

[1] www.trustedhousesitters.com

[2] www.mindmyhouse.com

More than just a buzzword thrown around by the media, a recession represents a significant decline in economic activity that can span months, even years. Think of it as the winter of the economic cycle – it can be cold, challenging, but it is not permanent.

A recession is often marked by tangible shifts in key economic indicators such as Gross Domestic Product (the market value of The country’s final goods and services produced in a specific time period), employment, income, and consumer spending. From high inflation rates to increased consumer debt, reduced spending, or global events like pandemics, various factors can set the stage for a recession. You might be thinking… “Yeah, but what could a recession actually mean for me?”.

So, let’s delve into the heart of a recession through the experiences of Sarah, a young urban professional. Fresh in her career, Sarah was excited about her prospects. But as the first whispers of a recession began, she noticed subtle shifts in her surroundings.

The Job Landscape

Sarah’s colleague, James, was a vibrant professional, always the first to arrive and the last to leave. But, as the company grappled with the economic downturn, James, along with several others, faced reduced working hours.

It’s a common scenario during recessions. Companies, in a bid to cut costs, might reduce hours or even lay off employees, which can lead to income instability for many households.

Consumer Confidence

Sarah’s weekend shopping sprees with her friends became less frequent. The group, once carefree spenders, now considered every purchase. Dinners out became home-cooked meals, and the latest gadgets…well, they could wait.

The uncertainty of a recession often makes consumers hesitant, especially when it comes to non-essential items. This pullback in spending can further exacerbate the economic downturn as businesses see reduced revenues.

The Housing Market

One evening, Sarah overheard a conversation at a local café. A couple discussed the challenges of selling their home in the current market.

Recessions can lead to decreased property values, making it a buyer’s market. And with many struggling to meet mortgage payments, homeowners could be forced to sell or be placed into foreclosure. It could be argued right now, that in many Australian cities there is high demand for properties, and not enough stock on the market, which could impact whether property values decline.

Small Business Challenges

The café itself, a favourite haunt for Sarah, faced its struggles and eventually had to close its doors.

Small businesses, often operating on tighter margins, can find it challenging to weather a recession. They might not have the financial reserves of larger corporations, leading to potential closures.

Credit Constraints

Dreaming of buying a new car, Sarah approached her bank for a loan. But she found that the criteria had become much stricter with banks tightening their purse strings.

During recessions, banks and financial institutions might become wary of lending, making it harder for consumers and businesses to access loans or credit.

Stock Market’s Unpredictability

Sarah’s parents, nearing retirement, watched as their investments fluctuated. The stock market often experiences high volatility during these times, impacting investments and retirement accounts.

For many of us, these scenarios might sound all too familiar, having lived through job uncertainties, shifts in spending habits, and market volatilities during the most recent recession triggered by the COVID-19 pandemic. But here’s the silver lining. Recessions, while challenging, also offer lessons in resilience and adaptability.

Sarah, for instance, honed her budgeting and spending management habits, networked more, and used the time from her reduced working hours to explore entrepreneurial ventures, diversifying her income sources. By understanding the intricacies of a recession, you can be better prepared to navigate its complexities, ensuring they’re in a stronger position to face economic uncertainties.