It’s a good time to remind ourselves that superannuation is not an investment – super is a tax and legal structure to create an income in your retirement.

Superannuation is a government regulated way to boost long term savings with generous tax concessions, as the mainstay of your retirement nest egg alongside your home. Your employer has to contribute 9.5 per cent of your wages into a complying super fund, and these contributions are taxed at 15 per cent, not the usually much higher marginal tax rate of your wages.

Once this money is in your account the earnings from the investment is taxed an average of 8 per cent. When you retire and draw down your lump sum, you pay zero tax on any earnings your investments then produce – another great benefit.

The price for all this is that once your money is in super, it is there until you retire.
The performance of your super really depends on the types of things (asset classes) you are invested in.

Growth assets like shares and property are more likely to produce shorter term fluctuations in their price.  History has shown that shares have performed in this group over the past 100 years. But to get these returns you must invest for at least 10 years to weather the volatility they can create. This requires discipline, calmness and the ability to stay focused on the long term result above the noise of today.

At the other end of the spectrum, putting your money in cash is a more stable. But when interest rates are low – as they are now – you risk losing your earnings to inflation. Generally you need to aim to produce an overall return from your super after tax and fees that is two per cent to four per cent a year better than inflation to enjoy a decent retirement. Adding in more than the regulated 9.5 per cent of wages is also required.

In between cash and equities, there are fixed interest investments such as government, corporate debt and property. They are more volatile than cash but don’t have the same returns as shares.

Where should your super be invested? Match your planned retirement length to the asset classes that will produce enough income for that time. For a 65 year old today this is at least 20 years.  In the past, people would switch to cash or fixed interest from any growth investments they held which is seemingly prudent but it is very dangerous as it maximises the impact of your number one risk. That risk is that you run out of money too early or have to live on much less than you would like.

A better way is to simply place one to two years of income into cash and bonds in a separate account. This means you have immediate living expenses covered for a few years, while your nest egg is growing and the price moves around in the short term.

The main point to remember as the super statements arrive: Super is not the investment, but you can actively manage your investment options within super to ensure you gain the best returns commensurate with your timelines.

If you would like  to contact Campbell Korff of  Yellow Brick Road Ballina go to: www.ybr.com.au/Branches/Ballina

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In your financial health check, your advisor will look at what your financial goals are, where you are now and help to start you on your journey to a secure financial future.

Contact our Ballina branch on 02 6686 6678 for your obligation-free health check and we can get you started on your path to financial freedom.

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With home loan interest rates at record – and expected to stay that way for a few years to come, Mark Bouris of Yellow Brick Road Management is surprised not more Australians are taking advantage of the situation.

I’m more than a little surprised by the results of a survey we recently completed. We reviewed the situation of one thousand Australians who’d obtained a home loan more than two years ago.

This is what we learned: 40 percent of those surveyed said they had never refinanced. Another 19 per cent hadn’t refinanced in over five years, six percent had refinanced four to five years ago, eight percent had three to four years ago and 10 per cent had between two to three years ago.

This is the situation: interest rates are at their lowest in over 50 years, yet 83 percent of Australians with a home loan have not refinanced in the past two years!

I find it hard to believe that so many people are avoiding action. The newspapers are full of stories about the historically low interest rates and the potential savings available to people with home loans.

It’s outrageous that people are still paying high interest when the opportunity to pay less is right under their noses. People take the time to drive to the cheaper grocery store just so they don’t pay an extra dollar for milk, yet when it comes to home loans they stick their head in the sand.

‘In effect, a failure to refinance to the best interest rate means

you’re just handing the banks extra money.’

Reserve Bank of Australia data shows the benchmark 2.0 per cent interest rate is significantly lower than the average of 5.13 per cent that Australians experienced between 1990 and 2015. The all-time peak was at 17.50 per cent in January of 1990.

Because of certain business practices, most bank mortgage rates have not reduced in line with official interest rate reductions. A typical 2010 loan may today be on a current variable rate of around 5.3 per cent, whereas rates are now available at around 4.8 per cent, or better.

Even allowing for fees and transfer costs, it is likely that those on a home loan secured a number of years ago could make monthly savings by switching lender.

For those who took out a home loan five years ago, the average rate after reductions would be 5.3 per cent. The potential savings on an average $350,000 loan with 25 years remaining could be thousands. For example, if you refinanced to a rate of 4.8 per cent, you would save $30,660 in interest over the remaining life of your loan.

There are lenders offering rates as low as 4.1 to 4.2 per cent, so your savings could be greater.
According to our survey, people avoided refinancing because they didn’t believe they’d save enough money, they thought the fees and charges would outweigh the benefits and they perceived the process to be too much of a hassle.

I just don’t buy this. With interest rates dropping to a low that no one in my generation would have thought possible, it’s crazy to not find out if you can save. If you don’t have the time or the expertise, speak to a mortgage broker and let them investigate a refinancing deal for you.

It’s also worth remembering that when interest rates do finally start edging up, those who already have the best home loan deals will have a natural buffer against interest rate rises.

At least our survey found that the younger generation are on the ball: 28 per cent of 25-34 year olds refinanced in the past two years compared with 13 per cent of 45-54 year olds.

Is this because young people are more internet-savvy and accustomed to comparison-shopping for the best price? Perhaps, and good on them.

If you’re in the majority and haven’t refinanced for years, let me leave you with this: a home loan is the largest monthly outgoing for most households, and if you’re paying too much – when interest rates are historically so low – you’re burying your head in the sand.

Mark Bouris is the Chairman of Yellow Brick Road Management.  If you want to contac tCampbell Korff of  Yellow Brick Road Ballina go to: ybr.com.au/Branches/Ballina

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I’m often asked to talk about financial affairs but I’m never asked about the people who avoid their financial future. They’re called The Avoiders. What do we know about them?

• they are approximately a quarter of the population
• 65 per cent of Avoiders are women
• only 7 per cent of Avoiders have an adviser
• they are stressed, anxious and overwhelmed about their finances
• they lack confidence to approach an adviser
• they procrastinate and feel out of control

These people are a big concern not only because of the number of them and their pending vulnerability in retirement, but because their predicament is sustained by their own inaction.

Could we be doing better? Can such a large and predominantly female cohort simply be ignored?

There’s always someone who wants the government to step-in, however the government has already done a lot for retirement savers: your employer has to contribute to your super fund, and there are tax concessions in super to allow your contributions to grow.

Governments can only do so much: Australians have to engage with their own financial futures.

If the description of Avoider fits you, and you’re feeling overwhelmed and stressed about finances, I have a simple message for you: ‘You can take control’. Start with a simple budgeting tool – it helps you understand where you are now. From here you can set goals and make decisions.

Most Avoiders could also benefit from financial advice, for information, direction and structure. Yet one of the elements of the Avoiders is their reluctance to call a financial adviser.

Mark Bouris, Executive Chairman of Yellow Brick Road.

Let’s look at the key myths that stop them from seeing a financial planner.

• “It’s too hard”. No it’s not. Financial planners clarify complex issues, and they can even be accessed through your super fund. Financial advisers specialise in repairing problems and planning for the future.
• “It takes too much time”. It takes a few hours each year. Once you’ve set a plan, the adviser does most of the administrative work.
• “I’ll get to it later”. If you’re procrastinating, you’re avoiding making decisions. The earlier you get started, the better your financial results.
• “I don’t have enough to work with.” Actually, the less you have, the more important it is to get assistance. Financial planning can significantly add value and most financial planning results exceed the costs of it.
• “They won’t be interested in me”. Everyday Australians are the ones who need a financial adviser. Financial advice can propel the average middle class Australian to the next level, with advice on debt management, savings, investments and retirement planning. An adviser can be someone you go to with questions.

One of the things we know about financial security is that the earlier you start and the greater your understanding, the better your outcomes. If you’re an Avoider, chances are you simply don’t want to take the first step. My advice: take a deep breath, pick up the phone and talk to an expert. Taking the first step could change your life.

If you want to contact Yellow Brick Road Ballina go to: ybr.com.au/Branches/Ballina

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Mark Bouris, Executive Chairman of Yellow Brick Road.

Mark Bouris is no stranger to wealth creation – after all he’s the man who’s best known as the founder of Wizard Home Loans.  He’s also no stranger to Byron Bay, and is actively involved in the local community.  Bouris is currently the Executive Chairman of Yellow Brick Road, a wealth management company whose goal is to give  families and small businesses access to quality financial advice.  Next Saturday August 16, you can go into your local YBR office and get some sound financial advice for free. 

It’s easy to look at a financial system and ask the government to make it fair. But what if our system was fair? What if the laws and regulations provided for an even playing field so everyone had an opportunity to build financial security for their family and create wealth for retirement?

Many people will tell you that Australia is indeed a land of equal opportunity. If this is the case, the responsibility is not only on the government to ensure we build private wealth, but on ourselves.

Lately I’ve written about the need for financial education in our schools, but we also have to educate ourselves as adults. Among other things, I’d like to see more people using advisers to make financial decisions.

Most working-age Australians do not use advisers, even though they are contributing to a mandatory superannuation system that puts a percentage of their earnings into a range of investments.

Research over the years shows us that no more than 40 per cent of Australians use financial advisers on more than a one-off basis. This is low when you consider that individuals really should carry the responsibility of funding their own retirements.

Advisers usually produce greater wealth for clients. KPMG Econtech’s 2009 survey found that Australians with advisers would save more than $1500 per year more than those without advisers. A person with an adviser, if they started at age 30, would be at least $90,000 better off by age 65 than a person who was not advised. Those with an adviser had more life insurance and Total & Permanent Disablement insurance than those without an adviser.

The Australian Securities & Investments Commission (ASIC) goes further. In its 2010 report into financial advisers, ASIC says access to quality financial advice is part of “confident and informed participation by Australians in the financial system.”

I agree with this assessment. I worry about uninformed Australians who lack the confidence for making decisions about investments, mortgages, insurance, superannuation and tax issues without expert advice.

There have been a few ideas floated on how to lift the use of financial advisers. One could be to make financial adviser fees tax deductible to a certain level. Another allowed advisers to give low-cost, basic advice. As far back as 2009 super fund trustees were allowed to give what they call intra-fund advice – financial advice to their own members.

Many fund managers have tried to introduce their members to the concept of advice.

My company is going one step further by launching an “Ask My Advice” Day in which our branches will open their doors for the day next Saturday the 16^th of August, 2014, so anyone can come in and ask their questions and get some advice for free. It’s in response to people telling me that they don’t take advice because of deep-seated concerns about cost, scale, mistrust and access, and the issue that hangs over the entire discussion: the lack of financial literacy.

So, this won’t be resolved on one day, but we can make a start and make Australians more informed and confident in their financial decisions. I’d love to hear your thoughts.

Mark Bouris

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