There are many strategies to choose from – so which one is right for you?  Even the best strategies can have hidden flaws.  What are the risks to you and your family?  We help you navigate the world of investing, borrowing and negative gearing to ensure you are on the correct path at all times.

Planning to create wealth

Many of us dream about our futures and what we want our lives to become. However, in order to achieve these aspirations, it’s important to set goals to determine a path forward.  Every person has different priorities; for some it may be saving for Retirement or providing for a child’s education, while others may be lifestyle based, such as an annual holiday.  Regardless, the best way to succeed is to have a plan in place and remain focused on your objectives.

Set a timeframe

Whether you have 5 years to achieve your goal or 30 years, it’s essential to have a fixed timeframe.  The amount of time you have available will determine the strategies undertaken and the amount of risk that is appropriate for you.

Quantify

If your aim is to save for Retirement – ensure you have a figure to strive towards. Otherwise, tracking your progress is impossible.  Create specific parameters within your goal and follow these.

Monitor

It’s important to evaluate your progress on a regular basis to ensure you are still on track.  If you are easily achieving or struggling with your targets, they may require some changes.

Adjust and Adapt

We all know life is full of surprises and on occasion goals will need to be revised; this is an inevitable fact of life and a normal part of planning.  The crucial factor is being able to alter your objectives appropriately and remain on track.

Planning ahead is an ongoing process.  Ask yourself…

1. How soon do you need to reach your financial goals?
2. How great a fall in the value of your investment funds could you cope with, and for how long?

Gearing and Wealth Creation

Financial Planning provides direction and meaning to your financial decisions, especially in relation to Superannuation and Retirement Planning. It allows you to understand how each decision you make affects other areas of your finances.

Gearing is simply borrowing money to invest.  The borrowed money can then be invested in several ways to help with your overall Wealth Creation strategy.  With more money working for you, the potential return may be increased.  Gearing can also be a tax effective strategy, as the interest on borrowings for investments is usually tax deductible.

Two common Gearing strategies include:

• Margin Lending: Margin Lending is borrowing to invest in shares or managed funds using your existing cash, shares or managed funds as security.  This increases the amount you have invested, which in turn increases your potential returns.  Borrowing to invest with margin loans can be a simple, tax-effective way to build wealth.

• Negative Gearing: This is when your borrowing costs (interest, fees, maintenance, repairs etc) exceed the investment income produced.  If you are on a higher tax bracket, this can provide valuable tax advantages.

Is Gearing the right strategy for you?

Borrowing to invest is for experienced investors. It may be suitable if:

• You have adequate cash flow to service any borrowing commitments;
• You are in a higher tax bracket and the tax benefits are attractive; and
• You understand and accept the risk of an unpredictable market and future.

Risks of Gearing

The risks associated with Gearing can mean it is unsuitable for some investors. It’s important to consider these risks and it is highly recommended to seek Financial and Taxation Advice before undertaking a Gearing strategy.

There are a number of measures you can take to minimise the risks of Gearing:

• Do not over commit. Only borrow as much as you can comfortably afford to repay.
• Diversify your investments.
• Invest in quality growth Assets.
• Ensure your strategy is consistent with your risk profile.
• Invest for the long term to give your investments sufficient time to generate capital growth.
• Insure your salary to prevent the need to sell your investments due to unexpected life events.
• Fix your loan interest rate to protect your cash flow should interest rates rise.