COVER STORYWHERE TO INVEST $200PW OVER 5 YEARS
- RETIREMENT
WEALTH
T
he pre-eminent savings vehicle
for retirement is superannuation.
However, there will soon be
more limited caps on how much
you can contribute. For example,
the concessional (before tax) cap will be restricted to
$25,000 a year for everyone from July 1.
I now encourage even younger clients to consider
salary sacrificing to super earlier rather than later. It is
now harder to catch up with later contributions. Another
limit is that non-concessional (after-tax) contributions
will be limited to $100,000pa from July 1.
Yes, it may take a little longer to pay off your home
loan but the tax benefits in super will outweigh that.
Also there is a real chance that many people simply
won’t have enough to retire on if they focus too much
on their home loan and not enough on super growth.
Our taxation system and the benefit of leverage from
borrowing to invest in an investment property means
that many people (including me) have benefited from
the growth in residential real estate. But new investors
need to be aware that negative gearing could well be
removed by a new government, and this could affect
your property’s value, at least in the short run.
Grow th assets such as sha res should be pa rt of most
portfolios. One of the great risks for clients is living too
long – longevity risk – and if you don’t have enough
growth assets your retirement wealth may run out
before you do. This goes for money held in super as
well as outside it. When you’re about to retire, your timeframe should not be the two or three years to
reti rement but the next 20 or so yea rs that you
or your spouse will be living.
So where are we going to put your extra $200pw?
We believe in “evidence-based investing”. And that
has led us to an investment company called Dimen-
sional Fund Advisors (DFA). Originating in the US
but in Australia now for many years, DFA bases itself
on academic research. Indeed, its advisory board had
been chock-full of Nobel Laureates (in economics, of
course!). When I got my master of applied finance in
1993, the core of our studies was based on the work of
these academics.
DFA focuses on things such as:$63,055Periods (52 weeks for five years)RETIRING EARLY0 50 100 150 200 250Balanced investment return over 5 years*
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0* Contributing $200pw and assuming an average return of 7.63% and no taxSTORY
STEVE^
GREATREX