Millennial investors are some of the luckiest investors in Australia. The spread of investment options millennials have is incomparable to all generations that came before them. If you’re just starting your wealth creation journey, an experienced ANIG WM financial advisor can provide guidance and advice, and help you start investing the right way.

 

Millennials have the option to choose to be investing their superannuation savings in the traditional style retail or industry fund way of investing. They can have their superannuation savings investing in an SMA structure. SMAs give millennials unimaginable options with the ability to invest in direct shares, ETFs, managed funds, and others. 

 

Millennials are tech-savvy and can choose to shop around for the right superannuation or SMA provider that gives them significant cost savings. There is real-time investment reporting and they have access to view their portfolios 24/7 from their mobile devices. This access promotes accountability, competition and transparency as most money managers are aware, they are regularly being reviewed by their investors. 

 

Millennials investing can take out sufficient levels of personal protection plans and lock in their insurance premiums at rates investors ahead of the age curve can only imagine. Millennials are living in a low-interest-rate environment. It gives them the option to take on a reasonable amount of investment risk for wealth creation. Millennials can utilise savings or home equity from loved one’s assets for their first mortgages or investment assets. With advice, we believe millennial investors are well-positioned to make the most out of their limited resources. ANIG Wealth Management provides specialist advice to our millennial clients and investors and below are some of the frequently asked questions by them.

ANIG Wealth Management is a licensee and wealth management firm focused on managing and growing the wealth of non-institutional investors and retail clients. 

 

You have spent a lifetime working to secure your financial future. ANIG WM’s wealth creation strategies, debt structuring, and tax mitigation solutions can help protect and grow your available resources (superannuation and non-super assets) and provide the confidence and peace of mind you seek from your advisers and wealth management firm. We share a common goal with all our advisers and through our personalised and comprehensive investment and wealth management solutions, we are your single source of solution to all your retirement planning questions. 

 

Our point of difference?

 

Holistic – With wealth comes complexity, so our holistic approach to financial advice and investing begins from understanding your set immediate and long-term objectives. Our processes are to ensure we are strategising to deal with your unique and ever-evolving circumstances for your immediate and long-term peace of mind.

 

Direct ownership – Owning our AFS license allows us to independently think about our strategies and clients’ wellbeing without any institutional agendas. We can reduce/cut unnecessary costs, and our clients/advisers are well-positioned to be investing direct using their preferred asset classes of equities, fixed interest, and direct property-based investments. 

 

Customisation – We have a flexible approach to portfolio construction. Your portfolios are customized to your set security level and unique investment risk profile to provide you the confidence you seek and peace of mind. 

 

Accessibility – You will be under the management of your adviser/AR/CAR. You will have direct access to your adviser/AR/CAR and also your investment managers. We provide 24/7 access to your portfolio, so you can always be evaluating our performance. 

 

Tax-effectiveness – We focus on the after-tax returns to stem or reduce your cash outflows and promote wealth preservation. With investors opened to sound advice, we are comfortable using investment vehicles like Superannuation, SMAs, SMSF, Family Trust, and other tax-effective vehicles to reduce the tax impact on your investment returns and future capital gains

 

Exclusivity – Given we are a non-aligned firm, we can apply a diverse range of investment solutions, and you will have access to exclusive investment opportunities that would otherwise not be available to you in a product-based market. 

The amount of cash flow an investor can put towards a mortgage repayment depends on your salary. The 28/36 rule is a general rule for calculating the amount of debt an individual or household should take on. The 28/36 percent rule is to guide and prevent investors from taking on higher debts that could cause them financial stress. 

 

The rule states that families or individual’s total household expenses should not exceed over 28% of their gross monthly income. Also, 36% is the maximum you can spend on servicing total household debts, including housing and other loans such as cars, personal loans and credit card debts. Most lenders apply these rules in assessing investors borrowing capacity on the assumption that anything outside these parameters can be difficult to sustain by an individual or a household. 

 

Mortgage stress is when your mortgage repayment is over 30% of your pre-taxed income. Therefore, if your mortgage repayments are over and above 28% of your gross monthly income, then you may be heading into a mortgage stress territory. 

Super investing can provide superior tax savings over other investment vehicles and family trusts. However, the investment will not be accessible until the investor reaches a condition of release (for example, their preservation age) making super investing a long shot for investors in their 20s and 30s. With wealth generated through a family trust, the investments are easily accessible and the beneficiaries of the family trusts can easily access income from such investment. In the right circumstances, a family trust can be a tax-effective vehicle for investing or operating a business.

Before making any decision, note that there may be alternative structures suitable for your circumstances. A specialist adviser can help you evaluate the pros and cons attached to each vehicle, and a good adviser can help you navigate through this. Talk to us and see how we can help.

Separately Managed Account (SMA)

An SMA is a portfolio of assets for retail investors managed by a professional investment manager. An SMA is different from superannuation that gives retail investors access to a single asset class such as fixed-interest, Australian and international shares, listed property-based investments, and diversified portfolios such as ETFs, managed funds, and managed accounts. ASIC is the regulator for SMAs. ASIC views SMAs as (IDPS) investors direct portfolio service or managed investment schemes.

 

Unlike superannuation, SMAs are not pooled investment vehicles and the investor is the owner of the underlying securities. SMAs are Managed Investment Schemes that are based on model portfolios with the minimum investments set at a relatively low level for a retail client. Another upside to SMAs is that it can be tailored to an investor’s goals and objectives. A retail investor can instruct their advisers to exclude or include specific assets or to participate or withdrawal from certain sectors or industries due to the investor’s personal preferences.

 

Some of the benefits advisers and investors say SMAs offer them includes simplicity, tailoring, cost-effectiveness, real-time transparency, responsiveness, control, and tax advantages. Most SMA Managers set up different parameters to protect their investors’ portfolios when managing the downside risk of their portfolios.

Different model portfolios carry different risks like all other investments depending on the underlying investments. All asset classes can experience periods of negative returns and it is, therefore, necessary to seek the services of an adviser who can guide you through all the different terrains of investing with your tailored portfolio. ANIG provides SMA investment advice and management services. 

 

The future of managed accounts is promising. The Institute of Managed Accounts Professionals (IMAP) estimates that about $60 billion is invested via managed accounts but acknowledges this may understate the true figure. Even so, IMAP estimates that growth will run at about 40 percent a year for at least the next two years, suggesting the managed account industry will grow to more than $115 billion by 2020. This could bring more innovation and competition in an environment where the retail clients get to benefit and be the judge.

 

Superannuation

The modern superannuation system was introduced in 1991 with the introduction of the Super Guarantee, which is a compulsory contribution system. Superannuation is defined by the ATO as a system where the money is placed in a fund to provide for a person’s retirement.

 

Traditionally, a super fund is a pooled fund where the fund manager invests its members’ money in assets such as shares, property, fixed interest, and managed funds. There are also different types of insurances such as life/death insurance, total and permanent disability (TPD) insurance, and income protection offered by super funds.

 

Most investors join super funds either based on their employer’s or friend’s recommendation. There is a super choice option, however, very few people make the effort to research and use them. Super funds are regulated by the Australian Prudential Regulation Authority (APRA). This is essentially every fund except for SMSFs and small APRA funds.

 

Super contributions are paid on top of your salary and wages and its generally 9.5% or more. Generally, your employer must pay super for you if you’re 18 years older or over and are paid $450 or more (before tax) in a calendar month, or under 18 years old, being paid $450 or more (before tax) in a calendar month and work more than 30 hours in a week. Superannuation advice and review is a big part of what we do here at ANIG and we can review and advise on the structure, investment and performance of your super fund and whether they are appropriate to you.  

Yes. An SMA can be used similarly to how you can use a traditional superannuation product. Similar to a self-managed super fund, your regular employer contribution can go into your SMA account. An SMA can be used as a superannuation vehicle or an investment vehicle or both. Where an SMA is treated as a superannuation vehicle, investors must note its purpose is to serve your retirement and is subject to the same treatment as super. Investors cannot access their funds for personal consumption until reaching a condition of release on their funds.

As an insurance advisory group, we can also provide advice in regards to insurance. If you have a
mortgage, any significant debt, and you’re working and earning an income, then
insurance is a necessity. If you have no mortgage, no asset, not expecting an
inheritance or family support of any form, and do not want to be dependent on
government support to get by in any critical event, then insurance is a
necessity. Do not say you have mortgage insurance as such covers are structured
differently from personal protection covers such as life/death, TPD, income
protection, and trauma insurance.

 

Millennials are
in a unique position when it comes to insurance. Most reservations most
experienced investors have about insurance are often associated with its higher
premium cost as the insurers risk is based on the insureds age and health
circumstance when determining their insurance cost and health risk exclusions
and premium loading. Younger investors are often considered healthy. Buying
personal insurances at this stage can be very cheap. Millennials can lock their
covers and premiums at a reasonable price.

 

The big-spending
items for millennials are often related to first mortgages, credit card debts,
and lifestyle possessions such as cars and others. Most younger investors are
not yet at their peak earnings. When you consider their lifestyle and financial
commitments, insurance is a necessity for them.

 

For an extra
level of protection, it is always advisable to go through an insurance process
under a personal advice basis where your circumstances, health, and existing
insurances through super all get considered. There are four main personal
insurances namely life/death, TPD, income protection, and trauma. By default,
you may have your superannuation come with a life/death and TPD insurance at
lower levels. It is a good start but, there are some associated features to
such superannuation policies that may not be suitable for your needs. Given
that you are young and potentially healthy, an insurance review and advice at
this stage can have long term financial benefits. ANIG can help you with your
insurance review and also help educate you about insurance and also structure
them in the most cost and tax-effective manner.

The property ladder is one of the most difficult to climb in Australia. There are limited options for people wanting to get into the market. For a start, there is the First Homeowner Grant (FHOG) scheme available to Australian citizens and people with residency status. There are certain eligibility criteria to meet and there is more information provided on this under our Home & Investing page. 

The first thought that comes to mind when planning to buy your first asset is to save or use savings to get that head start. Savings required is generally up to 20% of the purchase price of the asset you are looking to purchase. There are some lenders willing to accept lower deposits but it may come with higher interest and lenders mortgage insurance (LMI). Based on the purchase price and the state you may be acquiring the asset, there may be stamp duty discounts or exceptions applied. 

 

All things being equal, there is a common trend where some parents or loved ones have realised the challenges associated with relying on savings alone to a first mortgage. They have come to terms with that and allow their children to access home equity to start the journey. Such assistance helps saves time as inflation pushes up the entry price for properties in the country.

 

ANIG WM offer property advisory group services for Millenials. To assess all your options and advice on the best possible outcome, ANIG WM can discuss your circumstances with you and advise on your best possible option to have your first start. 

There are a few options available which include increasing your concessional superannuation contribution, borrowing to invest or using tax structures such as a family trust or an SMSF where possible. 

Salary sacrifice is a form of concessional contribution additional to the standard 9.5% employer super guarantee contribution made on your behalf by your employer upon the investor’s instruction. Salary sacrificing is generally the first tool to consider when thinking to boost your super savings. There are caps on the concessional contributions you can make each financial year as there is a penalty tax to pay when you go over. 

Borrowing to invest is possible if there is savings or equity than can be applied to support additional borrowing for investing. If the asset to be purchased is used for income-producing purposes then income to be generated on the asset will be tax deductible against your marginal tax rate if the investment is held in your personal name or to a super fund if purchased through a SMSF. You can apply borrowed funds to invest in direct property-based investments, shares, and other assets. If you’ve ever heard of negative gearing, you may understand the often-promoted idea about high borrowings for tax purposes. ANIG WM approaches borrowing for investing differently and we are happy to guide you through the process where an investor has the resources and is qualified to do so. 

Trust vehicles such as family trust (FT) and SMSFs can also be used for tax-effective investing. FT generally have beneficiaries receive the income associated with the investment. The taxes are paid by the beneficiaries at their marginal tax rate upon receipt of a family trust income. There is more to a family trust and there are several reasons for it to be appropriate or inappropriate for an investor. ANIG WM can guide you through that process when necessary.

If the objective is to reduce personal income tax, insurance such as income protection can be used to reduce an investor’s marginal tax rate if the investor has the cash flow to support it.

There are other tax-effective investment bonds and also vehicles such as a self-managed superannuation fund and even SMAs. There are more materials on SMSFs under our over 50 & investing page for your reference. ANIG WM provides tax-effective investment strategies and recommendations and we are able to help you explore further where it is identified such advice could help improve your finances.

There is no right age to start thinking about your long-term financial wellbeing. An investor’s only constraint is money or resources and time. Where there are sufficient resources to consider SMSF and investing it’s always advisable to explore the possibility.

The minimum balance ANIG WM will consider for an SMSF advice is $200,000. At such balance, it can be cost-effective to run the vehicle. It can be combined or be for one investor. A self-managed super fund (SMSF) is a tax vehicle that allows investors to invest in a tax-effective environment. Currently, an SMSF is the most tax-effective structure in the country.

It offers investors total control of their superannuation assets, and you can have exposure to direct assets classes of fixed interest, shares, and property-based investment. It can be used for ETFs, managed funds, and other opportunities. In the right situation, an SMSF allows you to hold direct real estate investment. Where it is used for investing in Australian equities, SMSF can help reduce the amount of tax paid by the fund as they receive franked dividends and offsetting the attached imputation credits against the fund’s taxation liability. 

An SMSF is a lower tax vehicle that operates on a fixed cost basis. The highest tax applied to an SMSF is 15%. Capital gains tax (CGT) is capped at 10% for assets held over 12 months. The services of a qualified adviser can play a key role in guiding you to understand what the vehicle is, how that could potentially benefit you, and also your trustee obligations to ensure your SMSF remains compliant.

Contact ANIG Wealth Management and see how we can help.

To focus on paying down a mortgage quicker, we first have to understand your cash flow and budget to have a clear indication of where your money goes. This exercise can reveal to homeowners’ insights about your finances that can be managed and used to create some surpluses that can be reapplied to the mortgage or investing. Investors should be discriminating between bad debt and good debts and should try not to use home equity for non-capital and non-income producing purposes.

Where we identify resources possible to invest, we can base on your set goals and objectives and work out a strategy to create a second or third income to create a relief. All surpluses from the income we can generate from the investments as in a combination of shares, properties and fixed interest can help to pay off your mortgage quicker.

The ATO estimates as at 30 June 2019 that there was $20.8 billion in lost and unclaimed super across Australia.

 

Running multiple super funds is a common problem. The multiple accounts incur different fees and expensive to run. As such, organising a super search is necessary as consolidating into one account will help save the fees paid to multiple fund managers. In the best case, you can review these superannuation products and use the one that best suits your needs. 

 

ANIG WM can help you with this process and help you find, review, and consolidate these funds to help support your wealth creation objectives. Click the link for more information on: Lost and unclaimed super by postcode

There is no right age to start planning and safeguarding your assets.
Millennial Investing