Financial News Articles

An introduction to managed funds

Managed funds may give you access to a broader range of investment types by pooling your money together with other investors. Find out how they work and if they’re for you.

If you want to diversify your investment portfolio and spread potential risk within and across different asset classes, sectors and geographic markets, you may find you’re limited by the amount of money you have available to invest.

By pooling your money together with a group of investors through something like a managed fund however, you may be able to tap into broader investment opportunities (such as infrastructure or overseas markets). This could help you to diversify your portfolio and thus reduce investment risk, while giving you access to professional fund managers who can make the buy and sell decisions for you.

What is a managed fund?

A managed fund pools multiple investors' money into a fund, which is professionally managed by specialist investment managers.

You can buy into the fund by purchasing units, or shares. The value of each unit is usually calculated daily, and changes as the market value of the assets in the fund rises and falls.

Each managed fund has a specific investment objective, typically focused on different asset classes and a specific strategy to achieve that objective.

For example, the investment objective of a fixed interest managed fund may be to provide income returns that exceed the return available from other cash investments over the medium term. The strategy to achieve that objective might be to invest in a combination of Australian and international government bonds.

Why invest in a managed fund?

There are three key advantages a managed fund may bring to your investment portfolio:

1. Diversification to reduce risk

By investing across different assets classes (and within different types of securities within asset classes), you can potentially reduce the risk of all your investments dropping in value at the same time. You can also balance different investment timeframes and income returns.

For example, investing $1,000 in a managed fund could give you exposure to 50 different company shares in an Australian equities managed fund. Investing that amount in 50 companies as an individual on the other hand, would generally limit you to companies with low share prices (and cost a significant amount in brokerage fees).

2. Expert fund managers

Selecting individual securities is time consuming and requires a lot of market knowledge.

Professional fund managers have access to large amounts of information and research and have the processes, platforms and skills in place to manage your money more effectively.

3. Reinvesting may bring compound return benefits

You can invest regular amounts into a managed fund, just like a savings account. Also, by reinvesting your fund’s distributions you could 'compound' your investment returns.

Effectively, any future interest payments will be a percentage of a growing amount. (‘Distributions’ are payments to investors of the investment income that a fund generates. This may include interest income, dividends, rent and capital gains from selling assets that have risen in value.)

Types of managed funds

When you’re comparing managed funds, look at the asset allocation to understand its risk profile and potential performance.

Income funds: Low risk of capital loss, focus on defensive, income generating investments such as cash and fixed interest.

Growth funds: Longer term (five plus years) investments, focused on capital growth rather than income and weighted towards securities and equities.

Singe sector funds: Specialise in just one asset class, and sometimes a sector within that class (such as Australian small companies).

Multi-sector funds: Diversified across a range of asset classes, with varied risk levels.

Index funds: Aim to achieve returns in line with a market index, such as the Australian All Ordinaries index by closely replicating the components of the particular index (also known as passive funds). These are usually low cost because the manager is simply mirroring an index rather than making their own investment decisions. (A market index or benchmark is a hypothetical portfolio of securities that represents a segment of the market.)

Active funds: An actively managed fund is one where the manager chooses investments with the aim of delivering a performance that beats the fund’s stated benchmark or index. Together with a team of analysts and researchers, the manager will ‘actively’ buy, hold and sell stocks to try to achieve this goal.

There are also multi-manager funds, which invest in a selection of other managed funds to spread your investments across different fund managers.

How do I choose a good fund manager?

Most fund managers have a particular 'investment style', so it’s important to feel comfortable with the approach of the fund manager you’re choosing.

This includes the processes that determine how they select companies or assets to invest in. Typically, they will be more inclined towards growth (seeking earnings growth potential), value (looking for share prices that may be undervalued) or 'neutral' (or 'core', a combination of growth and value).

How much will a managed fund cost?

Fund managers charge fees in different ways, so it’s important to read the Product Disclosure Statement before you make a final decision.

Usually, there are management costs and service fees that are charged as a percentage of the assets of the fund. The level of fees will vary depending on factors such as the type of assets being managed and whether it is active or passive.

Also, when you buy or sell units in a fund, brokerage and stamp duty costs may be covered by the spread (the difference between the buying and selling price).

Who should I talk to about managed funds?

A financial adviser can help you decide which managed fund may be right for your investment goals and risk profile and answer any questions you have about your investment options.

 

Source: CFS

The money conversations you need to have

Although it can feel uncomfortable, talking about money is a good thing. Get some help from the experts to start positive conversations and keep things on track.

Making money talk work for you

When was the last time you talked about money? You might struggle to remember. Your personal finances or debt position are hardly dinner party material but there are plenty of other reasons we don’t often talk about money.

Where our money behaviours come from

Our relationship to money is something that starts early. In fact, some research suggests that by age 7, our grasp of basic money concepts that influence our future money habits has already developed. But these habits can be changed to serve us better as we make our way through adult life.

The benefits of money talk

Whether you’re feeling good about your money situation or not, talking about money can feel really awkward. Comparison syndrome, envy, pity, shame or the tendency to brush uncomfortable topics under the carpet can prevent us from opening up, even to the people closest to us. For many, keeping our financial successes and failures private seems like the most natural thing to do. And that’s why it’s good to know there are big benefits to opening up about money. And as the saying goes, a problem shared is a problem halved. Sharing your feelings about money can not only improve your mental health, it can also have a positive effect on relationships. Being upfront, honest and on the same page about money can make your relationships stronger and prevent problems down the track.

Finding your sounding board

If the thought of chatting openly about money makes you squirm, a good first step is to create a space where you feel comfortable talking about your finances.

Finding someone with whom you can have a dedicated conversation about your finances – and your feelings about money – can make all the difference. And for some people, talking to a stranger or a therapist might be easier than family or friends. It doesn’t matter who it is. What matters is that you’re making progress and getting the ball rolling.

Once you’ve taken that first step, you may find yourself feeling that bit more comfortable bringing those conversations closer to home.

Keeping it cool and casual with friends

Money talk doesn’t have to be heavy or serious. There are ways to bring money out into the open in a social setting without making it a big deal.

Those who care about you want you to do well. Sharing your financial goals with friends can keep you accountable, but it’s also a great way of enlisting supporters to cheer you on. So, if you’re saving for that house deposit, they’re more likely to come up with activities that don’t break the bank. For example, getting together for a BBQ instead of going out to lunch.

Lessons from the “R U OK” movement

There’s a lot to be learnt from the “R U OK” movement which is designed to bring mental health conversations to the forefront. Once a taboo topic, talking about mental health has become far more common and the same idea can be applied to money worries.

The “R U OK” movement has reminded us about the importance of asking questions when we notice something isn’t quite right. If you know someone is struggling with money, asking helpful questions can make a big difference. And once you get those conversations going, you could find that the same level of support comes back to you.

Bringing financial honesty to your relationship

Financial honesty is fundamental to any successful relationship. Whether you’re at the start of a budding romance, or have settled down with a partner, having honest and transparent conversations about money is crucial. But it’s not always easy, especially if you’re used to keeping quiet about money matters.

If talking about money is new to your relationship, setting up a space of no judgement is really important. You need to know you can talk about your credit card debt or unpaid bills in a caring and understanding environment. That might mean asking the question, “Am I OK to talk about this?” first.

The sooner you and your partner have all your money ‘cards’ on the table, the sooner you can get on the same page about your priorities and goals for the future. Having a shared vision for your finances will only make your relationship stronger and having more regular money conversations can help.

3 tips to start a money conversation

Whether you’re bringing up money matters with your partner or family, a few simple strategies can help.

1. Set up a money meeting

Catching your partner or family off guard with a serious conversation about money is never a good idea. If they don’t feel prepared or in the right head space, your good intentions could backfire.

Giving plenty of notice about your ‘money meeting’ and choosing a good time to tackle such a big topic can set everyone up for success. Ideally you want to choose a time when you are both rested and relaxed. First thing in the morning when you’re rushing to get out the door or last thing at night might not be the best idea. The environment also can make a difference. Sitting in the park or going for a coffee might work better than your kitchen table, for example.

2. Focus on the positives

Money conversations are often loaded with emotional baggage. Rather than pointing the finger or playing the blame game, wouldn’t it be great to start off a money conversation with the things you love about them? Making someone feel valued and cared for may help them feel more comfortable to open up. Perhaps you like the way they discuss purchases big with you, or how they shop around for the best deal before making a purchase.

3. Bring some ideas

It feels good to know you have someone in your corner. Turning up to your money meeting with some ideas on moving forward can help to shift the conversation to focus on ‘us’ instead of ‘me’ and ‘you’. Even just one or two ideas on how to move forward financially can lay the foundation for a conversation that’s positive and healthy. Some examples might be agreeing to talk about money once a week, working a few more hours to pay off the credit card or agreeing to see a financial counsellor together if you need some extra help.

Money conversations can be more effective when you have them regularly. Do what you need to keep them interesting and stick with whatever works for you.

 

Source: MLC

What to do if you're 55 and have no retirement plan

Key takeaways

• Strategies for fast tracking your retirement savings nest egg, such as debt elimination, additional super contributions and targeted investing.
• How part-time work and delaying receipt of the Age Pension can boost your retirement income.

Retirement planning is one of those things that often gets pushed to the back burner. When you're young, it's easy to convince yourself that retirement is light years away and you've got plenty of time to figure it all out. But life has a habit of going by real fast and all of a sudden, you're 55 (or thereabouts) and realise that retirement is just around the corner.

If this sounds like you and you’re now thinking, "I'm in my 50s and I have no retirement plan. What do I do now?", first of all, take a deep breath. It's not too late to start planning for your retirement.

Here, we'll outline some steps you can take to secure your financial future.

1 - Assess your current financial situation

The first step in addressing your retirement concerns is to take a good, hard look at your current financial situation. You need to know where you currently stand before you can make a plan for where you're going.

Gather all your financial statements, bank accounts, investment accounts and any debts you may have. Create a detailed budget to understand your monthly expenses and income. This will help you determine how much money you need to live comfortably in retirement. It might be a bit overwhelming at first but don't worry; we're in this together.

2 - Set clear retirement goals

Now that you have a grasp on your financial situation, it's time to think about what you want your retirement to look like. Do you want to travel the world, start a new hobby or simply enjoy some well earned relaxation?

Having clear goals will not only motivate you to save but also give you a sense of purpose. It's like having a roadmap for your retirement journey. Just remember that if you’re starting at 55, you might need to be a bit more realistic about your goals and adjust your expectations to match your savings.

3 - Start saving ASAP!

You may not have started saving for retirement in your 20s or 30s but that doesn't mean it's too late to begin. Contributing extra money into your super offers tax advantages that can help your savings grow faster.

Consider making catch-up contributions if you're 50 or older and your super balance is below where it should be for someone of your age and income level. In fact, making extra contributions (within the cap limits, of course!) is a good idea whatever your age is.

Topping up your super fund with additional personal contributions can make a significant difference to your retirement nest egg over the next 10 to 15 years.

4 - Work on debt reduction

If you're carrying a lot of debt, it can seriously hinder your ability to save for retirement. High-interest debt, like credit card balances, can eat away at your finances. Start by paying down your high-interest debts as quickly as possible. The sooner you get rid of those financial burdens, the more money you'll have available to invest in your retirement accounts.

5 - Consider part-time work

Retirement doesn't have to mean you stop working altogether. If you're 55 and haven't saved much for retirement, you might need to consider part-time work during your retirement years. It's a great way to supplement your income while still having some free time to enjoy the things you love.

Part-time work may not decrease your monthly Age Pension payments when you reach Age Pension at 67. Plus, working can help keep you active and engaged in your community, which is excellent for your mental and physical health.

6 - Invest wisely

Once you've started saving, it's essential to invest your money wisely. At 55, you may have a lower risk tolerance than someone in their 30s. You may want to consider investments that are a bit more conservative, such as bonds or dividend-paying shares, to protect your savings.

Diversify your portfolio to spread risk and aim for a balance that aligns with your retirement goals. It's a good idea to consult with a financial adviser to make sure your investments are at the appropriate level for your age and financial objectives.

7 - Claiming the Age Pension

At age 67 you may be eligible to claim the Age Pension. An amount of your fortnightly employment income is not assessable for Age Pension means testing. This means you may be able to continue part-time work before the employment income will reduce your Age Pension entitlement.

8 - Downsize and cut expenses

If you haven't saved as much as you'd like and your retirement goals are challenging to meet, it might be time to downsize your living situation and cut unnecessary expenses. Consider selling a larger home and moving into a smaller, more affordable one. Look for ways to trim your budget without sacrificing your quality of life.

9 - Seek professional advice

Finally, don't hesitate to seek professional financial advice. A certified financial planner can help you create a tailored retirement plan that considers your specific financial situation and goals. They can provide guidance on investment strategies, tax planning, and how to make the most out of your retirement savings.

 

Summary

If you're 55 and have no retirement plan, it's not the end of the world. While you might feel that time is not on your side, taking action now can still make a significant difference to your financial future.

Assess your finances, set clear goals, save diligently, reduce debt and explore opportunities for additional income. With a well thought out plan and a little discipline and determination, you can enjoy a comfortable retirement despite starting a bit late in the game.

Remember, it's never too late to take charge of your financial future to make the very most out of your golden years.

 

* Based on KPMG Super Insights 2023 Report as at May 2023 KPMG Super Insights 2023 Report

 

Source: MLC

Make your money work harder – pitfalls to avoid

If there’s one rule of thumb for investors to bear in mind, it’s that “if it looks too good to be true, it probably is”.

Be aware

The expression “a fool and his money are easily parted” is not as relevant today as it once was. These days, scams and fake investment schemes can be very sophisticated and difficult to tell apart from the real deal. That said, there are some key clues to look for to avoid losing your money to a scam.

Indicators of a scam

Take a look at the classic warning signs to know if you could be dealing with a scam.

Unrealistic returns

We all want to earn high returns but the fact is that most of us will “get rich slow” by spending less than we earn and steadily growing investments across the main asset classes of cash, fixed interest, property and shares.

If you come across promises of returns that are extremely high – especially when coupled with declarations of low or no risk - you need to question how it is the returns can be so strong. Always remember the fundamental rule that risk equals return. The higher the return, the greater the risk you could lose part or all of your money.

Generous tax breaks

No one especially enjoys paying tax but a good investment should stand on its own merits, and any tax concessions are the icing on the cake – not the main drawcard.

Quality shares and property, managed investments investing in these assets, and your superannuation may offer the potential for perfectly legitimate tax concessions. But any so-called investment that focuses on tax savings should be questioned.

High pressure selling tactics

Claims of “a limited time offer”, “an exclusive opportunity” or any other tactic designed to get you to make a quick decision should send the alarm bells ringing. High quality assets do not need to rely on high pressure sales pitches to attract investors.

Protect your money with some golden rules

Always treat cold call offers of an investment or invitations to invest out of the blue with a healthy dose of scepticism. Do not hand out details of your financial accounts or other personal identification details to anyone you don’t completely trust. This especially applies to emails you receive unexpectedly.

If you feel you have been scammed, contact the police and your financial institutions immediately as the security of your accounts may have been compromised.

Stay up to date with scams

Scammers and con artists operate in the physical world and online too. Stay up to date with the latest financial scams by checking out the government’s Scamwatch website.

Source: BT