Important Superannuation Changes, Handling Market Highs and Lows and the Real Relationship Between Risk and Return
Superannuation Changes that are helping to boost Millions of Aussie’s Retirement Funds
The rules and limitations around your all-important superannuation fund have undergone many changes this financial year. The goal is that these changes will help more Australians to have a healthier retirement fund and live a comfortable, financially secure retirement.
Your Employer Now Has to Pay You More Super
Recently, many superannuation thresholds have increased, including the rate of the superannuation guarantee which now sits at 10.0%. This means your employer is required to place additional money into your superannuation fund.
However, you should also be aware that some employers may take superannuation guarantee amounts out of a total employment package they provide you, which means your take-home pay could have reduced as a result. Whilst the reduction may only be small, if you have noticed a change in your after-tax pay, this could explain the difference.
You Can Add More to Your Super Fund due to a higher Concessional Contribution Cap
Your concessional contributions include:
- Employer contributions (including super guarantee)
- Salary sacrificed contributions
- Any personal deductible contributions to super
There is an annual cap that applies to these contributions. In the 20/21 financial year, it was $25,000. It has now been increased to $27,500 to align with the rise in the percentage of the compulsory super guarantee.
Handling market highs and lows: What goes up, must come down
Market highs and lows are a normal part of the investment world but they can be hard to handle when it’s your money at stake.
Investment markets tend to move in cycles, from boom periods when assets rise in value and deliver strong gains, to events like the global financial crisis when assets fall in value and generate losses for investors.
This “volatility” can be unsettling for investors, depending on your risk tolerance. Whilst there is no foolproof way to manage market highs and lows, following these four basic strategies can help.
- Don’t put your eggs all in one basket
Diversifying your investments across different asset classes can help shield your portfolio from market volatility.
Asset classes typically behave differently at different times.
Some investments will rise in value while others fall. For example, when interest rates are low, share and property values may climb. Spreading your money across a variety of investments means you are less likely to wear the full brunt of a fall in one particular asset class.
- Focus on the bigger picture
During periods of intense volatility, it can be easy to become too focused on day-to-day market movements. This can lead to knee-jerk reactions bought on by concerns over falling asset values.
These sorts of responses are understandable but it is also important to keep your eyes on your longer term goals.
Remember that investing is a long-term strategy; avoid trying to “time the market” as it can leave you very disappointed, at a financial loss, and very time-poor!
If your longer term goals and your circumstances haven’t changed, there may be less reason to change your investment strategy in the short term.
- Don’t be caught up by short term movements
When markets drop for a prolonged period, you may feel as though investment losses are piling up, and be tempted to bail out altogether.
At these times, bear in mind investment markets tend to be cyclical and quality assets, like some shares, that drop in value today, may well recover their value – and go on to achieve
even greater gains in the future. Selling out during a low will mean those paper losses will become real losses. And you will be forced to pay more to get back into the market at a later
stage if these values recover.
- See a downturn as a potential opportunity
At most times in life, we try to buy when prices are down and sell when they are high. It makes sense to take the same approach to your investments.
When markets hit a downturn and values are lower, investors can look to take advantage of the opportunity to buy into quality assets at reduced prices.
Risk and Return: How much risk do we need to take to get the financial returns we want?
We all want to earn high returns, but every investment has some degree of risk, and higher returns generally mean higher risk. Think about the level of risk you’re comfortable with. Get on the front foot of your retirement goals, by considering these tips:
How do you feel about risk?
Do you like to take chances, or are you conservative by nature? You may think you have a high tolerance for risk but it can boil down to one simple consideration – how would you feel if you lost some of the money you had invested?
It’s important to do some soul searching here because your attitude to risk can – and should – influence your choice of investments.
That’s because risk generally goes hand-in-hand with potential investment returns. Every investment involves some degree of risk, and it can be near-zero for cash deposits or it can be very high in the case of more exotic investments like art. Shares and property generally fall somewhere in between.
Likely returns are a measure of risk
One of the foundations of investing is that risk equals return. So a simple way to gauge the sort of risk involved with an investment is by looking at the likely returns. And if you come across an investment promising a high return, chances are it involves a high degree of risk that you could lose some or all of your money.
Should I avoid risk altogether?
Investing would be a whole lot easier if we could be promised a financial return with a 0% chance of risk – but as an investor, risk is not something you can avoid altogether.
All investments have some risk and you need to be aware of the nature of that risk. The key is to invest accordingly to your comfort levels and timeline.
An investor with longer term goals may be prepared to invest in higher risk growth assets like international shares.
Achieving goals over the long term means there is more time to recover from potential losses along the way. Investors with shorter term goals – who are likely to include older investors relying on their investment returns as a source of income for retirement – may be less willing to invest in higher risk assets.
Nonetheless, with life expectancies rising, it may still pay for older investors to hold at least part of their portfolio in growth assets like shares. This can help to avoid a situation where your money runs halfway through retirement.
Want to chat with an expert?
If you are looking for more information about any of these financial topics and how they may affect your finances, get in touch with us at HH Wealth.
At HH Wealth, our aim is simple: to help you achieve financial freedom.
We offer free consultations for new clients that are looking to improve their financial future.
CB Wealth Australian Pty Ltd T/As HH Wealth is a Corporate Authorised Representative (No. 1283595) of Axies Pty Ltd ABN 38 136 704 446 AFSL No 339 384. Chris Holme is an Authorised Representative (No. 1004793) of Axies Pty Ltd ABN 38 136 704 446 AFSL No 339384.
Our Financial Services Guide (FSG) and Adviser Profile contains important information about Insight Investment Services Pty. Ltd., any authorisations and the services we provide. The following link will take you to an electronic copy of the FSG, if you would prefer to receive it another way please contact our office. FSG HERE>