Where Should I Be Investing?

It probably doesn’t come as a surprise when we say “Where should I be investing?” is the most common question we get asked.

We’ve been handing out financial advice for many years and it often makes us laugh to think back to all that we were ‘taught’ about investing. Often, financial advisers have been paid to sell financial products instead of giving the best financial advice and that’s why we’re so passionate about ‘cutting the crap’ and giving you real advice that is 100% independent and in no way tied to any financial products.

Once you combine a bit of logic with some common sense, investing really isn’t hard. Yet many of us make mistakes when it comes to investing, simply because we don’t know what we don’t know. We’ve seen so many people who make poor investment decisions because they are based on poor or half-baked information.

But before we go investing, let’s look at the financial foundations that need to first be in place given they hold up your financial house:

• You spend less than you earn and pay yourself first
• You have income protection in place
• You have three months’ worth of essential costs saved in your Rainy Day fund
• You are in control of your debt, ideally having no credit card or personal debt

Given the speed at which interest rates rose, we have highlighted being in control of your debt. Those of us with debt, have all had to find extra cashflow, renegotiate our loans, or still have these items on the to-do list.

Regardless of which of these situations apply to you, we all need to ensure we can make our loan repayments and make them on time. Missing repayments on your mortgage can cause you issues down the track when it comes time to refinancing and given such, we suggest you prioritise getting in control of repayments before all else. Not being able to refinance when you need to could be very costly.

Once you feel in control of your mortgage and other essential spending items, it’s time to divert surplus cashflow to building up your Rainy Day fund.

If you rely on your income to survive and haven’t yet taken out an income protection policy, this also needs to be a priority – as we hope we’ve made clear in the past, it’s not negotiable! Why? Because your ability to earn an income is your MOST valuable asset. And remember, if you’re struggling with cashflow then you can consider setting up an income protection policy partly or wholly within super (so your super pays the premiums).  

All of the the above is really just part of adulting… part of being an adult is doing what needs to be done, even when it’s not always fun. Now that all the grown-up stuff is out of the way, you can start investing… but where?

Most people think about an investment property. It’s kind of the Australian way, but is usually just because it’s something we feel familiar with. Some people are jumping into cryptocurrencies, usually just because others around them are doing it. Often shares are not on people’s radar simply because they don’t understand them, and that creates fear.

Think about this for a moment… pretty much every mainstream balanced investment option in superannuation invests around 70% of a member’s money in Australian and international shares. They don’t’ buy any residential investment properties nor do they buy cryptocurrencies. Why would that be? The answer is simple. Shares are simply ownership of companies and super funds know it makes sense to be part owners of the biggest and best companies here and around the world if they want to get good returns for their members. On top of this, shares are easy to buy and then also easy to sell when people need the money, so they provide flexibility and accessibility.

The majority of the rest of the money goes into cash and fixed interest investments to ensure there is not too much volatility, which can spook their members.

And you can invest outside of super in exactly the same way your super does it for you inside super. Investing really is easy!

Investing = The Right Money + The Right Timeframe + The Right Investments

It boils down to deciding on the purpose of the money. If the money is short-term (i.e. you expect to be needing it within the next three years), it goes in the bank. If the money is long-term (i.e.. not expected to be needed in the next 7 years), it can be invested in shares and property for long-term growth. And anything earmarked for the medium term (i.e. not in the next 3 years, but within the next 7) would have a mix of short-term and medium-term investments.

Your personal financial situation and stage of life should dictate your next move as the longer the timeframe you have to invest, the more you can invest for growth as what happens in the short term is not as important. As we like to say, the fact you are taking action is half the battle, with time and discipline taking care of the other half of the equation.

Extra super versus extra into the mortgage?

We believe superannuation is by far and away the simplest, most tax effective and low-cost way to build long term wealth for life beyond 60 (remember the 60 bit). By making concessional contributions into your super I.e., salary sacrifice, you are very likely to get the best long term financial returns, and the earlier you start, the bigger your nest egg will become.

For the average worker, every $1000 earned would see around $655 go into one’s wallet and then off to pay the mortgage. If the same worker was to instead put the same $1000 into super as a concessional contribution (I.e., salary sacrifice), $850 would go off to work and build wealth. Before any asset has time to perform, the worker who put the $1000 into super already has around a 20% head start on the alternative of putting money into their wallet to pay the mortgage.

But interest rates and loan repayments aside, if you are wanting to build financial wealth for life after age 60 this super strategy should be a no-brainer. Once you reach age 60 and have “retired” from employment, your lump sum of money in super can be set up as a tax-free income stream for life (it would be a brave politician to try change this!).

If you want guidance as to where to invest and how, be it within your super or outside super, please login to Wages to Wealth where we have independent advice and recommendations ready for you to consider.

Cheers,

Dan and Dave