David French | 18/02/2009 1:39:52 PM

This article was published as “Financial planning must be realistic” in The Morning Bulletin on 8th August, 2003.

Superannuation is simply a structure that holds investments for retirement. Superannuation laws confer substantial tax advantages to many people who save money in superannuation. Taking money out of superannuation is a matter of deciding between a lump sum, and two types of pensions. Allocated pensions are very flexible and confer significant tax advantages and some social security advantages. Complying pensions are much less flexible, but confer significant tax advantages and a wide range of social security advantages.

Ownership choices can include investing in your own name, or using trusts, companies or superannuation. Each has certain characteristics regarding the protection of assets, and taxation treatments. Doing things for tax reasons alone is a very bad idea. In Central Queensland a willingness to purchase very risky investments to reduce tax has lost a lot of people a lot of money.

Industry players often imply that retirement is a thing to be feared, when exactly the opposite is true. They make a big issue of structural issues like super and imply they have a magic wand. As far as strategy goes and competent financial planner should be able to put you on the right track. It’s not magic, the rules are there to help you. Consequently there is no “black hole of retirement”, just a world of opportunity.

Regardless of how good your investment structure, and how much tax you saved, the most important thing is how your assets perform. Further, it is more important to have assets that perform as you expect, than for them to be consistently rising in value. That’s because no assets consistently rise in value. You need to know how assets will perform under certain economic conditions and whether the characteristics of your investments are suitable for meeting your investment objectives. As an example, volatile assets are typically not suitable for funding an allocated pension; neither is borrowing to invest in managed funds with a high proportion of fixed interest investments.

At the end of the day, financial planning is a personal thing. The only person who can make a judgement on whether a financial planner is any good, is you. Recent surveys show that industry memberships such as the FPA are no indication of good advice, and neither are brand names. Be clear between yourselves what you are after, do some reading, ask lots of questions and trust your instinct. Then don’t be in a hurry. A plan done in less than 2 weeks, cannot have covered all the issues and more likely than not, will have been produced as a computer printout. That where most of the industry is, and it’s a large part of the reason why it has such a bad name.

The Investment Collective (AFSL 471728) is a non-aligned financial planning and investment firm specialising in providing tailored financial and investment advice for individuals and small business. Capricorn Investment Partners Limited's services include financial planning, share trading, portfolio management, insurance broking and self managed super fund administration. Additional information on services provided by The Investment Collective Limited can be found by following this link. Readers are reminded that this document has been prepared for general information purposes only, and any advice contained herein has been prepared without taking into account your financial objectives, situation or needs. Readers are advised to see their financial advisor prior to acting on any general advice.

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