It is hard to find a greater mis-match than the Anglo-Zanzibar war, in which the British defeated the Zanzibarians in 38 minutes, with only 1 casualty, as against 500 casualties for the locals. This war is recorded as the shortest war in history.

A modern day equivalent to the Zanzibarians is private investors trying to short term trade. Let’s remember that every time we buy a stock, someone else is selling. And we’re saying to the other party, "you’re wrong and we’re right". But who is on the other side of the trade?  Sure, sometimes it might be a punter on a computer screen in his bedroom wearing pyjamas and drinking Red Bull, but chances are the other side of the trade is an institution, and more and more often now, a computer programmed by the institution to perform ultra fast short term trades. Is it really feasible that over 100′s of trades, an individual private investor is going to out-perform sophisticated and well informed institutions with the ability to trade in fractions of a second?

But all hope is not lost. At Guidance we’ve long held the view that short term trading is for mugs. Where private investors do hold the advantage is that we we can be patient. We don’t have monthly, quarterly, and yearly performance figures that we have to hit. Institutions do. In fact a few bad performance numbers and they stop getting money to manage, and their business after all is not earning the maximum return, it is obtaining money to manage.

So as private investors we must play to our strengths. Leave the short term gambling to the computers, and instead seek out good businesses and be in there as a true shareholder for the long term.

FREE Strategy of the Month

Important changes to superannuation co-contributions

In November the Federal Government released the Mid-year Economic and Fiscal Outlook. Various savings measures were included in this with the aim of ensuring the budget returns to surplus in 2012-13.

Amongst the savings measures was a reduction in the generosity of the government’s co-contribution. Co-contribution is the process whereby the government contributes to your superannuation account, when you have made an after tax superannuation contribution. In recent years, the government has matched whatever you put in dollar for dollar, up to a maximum of $1,000. The benefit phases out as your income rises, as it is intended as a measure to help lower income earners amass more retirement savings.

From 1 July this year (ie. next financial year), the government will only contribute 50 cents for every $1 that you contribute. And the maximum they will contribute has halved to $500.

So for now at least, government co-contribution lives on, it’s just a little less generous than it used to be.

Opportunity

Get your maximum superannuation co-contribution this financial year – your last chance for a $1,000 payment.

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In order for your superannuation contribution to be tax deductable, you need to be self employed. The thinking here is that in this circumstance, there is no employer making superannuation contributions for you – you are your own employer. So therefore you can make contributions as though you were an employer. Employers claim superannuation contributions as a tax deductable expense, as they do any other expenses incurred in running their business.

Where it can get a bit tricky is where someone does some paid employment, and is also self-employed. The test employed in this instance is known as the 10% test. The income you derive from work as an employee, must not exceed 10% of the total income you earn for the year. So put another way, for you to be considered self-employed, you must generate at least 90% of your income from self-employment.

Want to to learn more about Self Managed Super? Download our free e-book SMSF – Australia’s most popular way to save for retirement.

Guidance Financial Services – specialist financial planning advice for business owners and the self employed.

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As our workforce becomes more highly skilled, and the services sector grows, businesses are about people. Yet strangely, few businesses insure their people, whilst putting great emphasis on protecting the premises from relatively rare incidents such as fire and theft.

To learn more about Key Person Insurance, download our free ebook – Key Person Insurance – a succinct guide for business owners.

"In a business with two male owners over 40 years of age, the probability of a key person insurance claim event occuring prior to them reaching age 65 is greater than 50%."

Source: OnePath

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We’ve recently published a new ebook:

SMSF – Australia’s most popular way to save for retirement

This easy to read booklet contains valuable information for anyone considering setting up a new Self Managed Super Fund.

To download your free copy of our SMSF ebook, click here.

Guidance Financial Services – specialist  financial planning advice for business owners and the self employed.

Photo by andymangold

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Self employed people don’t have sick leave.  If you can’t work, you don’t get paid.  Chances are for a week or two you can get by, but what happens of you were unable to work for 3 months, 6 months, or longer?

That’s where Income Protection insurance comes in.  You are effectively buying yourself long term sick leave.  You will select a waiting period, commonly 30 days.  Within this period you need to support yourself.  However if you continue to be unable to work beyond this waiting period, then a monthly benefit will start being paid.

The monthly benefit is typically determined as 75% of your normal income.  It’s not 100% because the insurer wants you to have an incentive to get back to work.  Hopefully three quarters of your normal income is enough to pay the bills and keep the household afloat.

Click here for an Income Protection Quote:

Income Protection quote

There are variations as to how the monthly benefit amount is determined.  It might be guaranteed from the outset or determined at the time of claim.  Advice here is essential.

Waiting periods can be varied to suit your circumstances, as can the period the benefit is payable for.  The most popular is for a policy that would pay a benefit until you reach age 65 (assuming you were unable to work for that period of time).

The insurance premium for Income Protection is typically tax deductable, which certainly helps.  It does mean that when a benefit is paid, it is assessed as taxable income.

Every self employed person should have Income Protection, yet only around a third do.

Contact us to talk through your needs.  We have access to all of the major insurance providers in Australia, so we can find the policy that works for you.  If you wish, we can arrange everything over the phone.

Phone 03 9870 6544 or email us here.

Guidance Financial Services – specialist financial planning advice for business owners and the self employed.

This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.

If you’re a wage earner, your employer takes care of your superannuation contributions.  If you choose, you can have little to no input in what is going on.

However the situation is very different if you are self employed.  Depending on the size and structure of your business, it may be that you are on the payroll and therefore receive some compulsory employer contributions.  However for most business owners that I deal with, if they are on the payroll it is for a nominal amount.  There major income comes from drawing down the profits of the business.

So lets consider the situation where either all or the majority of your income is derived by drawing down the business profits.  There are 4 key points to know:

1. How much must I contribute to super?

None.  As a self employed person there is no legal requirement for you to contribute anything into super.

2. What is the maximum I can contribute into super?

The current (2011/12) annual threshold is $25,000 of tax deductable contributions (note – you can contribute more in “after tax” contributions but that’s a separate matter).  If you are over age 50 there are currently provisions to contribute up to $50,000 in 2011/2, though this higher cap for over 50’s is due to cease.  The government is yet to confirm whether people over age 50 will continue to have a higher cap in 2012/13 and beyond.

3. Why should I contribute to super?

Because it is the most tax effective place in which to save for your retirement.  And you definitely need to save for your retirement because the Age Pension isn’t very generous and will only get worse as our population ages.

Also because of the annual contribution caps mentioned above, it’s not like you can ignore super until you’re 50 and then go hell for leather in contributing for the last 10 or 15 years of your working life.  You simply wont be able to put enough in to generate a comfortable retirement income.

4. But I hate giving my money to fund managers, all they do is charge me fees.

You should talk to us about setting up a Self Managed Super Fund (SMSF).  SMSF’s are very popular with business owners and the self employed, as they offer far more control in how your savings are invested.

Be very careful regarding the contribution limits.  If you exceed them the tax penalty can be quite severe.

Got some questions?  Give us a call on 03 9870 6544, or send us an email.

Download our Free ebook – SMSF – Australia’s most popular way to save for retirement.  Click on the green “Learn more about SMSF” on the right of this page.

This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication.

Guidance Financial Services – specialist financial planning advice for business owners and the self employed.

Photo from http://www.flickr.com/photos/guidancefs/

The Financial Planning Association (of which I’m a member) are currently promoting the difference between Certified Financial Planners and the rest, so that consumers are better informed when seeking out financial planning services.  I fully support this initiative.  If you are interested, the details can be found here.

Download our Free ebook – SMSF – Australia’s most popular way to save for retirement.  Click on the green “Learn more about SMSF” on the right of this page.

Guidance Financial Services – specialist Financial Planning advice for the self employed and those running a business.

Long Term Growth Chart

A really interesting chart produced by Morningstar here showing returns for the various asset classes since 1989.

The rollercoaster in the Listed Property space is a highlight.

Australian Fixed Interest would have been a pretty good option over the period, as would International Fixed Interest if you happened to hedge it against currency fluctuations.

Wouldn’t be hard for Aussie shares to have a bit of a bounce and get their nose in front in the coming years – here’s hoping anyway!

An article in today’s Australian Financial Review reports that assistant commissioner Stuart Forsyth is “open to suggestions about what more” the ATO can do to make SMSF trustees aware of there responsibilities.  This follows a recent court case where trustees were fined $50,000 and ordered to pay the Tax Office’s legal costs after being found guilty of 62 contraventions of the Superannuation Industry (Supervision) Act.  The trustees in this case actually got off fairly lightly since the maximum penalty is $220,000 per breach.

It is suggested that trustees are getting into trouble because they are listening to information from friends and relatives and only getting half the story.  Of particular concern is trustees being unaware that their Self Managed Super Fund cannot buy a residential property from a related party (eg. themselves or a company they control).

This article once again highlights the importance of receiving appropriate professional advice when dealing with Self Managed Super.  When you are running your numbers on whether to head down the SMSF path, factor in the cost of having access to a professional adviser.  If you can’t afford this advice, then perhaps an SMSF isn’t right for you.  After all, your superannuation savings will amount to hundreds of thousands, if not millions of dollars, by the time you reach retirement.

Download our Free ebook – SMSF – Australia’s most popular way to save for retirement.  Click on the ”Learn more about SMSF” button on the right of this page.