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For those that have read this article elsewhere, scoot to the bottom to get your Investment Bond links
And no, I’m not suggesting setting yourself up in Isle of White, or Bermuda. This is the single most effective investment outside of Super, for those earning over $70,000. If you’re a high income earner looking for a long term investment strategy that has flexibility and good returns then you need to consider having a discussion with your Accountant and Financial Advisor about an Investment Bond. For those of you wondering why you haven’t heard about this investment tool from your Accountant or your Financial Advisor. In, laymen’s terms, there’s no money in it for them!
What is an Investment Bond?
Investment Bonds were popular around the 80’s and made up half of the funds that were under management. They paid high fees to Financial Planners and high trailing commissions so were the recommended investment of choice. They were a poor investment for the investor with not so great returns and eventually as things changed money moved from Investment Bonds to what are now Managed Funds. So why am I now suggesting you reconsider these investments??? Today an Investment Bond is a different product to the ones from the previous era and you pay very little in fees. As your Accountant and Financial Planner don’t make money from recommending this product they are relatively unheard of.
Why are they such a great investment?
Investment Bonds have a number of advantages over putting your money into a regular Managed Fund or other investment. One of the biggest issues when you’re a high income earner is that any additional money you earn is going to be heavily taxed. If you don’t require money from your investments to help fund your lifestyle then ideally if it was reinvested and you didn’t need to pay tax on it, this would be the ultimate investment. This is essentially how an Investment Bond words. It’s no different to a Managed Fund in the sense that your money is being invested in an Index Fund, whether that be Australian Shares, International Shares, a mix of Australian Shares, International Shares and possibly Cash.
The benefits of an Investment Bond over a Managed Fund.
· You don’t need to declare your TFN and therefore even report it on your tax return (hence why your accountant hasn’t suggested it)
· Set and forget type of Investment
· Doesn’t require a Financial Advisor to set one up
· Doesn’t require a Lawyer as it bypasses your will/estate and is safe from Bankruptcy
· Taxed at 30% within the investment, however factoring franking credits the tax is likely to be as low as 21%
· Can be held in a childs name and avoid the 66% tax rate applied to unearned income for minors. Great for Grandparents or Parents wanting to put money aside for their children.
· Is CAPITAL GAINS TAX FREE after 10 years
An Investment Bond is a long term investment strategy ideally to be held for more than 10 years. It’s possibly one of the best investment strategies behind Super for tax effectiveness however offers the benefit of flexibility that doesn’t come with investing in Super. For those people that are keen to retire early or in their 30’s - 40’s who don’t like that the government keeps fiddling with the vesting age for Super it’s definitely something to investigate. For older people who are keen to retire early and would like to fund the gap between retirement and super preservation age then this is a good investment to consider.
Is there a catch?
There are a couple of things with Investment Bonds that you need to be aware of.
· If you invest $10,000 this year into a bond, you can only invest $12,500 the following year without triggering re-setting the 10 year period for realising the investment capital gains tax free. It’s the rule of 125%. Essentially you should only invest a maximum of 125% of the previous years investment. If you accidently invest more you just need to understand that you will be restarting the 10 year period from the year you put more than 125% into your Investment Bond. Your fund will notify you of how much you invested in the previous year so you know what you can invest in the current year and some funds, like AMP allow you to set up an automatically payment plan that increases 125% each year.
What if I need my money before the 10 years is up?
You can always access your funds if you need them if they are held in an Investment Bond. If you access the funds prior to having had them invested for 10 years then you need to be aware that you will be taxed on the funds as opposed to being able to pull all of your funds out and retain all of the money held in your Investment Bond.
At Village Finance we’re not Financial Advisors. This information has been put together simply to alert you to products that exist within the financial system that may be of interest and require discussion with your Financial Advisor and Accountant. We recommend that you speak with your Financial Advisor and Accountant before investing as they are familiar with your personal circumstances and investment strategy.
Where to start your research -
AMP INVESTMENT BOND
LIFEPLAN INVESTMENT BOND
AUSTOCK IMPUTATION BOND
There has been a lot of hype the last few years regarding Self Managed Super Funds. It's almost like the in thing to have one set up, especially if your older and you've got a significant amount of money sitting in super.
Basically unless you're interested in property investing through your super fund (and if you do this and borrow you get pretty crappy returns because of the interest and fees you pay) then maybe you should consider one of the new SMSF Lite Providers. What is SMSF lite you ask? It's a product that has been created by some of the big superannuation companies as an alternative to a SMSF. To be hones, if the only reason your considering a SMSF is to have some control then these products are something you need to seriously consider.
What do you need to know?
Most funds require you to have a minimum balance.
Limits on direct shares - depending on the fund they may limit you to only investing 50 - 80% of your funds into shares you choose and they may restrict you to only 20% of your funds allocated to one particular share. ie: you can't just go and put 100% of your funds and buy CBA shares. Often you will have access to purchase shares in the ASX 200 or ASX 300 group of companies. If you're restricted to 50% of your capital being invested in direct shares then the rest of your funds you can choose to be invested in any of the super funds managed portfolios.
No overseas shares, however you can invest in an overseas fund option
SMSF Lite Providers
There were a few other options but navigating their website I wasn't able to find the product and therefore give you a link so they missed out.
No changes to RBA cash rate. Those of you looking to refinance, there is currently no better time, or no better time to jump into the housing market. Take advantage of those cheap cheap rates.
3 HOURS AGO OCTOBER 02, 2014 7:44AM Source: http://www.news.com.au/finance/money/credit-ombudsman-and-financial-ombudsman-to-bar-rogue-credit-repair-agents/story-fnagkbpv-1227076946269
How to fix a credit report error
OMBUDSMEN will bar rogue “credit repair agents” who slug unsuspecting consumers thousands of dollars to get black marks removed when it can be done for free.
One in seven adult Australians has a default on their credit report. Eighty per cent only discover this when applying for, say, a new mobile or home loan. Many believe the default is a mistake and turn to a credit repair agent for help.
Repair agents were responsible for nearly 30 per cent of the complaints to the Credit Ombudsman Service Ltd (COSL) in 2013-14 which alleged incorrect information in a credit report. COSL says agents charge an upfront fee of as much as $900 plus $1000 per credit default listed.
Credit Ombudsman Raj Venga told News Corp Australia some agents had falsely claimed a client was in hardship or that a loan had been provided in breach of responsible lending obligations. COSL would no longer deal with agents who repeatedly made bogus claims or delayed investigations in the hope that it would make a service provider cave in.
It received nearly 300 complaints through agents last financial year, up from 250 in 2012-13. “They can’t take advantage of a free service to enrich themselves,” Mr Venga said. “We can’t afford for this service to be abused.
“The fact is a default can only be removed if it is incorrect in the first place,” he said. COSL will get it removed.
Meanwhile the Financial Ombudsman Service (FOS) has decided to reject disputes brought by agents if the application deliberately lacks detail or when it believes a consumer’s best interests are not being protected. Disputes brought by agents surged 59 per cent to 1100 in 2013-14, FOS ombudsman Philip Field said.
COSL’s Mr Venga said other ombudsmen, such as the Telecommunications Industry Ombudsman (TIO) and state-specific energy and water ombudsmen “had the same problem” with agents.
One of the chief concerns is clients are not told ombudsmen can get incorrect defaults removed for free. In a bid to ensure agent clients know, this is typically spelt out on “authority to act” forms.
But the TIO and the Energy and Water Ombudsmen of NSW and Victoria said they had received completed forms where an agent had used an “electronic signature” for a client.
Agents lodged more than 4000 complaints with the TIO in 2013-14. EWOV got 174.
The number of cases brought by agents to the Energy and Water Ombudsman of NSW doubled in 2013-14 to more than 450.
None of the energy and water ombudsmen or the TIO are planning to blacklist agents, but all say they will closely watch what happens to volumes of agent-lodged complaint to the FOS and the Credit Ombudsman.
Energy and Water Ombudsman SA Sandy Canale said “at this current stage” agents were considered to be authorised representatives of consumers.
Energy and Water Ombudsman Queensland referred inquiries to Energy and Water Supply Minister Mark McArdle, whose spokesman said the “Queensland Government is strengthening consumer protections for electricity and gas customers” although none of the changes relate to credit repair agents. EWOQ received 53 complaints via agents in 2013-14.
Adriana Filipowski has a Masters in Professional Accounting, is a member of CPA and the MFAA.