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
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
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