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Featured Article

(Article disclaimer & Advisory Services Guide)

Do you want to be financially successful?  Do you want to save money for a particular goal such as a holiday or the deposit for a house?  What about a car or even that period a long way off called retirement?

Have you thought about these issues and done something about them, or are they still on your wish list?  There is no time to lose. Even if its only $1 per day!  After 40 years at only 5% this investment would be about $45,000 gross.  At 10% its about $190,000 gross.

The best way to begin investing is to do a budget, determine how much you can save and then quarantine that amount for your investment plan – and don’t deviate as you have already worked out what all your other costs are. In other words, save first, then live on the rest!

By starting today your goal is much closer to being achieved.  Consider this scenario: two people, Jill, 5 years younger than Jack, whom both start saving $100 per week when Jill is 25 years old.  At 65 years of age and with an investment rate of 10%, Jill will have about $637,000 gross while Jack will have only about $382,000 gross.         

Because Jill started 5 years earlier than Jack, Jill will have about $254,000 more than Jack.  The earlier one starts to save the more one achieves!       

By investing and leaving the interest to accrue, the effect of compounding increases your total investment.  Diversify your investments, spreading them across those sectors of the market that provide the potential for the level of return you are seeking.  Risk versus return plays an important part in an investment strategy.

Regular investments can be better than irregular investments for some people due to the effect of dollar cost averaging.  It removes the concerns associated with having to worry about when to invest.  There is no point in investing a lump sum when the market is at its peak!

LUMP SUM INVESTING 

There are many ways to invest a lump sum.  You could buy a property, or a bank bill or term deposit.  Here we will only deal with investing in institutional managed funds.  If you have a super roll over, this may be taxed and spent how you wish within legislated regulations.  However most people now are saving their lump sums for their retirement.  There is a plethora of products to achieve this goal all with concessional taxation treatment.

Saving lump sums outside super is not dissimilar to super but with different regulations and taxation.  Insurance Bonds are suitable products in which to invest a lump sum.  They provide scope to diversify your investment for medium to long term savings (10 years +).  Access to the money at any time however is the norm.

REGULAR SAVINGS 

For those on a budget and who don’t have any lump sums to invest – don’t despair.  There are numerous regular savings products that don’t have early withdrawal penalties.  These also provide many sector funds that permit diversification of the investment as well as single sector investing.  They are taxed similarly to ordinary saving lump sum investments run by the institutions (eg Insurance Bonds).  Regular savings also take advantage of compounding and dollar cost averaging. The investment structure can be selected initially and altered along the way.  Once again these types of investments are ideal over the medium to long term (10 years +), so goal setting is vitally important.

To ensure that your savings keep pace with inflation, consumer price indexing increases can be applied to regular savings programmes.

copyright 2003 Lindsay Egan

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Operating since 1987, Egan & Associates Pty Ltd, is a small insurance and investment advisory company that is dedicated to providing personal and customised service. The principal of Egan & Associates Pty Ltd, Lindsay Egan, is an authorised representative of Professional Investment Services Pty Ltd, who are a Licensed Dealer in Securities and Registered Life Broker. www.eganandassoc.com.au

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