Understanding Wealth Accumulation No Ns Up

8/11/2019 Understanding Wealth Accumulation No Ns Up

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Understanding

Wealth Accumulation(Non-Superannuation)

Version 4.0Preparation Date:2 November 2009


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This document provides

some additionalinformation to help youunderstand the financialplanning concepts

discussed in theSOA in relation towealth accumulation(non-superannuation).

Important informationThis document has been published by GWMAdviser Services Limited AFSL 230692,registered address 105153 Miller St NorthSydney NSW 2060, ABN 96 002 071 749 foruse in conjunction with Statements of Adviceprepared by its authorised representativesand the representatives or authorisedrepresentatives of National Australia BankLimited, Godfrey Pembroke Limited, ApogeeFinancial Planning Limited and AustralianFinancial Services Licensees with whom it has

a commercial services agreement.

This document contains general informationabout the benefits, costs and risks associatedwith certain product classes and strategies.It is designed for use in conjunction with aStatement of Advice that takes into account thecircumstances and objectives of an individual.Before making a commitment to purchase or sella financial product, you should ensure that youhave obtained an individual Statement of Advice.

As legislation may change you should ensure

you have the most recent version of thisdocument.


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Page 03 Understanding Wealth Accumulation (Non Superannuation)

How to readthis document

Managing yourfinances to meet

your day to day

requirementsas well as yourlong-term goals canbe a complex task.

There are all sorts of issues you need toconsider such as taxation, legislation,protecting your wealth and assets,associated costs and the inherent risks ofinvestment. When undertaking a financialplan it is important that you understand

how these issues will impact on you andwhat you should expect over time.

Your financial adviser will provide you witha Statement of Advice (SOA) which setsout the details of the advice and how it willmeet your goals and objectives.

This document provides some additionalinformation to help you understand thefinancial planning concepts discussed inthe SOA in relation to wealthaccumulation (non-superannuation).

It is very important that you read thisdocument to help you understand thebenefits of the strategies recommendedto you, and the associated costs andrisks.

Please contact your Adviser if you do notunderstand anything, or need furtherinformation or clarification.


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UnderstandingWealth Accumulation(Non-Superannuation)

Wealth Accumulation(Non-superannuation)

Cash Management Trust

Cash management trusts invest in highlyliquid secure investments, such asshort-term securities issued by theAustralian Government, banks and

corporate borrowers. They are generallyable to offer a higher level of interest thana traditional bank account.

Investors are generally provided withdeposit and cheque book facilities,optional telephone withdrawal andinternet facilities, plus overnight accessto their funds. In most cases these typesof accounts do not incur entry and exitfees.

Factors to be aware of:

Account management and other fees may be charged.

You may have to keep a minimumbalance in the account.

A high percentage of your funds are tobe invested in conservative assetclasses. Although this should reducethe potential volatility of investmentreturns, you may be foregoingpotential capital growth opportunities.

Term Deposits

A term deposit is a secure, fixed rateinvestment for a fixed term. Termdeposits are popular for investors thatwant to have certainty of a known

interest rate and return. Investors maybe able to withdraw funds beforematurity although a penalty may becharged. Interest may be paid atmaturity, or either monthly, quarterly orannually. At the maturity of theinvestment term, interest can be paidinto a nominated financial institutionaccount, or added to the principal andreinvested for another term.


Loss of immediate access to your

funds.There is often a penalty applied by theprovider if the investment is withdrawnbefore the end of the agreed term.

Managed Funds

Managed funds allow investors to pooltheir money with an investment managerwho has extensive research facilities andexperience. Managed funds generally

provide a combination of income(including realised capital gains), and thepotential for capital growth over themedium to long-term. Generally, incomedistributions can be either be reinvested,or paid to a nominated bank account


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Advantages of Managed Funds

Some of the advantages of managedfund investments include:

Diversification The large pool offunds available enables fundmanagers to diversify the spread ofinvestments across all asset classesas well as providing access toinvestments which may not be readilyavailable to individual investors, suchas large retail property complexes andinternational shares.

Professional management andexpertise Fund managers have theexpertise to monitor and researchinvestment opportunities, and applytheir investment experience in

managing investment portfoliosacross all asset classes.

Economies of scale Investors inmanaged funds can accesseconomies of scale in areas such asvolume discounts on brokerage andother fees.

Liquidity Investors in managedfunds can usually access their fundswithin 530 days (excludingsuperannuation investments), and areusually able to access a part of theirfunds without needing to cash in the

whole investment.

Regular reporting and information Managed funds can take care of theadministrative hassles and expenses,which would normally accompanydirect ownership of investments. Fundmanagers also provide regularinformation to investors regardinginvestment performance and year-endtax summaries.

Tax advantages incomedistributions may be tax advantaged

through imputation credits forinvestments with underlying Australianshare assets.


The capital value of managed fundsmay fluctuate, particularly in theshort-term.

Capital Gains Tax may be payable on

any growth in the value of yourinvestments when you eventuallyredeem or sell them.

Income distributions are notguaranteed and may fluctuate overtime.

Re-invested income will still form partof assessable income for taxpurposes.

You will pay internal management feesto invest into managed funds.

Loss of immediate access to your funds.



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Dollar Cost Averaging

Dollar cost averaging involves investing a set amount of money at regular intervals. Byinvesting this way you are not attempting to pick the lows or highs of the market, butrather investing a fixed dollar amount regardless of investment market trends.

The following example shows a dollar cost averaged share investment. A fixedamount of $1,000 was invested in a share each month as the market price fell andthen recovered to its original value.

Month Amount Invested Share Price Units Purchased

1 $1,000 $20.00 50

2 $1,000 $15.00 66

3 $1,000 $10.00 100

4 $1,000 $15.00 66

5 $1,000 $20.00 50

Total $5,000 332

In this example, by dollar cost averaging into the market, the shares were purchasedat an average cost of $15.06 ($5,000/332). After five months, the investment wasvalued at $6,640 (332 shares at $20 per share), a profit of $1,640. If the shares hadbeen purchased at the commencement of the five months (ie at $20), there would nothave been any gain on the investment when the shares returned to their original valueat the end of the five-month period. The $5,000 invested would still have the samevalue, ignoring the dividend income.

Advantages of Dollar CostAveraging

Some of the advantages of dollar costaveraging include:

By regularly investing in an investmentmarket, you are not relying on timingstrategies aimed at picking when amarket has bottomed or peaked.Dollar cost averaging imposes ahelpful investment discipline bycompletely ignoring timing issues.

Dollar cost averaging can be beneficialwhen markets may fall. This isbecause only a fraction of the totalamount to be invested is exposed todeclines in the market. Also, when themarket price falls, your regular

investment amount will purchase moreinvestment shares or units.

Dollar cost averaging provides asound savings regime and is an idealinvestment strategy for people with aregular income but without large sumsto invest.


When market prices are trendingupwards, a portfolio purchased upfront will do better than the portfoliopurchased using dollar cost averaging.

This is because the full gain on theprice rise is captured by the fullamount of money invested up front.

Over a time period in which prices fallsteadily, a dollar cost averagingportfolio will still lose money.Nonetheless, dollar cost averaging willgenerally lose less than an up frontpurchased portfolio.


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Understanding Wealth Accumulation No Ns Up