How to Maximise Your Investing
How can you maximise your investments?
Ever heard anyone say, “I wish I hadn’t invested so early”? Never right?
Nobody regrets investing early in life. Investing is a powerful tool to enable you to have a very wealthy, successful, and prosperous life.
Here are a few tips I suggest to new investors to get them on the right track.
Work super contributions.
In Australia, we have a brilliant invention called super.
Unfortunately, many young people don’t think that they will ever get their hands on their super. But you need to remember that it’s your money. It’s put there for your future self. Treat your super like it’s yours because it is.
You need to check up on your super, which you can usually do online, and make sure all is well. You also should be making sure that your super is being invested correctly for your current life circumstances.
Leveraging superannuation is an enormously tax-advantageous decision. Your super is put there on behalf of your employer and is a fantastic way to invest for your future.
Not all employers contribute to their employee’s super, which is illegal. Some businesses cut corners. And if you’re working for somebody that cuts corners, you should ensure that your super contributions aren’t one of them.
Saving through super.
Number two is super saving. You’ve got mandated super, which is 9.5% of your pay placed into your superannuation account by your employer. The money in this account will continue to grow with compounding interest.
I suggest increasing this super contribution to 15%, which you can do through salary sacrifice. That means that you can place extra money into your super before it gets taxed by the government at an extraordinarily high rate.
It’s a great way to ensure that you’re saving for your future because you can automate it. You won’t miss the money because it’s put into your super before you even see it. The wealth accumulation using this strategy over time is absolutely amazing.
The amount you can contribute personally, through salary sacrifice and employee-sponsored super guarantee is capped at $25,000, so 15% is a good idea for most people.
It’s also about getting the right balance. Nobody wants to put too much money away so that they can’t live right now, but putting too small amounts will not have that positive impact.
People often overlook government co-super. This is a scheme where, if you make independent super contributions, the government will also contribute money. Yep. Free money.
You can see the current eligibility requirements on the ATO website. But, if you’re a low or middle-income earner and make after-tax super contributions, the government may also contribute a maximum of $500 annually.
When does the government ever give you money? Please take advantage of it.
The amount of wealth accumulation for that free money can be massive.
Invest in an index.
Fourth is investing in an index and not single stocks.
If you think you can pick the next big winner, you’re almost certainly wrong. Forget about it. Who knows who the next Apple or Facebook will be? Even when professionals guess, they get it wrong. It can be down to pure luck. It’s a tremendously difficult game.
I’ve worked on Wall Street all my life; I have friends who do this for a living. I tell them the same thing. There is a load of luck involved. They get upset with me because they spend a lot of time, a lot of money. They have access to research departments and CFOs, but the statistics keep coming back that a single index fund will beat them most of the time.
So why bother guessing? Just keep your money on a low-funded index fund.
Diversify your investments.
You should diversify through more than just asset allocation.
Asset allocation is a process for risk management. You should have a certain amount in bonds, a certain amount in cash, a certain amount in stocks. But you can also be smarter than that (and have better results than others around you).
We tend to be incredibly leveraged to Australia and the Australian economy.
It makes sense. We live and work in Australia, so this happens naturally. You may own a house that is in Australia, with a loan from an Australian bank. You’re employed by a company that resides in Australia. All of your investments are probably in Australia. Your bonds and stocks are all Australian.
You’re 100% focused and leveraged to the Australian economy. That’s not diversified.
We’re in a modern world, and you can access international markets easily. You should really spend some time researching. When you want to diversify your investments, it can be a great time to speak to a financial advisor.
Look at all the markets. Should you be invested only within Australia? Maybe you want to look at the US or UK or Europe or perhaps even emerging markets. I’m not saying put lots of money in international markets, but you need to think about diversity regarding country allocations.
If there’s a severe downturn in Australia, and all of your wealth is in the Australian economy, you will be much more affected than if you have international diversity.
For diversity, I go by the rule of thirds—a third in Australia, a third in international, and a third in bonds. But each person and their own circumstances are different. So, as usual, consult a financial professional to tailor this correctly for you.
Your investment strategies need to be long-term. That’s why contributing to your super is essential and why indexes are so reliable.
The Dow Jones index was started in 1896. It will be here in 2096. Will Apple? I don’t know. Facebook? Maybe not. After all, who remembers Myspace?
But hopefully, you will be around even if Facebook and Apple aren’t, and you should ensure that you’ve built investments for the future life you want.
So, to maximise your investments, remember…
- Ensure your employer is making your super contributions—if they aren’t, it’s illegal, and it will negatively impact your future.
- Consider increasing your super contributions—use salary sacrifice to put money into your super before you even see it.
- Check your eligibility for super co-contribution—if you can, make after-tax contributions to take advantage of the government’s free contributions.
- Consider investing in indexes—if you’re going to invest in stocks, remember that indexes often outperform stock picking.
- Diversify—if some of your investments aren’t international, you are at higher risk for a local downturn. I suggest that some of your investments should be in an international market.
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This information has been provided as general advice. We have not considered your financial circumstances, needs or objectives. You should consider the appropriateness of the advice. You should obtain and consider the relevant Product Disclosure Statement (PDS) and seek the assistance of an authorised financial adviser before making any decision regarding any products or strategies mentioned in this communication.
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Who is Paul Atherton, That Wall Street Guy?
An ex-Wall Street advisor who worked with major players in the global financial industry for over 30 years, Paul’s mission is to help regular people reclaim their wealth and financial security.
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