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It’s beginning to look a lot like Christmas; meaning it’s that time of the year when we turn our minds to what gifts our near and dear would enjoy and value the most.
If you’re looking to help those you love to you get ahead financially in life, then perhaps the following ideas might be helpful.
For those in their 20’s & 30’s, a great book to give is “The Barefoot Investor – the only money guide you will ever need” by Scott Pape. The author provides a no-nonsense approach to helping readers get out of debt, start saving for a house, and gives practical advice on saving, investing, and buying a home.
Another gift idea for young children is for parents and/or grandparents to consider setting up a long-term savings plan to help those children accumulate wealth, which could perhaps be used for a future home deposit.
One way to do this is to purchase shares in a quality listed investment company, such as Australian Foundation Investment Company (ASX Code: AFI) AFI provides a low-cost way to invest in around 80-100 companies via a professionally managed portfolio. Dividends can be automatically reinvested to buy more shares, which assists in compounding earnings over the longer run.
A good strategy is to buy an initial parcel of shares (say $1,000 worth), then set aside say $20 per week and buy an additional $1,000 worth of shares each year. If you were to do this for 20 years, the investment could grow to be worth around $54,000 based on AFI’s 10-year track record of 8.6% per annum returns.
A final idea could work for those who have significant wealth tied up in a family trust and wish to help their young adult children to build their superannuation balance.
This strategy involves making a taxable distribution to the adult child from the family trust, then that child deposits the distribution into their superannuation fund, claiming a tax deduction for the deposit.
Generally, the cap on tax-deductible contributions (called Concessional Contributions) is $25,000 per year which includes any employer Superannuation Guarantee contributions.
Under new rules effective from July 1, 2018, if a person has a total superannuation balance of less than $500,000 then they can roll forward any unused concessional contributions to future years.
This means than an adult in the 2023/24 financial year, who has not made any concessional contributions over the previous five years and has a super balance under $500,000, could be able to put a maximum of $150,000 into their super fund and claim a tax deduction for doing so.
While locking money away in superannuation for 35 years (until they turn 60) might seem like a long time, it also means those funds can compound over the years in the tax-advantaged environment of super.
Such a strategy should not be put in place unless you have received specific advice from your accountant about the tax implications and from your financial adviser about the superannuation arrangements.
With the festive season almost upon us, I wish all our readers a very Merry Christmas and a healthy and Happy 2020. For those who would like some more information about the strategies mentioned above, we invite you to connect with one of our highly qualified financial advisers and together we can start future thinking for the ones you love.
Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email email@example.com or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.