Time to Review your Investment Strategy
It’s not what you do at the end of the financial year that counts, it’s what you doin the weeks leading up to it.
For those who run a self-managed superannuation fund (SMSF), the regulations state that they must have a documented investment strategy and that an independent auditor must check, on an annual basis, that their portfolio matches their strategy. It’s a very responsible piece of legislation as it not only makes people think about what they’re hoping to achieve and how they might get there, but it also ensures they ‘stick to their guns’.
Outside of the strict SMSF environment, investors have more opportunity to change their minds and can be heavily influenced by the fast-moving and sometimes turbulent economic climate. But the lead-up to the end of financial year (EOFY) should be a time that you look to the original reason behind your investment strategy and allow yourself to step back and consider how it’s performing. It’s a time for making sure your financial goals are still on track.
In the period leading up to EOFY, it’s important to visit your financial adviser.
Things to consider include:
What is your mix of superannuation and nonsuperannuation assets? Prior to 30 June is a good time to assess what mix will be most tax-effective for you, given your circumstances.
Should you top up your super and if so, how close are you to the contribution caps?
- If relevant, should you take advantage of government incentives like co-contributions?
- If you’re approaching retirement, end of financial year is an important time to review your strategy as you prepare to make the transition towards using your super as an income stream.
Capital gains: a case study
You should also consider whether it is a good time to sell investments and how you can minimise capital gains tax.
Here’s an example of how it might work for a couple nearing retirement.
Let’s say it’s 1st March 2013 and Kynan and Melissa are aged 64 and 59 respectively and both are still working. Kynan earns $90,000 and Melissa earns $110,000. Kynan intends to retire permanently on 30 June 2013.
When Kynan was 44 years old, after receiving an inheritance he acquired a share portfolio worth $200,000 which has now more than doubled to $500,000. Melissa and Kynan would like to sell the share portfolio and transfer the money into superannuation to help with their retirement nest egg.
Kynan is entitled to apply the 50% discount on the capital gain for an asset he has held for longer than 12 months which means $150,000 will be included in his assessable income in the financial year the disposal takes place.
Should Kynan sell his share portfolio before or after 30 June 2013?
If he sells the shares after 1 July 2013, he will pay tax of $45,697 including the Medicare levy (assuming no other income or deduction in the financial year). If Kynan had sold his shares in the previous financial year when he was earning $90,000, then he would have paid additional tax of $62,550 as a result of disposing the share portfolio. Either way Kynan needs to make sure he puts aside sufficient cash from the sale proceeds to meet the tax liability when it falls due.
Carrying your portfolio into the new financial year armed with knowledge and insight, and ensuring it is tracking towards your original end goal, can be a powerful step towards long term success.