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But I’m not. It’s real and so simple. Some of you are already using this investment opportunity and don’t even think about it. I will tell you how and you will see I am telling the truth, no tricks, and no schemes. First though, I want to discuss some investor psychology.
When looking for places to invest our retirement “egg” or to find an opportunity to get a better return, most of us expect there to be something magic about it. If it’s too simple then it’s hard to sell. Investments proposals that I see are often highly promoted asset and property deals. Don’t get me wrong, I love property, but not all property deals are worth considering.
I have been asked to explain Negative Gearing and Internal Gearing investment proposals, often “sold” to the FIFO community. These proposals are often packaged up with exiting promotional material and include the asset placement as well as the finance.
There is no magic here. “Negative Gearing” means losing money now, to hopefully make more money in the future. Some of these proposals are overvalued and are so loaded with additional costs by the promoters, it makes it unlikely that you will ever profit. Basically it’s “Give me a $1 and I’ll give you 48.5c”.
There are not-so-exciting, simple strategies we can all use. Paying of private debt is a simple but effective strategy. It’s free and boring but it works. Even at today’s low interest rates the effective return in paying off a private mortgage compared with a pre-tax investment is worth considering even for an average tax payer in the 34.5 per cent tax bracket. Credit Card debt even more so.
For example, every $10,000 debt re-paid at 5 per cent interest will save you at least 500 per year. To have $500 to pay the interest you need $763 Income before tax at 34.5 per cent.
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So simply paying off your home loan, is the same as earning 7.63 per cent before tax (763/10000). Where can you get 7.63 per cent per annum return on an investment? In today’s market that is a very good return, but not as good as the 29 per cent gain I promised you.
Superannuation is now a significant investment for most of us. What your super is invested in is important, and you should take control of who has it and what it’s invested in. But I’m not talking about the underlying investments inside your super. I’m talking about the simple act of putting extra into your superannuation fund.
Compulsory super is paid by employers, but for most of us there is the opportunity to make additional contributions. There are limits so please seek advice. Super is a way of investing with tax concessions and the effect is shown below.
For every $1000 earned for an average taxpayer at a tax rate of 34.5 per cent, you will receive $655 in your hand to invest (i.e. $1000-34.5% tax = $655) or if you contribute 1000 to a Superfund before tax it will pay tax at 15 per cent leaving $850. That means that you are instantly $195 better off ($850-$655).
So simply paying pre-tax super you will be 29.77 per cent in front, instantly (195/655).
If you want to do the maths, it works out to be over 39 per cent gain at the next tax bracket, but I thought you might not believe me if I said that. Don’t overlook simple opportunities in favour of a flashy investment strategy.
This is general advice and may not apply to every individual. In all tax, finance and investment decisions you should seek professional advice.
