Wealth Creation
Wealth Creation Overview
Wealth creation is an important aspect of securing your financial future.
Wealth creation does not necessarily mean investing in superannuation but can include this as a component.
Importantly with wealth creation you should consider investments where you have access to your funds before retirement as this provides flexibility within your wealth creation strategy.
Wealth creation is not as simple as placing your funds into one investment and allowing it to grow; the key focus of wealth creation is to mitigate risk by spreading your investments across different sectors of the market.
Some of these may include shares, managed funds or properties which all make up a portion of your wealth creation portfolio.
Another consideration when formulating a wealth creation strategy is taxation from an income and or capital gains perspective.
Your financial planner can guide you through the potential implications and advise you accordingly.
When you make an investment as part of your wealth creation strategy, it can grow in two ways: Capital growth whereby the value of your investment grows or the investment can create an income.
In order to correctly determine your most suitable form of Wealth Creation outside of the Superannuation environment you must have a clear understanding of: -
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your investment time frame |
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goals |
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lifestyle objectives and |
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incomes. |
You may also benefit from a gearing strategy as part of the wealth creation plan you establish. Gearing simply means borrowing money to invest in order to accelerate the process of wealth creation by allowing you to make a larger investment than would otherwise be possible.
The borrowed money can be invested in a number of ways, including direct shares, property and managed investments.
Borrowing money to invest can magnify the risk you take with an investment, as you still have a cash flow commitment should the investment value reduce, or interest rates on the borrowings increase.
The major tax advantage relating to gearing is that generally, interest on your borrowed money is tax deductible. As part of your wealth creation strategy we suggest seeking professional advice.
It is important to ascertain your investment ideals and your attitude to risk versus return and the Client Questionnaire is designed to determine: -
Your attitude toward a particular investment should based on: -
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Where your money should be invested |
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How long it should be invested |
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Your tolerance towards fluctuations in capital values |
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Your income needs from investments. |
The answers to the questions determine your “profile” which we can then match to specific wealth creation objectives.
Any recommended portfolio or investment strategy for wealth creation needs to be designed not only around your risk profile but also must consider your goals and objectives and the risk and return philosophy of financial planning.
All investments involve some risk. The relationship between risk and the expected return from an investment is fundamental to making appropriate investment decisions.
Investments with high levels of risk usually promise high rates of return, while investments with low risk levels offer low levels of return.
There are five major asset classes to consider for wealth creation: -
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Cash |
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Fixed Interest |
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Australian Equities |
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International Equities |
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Property |
Opportunity and risk of main asset classes
A common method of limiting investment risk is to spread the investment capital over a range of different investment asset classes.
The proportional amount invested into each asset will depend on your needs and objectives, investment timeframe and attitude towards accepting risk.
Diversification provides a protection from risk in that it helps mitigate the volatility of returns by the individual asset classes.
Whilst it is not possible to eliminate all investment risk, a key strategy of managing risk is through diversification of investment capital. Diversification involves spreading funds across asset classes.
You can purchase your investment portfolio using many different methods. Four common methods are:
Master Funds – Wealth Creation
A master fund is a trust structure that allows individual investors to access wholesale funds and listed investments through an administration manager that provides the investor with consolidated reporting.
Retail Funds – Wealth Creation
Retail funds offer investors the opportunity to pool their money with other investors to purchase a portfolio of assets.
The retail fund will professionally manage the investment funds on behalf of the investors. Minimum investments for retails funds are generally $5,000, although lower via regular savings plans.
Direct Investments – Wealth Creation
Direct investment involves the selection and purchase of fixed interest investments, listed property trusts (or direct properties), listed Australian shares and/or listed international shares, together with the responsibility for the personal ongoing administration and review of those investments.
Wholesale Funds – Wealth Creation
Wholesale funds are managed investment funds that are designed to accept investment amounts from professional investors.
The minimum investment amount for a wholesale fund is generally $100,000 - $500,000.
To most, wealth creation strategies can be a daunting process; however your AFG Authorised representative can assist you to develop a strategy that balances risk and return, as it caters to your specific profile.
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