If you want the possibility of a bonus tax refund, or a discount on your tax, then don’t forget to check your franking credits. If that concept sounds vaguely familiar, it should be – it’s an integral part of being an Australian income investor, particularly if you are a retiree.
How we invest can make a big difference come tax time. At the more basic end, this could mean factoring franking credits as part of our share portfolio. Or it could mean decisions on when to sell to manage capital gains.
When you are investing for income, you are looking for capital preservation, a level of growth and consistent income. But what if the fund you pick fails to deliver? Worse still, what if your money is lost?
You’ve decided to join more than 1.2 million Australians in managing your own self-managed superannuation fund (SMSF), but where do you start to build your portfolio? Just as with any investment portfolio, you can make it as simple or as complicated as you like, but it needs to align with your investment strategy.
Investors are familiar with the positives of adding global equities to their portfolios. Think diversification, exposure to some of the biggest companies in the world and the potential to access different growth themes.
The idea of regular, consistent payments is a critical part of an income-focused portfolio. Ensuring that a portfolio actually looks and works that way across extended periods can take a bit more planning. It’s not as simple as bunging everything into a bond and taking a monthly coupon.
If your portfolio has a home-town bias, you aren’t alone. Typically, Australian investors have a high allocation to domestic equities – even on an institutional level – and for a range of reasons. Think familiarity, access to franking credits and solid returns in recent times.
Once upon a time, income investors might simply have used a select group of dividend-paying equities and bonds to cover their needs. Today’s income portfolio looks vastly different – though equities and bonds still play a role.
Investors learnt the hard way long ago.
Did you know that assets under management in the alternatives space is tipped to hit US$30 trillion by 2030? This asset class has seen extraordinary growth in popularity in recent years, moving swiftly from the sole domain of institutions and wholesale investors to becoming broadly accessible to retail investors. Even if you aren’t exposed in your personal portfolio, there’s a high chance there are alternatives in your superannuation.
Imagine needing to withdraw your investment from a fund and being unable to. This is the exact dilemma that investors all over the world have faced. For some, it has been temporary. For others, their money has never been recovered.
When investors think about consistent income and risk management, mortgage funds are usually not front of mind. After all, their association with residential mortgage-backed securities can deter investors who remain cautious following the US subprime crisis that triggered the GFC. Those investors should bear in mind that Australia’s far more tightly regulated market offers protection against many of the same issues.
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