For 47 years Jim Vickers-Willis was employed in the Finance Industry, working with just one organisation - although he saw its ownership and name change a few times from 'T&G' to 'National Mutual' to 'AXA'. Following new industry accreditation regulations and aged 82, Jim passed the Diploma of Financial Planning at Deakin University and became one of Australia's first (no doubt also 'oldest') Certified Financial Planners. He continued his practice in association with Accountant son Peter (DFP, CPA). He retired in 2004 and no longer gives financial advice. Jim passes on the following information on asset allocation, annuities, and life & income protection insurance, which he considers vital information to anyone arranging their financial affairs.
Our Approach is Simple - Success in Planning your Financial Future is a Balancing Act!
The planning system called "Asset Allocation" aims to produce the best return for each individual with the least risk. In seeking the right balance, it often starts with some of your money going into equities (i.e. shares), some of your money going into property and some going into fixed interest (such as banks, etc). Then when your money has been split up this way, each investment is "diversified".
You may have some shares in industrial-type stocks and some in resource stocks, some in Australian shares and some in overseas shares. Within those groups there may be further diversification - putting some of your investment money into one type of company and some into an entirely different industry. The same applies to property and fixed interest investments. You may have some money in residential property, some in central business district property, some in property trusts. An even wider diversification comes by using different fund managers whose management styles complement one another. For instance, one insurance office I dealt with regularly I would consider a "passive" type of investment manager. Another smaller office I also consider a "passive" investor. A big American-owned management team, which is very successful in Australia, I would consider an "aggressive" manager.
So, in seeking diversification for a client, I would
be likely to use products with the American manager plus one of the two
life offices; I would not be likely to use the two life offices together
because I would be looking for diversification of styles so that they
complemented one another. This Asset allocation not only spreads the risk
but it means that you take advantage of the fact that when one section
of the market is going up some other section of the market is going down,
and vice versa.
Everyone needs an income in retirement and in some cases the most tax-effective, pension-effective, safe and convenient way of gaining this income is by arranging an annuity. Under Australian law, the profits of life insurance policies and the profits of superannuation investments are taxed but the profits of annuity investment are not taxed at all - so this means the life office can give a better return on an annuity because of lower taxation. Also the Australian tax and pension laws allow the "straight line rule" for annuities. This means that if you have 18 years of life expectancy and you put $100,000 into an annuity, the Tax and Pension Department divides 18 into the $100,000 and says that every year when you receive your annuity income one-eighteenth of it (i.e. $5,555) is return of your capital. So if your income from the Annuity is say $11,000, it means that only $5,445 will be taxed and only $5,445 will count against your Pension Income Test, even though you are actually receiving $11,000 for the rest of your life. Also, annuities can now be indexed to increase each year in line with the C.P.I. and they usually have a guarantee on them, so if you should die early, your estate must get back the balance of the money that you paid into the annuity. Annuities also keep on paying out even when you are old and infirm and are unable to run your affairs; a joint lifetime annuity can go on paying out in full until both partners in a marriage have died. Can be very comforting.
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