Schuh Biz ACCOUNTING, WEALTH & FINANCIAL PLANNING NEWSLETTER! AUGUST 2014 SCHUH GROUP YOUR WEALTH IS OUR BUSINESS ✓ ✓ ✓ ✓ ✓ Accounting Finance Business Consulting Property Management Wealth Advice COS SCHUH DIRECTOR. Associate of the Institute of Chartered Accountants. Certified Practicing Accountant. Taxation Institute of Australia member. Bachelor of Business, Accounting Major. DOM SCHUH WEALTH ADVISOR. Bachelor of Business Management, Economics. Bachelor of Arts, History & International Relations. Advanced Diploma Financial Planning. Chartered Life Practitioner. SMSF Specialist Advisor. DAVID SCHUH FINANCE. Property Valuation & Sustainable Development Bond University. Diploma Mortgage Broking. SCHUH GROUP 58-62 Mary Street Gympie, QLD 4570. PO Box 191 Gympie, QLD 4570. p: 07 5482 2855 f: 07 5482 2495 w: schuhgroup.com.au e: [email protected] Disclaimer: Schuh Group’s Schuh Biz Newsletter is intended to provide commentary and general information. It should not be relied on as legal advice as such. Formal legal advice should be sought in particular transactions or on matters of interest arising from this newsletter. Special Thanks to Cameron & Tanya Outridge from CustomerGetters.com.au for the redesign of our newsletter. BUILDING WEALTH IN SHARES Warren Buffet’s top three investing mistakes to avoid by Dominique Schuh Warren Buffett, the billionaire investor with the Midas touch, has a message for Main Street share investors: "The nice thing about investing in shares is that, over time, equities are going to do well," Buffett comments. "American business is going to do well. America is going to do well. So you have the tide with you." Building wealth in shares is still the way to go, even though the ride can get bumpy from time to time, says Buffett, 83. But to really profit from shares and build wealth over time, says Buffett, individual investors must avoid making costly mistakes that shrink their portfolio balances, just as a football team that wants to boost their odds of winning must avoid fumbling the ball away, throwing an interception or taking a penalty at a bad time. “People that think they can predict the short-term movement of the share market are making a big mistake” When Buffett was recently asked in an interview with USA Today to put on his personal finance hat and to tick off the three biggest mistakes amateur investors make, here’s his list of "Top 3 Mistakes to Avoid": 1. Trying to time the market. "People that think they can predict the short-term movement of the share market — or listen to other people who talk about (timing the market) — they are making a big mistake," says Buffett. 2. Trying to mimic highfrequency traders. Buying shares in a good business and hanging on for the long term, he says, is a better strategy than flipping shares like a short-order cook flips pancakes. "If they are trading actively, they are making a big mistake," Buffett says. 3. Paying too much in fees and expenses. There's no reason to pay an expensive management fee to invest in a managed fund when super-low-cost index funds that mimic large indexes like the Standard & Poor's 500-share index are available, he says. "If they are incurring large expenses in connection with their TO PAGE 2 Schuh Group. Your Wealth is Our Business. Phone 07 5482 2855. ACCOUNTING, WEALTH & FINANCIAL PLANNING NEWSLETTER! AUGUST 2014 INVESTMENT ADVICE FROM THE WIZARD OF OMAHA FROM PAGE 1 investing," says Buffett, "they are making a big mistake." Buffett, of course, is famous for buying shares when they are cheap, buying solid businesses that make a lot of money today and will make a lot of money tomorrow, and hanging on to his investments for a long time to better maximize profit potential. The strategy works. You don't become the richest person in America during your career with a lousy investment game plan. (Buffett, with a net worth of $58.5 billion, is currently ranked No. 2 behind Microsoft founder Bill Gates, who's worth $72 billion, according to Forbes magazine.) "Doing reasonably well investing in shares," Buffett says, "is very, very easy." Here's how he says investors should play the investing game: "Buy an index fund, preferably over time, so you end up owning good businesses at a reasonable average price," says Buffett. "And that is all you have to do." SUPERANNUATION Businesses to contribute 9.5% Super for their staff in 2014/15 From 1 July 2014, the Superannuation Guarantee rate increased to 9.5% (from the 9.25% that applied for the 2013/2014 year). Superannuation Guarantee is the official term for compulsory superannuation contributions made by employers on behalf of their employees. An employer, small or large, must contribute the equivalent of 9.5% of an employee’s salary for the 2014/15. Background In May 2010, employed Australians received a pleasant surprise when Treasurer Wayne Swan announced compulsory employer super contributions would jump from 9% to 12% of salary by July 2019, an eventual 33% increase in contributions. In March 2012, the proposed increase in SG entitlements received Royal Assent and became law. The new Liberal government has promised to continue the SG rate That's it? It's that simple? Buffett says yes. "You don't need to look at the prices of the shares you own from week-to-week, or month-to-month, or even year-to-year," says Buffett. "If you own a cross-section of American businesses, and you don't get excited (and buy) just at the very top, and if you buy in over time, you are going to do well." We wholeheartedly support Warren Buffett’s recommendation of using low cost index funds as the basis of your share increase, but at a slower rate. The Liberal government will be introducing amendments to slow down the increase in the SG rate. They announced the SG rate increase will stall for 3 years (from 1 July 2015), rising to 10% from 1 July 2018. The SG rate would then increase by 0.5% each year until it reached 12% by July 2022 (see table below). Fin. Year 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 Rate 9% 9.25% 9.5% 9.5% 9.5% 9.5% 10% 10.5% 11% 11.5% 12% What does this mean for your retirement plans? The SG increase has significant financial implications for anyone expecting to remain in the workforce for more than 8 years. Because the full 3% increase takes affect from the start of the 2022/2023 year – in 8 years’ time. According to the Federal Government, the 33% increase in the SG rate will give a 30-year-old on average fulltime wages an extra $108,000 in retirement Schuh Group. Your Wealth is Our Business. Phone 07 5482 2855. portfolio, and this is exactly the type of investment strategies we put in place for our clients. An example of an index fund for Australian investors is the ASX200 – a basket of shares made up of the top 200 companies on our stock exchange, which we often use in investor’s portfolios. • If you would like more information in this area, please contact Dominique Schuh on 07 5480 4877 or at [email protected] savings just by turning up for work. There has been, and will continue to be, some resistance from employers, especially small business employers. The former Federal government argued, however, that the 3-year lead time (from May 2010 through to July 2013) would have given employers plenty of time to prepare for the increase. An interesting stumble in the selling of the SG increase, is that the company tax rate was eventually going to fall to 28%. During 2012, the Government announced that the company tax cuts would not go ahead. If you are an employer, please make arrangements early in the current financial year for your employees to now be receiving a 9.5% SG payment rate. And if you would like any assistance in cashflow budgeting for this increased expense, please contact our office. • Check with our office on 07 5480 4877 prior to contribution if you have any doubts. YOUR ACCOUNTING, WEALTH & FINANCIAL PLANNING NEWSLETTER! ACCOUNTING, WEALTH & FINANCIAL PLANNING NEWSLETTER! APRIL 2014 2014 AUGUST HOW YOU CAN TAKE ADVANTAGE OF THE BANKS’ RATE PREDICAMENT. Interest rates are on the move, and the banks are in a predicament trying to attract new business. The banks cannot reduce their Standard Variable rates to attract new borrowers, as this would impact their whole customer portfolio and cost them billions in lost revenue. Instead, they are o!ering arti"cially low short term "xed rates to attract new business with a cheap headline rate. Savings on the variable rate of up to 0.6% can be made by taking a 1 year "xed rate with your current bank. It would take three RBA downward movements of 0.25% for a borrower to be disadvantaged. On a $300k loan, this would save the borrower $1,800 per annum. The cost to switch to a "xed rate is usually around $300. • If you would like a review of your current loan arrangements, please contact David Schuh on 07 5480 4808 or at [email protected] SUPERANNUATION Superannuation contributions rise for 2014/15 The contribution caps for concessional (before tax) and non-concessional (after tax) contributions to super have increased for the 2014/15 year, as a result of indexation. Concessional contributions include: • your employer’s compulsory Superannuation Guarantee contributions, • your salary-sacrificed contributions, or • any contributions claimed as a tax deduction. Under the superannuation rules, the concessional cap is indexed in line with movements in average wages, and increases in $5,000 increments. If you’re aged 48 years or younger on the 30 June 2014, you can contribute up to $30,000 a year in concessional contributions for the 2014/2015 year (previous years the cap is $25,000). Refer table below. Concessional contributions Year Under50 50-59yrs 60 & over 2014/15 $30,000 $35,000 $35,000 2013/14 $25,000 $25,000 $35,000 If you’re aged 49 years or older on the 30 June 2014, then you can contribute up to $35,000 a year in concessional contributions for the 2014/2015 year. The special cap of $35,000 was also available for the 2013/2014 financial year, but only for Australians who were aged 59 years or older on 30 June 2013. Non-concessional contributions are voluntary contributions not claimed as an income tax deduction by you, or your employer. The non-concessional cap is indexed in $30,000 increments in line with any $5,000 increase in the concessional contributions cap. The non-concessional (after tax) contributions cap has increased to $180,000 for the 2014/15 year, compared Schuh Group. Your Wealth is Our Business. Phone 07 5482 2855. with $150,000 for the 2013/14 year. If you take advantage of the bringforward rules during the 2014/15 year, then you can make up to $540,000 in nonconcessional contributions in one year, representing your non-concessional cap for the current year and following two years. Quote from George’s Desk Better to keep your mouth closed and be thought a fool than to open your mouth and prove it. – Dorothy Schuh ACCOUNTING, WEALTH & FINANCIAL PLANNING NEWSLETTER! AUGUST 2014 PROPERTY Buying a rental property? Don’t bet on growth REGION Now that interest rates are at historically low levels, many people are looking seriously at entering the property market, in an attempt to gain higher rates of return than cash. People are also making use of the relatively low borrowing costs also associated with the lower interest rates. However, the table below highlights the need for investor caution in this area, particularly in Queensland regions: From the above data, it’s clear that capital growth in Queensland properties has been relatively low. This means that for a residential property ANNUAL CHANGE IN HOME VALUES ACROSS REGIONAL QUEENSLAND AREAS. HOUSES UNITS Qtr 1yr 5 yr 10 yr Qtr 1yr 5 yr 10 y Brisbane Gold Coast 0.8% Sunshine Coast West Morton Wide Bay-Burnett Darling Downs South West Fitzroy Central West Mackay Northern Far North North West 0.6% 6.1% -0.3% -3.2% -0.7% 0.5% 0.4% -2.9% 0.4% -0.4% -1.3% 0.7% 0.4% 7.2% -0.3% 3.3% -2.7% 1.0% 3.2% 4.7% -3.8% 4.7% 0.0% -3.5% 5.8% 4.7% 0.0% 2.4% 0.0% -2.3% -1.8% 1.7% 1.2% 1.5% 1.2% 2.8% -1.6% 1.2% 1.2% 3.5% -1.2% 2.8% 3.4% 3.2% 5.3% 4.6% 7.9% 4.6% 9.8% 5.0% 5.9% 4.6% 1.4% 0.2% -0.6% na 0.8% 1.8% na na na na -0.1% -0.3% na 5.4% -2.0% 1.4% na 1.5% 5.5% na na na na -4.9% -0.5% na 0.5% 1.4% -1.3% na -0.1% -2.5% na na na na -3.6% -2.4% na 4.1% 0.6% na 3.7% 2.7% na na na na 5.0% 2.3% na Note: Table has been supplied by RP Data. Capital city values are up to June 2014 whereas all other markets are to May 2014. 5 yr figure is the 5 yr compound annual change and 10 yr compound annual change. investment to be successful, an investor must be sure of extremely strong income returns from tenants. The figures above are contrary to our usual assumption that “property always goes up,” as we can see there are many occasions when the growth rate is less than the rate of inflation of 3%. • If you’re considering buying a residential property for the purpose of investment, and you would like a second opinion on the soundness of the investment, please contact either Cos or Dominique Schuh. on 07 5480 4877 or email dominique.schuh @schuhgroup.com.au. IT’S THAT TIME OF YEAR AGAIN. GET YOUR TAX DONE IN 30 DAYS! Are you ready for the tax season? We are! Feel free to drop your tax work into our o#ce as soon as you can, and we will endeavour to have this processed for you within a 30 day period at the latest. You never know, you may just be eligible for a refund this year, so the GST and property — you may only get one chance to get it right! If you are buying or selling property it is important that you consult us about any possible GST implications. As property transactions involve large sums of money, any incorrect GST treatment can have a huge detrimental impact – particularly for the vendor. There is still a deal of confusion regarding GST exemptions particularly in the areas of; Residential Property, Rural Farm Land and Going Concern transactions. Unfortunately not all legal advisers have the necessary knowledge to accurately advise you regarding GST. We recommend that you always check with our office prior to signing any contracts, particularly those involving rural or commercial property. • If you have any queries please contact- Peter Flemming on direct email [email protected] m.au or 07 3878 8889 Schuh Group. Your Wealth is Our Business. Phone 07 5482 2855. sooner your work is completed the sooner you can expect your payment. • If you would like a meeting with one of our accountants, please contact our o#ce on 07 5482 2855.
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