Welcome to Finance and Fury, the Say What Wednesday edition.

This week, the question comes from Andrew:

“Last episode you mentioned super and a product that lets you invest in third party platforms. Would like to hear more about that.”

What is super?

  1. Most people think of superannuation as just something your employer pay in to so that when you turn 60 you can access it.
    1. Even though your employer pays into super, that is your money! 9.5% on average
  2. don’t care and why would you right? out of sight, out of mind and decades away from becoming relevant.
  3. If you could log into your bank account and click a few buttons to save a few hundred dollars a year, would you?
  4. The real cost of super is opportunity cost – doing nothing now will hurt
    1. Any problem ignored long enough will grow – until it is too late
    2. Pay attention and make it work – don’t regret the future
    3. One thing I hear clients say all the time is ‘I should have looked at this years ago’ – regret is worse than effort

 

What are your options:

  1. Super is a vehicle to invest funds for retirement – A car is a vehicle
    1. You can get a Mazda, or Mercedes but the aim is to get you from point a to b!
    2. Like cars there are different types of super accounts with different features
  2. Have many types – but major three types – Industry, retail or SMSF
  3. Industry
    • Industry super funds are multi-employer funds (employer associations and unions).
    • Investments – limited to around 10 multi-sector investment options (eg. Growth, Conservative, Balanced), limited insurance options
  4. Retail – Platforms for investments – can be for investments but also super
  • A Master Trust is a superannuation fund in which a large number of members deposit their money.
    • The trustee of the Master Trust pools the money together and purchases interests in the underlying investments, typically managed funds.
    • The value of the investments of each member incorporates the fees, franking credits and some taxes from the underlying investments.
  • WRAP account – External super trustee but you have control over investment decisions
    • You get a cash account
    • Then you select third party investments – Managed funds, Direct Shares, LICs, ETFs

 

 

Breakdown

  1. Both types of accounts are operated by a trustee
    1. WRAP – the investor holds the underlying assets in their own name
    2. For master Trusts Investments are held by a trustee in its name, on behalf of the investor
  2. Both Wrap Accounts and Master Trust May hold managed funds – but different type and flow through of distributions
    1. Wrap accounts have access to the wholesale managed funds pricing, as well as direct investments such as shares and term deposits
      1. Franking credits are distributed to individual investors through the cash account
    2. Master trusts allow access to managed funds but at a badged cost – incorporate fees into the unit pricing and take it out prior to passing on returns – similar to Industry funds
      1. Franking credits are incorporated into the unit price of the underlying investment
    3. How valuations work – and the costs for each of the accounts
      1. WRAP – The value of a member’s investment is determined by the underlying assets
        1. All fees and taxes are unbundled from the unit price and disclosed separately
      2. Master Trust – The value of an investor’s account is determined by the trustee based on the value of the underlying investments
        1. All fees and some taxes are bundled into the unit price for each investment and allocated to the investor
      3. Cash management and investment planning
        1. WRAP accounts – A cash account is used for each member through which income and expenses are passed
          1. An investor’s assets in a wrap account can be transferred to a new wrap account – in specie
        2. Master Trust – Income from the underlying assets is paid to the master trust and then distributed to members
          1. If you want to change to a different master trust you will need to sell your investments in your current master trust, which may result in a taxable capital gain or a capital loss, as well as other transaction costs

 

What are the advantages of wrap accounts and master trusts?  These administration structures are designed to provide different benefits –

  1. Access to a wide range of investments including low-fee wholesale funds, plus any cost savings that may apply as a result of pooling a large number of investors’ monies
  2. Comprehensive and consolidated reporting and valuations for all your investments in the structure
  3. online access so it’s easy for you to keep up-to-date with your investments
  4. transparent fee structure so you know what is being paid on your behalf
  5. Biggest is the range of investments – having the direct flow through to your account rather than it being passed on at the fund level – flexibility in investment planning

What’s right for you?

  1. Have larger sums of money to invest, Require access to direct investments and a very broad range of managed funds, want to be hands on and Want sophisticated reporting, Wish to benefit from franking credits being credited directly to their account.
  2. Industry – low options, standard based on risk profiles

 

What to do to make sure you make the most out of it?

  1. Most important thing is to Pay attention – get the right investments
    1. Cars: You can have a Ferrari but if the driver (investments inside the account) is awful, the car may crash! Not getting to point B!
  2. Make sure your contributions are going in there
  3. Treat it like your own, cause it is – If you think you don’t have any investments, well you do in your super
    1. Managed funds are investments – just doesn’t look like it with industry funds

Thank you for listening to today’s episode. If you want to get in contact you can do so here: http://financeandfury.com.au/contact/

Why has Telstra tanked? Is it a good time to buy, or sell?

Say What Wednesdays Why has Telstra tanked? Is it a good time to buy, or sell? Why has Telstra tanked? For so long, Telstra has been a Market Darling … a great dividend-paying share, almost like the world’s best term deposit…but what has happened? They are out of...

Where to invest in preparation for the next financial collapse?

Welcome to Finance and Fury Today – Want to start looking at what would likely survive another financial correction or worse, collapse Been thinking a lot recently about the structure of the modern economy – This episode is probably more like a FF ep, but this topic...

The RBA rate drop will further compound our ‘low growth trap’, rather than stimulating the economy

Welcome to Finance and Fury, The Furious Friday Edition In this ep, we continue looking at the lucky country look at a downward spiral in growth – low growth traps – and how it is created by what is meant to help growth?   Low growth trap – The big problem comes...

What leads to hyperinflation and if there is any possibility of seeing that sort of scenario in Australia

Welcome to Finance and Fury, the Say What Wednesday Edition, Where we answer your questions, today's question is from Sol Tau Thanks for the Podcast and all the great info it provides. Could you explain what leads to hyperinflation and if there is any possibility of...

Options for reversing the “big bang” deregulations and the economic reliance on central banks.

Welcome to Finance and Fury, the Furious Friday edition. Does the Government need to solve economic problems? Do central banks solve economic problems? If so – how? These are honest question that do need to be thought about - there seems to be this growing thought...

What are the pricing and redemption risks of Managed Funds versus Listed Investment companies?

Welcome to FF – SWW- answer questions from each of you – this week from Sebastian   Hey Louis. I've been thinking about the pro's and con's of Managed Funds vs LICs/LITs. It occurs to me that one of the main disadvantages of managed funds is their open-ended...

Starting an online business or franchise

Welcome to Finance and Fury, the Say What Wednesday edition John’s Question: I thought a useful topic could be about pros and cons off starting a business and starting your own business vs buying a franchise system etc. and using a business to achieve financial...

Accumulating wealth and the steps to take in preparing for Financial Independence and funding retirement expenses

Welcome to Finance and Fury, the Say What Wednesday Edition Today's episode is about building wealth and getting ready for retirement Keeping with the Theme – Solving the economic problems Using the resources you have (income, savings, equity, etc.) to get what you...

Cash rates decline – but will your mortgage repayments? As your savings rates certainly will!

Welcome to FF – RBA cash Rates are lower now – talk about flow on effects Today – Will you get mortgage cuts, how your savings will be affected, effects on the job market and wages.   Mortgage cuts Don’t expect the banks to pass on the Reserve Bank’s rate cuts in...

Theory versus reality – Can any theory explain the current action of financial markets?

Welcome to Finance and Fury, the Furious Friday edition. Today – want to look at market theory versus reality – because a lot of market theory doesn’t hold up – so are the markets truly changing? Is this just a short term divergence prior to markets going back to...

Pin It on Pinterest

Share This