1. Borrowing to invest

Just as people use debt to finance the purchase of the home you can also borrow to invest in investment property or shares. The advantage of borrowing to invest is that if the return on the asset exceeds the cost of borrowing then you can grow wealth more quickly. The interest payable on investment loans is normally tax-deductible.

2. Dollar cost averaging

Dollar cost averaging is about investing money over a period of time, rather than in a lump sum, to avoid any market timing risks.

If we could work out the best time to invest in the share market to maximise our returns, we'd all be rich. But in reality the share market is highly volatile in the shorter, meaning share values go up and down in value. It really is very difficult to predict which way the market is going to turn.

To overcome some of the short-term volatility of investing in the stock market, you should consider investing a lump sum over a period of time, say months, rather than all at the one time. This is often referred to as "dollar cost averaging" as your initial investment price is averaged over a period of time.

By using dollar cost averaging, you are able to benefit from investing at the lows, while limiting investments at the peak. Dollar cost averaging will not always guarantee that you end up with more shares or units in a particular investment, such as when shares only increase over the period. However it does remove some of the guess work of trying to predict if shares are going to rise or fall in the short term.

3. Diversification

Diversification means placing money into a variety of different types of investments so that you spread your risks, rather than putting 'all your eggs in one basket."

It involves spreading your risk across different investments and different asset classes. Investors talk about four main types of asset:

1. Cash
2. Fixed interest (bonds)
3. Property
4. Equities (shares)

Each year, the top and bottom performing asset class tends to change, so trying to pick the winner each time means you may pick the loser and are likely to see enormous variations in returns from year to year.

Investing across different asset classes will certainly help smooth your returns from year to year. However, it's essential to spread your money across different individual investments to minimise the credit risk associated with investing on one company which could collapse (e.g. HIH). Managed funds already invest across a range of investments, so are a good way to diversify if you don't have the funds to do so yourself.

4. Maximising your entitlements

Health Insurance – The government is keen to ensure those people that have the capacity to partly look after their own medical insurance needs do so. As a result all resident individuals with assessable income are required to pay 1.5% of their gross salary as a Medicare levy. In addition, singles who earn more than $77,000 and couples earning more than $154,000 (plus $1,500 for each child after the first) are subject to an additional Medicare Surcharge if they do not also have a minimum level of private health insurance.

It is therefore important to look at your private health insurance options to avoid the addition surcharge. In addition, privately insured people have the ability to claim a 30% health insurance tax offset which most insurers pass on to consumer in the form of lower premiums rather than individuals arranging to have to claim it at tax time.

Finally, health insurers have also introduced lifetime health cover which rewards people with lower rates for life if they take out private health cover before their 31st birthday.

5. Using the correct tax and investment structure

Ensuring you have the correct tax and investment structures can make a difference to your bottom line (especially if you are a business owners), as long as your choice of structure is made for the right reasons.

There are many things that must be considered when deciding what is the best tax and investment structure in your situation. While reducing your tax is always a factor, it can never be the sole reason for entering into a transaction due to the anti-avoidance tax provisions which prohibit transactions /schemes being made solely on the basis of tax.

It is important to note that if you establish multiple structures that there may be implications for your affairs. Seeking the advice of a professional financial adviser is recommended to ensure you make a well-informed decision.

We will work in collaboration with your tax advisers so we can structure the advice to incorporate the alternative outcomes of each structure in your personal situation.

6. Charitable giving

During the course of creating wealth for yourself, it is always worth remembering those less fortunate. Many charitable organisations have been afforded tax deductible gift recipient status allowing donations to be tax deductible.

Your donations may be modest as you start a wealth creations strategy. Later, when you approach financial independence and are able to offer greater generosity, tax considerations may become more pertinent. For example, if selling an asset with a large taxable capital gains, it may be an appropriate time to consider a charitable gift whereby the government effectively funds half of your donation by way of the tax deduction available.

If philanthropy is a significant goal for you, it is now possible to set up your own charity to benefit good works throughout your life and leave a lasting legacy.

Where should you be investing? Which strategies are the best for your situation? Simply call us to arrange a complimentary initial consultation worth $250 or click here.

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