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Do the Math

 

OVER 50 YEARS OF AGE AND PAYING OFF YOUR HOME?

 

Contrary to popular belief, this may be a poor financial discision ... your money may be better served elsewhere at a return of 38-45% without any risk! Ask Birchcorp how this can be achieved?

 

THE COST OF RUNNING AN SMSF IS MUCH LOWER THAN A RETAIL SUPERANNUATION FUND.  IT IS ALL IN THE NUMBERS!

 

This is so very true! Let's use a running example.

 

A superannuation fund has a balance of $150,000 (you can combine the super funds of up to four people to achieve this). This fund is a SMSF that acquires a property for $400,000 by borrowing from any major bank. The fund now has over $450,000 in assets. This includes approximately $50,000 in cash as your original balance of $150,000 was not entirely used for the deposit of the property.

 

IMPORTANTLY... Your SMSF has now been given the opportunity to make an 8-10% compound return on $450,000 vs the original $150,000. Your super fund now has the real opportunity of returning a great retirement income.

 

Now to prove the statement in the title ... an SMSF that purchases a property for $400,000 and has cash of $50,000 is not charged on a percentage of the funds under management. Your SMSF is billed at fixed price here at Birchcorp of $3500 regardless of the assets (inclusive of accounting and auditing fees and any other charges). Now compare this with a typical Retail fund, that is common with most Australians, that has $450,000 in assets. The cost in this event is $13,500 (this is up to 3% as it is charged on a percentage of funds under management). Leveraging does carry risks and so a well thought out plan from your Financial Planner is advised. But the numbers speak for themself ... running and buying property with your SMSF will provide the opportunity to make more money for your retirement. In relative terms, by comparison, the fees and charges are far less than a typical Superannuation fund.

 

‘FOR YOUR INTEREST ONLY’ (Tax Deductible debt v Non tax Deductible debt)

What happens? If all interest repayments relate to Tax Deductible Debt i.e. they are derived in the course of earning assessable income, then life looks a little easier?

You can work out the comparable interest rate by dividing the nominal interest rate by (1- your marginal tax rate). Compare a home loan (non-deductible debt) of 6.5% and a credit card at 16% (non-deductible debt) to an investment loan (deductible debt) of 6.5%.

For an income earner in the 30% marginal tax rate (+ Medicare levy).

Credit Card: 16% / ( 1 - 31.5%) = 23.36%

Home Loan: 6.5% / ( 1 - 31.5%) = 9.49%

Investment Loan: 6.5% x ( 1 - 31.5%) = 4.45% (interest expenses are discounted by your marginal tax rate).

Now look at an income earner at the highest marginal rate ( + medicare levy):

Credit Card: 16% / ( 1 – 46.5%) = 29.91%

Home loan : 6.5% / ( 1 – 46.5%) = 12.15%

Investment loan : 6.5% x ( 1 – 46.5%) = 3.48%

Assumption: The investment loan relates to a negatively geared property. 

Although this paints a negative picture of credit cards, there is room for the use of credit cards in wealth creation strategies.

 

 

"I HAVE MADE MY MONEY BACK"?

 

Things are not as they appear. A common statement, " I lost 50% in the Stock market last year, But this year I have made 35%, my loss is only 15%. Let’s do the numbers:

 

Year 1: Opening balance = $100,000

Loss (50%) = 50% x $100,000 

Stock value = $50,000

Year 2: Opening Balance = $50,000

Gain (35%) = 135% x $50,000

Stock value= $67,500 

 

Real Loss is $32,500 / $100,000 x 100 = 32.5% (Real Loss)

 

Now this paints a completely different picture! 15% v 32.5% ( more than double your perceived loss).

This is one of the many, many instances that you may be misled as a consumer. 

 

 

 

IF YOU INVESTED $10,000 BACK WHEN......

 

I love this one. 

 

"If you invested $10,000 in the stock market it would be worth $1million today". 

 

Here's the facts: 

There has been about 60 companies that have achieved this in the entire All ordinaries index. (Australian Stock Market) 

Of the 60, You would have had to purchase 23 of these companies prior to 1979. This means the $10,000 invested in the 1970's in today’s dollars is vastly different due to inflation (Remember what the price of a house or can of soft drink was in the 1970's - You could buy a very nice house in Sydney at this price) 

Only 13 of these companies at their lowest price had a share price of over 9 cents. i.e. you would be investing $50,000 into a speculative company. 

You had to buy and sell the share on the day that it had it's lowest and highest price. i.e. you had to be buying at the perfect time of a day in the right year. This is statistically unrealistic. 

22 of these companies required you hold the shares for more than 25 years. 

Summary: Investing $10,000 (equivalent to investing in the value of a house in the early 1970's) into a speculative company (share price of 0-9 cents) for greater than 25 years at the exact intra-day high and low to achieve a great return is very unrealistic. This investment option is rubbish. Please read between the lines to see that marketing can often sell a concept that can never be achieved. 


Purchase Property in your SMSF

SMSF and property investments: Although many property spruikers stand before you and sell the concept that everyone must buy a property in your SMSF. Birchcorp is here to say that there is much time and effort required for an investor to decide to embark on this complicated arrangement. Although Birchcorp is happy to say the process is as easy as 1,2,3... it is not a process that should be taken lightly. We are professionals and have processed these SMSF establishments and ongoing services many times. A complacent trustee can easily come into serious trouble with the govern... Read More

Insurance

Birchcorp can show you how you may purchase your Insurance with no out of pocket expense.

Unlike other Financial Planning firms, Birchcorp is happy to show you how and why you can decrease your Insurance coverage... Read More

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Birchcorp Pty Ltd ABN 56 132 775 654 is a Corporate Authorised Representative (No. 339299)
of Dover Financial Advisers Pty Ltd ABN 87 112 139321, which is the holder of an AFSL No. 307248. Birchcorp Pty Ltd is an Accredited Member of the FBAA with an ACL No. 376718.