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Asset allocation as you age

How age changes investing preferences.

         

 

Vanguard's latest edition of How Australia Saves – a report which takes a deep dive into how Australians are managing their superannuation savings – confirmed that the vast majority (87%) of super members have their retirement savings sitting in the default options of their superannuation fund.

This reliance on default funds is both a strength and weakness of the Australian super system.

A strength is that the same research shows that in most cases, the default option outperformed those, without professional planning help, who built their own asset allocations based on the available investment options on the menu in their super fund. And importantly, those invested in the default options had less risk baked into their portfolios than the individual portfolios.

A perceived weakness with both mandatory contributions and default options, is that they have the effect of driving disengagement by Australians with their superannuation.

However not everyone in the default options is disengaged – a number certainly will have decided that the default option's asset allocation is right for them.

But an interesting question, and potentially a greater weakness of the system, is whether the asset allocation of a typical default fund suits members of any age.

Age is a pretty powerful filter for investment decision-making. Financial advisers sometimes say that if they had to build a financial plan based only on one piece of information that your age would be that critical data point.

If you consider two super members. One is 25 years old and has started their first full-time job, the other has just celebrated their 64th birthday and is planning their life after full-time work about a year from now.

Both are invested in the same fund's default balanced option and therefore have exactly the same asset allocation in their investment portfolio – the same percentage exposure to both growth (equities /property) and fixed income (bonds) and cash assets.

Yet our 25-year-old may have their money invested for the next 70 years. Our near retiree realistically has a time horizon of more like 20-30 years.

In addition to their age difference, their ability to recover from severe market shocks, like a global financial crisis, is also very different.

For the 25 year-old, a GFC like event would barely show up as a blip on their fund's performance chart as they approach retirement in 40 years' time. For the 64 year-old the consequences and impact of a GFC event on their retirement lifestyle could be much more immediate and dramatic as they enter the drawdown years. Technical folks call this sequencing risk.

Each of these members could choose to move away from the default by opting for one of the other risk-based portfolios – typically ranging from conservative or stable to high growth – and align their asset allocation more closely with age and therefore risk profile.

But given what we know about disengagement or inertia in superannuation, most people do not do that.

A new breed

A new generation of default options are emerging in the Australian market where the asset allocation is driven by the age of the member rather than targeting a certain level of risk for the portfolio investment mix.

In the US, such products called 'target-date' or lifecycle funds have become a dominant choice for default portfolios.

Vanguard in the US is a major provider of investments and record keeping services to the retirement industry, and has recorded a 50 per cent rise in the use of target-date funds over the ten years between 2007 and 2017. Now about three quarters of all retirement savers in the US use these types of funds.

Target date funds are not all built the same. Vanguard's approach is to segment investors into four phases, the first of which caters for younger investors (under 40) where a higher allocation to equities – around 90 per cent – is used.

The second phase moves the asset allocation to a 50/50 split between growth and income investments for people aged 41-65 – an asset allocation that is very reflective of many of the balanced default funds available to Australian super members.

Phase three is when investors are in the early years of retirement and again the asset allocation to riskier assets is reduced, while the fourth phase is for members who are in the later stages of retirement, with the portfolio keeping just a modest exposure to equities within the portfolio.

Back to basics

If you take the concepts which a target date fund presents in terms of asset allocation principles, they are simply providing an automated way to dial back market risk as an investor ages, in addition to recognising the increasing importance of capital preservation as you age.

The aim is avoid extreme asset allocation decisions – either too aggressive or overly conservative – and avoid the impact of poor portfolio construction due to inadequate diversification.

These are sound, fundamental principles which can be leveraged by anyone considering their appropriate asset allocation to complement the goals they are saving towards.

Your asset allocation – how you allocate money to each asset class – is one of the most important decisions faced when constructing an investment portfolio – and there is a wealth of evidence showing it has the biggest influence out of all investment decisions on the performance of your investment.

This article was first published in the ASX Investor Update newsletter on 12 June 2019

 

Written by Robin Bowerman
Head of Corporate Affairs at Vanguard.
18 June 2019
vanguardinvestments.com.au

 

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Retirement Planning

Retiring on your own terms is not always easy to achieve, however it is evident that those who plan for retirement are more likely to do so. Results also show that obtaining professional help during the pre-retirement years further improves the probability of attaining your retirement objectives.

The earlier you start implementing a plan the better the outcomes.

During one’s working life there is always an income to make ends meet when raising children, paying off a mortgage, etc.

Retirement planning is about the lifestyle you will have after you stop work and receiving employment income.  Planning focuses on issues such as how much superannuation is enough, taking a super pension, claiming the Age Pension, making superannuation contributions while receiving a pension from a super fund, estate planning and looking after your family.

Planning properly is becoming even more important now we are expected to live longer.  This greater need means that professional help has never been more important.

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The first step is to create a plan. At Wybenga Financial we take great care in getting to know our clients and their future goals and objectives. We combine our knowledge of your personal goals together with an analysis of your current situation, to create a detailed, personalised plan that will help you meet your objectives. This plan will become your road map which outlines how we are going to meet your goals, whilst aligning all investment decisions to your specific risk tolerance.

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Superannuation is mandatory but taking an early and active interest in your retirement planning is critical to ensuring your benefits are maximised by the time you retire.  Many will have a superannuation scheme through employment but increasing numbers are starting their own Self-Managed Super Fund (SMSF).

For many, simply relying on employer contributions may not be enough to provide the lifestyle you desire at retirement. We can assist in building strategies to ensure your retirement goals are met and your required lifestyle is maintained throughout retirement.

It is always best to start saving and planning for your retirement as early as you can. 

At Wybenga Financial we know our job is to help you meet your retirement needs and we have the skills and experience to do this for you.  Contact us today to discuss how we can work together: (02) 9300 3000 or .

Self Managed Super Funds

Self-Managed Superannuation Funds (SMSFs) offer a good strategy option for many individuals, families and small business owners to build tax effective wealth and to protect assets over time. SMSFs are becoming popular for those who are ready to take control of their own super investments as they give you ultimate control and flexibility to manage your retirement benefits.

It must be noted though, that you will have increased responsibilities as a trustee of the fund. As a SMSF Trustee you need to keep up to date with all required regulations and keep up with the fast paced financial markets.

Wybenga Financial can work with you to understand your personal financial situation and decide whether a SMSF structure is appropriate for you. We will also make sure your assets are invested in the most effective way to maximise your retirement benefits.

Should you wish to consider establishing a SMSF then we can help with all aspects of the process from establishment to managing your compliance obligations.

Wybenga Financial would welcome the opportunity to discuss how we can help maximise your opportunities to grow your wealth through a Self Managed Superannuation Fund (SMSF).  Contact us today to discuss how we can work together: (02) 9300 3000 or .

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Having an estate plan is extremely important.  Having a will is just the first step in your estate plan. It is critical to consider what outcomes you would like for your estate and to ensure a plan is in place to achieve those outcomes, both including and beyond the terms of your will.

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Tess Uncle

B.Sc, M.Com, CA, DipFP

Tess has over 22-years experience in Chartered Accounting Firms and in this time has had a broad range of experience in superannuation, taxation, business services, and financial strategy.

Over the last seven-years, Tess has turned her attention to Financial Planning, earning a Diploma of Financial Planning in 2015 and leading the newly established financial division of the Wybenga Group as a director of Wybenga Financial.

Tess’s mission is to bring the ethics and integrity of her Chartered Accounting background to the area of wealth management.

As a woman in a male dominated field, Tess is active in promoting gender equality in the industry through various programs and mentoring opportunities.

Using her depth of knowledge and experience in tax and accounting Tess is able to demonstrate a level of competence that is unique in the Financial Planning sector.

  • 2001 – Commenced employment with Wybenga & Partners and part-time accountancy studies
  • 2004 – Graduated Masters of Commerce from the University of New South Wales
  • 2005 – Admitted as an Associate Member of the Institute of Chartered Accountants Australia
  • 2007 – Promoted to Manager at Wybenga & Partners
  • 2012 – Appointed as Associate Director
  • 2015 – Awarded a Diploma of Financial Planning
  • 2016 – Appointed as Partner of Wybenga Group and Director of Wybenga Financial

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Adam Roberts

B.Bus, B.Sc, CA, DipFP

Adam has over 18-years experience in Chartered Accounting Firms and in this time has had a broad range of experience in superannuation, taxation, business services, and financial strategy.

Over the last seven-years, Adam has turned his attention to Financial Planning, earning a Diploma of Financial Planning in 2015 and leading the newly established financial division of the Wybenga Group as a director of Wybenga Financial.

Adam’s mission is to bring the ethics and integrity of his Chartered Accounting background to the area of wealth management.

Combining traditional accounting and financial services has been a welcome move for Adam, allowing him to operate and advise in the financial sector that has been a long time personal passion.

Using his depth of knowledge and experience in tax and accounting Adam is able to demonstrate a level of competence that is unique in the Financial Planning sector.

  • 2005 – Graduated Bachelor of Science from the University of Western Sydney
  • 2005 – Commenced employment with Wybenga & Partners and part-time accountancy studies
  • 2007 – Graduated Bachelor of Business from the University of Western Sydney
  • 2010 – Admitted as an Associate Member of the Institute of Chartered Accountants Australia
  • 2010 – Promoted to Manager at Wybenga & Partners
  • 2012 – Appointed as Associate Director
  • 2015 – Awarded a Diploma of Financial Planning
  • 2016 – Appointed as Partner of Wybenga Group and Director of Wybenga Financial

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What is an Advisory Cadetship?
An Advisory Cadetship enables you to commence your career whilst attaining the necessary university qualifications by studying part-time.

How does it work?
Generally, our cadets complete a relevant business or accounting degree at the University of New South Wales, the University of Technology Sydney, Macquarie University, or the University of Western Sydney.

The Firm provides 3-hours paid study leave per week to attend university. This can either be taken at the one time or broken between days depending on the individual’s requirements. In addition, the Firm provides paid study leave for both mid-semester and end-of-year exams.

We take the work life balance very seriously at Wybenga Financial and our cadets are encouraged to have a fulfilling life outside the office. A typical day will have you arriving at the office at around 8.30am with most days concluding at 5.30pm.

What are the benefits of an Advisory Cadetship with Wybenga Financial?
Our cadets benefit from the following:

  • Career path – on completion of their degree our cadets have significant practical experience which will assist them in advancing their careers
  • Work helps your studies – by working full-time our cadets are able to apply their practical knowledge in the university subjects
  • Camaraderie with other cadets – the Firm has a number of cadets at various stages of their career
  • Mentoring – cadets are paired with a senior staff member who oversees their progress and training both at work and with their studies
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  • Modern environment – including ‘socialising’ areas such as pool table and break out area
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What happens when I complete my degree?
The completion of your degree is the first step of what we hope to be a long and successful career with us. The next step is the commencement of a Diploma of Financial Planning followed by completing the requirements to become a Certified Financial Planner (CFP).

There are always progression opportunities for the right cadets and we are dedicated to the long term development of our staff.

Who should apply?
Current Year 12 students or first/second year University Students who:

  • want to commence their career in financial advisory;
  • are due to commence or are currently completing a part-time business or commerce degree at university with an advisory major;
  • want to gain valuable hands-on experience while completing their qualifications;
  • are looking for a friendly working environment;
  • are team players who display initiative;
  • have a commitment to self-development;
  • possess excellent personal presentation and communication skills; and
  • are motivated and mature minded.

How do I apply for an Advisory Cadetship?
To apply for a Cadetship position at Wybenga Financial send us your details. Please also include in your covering letter why you wish to do a cadetship, include relevant qualities you possess, main interests / achievements, and any previous employment.

Interested candidates should initially forward a resume/covering letter of no more than 3-pages. Please provide full details of contact information (telephone or e-mail).

What if I have more questions?
For further information about our Cadetship program, please send your enquiry to .