Each week, financial adviser and international best-selling author Noel Whittaker answers your questions.
In the current economy, is it better to invest in property or
It's never a bad time to invest in property or shares if you can find a bargain, but it is my view that shares are a much simpler investment because anybody can buy an index fund that will move up and down with the market in general and, by definition, cannot go broke.
If you are buying property, it's likely to take you many weeks to find a good one. A further advantage of shares is you can buy and sell in small parcels. If you own a property, you can't sell the second bedroom.
How do I find a good financial planner? I visited one a couple of years ago and they couldn't help me unless I had a minimum of $10,000. I didn't proceed with this planner and it has put me off. I have a personal loan of $6000 and repay $60 a week. I have considered paying off my personal loan from savings, then putting the weekly $60 into my savings account to earn interest instead. What do you think?
The best way to find a good financial planner is to do your research, ensure they are well qualified and work within a reputable organisation. A lot of people find advisers through getting a recommendation from a friend or colleague who has reason to be happy with theirs. Managed investments can be started with as little as $1000, so I'm sure you will find someone willing to help you.
It's almost guaranteed that your personal loan interest rate will be much higher than the interest rate on your savings. If this is so, then it's a great idea to pay out your loan with your savings, which will free up more ability to save over time. Be aware of any early payment fees associated with paying off your loan early.
My wife is 51, I am 57, and our total income is $80,000. We plan to continue working full time for another five years. My wife has $190,000 in an industry super fund growth option, and salary sacrifices to the maximum limit. I have $720,000 in an industry fund and am drawing a transition-to-retirement pension — I am in the capital stable option. My accumulation super has a small balance in the growth option and I salary sacrifice to the maximum. We have $150,000 earning 4.8 per cent in an online savings account, are debt-free and have no mortgage on a house worth $1.9 million. We plan to downsize in five years. Do you see any need to change our investment strategy?
You appear to be well placed for retirement, but I wonder why you are holding $150,000 outside the low-tax superannuation environment. Perhaps you might consider moving part of your savings into your superannuation account as a non-concessional contribution. Just make sure the industry fund you are in has the features you need; these may include the ability to give a binding nomination, and to receive an anti-detriment payment.
It may be worthwhile taking advice on the asset allocation. In my view, a person aged 57 is too young to be holding the bulk of their super in a capital stable. Keep in mind you may well have 30 years investing ahead of you.
Capital gains and gaining a family
I have been living in Britain for nearly five years and will be returning to my principal place of residence in NSW later this year. As I understand it, because I have been gone for less than six years, I will have no capital gains tax liability in regards to this property. However, as I will be returning with a family, the house will be too small for us. Would we be better off increasing the mortgage, or taking out a separate loan to extend the building? Would we be able to claim against the interest if we rent the place out again in the future? If we keep the loans separate, I imagine I can still claim interest against the original purchase loan, but am not sure about the loan for the extension. Our other option is to sell this place and purchase something larger where, if we rent it out in the future, the entire mortgage interest would be tax deductible.
For the interest on a loan to be tax deductible, the purpose of that loan must be to produce income-producing assets. However, a loan can change character - therefore if you start to rent out your residence, the interest on the loan to buy that property will be deductible once it is available for rent. There is no need to split the loan for renovations, but this would be advisable if the original loan is not 100 per cent related to the original cost of buying the house or improving it. If, for example, you have utilised a redraw facility on the original loan for something other than improving the house, then part of the loan will not be tax deductible. It makes sense in this case to have separate loans, keeping the fully deductible one interest only and either refinancing or attaching an offset account to the mixed-purpose loan.