With radically different circumstances and very different goals, how do two individuals achieve their ultimate ambitions? Our experts assess how best two men can reach their financial goals, writes Bina Brown.
Whether it is a total financial overhaul or a prod in the right direction, almost everyone can benefit from some level of financial advice from a professional.
A lot of people might ask family and friends, others look to their accountant but how much do these people really know about personal circumstances and goals?
Financial Review Investor asked readers to present their financial information and a couple of key questions to two leading, independent, advisers: Suzanne Haddan of BFG Financial Services and Mike Ingham of Godfrey Pembroke, Camberwell.
Former policeman Michael Tarulli and recruitment consultant Stephen Feitsma might be of the same age and in what financial advisers like to call the accumulation phase of wealth creation but their situations couldn't be more different. One is looking at starting his own business with no intentions of ever retiring the other wants to boost his income-generating assets to retire as early as possible. Both participants have reasonably complicated financial affairs, which they need to give serious consideration on the best way to proceed.
FINANCIAL SNAPSHOT
Stephen Feitsma
Age: 43
Occupation: Senior consultant, recruitment
Salary: Between $60,000 and $100,000, including super.
Assets
Property: $400,000 and $275,000
Super: Approximately $70,000
Investments (managed funds or shares): approximately $40,000 in total.
Cash in the bank: $1000
Liabilities
Mortgage debts: $463,000
Other loans: Car hire/purchase: $13,000
Credit card debts: $6000
The average week
After-tax income:
Salariy: $1090
Rental income (per week): $250
Total: $1340
Expenses
Home loan: $277
Personal loans: $98
Investment loans: $401
Investment property costs: $70
Living expenses: $300
Total: $1146
Insurance policies
Life Insurance: $54,000
Total and permanent disability: approx $600,000
Gross income protection: approx $8000
OWNING a home outright and retiring at 60 on an income not too dissimilar to what he has now are goals for Stephen Feitsma, 43.
With $179,000 owing on his principal place of residence, he is unsure whether to continue paying it off, rent it out or sell it and buy something closer to the Melbourne city centre, which is his other goal.
"My aim is to pay off a home or own a home outright in the future," he says. "I also want to be able to move into a location closer to the city to be closer to work."
One consideration is to buy something and rent it out for a few years before moving into it himself. He already owns one investment unit on the outskirts of Melbourne. This loan is combined with one to invest in Almond Investors Ltd, a managed investment scheme.
Stephen has been in this scheme since 2006 and Macquarie Forestry since 2005.
"The harvest for Macquarie Forestry is projected to take place in 2016 but I don't think the return on it will be that great based on the drought we've had," Stephen says. "Also, the almonds are sold in US dollars, which impacts on returns as a result of the high Australian dollar."
The schemes were suggested to him by a financial adviser as a good way to offset his income tax. Stephen wonders how they should be placed in his overall strategy.
"Ultimately, I would like to retire at 60," he says. "If I can work out a way that moves me in that direction, it would be great. I'd like an income of at least $60,000 a year through investments and so forth."
With no financial dependants, Stephen's focus is on paying off his mortgage, which is helped along by commissions earned in his job, contributing about $10,000-$20,000 a year.
FINANCIAL SNAPSHOT
Michael Tarulli
Age: 44
Occupations: Disability pensioner/student
Salary: $1382 fortnightly (net pension)
Assets
Four properties worth: $2,145,000
Super: $68,875
Investments (managed funds or shares): JBWere Margin Lending facility - $208,420
Individual holdings (trading under company name): $91,050
Cash in the bank: $110,000
Liabilities
Mortgage debts: $820,000
Other loans: Margin loan on equities $82,000
HECS debts: Higher education loan program $11,000
The average week
After-tax income:
Salary (per week): $690
Rental income (per week): $1380
Total: $2070
Expenses
Investment loan on margin lending (per week): $100
Investment property loan (per week): $1304
Investment property costs (per week): $307
Average living expenses (per week): $673
TOTAL: $2384
Frequently Asked Questions about this Article…
Why should everyday investors consider getting professional financial advice?
The article says almost everyone can benefit from some level of professional financial advice. Family, friends or an accountant may not fully understand your personal circumstances and long‑term goals, so independent advisers can assess your situation and recommend tailored strategies.
Should I pay off my mortgage, rent out my home, or sell and buy closer to work?
The case study in the article outlines those three realistic options. Which is best depends on your goals, mortgage balance and cash flow: continuing to pay it down, renting it out for income, or selling to buy closer to work are all possible. One practical idea mentioned is buying another property and renting it out for a few years before moving in yourself.
How should I think about managed investment schemes like Almond Investors Ltd and Macquarie Forestry in my portfolio?
According to the article, these schemes were recommended to offset income tax and have been held for several years. Important considerations flagged include commodity risks (Macquarie Forestry’s harvest could be hit by drought) and currency exposure (almonds are sold in US dollars, so a high Australian dollar can reduce returns). The article suggests reviewing how such schemes fit into your overall strategy with an adviser.
What steps can help someone aiming to retire at 60 with about $60,000 a year in investment income?
In the article, the investor’s plan focuses on boosting income‑generating assets and reducing liabilities such as the mortgage. Practical elements mentioned include increasing investment holdings, using work commissions to accelerate mortgage repayment, and getting personalised advice to align investments with the retirement income target.
Is buying a property to rent out before moving into it a smart property strategy?
The article presents buying a property and renting it out for a few years as a viable option for someone who wants to eventually live closer to work. This approach can provide rental income and time for the market or personal finances to improve before you move in, but it should be evaluated against your mortgage position and overall goals.
What financial issues arise from using margin lending and owning multiple investment properties?
The Michael Tarulli snapshot in the article shows that multiple properties plus a margin lending facility create a complex cash‑flow picture: there can be high rental income but also high loan repayments and investment costs. The article implies such situations need careful review and advice to manage leverage, loan costs and overall risk.
How does a strong Australian dollar affect investments that are sold in US dollars?
The article points out that assets sold in US dollars—like almonds in the Macquarie Forestry scheme—can deliver lower local currency returns when the Australian dollar is strong. Currency movements therefore directly affect the Australian dollar value of those foreign‑priced revenues.
What insurance cover did the investors have and why does insurance matter in financial planning?
The article lists insurance for one investor as life cover of about $54,000, total and permanent disability cover of roughly $600,000 and gross income protection of about $8,000. Insurance matters because it protects income and assets from unforeseen events and is an important component to consider when advisers assess someone’s overall financial plan.
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