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Accumulating wealth is the goal of any good investor, particularly those who want to fund a particular lifestyle in retirement. But is all wealth created equal? And how should people rate the investments that they do have? Considering both the quantity and quality of wealth is an important first step.
Mike Sikar, Founder and Principal Financial Adviser of Delta Financial Group provided a checklist of 10 important points to take into account when planning for retirement income and assessing the quality of an investment portfolio.
Goals and objectives
To gain financial independence and fund a lifestyle, people can consider a rough rule of thumb of having an amount that can support withdrawals of 5 percent a year. For example, one would need to have at least $3 million invested to spend $150,000 a year. It is important to note that taxes should also be taken into account.
Those who aim to have the cash to fund a lifestyle are advised to use the 5 percent rule of thumb as the best approach. However, different types of investments are needed if the goal is capital accumulation. Some rules must be bent if they do not align with a person’s goals and objectives, which also means that rating personal wealth should not be done against a general rule, but against a person’s unique goals and objectives. Sikar reminds Australians that personal finance is personal and should not be approached with a blanket solution.
Access to retirement funds
The structure for holding investments is important, as it impacts accessibility and tax. If you are under 75, consider topping up your super as it’s the most tax-effective structure to hold your money in because of the tax-free retirement phrase. However, the same cannot be said for a 50-year-old who cannot access their superannuation until retirement.
Liquidity of assets
Liquidity is a crucial factor to consider when investing. It is essential that the liquidity of the investments suit the investment purpose. If one needs to access their wealth to cover living and other expenses, illiquid assets such as property are not ideal. However, having wealth in a managed fund or direct shares makes it much easier to access.
Diversity of investments
Investors need to know how well their investments are spread across the asset classes of Australian shares, international shares, property/infrastructure, fixed interest, and cash. According to Sikar, a portfolio of only the top largest 10 stocks in Australia does not constitute a diversified portfolio. Therefore, managed funds can be a useful tool to increase the level of diversification.
The portfolio’s risk level
A cautious investor may prefer less risky assets like term deposits or bonds which are now back in flavour with rising interest rates. Asset allocation is the key determinant of long-term performance so investors may need to adjust their risk tolerance to reach their financial objectives.
Expected returns of investments
Different investments have different return profiles over different periods. They also have varying tax outcomes. Investors sometimes focus just on income instead of a total-return approach which generates income from capital gains in addition to portfolio yield.
Time frame
The time frame and duration of the portfolio are essential for investors. Retirees must consider that retirement will be over 25 years plus so they are essentially investing for the long term. This will have implications toward asset allocation as they need their retirement funds to keep up to pace with inflation.
Wealth protection
Superannuation and trusts are effective tools in protecting investments from creditors. Personal insurances like income protection and critical illness can help protect accumulated wealth if you can no longer work.
Feasibility of succession plan
According to Sikar, the last but most important thing investors should ask is, “is my wealth administered and structured in a manner that will be easy to bequeath to beneficiaries upon death?” Individuals should keep reliable records, and beneficiaries should know where they are kept.
If all of these factors are considered, a wealth rating of 10/10 can be given. Success should be celebrated in this situation. However, if not, use the start of a new year to improve the wealth rating in as many areas as possible.
About Mike Sikar
Mike Sikar is the Founder and Principal Financial Adviser of Delta Financial Group, a rapidly-growing and innovative financial advisory firm that empowers Australians to make smart choices with their money. Sikar has over 25 years of wealth management experience in stockbroking and financial planning, founding Delta Financial Group in 2011.
His primary focus is investment advising and share-market education on an extensive range of investments both domestically and internationally. Sikar has a unique and broad skill set where he delivers informed, strategic and holistic financial advice aligned with personal and financial goals.
Mike Sikar’s contact information
LinkedIn: https://www.linkedin.com/in/mike-sikar/
Youtube: https://www.youtube.com/@MikeSikar
Delta Financial Group’s contact information
Email address: enquiries@deltafinancial.com.au
Phone number (02) 9327 4338
