Financial success can be achieved by following the basics of prudent financial management, including personal budgeting, expense management and investing productively in high quality assets that are easy to understand.

However, while you may be successful at investing, as you accumulate assets your personal situation can become more complicated. This increased complexity can lead to costly mistakes, often detrimental to your future success. Some of the areas that I have seen neglected, where professional financial advice should have been sought, include the following:

Tax Efficiency

Tax can be the greatest impost on investment return. Investors can lose almost half of their return from tax. As a result, a successful investment may turn out to be not that effective after deducting tax.

Many investors also fail to consider the tax implications of selling an asset and making a capital gain. Even though individual investors are only taxed on 50% of the capital gain from an investment held for 12 months, you could still see a significant amount of your investment capital lost through taxation.

Structuring your finances in the right way might save you thousands of dollars in taxation and more than cover the cost of obtaining financial advice.

Estate Planning

You’ve done a great job accumulating assets throughout your life. But how do you ensure your hard won assets are easily transferred to the next generation? Many individuals are unaware that assets held in trusts and within superannuation do not automatically form part of their estate and therefore may not be dealt with via their will. In addition, although Australia does not have death duties, distributions to beneficiaries from superannuation can be subject to tax of up to 17%.

There are strategies to ensure your affairs are dealt with in accordance with your estate planning wishes and opportunities exist to significantly reduce the tax application to superannuation death benefits.

Diversification

Many private investors have an over exposure to single assets or particular asset classes. It is not uncommon to meet people who have 100% of their investment capital invested in one asset class i.e. residential property or, through automatic dividend reinvestment, have accumulated a significant holding in one company.

When you are working and not reliant on your investments, the risk of a highly concentrated portfolio can be mitigated. However, as you approach the time where you are reliant on income from your investments to meet your requirements you never want to be in a position where you are a forced sell or where income is insufficient to meet your needs. Consider a situation where your investment property is vacated for an extended period of time or the Australian share you have a substantial holding in cuts its dividend. To protect your wealth longer term you never want to be in a position where any one investment dictates the return of your portfolio.

Planning for incapacity

On the off chance you tick all the above boxes, what is your plan for the day you are no longer able to manage your finances through incapacity? Does your spouse, power of attorney or children have the expertise to manage your investments or finances? Engaging with a financial adviser early can ensure that appropriate trust and rapport has been established with your loved ones long before you are no longer able to make investment decisions.

The important thing to know is when to seek financial advice and look to seek advice before your situation becomes too complex and the decisions you have made cannot be unwound.

If you’d like to arrange an obligation free meeting with a financial adviser please contact us.