Investing

Anyone living off investments will be aware of the impact drawing an income will have on capital reserves that are static or going backwards. Where possible control your spending, says RMG Financial Services’ principal and senior adviser, John Donald.

For some people it may mean returning to the workforce as a way to help build up reserves, particularly in superannuation. If that’s not a possibility, then it becomes even more important to manage costs. Middleton says one place to check for excessive costs is charges for the administration of your investments, such as those in a wrap account.

Consider owning shares direct

If the assets are only in a couple of investments then you may not need to pay fees for administration, you could easily do yourself. Even half a per cent on a portfolio of $500,000 can be better spent if you hold only a few key investments.

“There are numerous ways that your portfolio can leak fees if you don’t have a full understanding of how you are being charged,” says Middleton. “Ensure you are actually getting benefits from using the superannuation system rather than simply assuming you are.

“The superannuation system is more expensive than simply owning investments yourself and it can generate more costs than savings.”

Middleton says investors with larger amounts in superannuation may be better off saving on administration costs by setting up a self-managed super fund.

If you do this, then be realistic about some of the services you might end up paying extra for, such as financial advice, brokerage and accountancy.

Don’t pay for something that’s free

One cost few should have to pay is for contributing to their super fund. Kate McCallum, director and financial adviser with Multiforte Financial Services, says people should check to see whether money contributed by their employer as either salary sacrifice or super guarantee is attracting a charge.

“It is not uncommon to find people being charged a 2 per cent contribution fee. That money is going straight to an adviser they may never see,” McCallum says.

And don’t blow it

The temptation to try to recoup losses is understandable. The big mistake is to take on excessive levels of risk. No matter how desperate you become about your investments, stick to good quality choices rather than those that look attractive and may provide a good return but put you out on the risk scale, John Donald says.

And don’t confuse risk with volatility. Volatility is price movement, whereas risk is the chance that the investment will lose some or all of its value.

An example might be the difference between investing in bank shares and putting your money in a term deposit with the same bank. The income you earn from the bank shares may be greater than the interest rate on the term deposit, but the value of the shares will rise and fall, bringing risk into the equation.

“In times like these, it becomes critical to employ strategies to reduce risk to a level with which you are comfortable,” Middleton says.

You may also be interested in reading: How to get a rebate on managed funds

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