Education

Frequently Asked Questions

What is JDFA's investment philosophy?
Only a few investment fundamentals can consistently be relied upon to achieve a successful investment experience. More...

What is Asset Class Investing?
Asset Class Investing involves strategically purchasing specific asset classes in deliberately chosen proportions to match an investor's individual risk profile. It also involves regularly re-balancing the proportions to ensure the asset allocations are carefully managed. Asset Class Investing is a low cost process that does not require the prediction of future asset prices or market prosperity. More...

Why JDFA does not recommend Active Investment Managers?
Active investment managers are unable to consistently beat the investment market over the long term. More...

How much superannuation will I accumulate before I retire?
Explore the factors that will determine how much superannuation you will accumulate before you retire. More...

How much income will I need in retirement?
How much income you'll need in retirement will depend upon the type of lifestyle you wish to enjoy. More...

How wealthy am I?
Compare your current wealth against other Australians. More...

How do I choose an adviser that's right for me?
Consider advisers based on their level of education, experience and independence. More...

Answers

How much superannuation will I accumulate before I retire?

The following factors will determine how much superannuation you are likely to accumulate before you retire:

Time

The earlier you start saving for retirement the more you are likely to have. For example, if you delay saving for retirement by 10 years this could reduce your accumulated retirement savings by as much as 45%.

Timing

When you decide to retire will also influence how much you'll have. For example, if you were to delay retirement by 5 years from 60 to 65, you could increase your accumulated superannuation by as much as 33%.

Contributions

The amount of money you contribute to your superannuation will influence your final retirement income. If you were to save an additional 5% over and above the government superannuation guarantee levy of 9%, your accumulated savings at retirement could by as much as 60% higher.

Risk tolerance

Academic studies have shown that the more risk you are willing to take, the higher returns you are likely to achieve. Higher returns come from taking higher risks. Simply by increasing your risk profile from 'balanced' to 'moderately aggressive', your accumulated savings at retirement could be 9% higher.

Earning rate

When assessing your returns you should always calculate 'net returns' - that is, gross returns less fees and taxes. Too often, emphasis is placed on gross returns or fees, without taking into consideration tax and its impact on net returns, which can be misleading.

	Fund Manager A	Fund Manager B	Fund Manager C
Investment	$100,000	$100,000	$100,000
Gross Returns	$20,000 (20%)	$19,000 (19%)	$19,000 (19%)
Less Fees	-$2,000 (2%)	-$1,000 (1%)	-$2,000 (2%)
Adjusted Gross Returns	$18,000 (18%)	$18,000 (18%)	$17,000 (17%)
Less Tax	-$1,750*	-$1,750*	-$750
Net Returns	$16,250 (16.25%)	$16,250 (16.25%)	$16,250 (16.25%)

*Why was Tax higher for Fund Managers A and B?

Both Fund Managers generated capital gains from actively trading the investments, thus negating the higher gross return for Fund Manager A and the lower fees for Fund Manager B.

Summary

Start investing as soon as possible, invest as much as you can for as long as you can and choose investments that give you the greatest return for the level of risk you are comfortable with. Also, remember to choose investments based on net returns, and not gross returns or fees.

How much income will I need in retirement?

This largely depends on the type of lifestyle you wish to enjoy in retirement.

So, you need to ask yourself:

What type of lifestyle do I want?
How much wealth do I need to finance that lifestyle?

What type of lifestyle do I want?

A modest lifestyle is fairly basic, and excludes drinking, smoking, gift giving and private health cover.

A comfortable lifestyle is not necessarily a luxurious lifestyle but it will enable an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living with private health insurance, a reasonably new car, quality clothes, own modern electronic equipment, replace electrical goods as required, and travel overseas occasionally.

For a very comfortable lifestyle, where you don't have to think twice about whether you can pay the bills or go on holidays, feel free to accumulate as much money as you wish.

If you're currently living a very comfortable lifestyle, and wish to continue to live a similar lifestyle in retirement, then a rough rule of thumb is a minimum of 60% to 65% of your pre-retirement income. For example, in the graph below for 'very comfortable lifestyle', the pre-retirement income was $100,000 and so retirement income is $63,000 for a couple.

Retirement Income

How much wealth do I need to finance my retirement lifestyle?

This is a more complex question to answer, as it depends upon how the wealth is invested (income versus growth assets), how the assets are held (superannuation or non-superannuation), the net returns that are being generated (inflation plus 2%, 4% or 6%), the rules around entitlements to government pensions and seniors benefits, and how long you expect to live.

Assuming your assets are generating 5% returns, free of tax and the modest lifestyle retiree is eligible for the pension, then the indicative amount of wealth required to finance your retirement lifestyle is shown below.

Retirement Wealth

Choosing a financial adviser.

JDFA believes investors deserve financial advisers who are qualified and independent.

Qualified means:

tertiary qualified in business or economic related disciplines: and
post tertiary qualified as Charter Accountant (CA), Certified Practicing Accountant (CPA) or Certified Financial Planner (CFP).

Independent means:

not related to product providers; and
offers fee-for-service

Finally, having chosen your preferred financial adviser based on qualification and independence, you need to decide if you feel comfortable with the adviser; is the chemistry right?

When is an adviser 'independent'?

There is considerable confusion within the financial planning industry around what constitutes an 'independent' adviser. A Google search for independent financial adviser/planner highlights the extent to which industry participants will go to imply they are independent when in fact they are not.

Below you will find the ASIC Policy Statement 116, where the Independent Advisory Services define 'independent'.

ASIC considers that if an adviser wants to call their advisory services 'independent' they must:

operate without any conflict of interest created by ownership links to product providers; and
avoid any upfront commissions, trailing commissions, soft dollar benefits, cumulative awards or other benefits from product providers which may tend to create a product bias; and
operate free from any direct or indirect restrictions relating to the securities recommended.

What does this mean?

No ownership links to product providers

If a licensee is a subsidiary of a fund manager or member of a financial group, and that licensee advises on the products of the fund manager or member of the group, then there is likely to be a product bias in favour of the products of the associated fund manager or group member.

This is a matter of fact. Either the licensee is related to a product provider or not.

Fee for service

Some advisers, like JDFA, are paid by their clients on a "fee for service" basis. They do not receive any commissions or benefits from a product provider or they rebate all commissions and other benefits to their clients. This method of payment is unlikely to lead to any bias in favour of a particular product or product issuer.

The basis of remuneration for the adviser should be disclosed in the Financial Service Guide which the adviser is required to give to the investor at the first meeting, or very soon thereafter. Investors should review the FSG to see how the adviser is remunerated.

It is recommended that the payment of the fee by the investor is separate from the rebating of the commissions - ie investor fee should not be netted against rebated commissions. This allows a clear understanding of the total cost of financial advice.

No restriction upon choice of recommended products

Advisers should be free to choose any product to recommend to their clients. There should be no direct or indirect restrictions placed upon the adviser in choosing the products on the "approved product list." This is the most difficult requirement for most licensees to comply with. There are thousands of products available in the market. An adviser must satisfy the Know Your Product rule, so licensees use 'recommended product lists' to narrow the number of products that advisers must themselves have knowledge of.

Independent, Impartial, Unbiased

Any words that carry the connotations for investors similar to the use of the word 'independent' must not be inappropriately used.

JDFA: Professional and Independent

JDFA's philosophy is founded on the provision of professional financial advice that is tailored to your personal lifestyle needs.

Our advisers are qualified accountants (CAs OR CPAs) with substantial experience within the investment, tax accounting and business planning sectors.

JDFA is not tied to specific financial product providers. This means you benefit from advice that is independent of these providers and appropriate for your circumstances.