Are you as financially savvy as you think you are?

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November 2019


Make your money work harder for you with our myth-busting guide to finance. How many questions can you get right? Scroll down for the answers.

 

1.      Once you have a home, more residential property is your best investment

2.      All mortgages are the same

3.      Investing in large, stable companies yields the best return

4.      It’s okay to put off saving till later in life

5.      You’ll need super to enjoy retirement

6.      You need to save for a rainy day

7.      With no debt I’ll have a good credit rating

8.      Credit cards are good for emergencies

 

 

1. Property is your best investment
 

Investment in residential property has proven very resilient over long periods, often outperforming other assets1. But short term, it’s far less stable because of the costs of buying and owning an investment property and cyclical rises and falls in property prices. It is also illiquid: you can’t sell a bedroom if you suddenly need cash.

 


 

2. All mortgages are the same

 

There are different types of mortgages2. With a principal and interest mortgage, you pay off the principal loan plus the interest and own more of your property over time –In an interest-only mortgage, you only repay interest, and will owe your mortgage provider the original value of the property at the end of the mortgage – a common approach for investors. With an offset or redraw mortgage, you effectively use the mortgage as a bank account. They’re a popular way of paying down a mortgage faster, but usually with higher costs.

 


 

3. Investing in large, stable companies yields the best return

 

So-called blue chip shares pay regular dividends and can generally ride out share market shocks. Yet it can be the smaller, more speculative companies that generate the highest capital returns. When deciding where to invest3, it’s a good idea to consider things like dividends and franking credits as well as share price, and consider getting advice.

 


 

4. It’s okay to put off saving till later in life

 

Putting away money as soon as you start working is a powerful wealth accelerator because of the power of ‘compounding’ over time. According to the government’s MoneySmart calculator, $100 a month will grow to $41,375 after 20 years4.

 


 

5. You’ll need super to enjoy retirement

 

Most couples need about $61,000 a year for a comfortable retirement, or about $43,000 for single retirees, according to the Association of Superannuation Funds of Australia (ASFA)5. Tools from ASFA and MLC can help you estimate your needs. Experts agree that, unless you can rely on an independent income, building up adequate funds in super is essential for a comfortable retirement.

 


 

6. You need to save for a rainy day

 

An emergency fund is essential to weather unexpected events6. A good rule of thumb is to have enough money saved to cover at least three months’ living expenses and to put money away regularly to build up a fund.

 


 

7. With no debt I’ll have a good credit rating

 

Having no debt doesn’t guarantee a good credit rating. A change of address or an undetected identity theft can damage your rating. Australian consumer advocacy group Choice recommends requesting a free credit report once a year7.

 


 

8. Credit cards are good for emergencies

 

Credit cards can help with unexpected expenses, but you’ll be charged interest if you don’t pay off the full balance each month. Paying only the minimum each month can prove expensive. This is why experts recommend having an emergency fund to use instead.

 


 

Important information and disclaimer

NULIS Nominees (Australia) Limited AFSL 236465 ABN 80 008 515 633 provides this information as trustee of the MLC Super Fund ABN 70 732 426 024. This information may constitute general advice. It has been prepared without taking account of individual objectives, financial situation or needs. Before acting on any information, you should assess or seek advice on whether it is appropriate for your needs, financial situation and investment objectives. We recommend you obtain financial and tax advice tailored to your own circumstances prior to making any investment or acquisition decision. Any general tax information is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent. This information is current as at 9 October 2019 and may be subject to change, for example should there be a change of legislation or economic conditions. An investment with NULIS is not a deposit with or liability of, and is not guaranteed by, NAB or other members of the NAB Group, and is subject to investment risk including possible delays in repayment and loss of income and capital invested. Past performance is not a reliable indicator of future performance.