Wealth Creation Recommendation - Outside Superannuation - Case Study Example

Wealth creation recommendation – outside superannuation 1. Objective: Set up a house deposit account, provide capital for helping Brain and Bella on their first home in a few years’ time (medium priority). The amount required approximately $100000 with a timeline of 5 to 6 years’ time. Both of them to get $ 50000 each. Recommended strategy ● Invested share for $30000, on 1 July 2005, now worth $40000, the maturity of the investment bond after 5-7 years’ time should be worth $100000. Sufficient maturity, we have investment bond with growth asset allocation. Advantages of strategy ● According to the results of the (HILL 32) FV calculations in Appendix 1, the client should be able to achieve the above objective. ● Amounts $100000 for both Bella and Brain are a good-sized deposit. ●Investment bonds are useful for capital growth, according to (Nielsen 33) and long-term returns, with a timeframe maturity of 7years. ●Investment bonds are considered less risky compared to various investment options. ●When left to mature investment bonds can generate lump sums of money. ●During this long-term period, the (Skousen and Walther 22) states that the return on your investment can increase significantly compared to a savings account of course considering the interest rate. ●Investment bonds once sold there is no obligation to pay the investor any amount. ●currently, the mortgage market estimates the amount be around 23% of the value of the property. ●This is a surplus amount almost double of a confident 10% deposit, sufficient for quite some mortgage deals. ● Most importantly is that money given to children have no immediate tax implication. This means you can provide as reported (Hill 22) as much as financial support to your children tax-free. ●Capital gained from investment bonds is taxable, but Jake can withdraw up to 5% of the initial amount every year without any tax burden. Jake can nominate Bella and brain as beneficiaries so if he is to pass away children would receive the fund's tax exempted. ● Guarantee the first-time buyer loan. Home buyers may receive more capital than normal if a family member guarantees the loan. ● The merit of providing a guarantee (Gutterman 34) rather than a share of ownership, property, and loan are in the name of the young buyer. ● A guaranteed loan is favorable, where buyer affords higher mortgage payments. ●No problems with remortgaging or capital gains tax worries for Jake. Disadvantages of strategy ●Investment bond is not an ascertained way of investment. The value could increase or decrease, ensure you have full information on the investment. ●legal rights that the investor has with owning entity. If the company pays off dividend, the members of the board are entitled to a proportionate share. ●Investment bonds is a prime functionality proven for long-term investments as well as high-risk involvement (McQueen 44). One might lose a large sum of money after a long period. ●The lender might lend a lower amount because the deposits are not a guaranteed part of the borrowers’ salary. ● A disadvantage may arise if you do not have ownership rights of the property, if borrower defaults repayment, you are eligible to cover the costs. You need to be clearly informed of risks involved. ●Interest is paid towards Jakes savings, in the event of default, cash may be forfeited. Appendix 1 The rate of return is the major concern on the maturity of an investment bond, lower rates of return lower capital gains. Jake share portfolio has a lower interest rate of 0.025%. calculated as ration of yearly income from an investment to the initial investment $40000-$30000=$10000 Divided by 12 months =$10000/12 = $833.33 Again, divide this by the initial investment $833.33/30000 Equals a rate of return on 0.025%. Alternatives Considered Jake could purchase a home for Bella and brain to live in. They can be allowed to live in it and become joint owners of the house. Important is to ensure that your children are financially independent and prefer them to take responsibility of their own accommodation –henceforth a little assistance would be appropriate. Life style recommendations 1. Objective: Set up funds to accommodate for a family holiday estimated worth $15000 taking Bella and brain and their partners to Bali for a couple of weeks in June/July next year. Recommended strategy Jake should use his savings, but rather use a holiday savings account. Having additional savings of $2500 every month. This is enough to cover the predetermined budget of the holiday. Advantages of strategy ● Jake has a solid saving plan, which is current and underway. This ascertains how much Jakes can afford for a holiday. ●No minimum balance. ●Direct deposits ●One can’t withdraw money the same day it is deposited. ● Jake also has a suggestion on where and when to go for the family holiday. With the savings, Jake can create a budget for all the expenditures. ●Holiday savings account earns up to 7.15% P.A. interest rate. ● Holiday savings account constitute as research by (Robins 23) suitable installments features towards your holiday packages. ●The savings holiday accounts are special, you don’t withdraw money, and therefore you are less likely to spend it. Disadvantages for strategy ● the first demerit of the holiday account is the low-interest rates that your money earns in this account. Better to save in a money market account with higher interest earnings ●Holidays savings account have penalties in case of early withdrawals. On the contrary, this can be beneficial, it motivates you to leave the money. ● It is easy to spend even with savings. There may also be unexpected holiday expenses like an outdoor party. Additional money needs to be saved. Alternative considered Jake can locate an online saving account which provides easy access to money 24hrs a day. No worries about bank hours inconveniences. No need to transport to the bank. Less paper, therefore, mail statement can be accessed online. Although online account has higher interest rates than a savings account but keeps your money tied up for longer periods of time. 2. Objective (house renovations) Putting an in-ground swimming pool which I have been quoted $50000 for. Recommended Strategy Savings accounts are yet to accumulate a substantial amount to be used to finance the construction. Consider borrowing capital, a home equity loan preferably. Advantages of strategy ●Considering your current financial situation and personal needs and wants. Rather than using the savings with (Templer 43) little time to retirement, securing a home equity loan would be beneficial. Amount $50000 is a lump sum, therefore, a secured loan for a loan term 5-7 years. ●Mortgage of the house is fully settled. Total equity on the house is worth $850000. The amount stipulated can be granted with the house mortgage already paid. ●Major advantage is Jake can borrow up to 75% of the value of his house. ●Building an in-ground swimming pool is a large-scale project, the advantage is that interest rates on home equity loans are slightly lower compared to personal loans or unsecured loans. ●It is a long-term investment. ●Fixed interest rates. ● Securing a loan, allows you to keep your savings account is liquidity form. ●This as a secured loan, financial adviser (James Whittaker 36) couple of assets including the house can be kept as collateral, again considering its mortgage is fully settled. ●This is a common method used by Australian citizens. ●Borrowing money to a bank with the existing review of your accounts savings and mortgage Jake will have favor from the loan department to be approved, they clearly understand your financial records. Disadvantage of strategy ●Requires a high level of research to get the most affordable deal throughout lending institutions. ● Incase of default stated (Cathern) collateral would be confiscated by the bank. ● If the loan is unsecured it will take a while to process as bank personnel will have to affirm your credit reports and evaluate your viability. Alterative Scenarios You could use a credit union to borrow capital for the construction of the pool. The merits are that credit unions are not for profit and are owned by members. This is important to serving members who receive lower fees and interest rate, or occupational groups (e.g. architecture unions). Appropriate and well-defined wealth creation strategies provide ground for solid financial status in the long run. Day to day improvements is the primary support for wealth creation and change of lifestyle. During recent years, we have (Hill 31) seen changes on the way to creating wealth strategies, innovations and inventions are introduced to the market daily. The digital transformation of handling money has motivated investors in approaching digital services. Examples are online banking systems. Investors want an approach to their personal wellbeing. This means that financial advice should be provided on the investors current situations and personal were being. Investors want to tap in the financial market and gather as much investment choices for themselves. On the other hand, the digital platform as stated by (Nielsen)has been faced with a number of challenges including cyber theft and cyber-bulling, research indicates 1. 2 billion dollars of assets lost in the previous year due to online theft. Seeking financial advice require lump sum of money, over the years it has grown significantly. Therefore, investors should opt to get efficient and effective financial advisers. The main objective investor should carry in mind is what to concentrate on in expanding the asset portfolio. Investors should table predetermined plans on exactly what they want to do. Consider the most important things first from a wealth management viewpoint. Consider how your wealth creation strategies relate to each other. Is one strategy too overwhelming, undermining another? Concentrate your efforts on low cost investments with sizable returns. Another important tool in investment is diversifying your portfolio. This reduces the risk level, considering that you have (Skousen and Walther) spread your risk, known as risk aversion strategies. The current economy has a volatile market, prices escalating to exorbitant levels at a different time falling to a significant low. Therefore, a great number of investment choices are available for you in the market. Bottom line; Wealth creation and lifestyle recommendation is an ongoing process. Probably something in your lifetime range. It is advisable to start wealth strategies early in your life. Analyze the most effective ways to wealth building strategies. Always be in the now on the past, future and current trends of the economic situation with long tern visions. Works Cited Read More