Life Begins At...

The Retiree Magazine Summer 2011-12

Life Begins At.....

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Page 56 of 171

FINANCIAL MATTERS management of these distributions. The investor may therefore have an unwanted tax consequence at the end of the fi nancial year which could have an impact on their overall tax position, including potential loss of government benefi ts and tax rebates. This lack of control is an infl uential factor that pushes investors to favour direct investing over managed funds. Dollar cost averaging Investing in managed funds allows an investor to effectively reduce their investment cost (or capital) by 'Dollar Cost Averaging'. Dollar cost averaging is simply purchasing investment units at differing prices on a regular basis which then averages the overall cost base of the investment unit. This can help minimise potential capital gains tax when the units are eventually sold. Fees Having a team of investment managers comes at a cost, as does the benefi t of having an effective administration and reporting system. Fund managers can charge entry, exit, ongoing management and even performance fees. 'Index' fund managers traditionally charge lower fees than 'actively managed' fund managers as they have lower portfolio management costs. Retail funds are more expensive than wholesale funds. An investor can access the cheaper wholesale funds, however, they must either have a larger initial investment (generally, from $20,000 up to $500,000), or invest via a platform structure, which then charges its own level of administration fees. The level of fees charged by a fund manager can have a signifi cant impact on the overall return of the investment, particularly over the long term. So that like-for- like performance comparisons can reasonably be made between different funds, fund managers are now required to display performance data as after tax returns or 'net of fees'. Access Managed funds provide access to investments in assets normally not available to individual investors (particularly international and emerging markets). The Australian sharemarket represents just under 2 per cent of the world's sharemarket. Therefore, investing internationally via managed funds can provide greater diversifi cation and investment opportunities compared to investing only in the Australian sharemarket. Unfortunately, the redemption process for managed funds is not as timely as it is with selling listed securities. Depending on the strength of the fund manager's administration systems, redemptions can take anywhere from one to 10 business days to process, or longer if the redemption occurs at the end of a fi nancial year – a time when funds are trying to fi nalise unit price data from various sources. Fund managers must value all of their assets at the prevailing market price. Depending on the unit price at the time of redemption an investor may be forced to sell a higher number of units to achieve a specifi c dollar value. This means the portfolio's overall investment value can be affected as there are less units invested in the fund. Final word Fortunately, investors are able to invest in a manner that best suits their own needs. Whether direct investing is the preference or indirectly via a managed fund, it is a personal choice. A combination of both may be preferable so that the investor can fully appreciate the benefi ts of each strategy. Regardless of which investment strategy is adopted, diversifi cation within any investment portfolio is always recommended. This article was written by Terri Loy, National Manager - Superannuation and Technical Services for RBS Morgans. DISCLAIMER - RBS MORGANS LTD This article was written by RBS Morgans Limited A.B.N. 46 010 669 726 AFSL 235410 a Participant of ASX Group. While it is based on information from sources which RBS Morgans considers reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed refl ect RBS Morgans' judgment at this date and are subject to change. RBS Morgans has no obligation to provide revised assessments in the event of changed circumstances. RBS Morgans, its directors and employees do not accept any liability for the results of any actions taken or not taken on the basis of information in this report, or for any negligent misstatements, errors or omissions. The information in this article is general advice and takes no consideration of any specifi c person's investment objectives, fi nancial situation or needs. Those acting upon such information without fi rst consulting an investment advisor do so entirely at their own risk. It is recommended that any persons who wish to act upon this report consult with an investment advisor before doing so. This article does not constitute an offer or invitation to purchase any securities and should not be relied upon in connection with any contract or commitment whatsoever. THE RETIREE SUMMER 51

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