Nicole Pedersen-McKinnon
April 8, 2012
It's worth investing in property and stocks to FUND
YOUR RETIREMENT, and if things turn gloomy financially.
With the benefit of hindsight, Nicole Pedersen-McKinnon
has a few tips for her younger self.
Dear younger, better-looking, more cash-strapped version
of me,
This is your future self writing, martian-tini in hand,
from Branson's new space resort. You see, it might not seem possible today but
you get your financial act together. And yes, you rocket past your retirement
dreams.
But I remember well how stressed you felt in 2012, so I
thought I'd give you a heads-up on how you ultimately prevail.
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CASH DOESN'T CUT IT
Sure, things got pretty scary on asset markets after
2008's mortgage-induced meltdown. I painfully recall the trauma of watching
shares deflate, undulate and then stagnate.
But growth - a more subdued version - does resume.
However, that's not really the point. The point is that
you need to hold some growth assets - stocks and property - to fund your
retirement.
Sitting in cash might feel less nerve-racking, but of the
6 per cent you can now earn, half is eaten up by inflation and almost the other
half by tax.
What you need is a broad spread of growth and income
(cash and bond) assets, remembering high-yielding Australian shares can act
like both. This is not just so there's potential for your portfolio to increase
but also so the next time an asset class tanks, and at some point most will, it
doesn't dramatically decrease.
The key is to ensure your asset mix remains appropriate
to your risk appetite and age. Do us a favour and progressively invest more
safely.
PROPERTY ISN'T THE
PANACEA
Hopefully, by now, you've begun to accept an
uncomfortable truth - property doesn't always go up, even in Australia.
I recall the 3 per cent national fall in 2011 and also
that the performance of suburbs and areas across the country varied quite
dramatically. Be aware that if an investment property loses you money each
month - because you've negatively geared for the tax breaks - you need a big
eventual capital gain to compensate.
Don't forget, either, that your home is one of the most
valuable assets you'll own, so you already have a large chunk of cash tied up
in real estate.
REGULAR SAVINGS RULE
The real secret to investing is not what you earn on
savings and investments but how much you can save and invest in the first
place.
Because, from my bird's-eye view, I can see just how
spectacular compounding really is. The earlier you start, the easier you will
succeed.
Start putting $100 a month into an investment, earning
even a modest 6 per cent, at age 30 and by 55 you'll have more than $70,000,
more than half of it from investment returns.
If you don't start until 40 you'll need to save $240 a
month to end up with the same balance - and only $27,000 will be returns.
Wait until 50 and this leaps to $1000 a month - and
you'll have to find all but $10,000 of your total. A hundred bucks a month is
the equivalent of one less naughty snack or cup of coffee a day.
GROW AND PROTECT
Shoring up your future is just as much about defensive as
offensive actions. In other words, get protected.
First, a healthy sense of scepticism is one of the best
protections going. Never forget if it seems too good to be true, it is - and
could even be a scam.
You don't get higher returns without taking a higher
risk. Ever. If you can't take on that risk, don't invest.
Secondly, you need to protect your family and also your
most valuable asset: your earning power. Take out life, total and permanent
disability and income protection insurance as a minimum - today.
DOWN WITH DEBT
The interest savings from repaying debt are enormous -
just as compounding works for you with savings, it sabotages you with debt.
If you let a home loan go full term, you can expect to
repay far more than double what you initially borrowed.
So don't. Bear in mind that in the top tax bracket you
would need to earn almost 12 per cent on an investment for that to be a smarter
strategy than simply paying down debt, based on the average 7.4 per cent
variable rate.
But the real power of the strategy is that, without the
regular commitments of mortgage and debt repayments, there's much more money
with which to reach your lofty goals.
MONEY IS FOR
ENJOYING
Make your money work for you, not just the other way
around. And to stay focused on wealth building, treat yourself along the way.
But don't bother saving for the jet pack. Sure, you can
buy them now but landings are a bit hit-and-miss.
Stay financially grounded throughout and the stars are
the limit.
Malaysia's multi cultural society today wears the proud imprint of a land that has been for centuries a meeting place for Asia's great civilizations of India, China and Islam.
Foreign citizens are permitted to own real estate in Malaysia without any restriction or approval from the Foreign Investment Committee as long as the price of the property is above MYR500,000. 
Citizens of most countries do not require visas to enter Malaysia. For the latest requirements please check the Malaysian Foreign Ministry website at 
