The students of 2020 are graduating to the adult world in one of the most uncertain times in recent history amid recession, pandemic and global political tensions.
The prospect of working, saving and investing is a daunting prospect – and the hope of home ownership must seem an eternity away.
In times like these, knowing the basics of how to get started down the road to prosperity is more important than ever.
Here are five tips for the class of 2020 to keep in mind as they navigate their financial futures.
Charles Dickens wrote a famous argument in favour of financial prudence when he said the difference between happiness and misery was spending a mere sixpence less – or a sixpence more – than you earn.
Budgeting effectively is the first and most critical financial lesson. Knowing how much is coming in and going out is critical to building good money habits.
Next, the trick is to regularly put something away into savings.
Some call it an emergency fund, others say they are saving for a rainy day. The result is the same – a lost job or an unexpected bill can be financially devastating and having funds to protect from the unknown is critical.
Only once that emergency buffer is stashed away in a bank account should new investors consider moving future savings into higher return investments like the share market.
The rise of buy now pay later services would have you believe that younger generations have turned their back on bank loans forever, but traditional forms of lending will still play an important role in their financial lives.
The trick is to distinguish between debts that help build a better future and those that simply fuel lifestyle.
Student debt for university is generally one of the good debts, setting up a higher income earning future through better education. A mortgage puts a roof overhead and builds equity in an important asset. Carefully borrowing to invest is also a strategy many use successfully.
But credit card debt can be a threat to personal financial stability, as are personal debts like car loans.
It is important young adults tread carefully when borrowing and carefully consider what kind of debt they are taking on.
Retirement must feel very distant, but superannuation remains the single most attractive way for most people to save and invest.
The tax advantages of super are well documented – contributions and earnings are taxed at just 15 per cent. Low-income earners like many school leavers can even qualify for top-up contributions and tax offsets from the government.
It is important to stay on top of super, know where contributions are going, ensure the asset allocation is appropriate and watch out for high fees.
As young adults start to build an investment portfolio, saving for a car, home or retirement, one of the first lessons they learn is that from time to time, investments have a tough year. Ups and downs are to be expected.
And while accessing the share market is easier than ever with the rise of cheap brokerage accounts, sensible investing is not about collecting shares in brand name companies in a phone app.
Instead, the key to success is found in diversification and deliberate top-down portfolio construction. Top-down portfolio construction means establishing your asset allocation settings to match your personal risk profile.
Being diversified means the chance of any one failed investment hurting your overall returns is minimised.
Managed funds and ETFs allow investors to own thousands of different investments in different countries, different industries and across multiple asset classes.
Finally, young investors should spend some time wrapping their minds around the power of compounding.
The concept of something growing faster the bigger it gets is strange to comprehend but that’s exactly what investments do.
Over the past hundred years, it was not uncommon for a portfolio to double in value about every 10 years. That means that after the tenth year, the accumulated returns are bigger than the amount originally invested and from year 10 onwards, the investment returns alone produce more gains than the original investment itself.
Understanding this helps young investors realise that their small investments today will drive outsized returns if given enough time.
After all, time is the biggest asset that the young possess.
By Robin Bowerman
Head of Corporate Affairs, Vanguard Australia
24 Nov, 2020
BEc (Acc), MBA, CPA, FFin
David has been in the Financial Services Industry for nearly 30 years. He was one of the founding Directors of the successful Financial Planning and Stockbroking Practice, Henderson Gregory Forrest, for a decade. Prior to that, he held senior roles in companies such as ING, KPMG Accountants and AMP. David was previously Chairman of OAMPS Superannuation Trustee Board and currently serves as an independent Board Director for several companies.
David’s extensive experience in all forms of superannuation, including Self Managed Super Funds (SMSF), Defined Benefit Funds, retirement funding through Account Based Pensions, stockbroking with a focus on Direct Share Investment, Taxation/Remuneration Planning, Centrelink, Aged Care and business management, equip him to advise expertly on all aspects of Financial Advice.
Those with a particular interest in superannuation/SMSFs, direct share investment, salary packaging or applying for the Centrelink Pension will find his knowledge and ability in formulating and implementing creative, logical and simple wealth creation strategies a valuable asset.
David maintains a strong personalised client service focus, providing tailored solutions for clients.
David Forrest is an Authorised Representative of Integrity Financial (SA) Pty Ltd ABN 16 133 921 187 — AFSL No 334846
Business Finance Manager
B Bus (Acc), CPA
Michelle’s career has spanned across the Financial Services, Retirement Living and Aged Care industries working in the private sector, not for profit and more recently with the state government for over 20 years. Her experience extends to many facets of the financial services industry, having worked in superannuation administration, technical support and financial planning practice administration.
Commencing with AMP and subsequently working in commerce and accounting roles with companies such as Brambles, Adelaide Bank Retirement Services, ECH Inc and SA Health and Wellbeing, Michelle returns to financial services after working in practice financial management at Henderson Gregory Forrest. This wide range of experience from senior accounting and management roles has provided Michelle with a strong background in business administration.
With an astute financial acumen and keen interest in business improvement strategies, Michelle ensures the smooth running of the Integrity Financial Advisory practice providing valued management support to our personalised client service focus.
B Com, Dip FP
Darren joins the Integrity team as a strong technical specialist with almost 20 years’ in the Financial Services industry. He has extensive experience advising clients on how to build and protect wealth, prepare for retirement and retire comfortably.
Commencing with advising clients on direct equities for over 10 years at Baker Young, Tolhurst Noall, and ABN AMRO Morgans, his career expanded to providing holistic client advice, having operated his own financial services licence and company. Most recently having worked for a 'Big 4' bank, he has welcomed the more personalised ‘client first’ approach that is evident at Integrity Financial Advisory.
With a deep understanding of investment markets, he is appropriately qualified and authorised to provide direct share advice, as well as superannuation/SMSF advice, encompassing both investments and insurance.
Meticulous in his approach, he aims to deliver quality outcomes for clients by understanding their financial situation and needs before providing advice which is central to our advice process. Darren supports David in tailoring solutions for all client financial advice needs.
Darren Chalk is an Authorised Representative of Integrity Financial (SA) Pty Ltd ABN 16 133 921 187 — AFSL No 334846
Client Service Manager
Natasha commenced working in the financial services industry in June 2008 and is a new addition to the Integrity team. During the past 11 years, she worked closely with advisers providing administration support in a share broking and financial advice business.
Having successfully completed her RG146 accreditation in securities and managed investments and continued her studies to complete her competency in Superannuation, Natasha can ably assist with all aspects of fixed interest, cash management, portfolio administration, direct shares and client advice implementation.
Natasha takes time to ensure she understands our client’s financial goals and needs and believes in creating, preserving and utilising wealth through effective financial management as a key objective in helping clients.
Client Service Manager
Kelly has worked in the Financial Services Industry for over 10 years and has supported David since 2013. Kelly’s primary background is in customer service and administration.
On starting in the industry, Kelly initially focused on direct shares, stockbroking administration and client liaison. Since moving to the Client Service Manager role, Kelly has developed skills encompassing all aspects of financial planning including client advice implementation and term deposit management.
Kelly’s experience in the direct share environment, especially management of estates, provides a key part of the direct equity expertise in Integrity’s Client Service Team.
Returning from Parental Leave following the arrival of her second child, Kelly has developed further honed multi-tasking skills after juggling the demands of a growing family.
Client Service Manager
Jasmine has worked in the financial services industry for over 12 years in all areas of client administration, working with David since 2013.
Jasmine has extensive knowledge and experience in client service including implementation of advice, portfolio reporting, assisting with the establishment of Self Managed Super Funds (SMSFs), term deposit management and a long history of helping clients with their enquiries.
Jasmine’s attention to detail, yet gentle approach, means she is able to solve the trickiest of questions for our client community.
Jasmine has gained her Certificate III in Financial Services qualification.
Client Service Manager
Merrilyn has worked in the financial services industry for over 11 years in all areas of client administration, and is a new addition to our client services team, returning from Melbourne to join the team in June 2019.
Merrilyn has extensive knowledge and experience in client service including implementation of advice, managed fund administration, assisting with the establishment of Self Managed Super Funds (SMSFs) and process improvement for the previous practices she has worked with. Merrilyn’s experience with direct shares constitutes the other part of our administrative support for direct equity investments.
Merrilyn’s warm and caring nature continues to endear her to our clients and she has already established herself as a valued member of our team.