Creating your freedom fund

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Recently I attended the Morningstar investment strategy day in Melbourne, a full day of sessions from investment managers, analysts and more, including a presentation from Paul Howes, partner of KPMG Australia.

Mr Howes highlighted one reality that exists across Australia: many of the population don’t presently have enough money for retirement.

That isn’t ok.  Something must be done about this, and so here I write, calling on you to act to forge your own financial security. At the very least, review what you are currently doing.

For those who work as lawyers, as your income rises over time, so to for most does the lifestyle expectations, and at times, not enough thought is put to building financial security.

Why wouldn’t you create financial security for yourself as soon as you reasonably can?  This is not something to start five or ten years before ceasing work. Give yourself more time.  Instead start right away.  

Starting now may mean doing so in a smaller way, however, you’d be surprised how much difference it can make by starting to build wealth (and eliminate mortgage debt) as soon as you can.

Here is an example that illustrates the more time you have, the easier it is.

Example

James and Jennifer are brother and sister. They both understand that they should invest some of their money to build wealth over time.   Their approach differs given Jennifer doesn’t get around to doing anything about it for some time.  James starts early, from the start of his career, and makes a commitment to an ultra-long term and consistent regular savings plan.   Jennifer adopts an identical approach, however starts her regular investment at age 40.

Both start with a capital value of $5,000, and invest $400 per month into an investment plan.  James starts at age 23 and stops at 65 years of age, where Jennifer starts hers at age 40, until age 65.   Both portfolios provide an average 8% per annum compound return.  Naturally the rate of return does have a bearing on wealth creation.

What do you think their final balances are?

For James his investment is worth $1,718,831.  What a balance!  A sizeable amount which has been built up over time. Who would have thought from $5,000 it could get to this?

For Jennifer hers is $385,150.    Still a good amount of money but substantially less than James.

The power of compound returns accelerates as you have more time.  The longer you have, the more this can benefit you.

Note, with an investment plan such as this, it is highly unlikely that someone will get a consistent 8% return year on year.  Instead it will be 11% one year, -3% another, 8% another and so on.   Therefore, be aware that the actual figures over time won’t be exactly as calculated.  However, the key point remains: the more time you have to invest, the easier it is to grow your freedom fund.

General advice disclaimer: The information provided (including taxation) is general in nature and may not be relevant to your individual circumstances. You should refrain from doing anything in reliance on this information without first obtaining suitable professional advice.

You should obtain and consider the relevant Product Disclosure Statement (PDS) before making any decision to acquire a product.

The views expressed in this article are solely those of the author; they are not reflective or indicative of Millennium3 Financial service’s position and are not to be attributed to Millennium3. They cannot be reproduced in any form without the express written consent of the author.

Incito Wealth Pty Ltd is a Corporate Authorised Representative of Millennium3 Financial Services Pty Ltd ABN 61 094 529 987 AFSL 244252

Disclaimer: Millennium3 Financial Services Pty Ltd ABN 61 094 529 987 AFSL 244252. The information provided in this document is general information only and does not constitute personal advice. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser. From time to time we may send you informative updates and details of the range of services we can provide. If you no longer want to receive this information please contact our office to opt out. The views expressed in this publication are solely those of the author; they are not reflective or indicative of Licensee’s position, and are not to be attributed to the Licensee. They cannot be reproduced in any form without the express written consent of the author.

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Incito Wealth Pty Ltd (ABN 93 161 013 565) is a Corporate Authorised Representative of Millennium3 Financial Services Pty Ltd ABN 61 094 529 987 AFSL No. 244252 Unit 7, 50 Borthwick Ave, Murarrie QLD 4172
General advice disclaimer This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice and consider a Product Disclosure Statement. The views expressed in this publication are solely those of the author; they are not reflective or indicative of the licensee’s position and are not to be attributed to Millennium3. They cannot be reproduced in any form without the express written consent of the author. Furthermore, the information on this website is for Australian Residents only.
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