There is no doubt that most people have been impacted financially in some shape or form by COVID-19. Whether it has been a reduction in your superannuation due to share market falls, reduced hours at work or even the loss of an income in your family.
Over the past weeks we have contacted our clients to check-in and answer the many questions they have about adapting financially to the COVID-19 situation. Here we share the top FIVE questions we’ve been asked and our responses and invite you to reach out if you need more information or if you would like to discuss your financial circumstances in further detail.
Q: Is COVID-19 worse than the Global Financial Crisis?
A: Firstly, it’s important to point out that Australia has faced economic downturns in the past, and downturns are part of the economic cycle. The downturn associated with COVID-19 is perhaps more visible than previous downturns due to the enormous lifestyle changes and health impacts experienced across the globe. We should take solace in the positive health outcomes Australia is experiencing thanks to our early response and actions.
Q: What should we do about our shares and investments?
A: It is common for investors to be concerned when faced with economic and market movements and volatility. When it comes to investment planning, our focus is on investing to build wealth over time using the power of compound interest. We consider investing a long-term approach to building wealth, and as such investments may be held in all market cycles, usually across a diversified portfolio of investment options, that are tailored to your stage of life and risk appetite. It’s important to focus on your long-term financial goals rather than just one aspect of your financial plan.
Q: Do I need to update my financial plan?
A: We believe there are seven fundamentals that should be considered as part of a comprehensive long-term financial plan. Depending on your circumstances and stage of life, each of the fundamentals may be applied differently, or at different times. Our seven financial fundamentals include:
1. Income planning – making the most of your circumstances.
2. Investment planning – building income streams beyond employment income.
3. Debt management – using your debt to get ahead.
4. Risk planning – protecting your lifestyle.
5. Retirement planning – creating a retirement of choice.
6. Planning for aged care – understanding the financial consequences.
7. Estate planning – creating wealth protection and a legacy for your family.
This well-considered and robust financial approach, aims to create a financial contingency plan in uncertain times.
When considering updating your financial plan, considerations often include:
• Adapting income: review expenses and prioritise cashflow if income has been affected.
• Address debt: prioritise debts and look at strategies to reduce some monthly outgoings to build more of a safety net into finances.
• Review risk: understand changing protection needs and consider updating or adapting policy needs to suit the current situation.
• We have also found that many of our clients are taking the time to review their estate plans to address their legacy wishes such as preserving their wealth and reducing tax complications for their beneficiaries.
Q: Should I take advantage of available stimulus measures such as a ‘mortgage holidays’ or early access to super?
A: While you may be in a period where your expenses are high and your income is reduced, it’s important to consider your options from a long-term point of view. While a mortgage holiday may offer some immediate cashflow relief, your mortgage interest rates will still accrue. Refinancing or addressing other debt management strategies may be more appropriate in the long run.
Accessing superannuation early may also be more detrimental than advantageous to your long-term financial goals. Tax implications and the impacts caused by reducing your overall balance and how that may affect compounding interest are important considerations.
It is our recommendation that all financial strategies be considered as part of your overall long-term financial goals and stage of life, rather than in isolation or as a result of the immediate, and likely short-term impacts of the COVID-19 situation.
Q: I’m worried about my son – he has taken a hit to his income and he has a young family and a fairly big mortgage
A: If you are concerned about a family member who is experiencing financial distress, it might be time to recommend they seek professional advice. Setting financial goals and implementing risk protection mechanisms is important for establishing financial security. If you would like to introduce a family member to us, please contact us and arrange an appointment.
These are just some of the issues that are concerning our clients, and you may have your own questions unique to your circumstances. If you have further questions or would like advice relating to COVID-19 and your financial affairs, I invite you to contact our office on 07 3720 1299 or email admin@wealthfundamentals.com.au
At Wealth Fundamentals, our goal is to provide advice and support to deliver a comprehensive financial plan that considers your individual circumstances to implement sustainable strategies designed to create financial independence throughout your life.
Lane Moses Pty Ltd ABN 56 092 186 117 trading as Wealth Fundamentals and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.
The information (including taxation) contained within this document does not consider your personal circumstances and is of a general nature only - unless otherwise stated. Wealth Fundamentals strongly suggests that you should not act on it without first obtaining professional advice specific to your circumstances.
This information is based on our understanding of legislation at the time of writing. Such legislation may be subject to change. This publication cannot be reproduced in any form without the express written consent of the author.