How to Invest Intelligently – Part 5 of 5 - Glenda Nicholls

How to Invest Intelligently Steps 13-15

Here are the last three steps in this series, so that you can be not just an investor, but a smart one!

13. Understand the tax implications of your investing

When you are an investor, your tax reporting gets more complex.

That’s ok. When you become a proficient cook, your shopping list becomes more complex too.

You just need to be aware that certain records need to be kept and tallied for tax time – and in my experience it is MUCH easier to have a system for this as you go, instead of having to ferret around for loads of statements and missing information when the tax lodgement is due next week.

It’s a great idea to build a checklist of all of the items of information you need to collect for your accountant for tax lodgement preparation each year. Once you have done this, you are more aware of what you need to collect as you go, so that it’s easy to get your hands on at tax time. I love my tax checklist now, as it makes tax prep a dream compared to what it used to be. I now just work through the list each year, and collect and collate each statement, produce some reports, and put it all in tidy folders for each taxable entity, ready for the accountant to do his magic.

The main two categories are investment expenses, and investment income. This information will be in different places depending on the asset classes you invest in. You need to create a system for collating this information each year.

Deductions from Taxable income

Contributions to your retirement fund (Superannuation in Australia)
Investment holding expenses
Investment losses (capital losses after sales of assets)

Income needs to be declared (from “taxable events”)

Ongoing income, (rent, dividends, bond interest)
Profits from sales of assets (capital gains)

To find out more about what is declarable and claimable at tax time, here’s a great link for Aussies to start with:

https://www.ato.gov.au/Individuals/Investing/

14. Consider the legacy of your investing.

What’s your end game? Are you planning to gradually use up your nest egg, or leave it (or some of it) for others to inherit.

Your ability to answer this depends on the investing stage you are in. For those who are well on the journey of accumulating assets that will generate income when you’re working less, or fully retired it needs to be considered

We don’t know exactly when we’ll leave the planet, or in what order, so we do need to plan for all contingencies.

The ideal situation would be to have a large enough nest egg that we can live on the income it generates, without having to nibble away at the egg itself.

There are some rules around minimum amounts we need to drawdown from our Superannuation Funds in Australia, and other country’s retirement accounts have similar rules. Here’s some detailed info about that.

For any investments outside of Superannuation, it is totally up to us whether we ever sell, and reduce the value of our asset base.

Part of this decision will depend on who we might want to leave assets to, after we “move on”.

Have you got an appropriate will in place so that what you want to happen will really happen? And importantly, have you got structures set up so that the assets your loved ones inherit will stay with them?

You may also love the idea of leaving some of your wealth to causes that you support. Have you got provisions made for this in your will?

15. Selecting your service providers and tools

And – lucky last on this list of intelligent investing topics – is those we need to assist us on the way.

Some people refer to having an A-team. These are the service providers we need to assist our journey – whether it’s an investing journey or some other enterprise.

To me, this is really our support crew, and they mostly don’t work as a team as such , but as specialists who do our bidding. It feels like a team to us. However, we are the project manager, and they are the sub-contractors. So they don’t need to be able to work together – they just need to be able to do what we want brilliantly.

This will include tax and business accountants, book-keepers, lawyers, conveyancers, finance brokers, insurance brokers, SMSF specialists, buyers agents, financial coaches, and financial advisers.

The best way to have brilliant service providers is to know what we want. This means knowing what a good job looks like, in each of the above listed areas.

I have found that it can take a few switches, until we settle with providers we are really happy with. Even recommendations from others don’t always lead to great outcomes, as everyone has differing requirements.

The main thing is to have the intention of gradually assembling a support crew that you are really confident in. This adds a lot of power to your various investing activities. If there are any who you are not happy with – make the change. It’s a bit of work, but really worth it in the long run.

And that’s the end of this series about How to Invest Intelligently.

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