Question: I have a lump sum of money that I want to invest in the share market. Should I invest it now?

Kyle’s answer:

As the market historically has trended upwards, the best time to invest is now. This, however, may seem scary, particularly if you’re a new investor as the market may well be down over the next day, week, month or year and this likely will be difficult to stomach.

An alternative approach is to do what’s called “dollar cost averaging”. This is a strategy to invest in equal amounts over set periods over a set amount of time. As the name suggests, this is basically averaging out the prices you pay and is a way to hedge your bets.

For example, let’s say you have $60,000 to invest. You could invest it all on day 1 and if returns are positive over the next 12 months, you will do well.

If you “dollar cost average” and invest $5,000 each month over the next 12 months and the returns are negative throughout the year, you will be better off than if you invested everything at the start.

It might seem smart to attempt to get out your crystal ball, look at the charts, listen to your Uber driver or “expert” on the news and try and pick what the markets are going to do in the next 12 months. However, it’s impossible to know.

Instead, your decision should depend on your situation and ability to withstand short-term losses and whatever strategy you choose, you must stick with it.

One last point if you choose to “dollar cost average” is to take into account brokerage and make sure that the percentage of your investment isn’t too high. Share brokerage accounts often have a fixed minimum fee (e.g. $20), so if your trade value is small (e.g. $500), the fee on a percentage basis will be high and eat into your profits. A way to avoid this could be to decrease the number of trades you make and increase the amount (e.g. using the above example, invest $10,000 every 2 months or $15,000 every 3 months for 12 months instead of $5,000 every month).  

Question: What money will related changes will happen if Labor win the upcoming Federal election?

Kyle’s answer:

With the Federal Election expected to be in May and bookmakers having Labor as the heavy favourite, it’s a real possibility that we will soon have a new Government and one that is proposing some significant changes. So what are they and how will they affect you?

Banning franking credit refunds, the tax offset that comes from franked Australian dividends, will no longer be refundable. This will particularly affect Self Managed Super Funds and people who generate most of their income from Australian shares, as this refund will essentially go to waste.

Limiting negative gearing to new housing investments. This will make property investing, in particular, less appealing in the future as the government won’t subsidise a loss you make on income that you expect to make up for in growth. This also applies to other asset classes (e.g. shares). Existing investment holdings will not be affected.

Halving the 50% CGT discount. This will make growth assets (e.g. shares and property) taxed heavier as the 50% discount is reduced to 25%. Existing investment holdings will not be affected.

10% test for personal tax-deductible contributions. This means employees wishing to make  contributions to super for retirement or for their first home via the First Home Super Saver Scheme will have to plan earlier in the year by salary sacrificing.

Abolishing the First Home Super Saver Scheme. There will no longer be a First Home Super Saver Scheme. This means you won’t be able to make additional contributions to super to access for your first home and there will no longer be tax savings to help save towards your first home deposit.   

Reducing the Division 293 tax income threshold to $200,000. This means that high-income earners will pay additional contribution tax in super and some may pay more tax. If your income (including concessional contributions) is over $200,000 (instead of $250,000) you will be liable for an additional 15% tax on the concessional contributions over $200,000.

No more concessional contributions cap carry-forward. This policy brings tax saving opportunities and will mainly be a case of finishing before it really got started.

Non-concessional contribution cap getting reduced from $100,000 to $75,000. This means that it will be harder to get large amounts of after-tax money into super. As this will also affect the three-year bring forward cap, it will especially affect people wishing to dump a lot of money into super leading up to retirement.

Increasing mandatory employer contributions. This means that your employer contributions may be higher in future years however with there no such thing as a free lunch, your wage may grow slower.

Banning Self Managed Super Fund’s borrowing to invest in residential property going forward. This is pretty self-explanatory and this will remove a reason why many people set-up a Self Managed Super Fund.

30% minimum tax rate of discretionary trust distributions. This will limit tax saving opportunities by distributing income to beneficiaries aged 18 and over (e.g. kids) who have low incomes.

$3,000 maximum deduction for cost of managing tax affairs. This is pretty self-explanatory and not applicable to your average person.   

This is just a brief summary of the proposals and it’s important to note that they are just proposals at this stage and even if Labor wins the election, they still have to survive consultation and pass through the Senate.

Kyle Frost is an independent financial adviser at Millennial Independent Advice (AFSL: 511 786), where he helps people in their 20’s and 30’s make smart decisions with their money. Click here to subscribe to his updates.