Michael Kodari, CEO of KOSEC – Kodari Securities
With the ongoing socio-economic effects of the pandemic, it’s critical more than to make long term financial stability and asset growth a priority. This article looks at how you can make the ‘mindset shift’ to make asset and wealth building a priority in order to thrive in 2022 and beyond.
The long-term benefits of a wealth accumulation plan are significant. It provides stability in times of personal financial emergency, security in retirement, and emotional well-being in everyday life. It also leaves something that can be passed on to your children.
This sense of financial empowerment and wellbeing is more important than ever to curb the uncertainty and instability of our economic and social environment. In fact, a recent AMP Study found over 1.8 million Australian workers reported severe or moderate financial stress. The report further revealed financial stress has remained a systemic issue in Australian society since 2014.
Alarmingly, the report forecast if the impact of COVID-19 sees the number of people stressed increase by 10 points to 52 per cent, the additional cost to Australia’s economy caused by that stress could be up to a whopping $4.4 billion.
Atomic habits towards wealth creation
Smart money management is the key to asset building. It takes discipline and it takes time. So where do you start?
Building assets begins with the right mindset, the right attitude. Attitudes are the architecture of habits, and our habits shape our destiny. So, an asset building program begins with a habitual commitment to set aside some of our earnings regularly, and put that amount to work in the form of an investment.
Understanding investment structures and asset classes
Once that decision to take control of your wealth management is made, the next decision is the nature of the investment. There are two aspects to this: the investment vehicle (or structure) and the asset class from which the investment is selected.
The simplest structure is to invest in one’s own name or in a public offer superannuation trust. Other structures that are beyond the scope of this article include a Family Trust or a private company.
There are three main asset classes:
- Bonds, or debt securities,
- Shares, or equity instruments,
- Property, including property securities.
A fourth asset class is ‘Other’, and includes exotic investments like fine art, paintings, rare coins and stamps, and vintage cars. Gold is also categorised in this way in the traditional investment literature. Derivatives, which are complex financial instruments, are also considered to be exotic investments. The main point to appreciate about these investments is that they do not produce income, are illiquid, and generally require specialist expertise to manage them.
What are some emerging investment trends?
One interesting trend is ‘passive Investing,’ which refers to taking a buy and hold position for the long-term. This can involve virtually any asset, including shares, bonds and property securities. This position can be readily and inexpensively established by investing in an Exchange Traded Fund (‘ETF‘). An ETF is a specific investment structure comprising a basket of securities or similar assets that is traded on a securities exchange, similar to a share that is traded on a stock market. The ETF tracks a specific index, commodity, sector or virtually any asset that can be collectively held.
Another popular investment trend that has been around for a long time is an ‘actively and professionally managed fund’ that pools investors’ money that is then used to take positions in public companies, commercial or retail property, infrastructure assets, fixed income securities or private equity investments. The concept is that a skilled, professional investment manager, dedicated to the role of identifying and actively managing a portfolio of assets on behalf of investors, can achieve a higher return than the market average.
An interesting investment trend that has gathered pace in recent years is known as a ‘Separately Managed Account (SMA)’. This is a portfolio of investments managed by a professional advisor that is customised to the specific requirements and investment objectives of an individual investor. SMAs provide direct ownership of investment securities and offer a higher degree of investor flexibility compared to a Managed Fund.
Can anyone invest?
Yes, anyone can commence an investment plan and you can start at any point of your life. An investment plan can be established for a new-born child, an adolescent or a mature aged adult. A person who is under the age of eighteen years is subject to specific taxation rulings. However independent professional advice should be obtained before setting up investments on behalf of children.
The key to building wealth is to embrace investment and asset management as an opportunity to feel empowered and not to fear it. Once you move away from the ‘uncertain’ and ‘fear’ factor, you can create powerful, life changing habits to strengthen your financial wellbeing for yourself and your family now, and for the future.
