We’ve all heard common myths like “you need lots of money to invest” (you don’t) and “investing is only for older people” (the earlier you start, the longer your assets have to grow).
There are plenty of other myths though, fed by misleading marketing and misguided intentions. And they could ultimately cost you a small (or large) fortune.
Think you know fact from fiction when it comes to investing? You wouldn’t be the first to fall afoul of these money myths.
Myth 1: The age pension is enough
Try living for two weeks spending no more than $1,116.30 if you’re single, or $841.40 each for couples. This is the current age pension allowance in Australia.
That amount needs to cover costs for housing, food, bills, cars, insurances, clothing, maintenance, entertainment, gifts, travel, investing… the lot.
Myth 2: Consolidating super saves money
Rolling multiple super funds into one could save money, but only when done strategically.
Things go awry when you forget about insurances within super – these automatically lapse once a fund is closed – or consolidate into a higher fee, poorer returning fund.
Myth 3: The bank of Mum and Dad is safe
The ‘bank of Mum and Dad’ can seem like a safe option for both lending and borrowing money. After all, you’re family! However, relationships can sour, especially where large amounts of money are involved.
If you do borrow money from your parents, ensure everyone understands the agreed repayment terms. Have a written agreement. Include contingencies in case a property needs to be sold, the recipients split up, or repayments become unaffordable (e.g. due to redundancy or illness).
Myth 4: Self-employed don’t need to pay themselves super
Many self-employed people forgo or delay paying themselves superannuation to instead boost their business’ cash flow.
However, it restricts retirement earnings and can impact your business valuation, and your business could be worth less, or worse, nothing.
Additionally, you may incur late penalties and interest on top of forced payments if the Australian Taxation Office (ATO) deems you should have been paying it.
Myth 5: Insurers never pay up
Insurers collectively paid out $36.5 billion last financial year, according to the Insurance Council of Australia.
It pays to look around – some insurers typically have faster processing times and better track records with paying claims than others.
Taking out the right policy for your needs also supports a successful claim.
Myth 6: Property values always rise
Like any investment, property is not without its risks.
Temporary price falls happen. Markets can suffer irreversible declines (such as regional towns where the primary employer closes down). Property is also more expensive to buy and maintain than other investment types, and you can’t access that cash quickly.
Myth 7: You need an SMSF to control your super
You have full control over how your superannuation is invested, no matter where the funds are.
While a self-managed superannuation fund (SMSF) may directly own additional investments that retail funds can’t, like an individual property (under strict rules), you can still invest in these options in other ways, such as through trusts and shares.
Myth 8: Judge super funds by their fees
Fees are an important consideration, but not the only one.
Performance, value, investment options offered, customer reviews, and corporate governance should also be weighed up.
Myth 9: Ethical investments only invest ethically
What constitutes an ethical investment means different things to different people. Determine what ethical means to you and then invest accordingly.
Assess the legitimacy of ethical claims against ‘greenwashing’ or marketing spin. Something may be environmentally ethical but have poor governance and social performance, or vice versa.
Myth 10: Active funds beat passive funds
Given their higher fee structures, and the investments don’t always get it right, active funds can underperform passive funds.
No two funds are alike, so it’s important to shop around.
Myth 11: My partner is better with money
Investments – indeed all financial decisions – should be joint decisions for every couple. Two pairs of eyes make it easier to identify mistakes, risks and new opportunities.
Plus, being involved gives you more independence. Your partner can’t hide assets if the relationship breaks down, and if you outlive them, it’s easier to know what you have and what you’re entitled to.
Myth 12: DIY saves money
Investing can be complex and you don’t know what you don’t know – meaning there’s huge scope for mistakes and missed opportunities.
Tailored, professional advice can more than pay for itself by helping you build and maintain your investment strategy, while effectively managing risk, tax and compliance or legal issues.
Disclaimer: The information in this article is of a general nature only and does not constitute personal financial or product advice. Any opinions or views expressed are those of the authors and do not represent those of people, institutions or organisations the owner may be associated with in a professional or personal capacity unless explicitly stated. Helen Baker is an authorised representative of BPW Partners Pty Ltd AFSL 548754.
