An example of how DIY is costly

Do-it-yourself financial planning can be costly because often you don’t know what you need to know.  With a litte more knowledge you would make a more informed financial decision that can both save and make you money.

This was clearly illustrated in my conversation just now with one of the other tenants in my office building. Let’s call him John…

John’s DIY Superannuation Strategy

John mentioned that about 18 months ago he had cancelled his salary sacrifice into superannuation because, with markets falling the value of his contribution reduced soon after being made. Now that markets have recovered substantially he is going to restart his salary sacrifice.

That all sounds reasonable, right?

Well it was a costly decision and not because of the market movements.

The bit John overlooked…

One of the main benefits of salary sacrifice to superannuation is that you save tax on your gross income. By cancelling your salary sacrifice you end up paying more tax.

I asked John “did you know you could’ve directed your superannuation contributions into a cash investment rather than your former investment option?” Clearly he didn’t know that.

John could’ve kept saving tax by continuing to salary sacrifice to superannuation. In addition he could have avoided losing money on the contributions by directing them to a cash option.

Asking a smart financial adviser before changing his strategy would’ve meant John was wealthier already. The advice fee would’ve been quickly covered by avoiding a costly outcome.

If you, like John, didn’t know you could do that in your superannuation then I am pleased you have read this article. Ponder this: is it possible there are other things about superannuation you perhaps do not know that could be making you wealthier?

If you don’t know how, just ask

Perhaps the next questions that may pops into your head is “how?” How do you direct your contributions into cash but keep your existing balance invested and positioned for recovery?

Well, there are plenty of low cost, value-for-money superannuation products that have that facility. (Hint: they are generally not the industry funds who spend your money on advertising.)

Just ask your financial planner to review your superannuation account. Call me for a low-cost quick super review to see if there are better value-for-money accounts available to you.

John may also have benefited by pondering this before he acted: by what percentage does your investment in superannuation need to fall so that your “loss” equals the extra tax you would pay at your marginal tax rate (by keeping the contribution outside of superannuation)?

Do-it-yourself financial planning can be costly. Great financial planning advice will minimise your downside as much as maximising your upside. You’ll only know when you give it a proper go by hiring a true financial planner (like me, of course. 🙂 )

Author: Matt Hern

Certified Financial Planner professional, Matt Hern has three times been awarded as one of Australia's Top 50 Financial Planners by The Australian Financial Review Smart Investor. He is passionate about guiding you on the right financial choices to achieve what you really want. Matt Hern is an Authorised Representative of Charter Financial Planning Limited AFSL 234665. All information is general advice only.

3 thoughts on “An example of how DIY is costly”

  1. I would say many of the so called FPs don’t know much as well. The financial planning industry, has the same problem as the alternative medicine industry, sure there are genuine/competent/caring FPs around, but they are outnumbered by con/incompetent “FPs”. Anyone can do a half day (or however long) course and call themselves a FP. If I were a good FP I would make sure the industry clean out of all the shonky cons

  2. I can also write an article “Examples of how using a FP can lose your lifesaving”, just ask the clients of Storm etc etc (and in fact, clients of many “FPs” are losing/conned/scammed thousands, hundred of thousands $$$).

  3. Jim, thanks for reading the article and taking the time to comment.

    Yes, there are articles you could write about some occasions when financial advice has been inappropriate for the client.

    But the facts are the opposite of what you write. Shonky financial advisers are vastly outnumbered by the well qualified, caring advisers who do the right thing by their clients and add massive value to their lives.

    In addition many people lose money by taking advice from unlicenced people posing as financial advisers. This fraud can occur in any industry.

    Disappointingly 10 years ago the Australian Government set the bar way too low for financial advice qualifications. This allows some shonks to get in and give advice above their intelligence and ethics level.

    The industry, particularly the Financial Planning Association and Association of Financial Advisers, ARE doing a great deal to rid the industry of shonks. They persistently work to influence the Government to raise the minimum standards of entry. In addition they are raising the standards of membership to their professional associations to enable consumers to better differentiate between potential shonks and true professionals.

    As an aside you should be desperately concerned about property advisers – they are unregulated.

    You of course are welcome to maintain your belief that most financial advisers are disreputable and thereby pursue a Do It Yourself route. My mind does wonder how much that may be costing you. Hope it’s not and you are successful.

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