https://static.theceomagazine.net/wp-content/uploads/2022/07/15122327/investment-plan-410x330.jpg What you need to consider before creating an investment plan
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What you need to consider before creating an investment plan

To ensure your wealth creation strategies are optimised and effective, an investment plan is an invaluable resource. That plan should, at the very least, answer these five questions:

Are your financial foundations sturdy?

First and foremost, get your house in order. Know how much you have available to invest, that it is being invested wisely, and that you can still survive should those investments turn sour.

I suggest reviewing the five financial foundations every CEO needs to ensure that your wealth-building activities are based on solid footings.

What’s happening with your super?

Building superannuation diversifies your investment spread and risk profile. Hence it should be covered by your investment plan.

Many business owners forgo paying themselves super, believing the business is their retirement nest egg. But in the words of Sir Humphrey from Yes, Minister – that is a "courageous decision".

If the business fails, you’re left with nothing. By selling the business, you’re unlikely to reap the value of super entitlements on top of the sale price. Should the business do well enough for you to extract super down the track, the cash flow hit is far greater than it would have been in gradual increments.

For CEOs and consultants, how much of your income, bonuses and share options are directed into your super – or your spouse’s – to boost investable funds and reduce your tax? If you have a self managed super fund, are you fully leveraging its benefits or is it costing more than it returns?

How often does your accountant and financial adviser see you?

No investment plan – whether for your business or yourself – is complete without a good look at taxes. Given the frequency with which tax laws change, regular reviews are needed as both the tax environment and your own circumstances change, to ensure you aren’t overpaying tax.

Hence it is crucial to have good relations and regular visits with a reliable, practising accountant and financial adviser together. As both have limitations on what advice they can give, you need them both to work together on major tax considerations and investment plans.

Areas to consider are:

  • Minimising Capital Gains Tax on asset sales
  • Leveraging allowable tax deductions on each type of investment – such as maintenance, repairs, interest repayments, buying and selling costs
  • Asset depreciation
  • Any Fringe Benefits Tax liabilities
  • Deductibility of all legal, accounting and financial advice you receive
  • Super contribution concessions that simultaneously boost your earnings and reduce your income tax
  • Tax frameworks for other structures – companies, trusts and so on
  • Tax offsets, benefits, and incentives available at the time – from every level of government
  • In which financial year to sell investments to deliver favourable tax outcomes

What’s your plan B?

An investment plan provides structure and focuses your strategy. But it shouldn’t be set in stone: flexibility is required to meet the inevitable changing circumstances of life.

Having a plan B in place ahead of time offers peace of mind now and allows you to respond faster once change arises.

Remember that change needn’t necessarily be negative – it could be that an unexpected windfall or opportunity arises requiring you to alter your approach.

Some scenarios to consider include:

  • Legislation changes
  • Altered market conditions
  • Underperforming and overperforming assets
  • Unanticipated liabilities
  • Buyer demand at the time an investment is slated for sale
  • Stability of your employment/income
  • Unsolicited offers
  • Changed family circumstances – marriage/remarriage, birth of a child or grandchild, divorce, death of a spouse
  • Amended retirement timeline

Any plan B should address the disposal or acquisition of investments, resulting tax implications, adjusted returns you stand to gain or lose, and what external advice you may need to enact it effectively.

Who benefits from what?

Generating solid returns is the point of investments. But don’t forget to factor in who will receive those gains.

For example:

  • Spouse/partner: potentially boost their earnings/superannuation while reducing your taxable income.
  • Children/grandchildren: Under 18s are typically taxed at a higher rate than adults. Consider how to transfer returns to them in a tax-effective way, and ideally benefiting them longer term.
  • Business partners: disputes arise where one party feels unfairly treated, affecting not only relations but business performance, goodwill and value.
  • Charitable donations: a good deed that is also tax deductible.
  • Reinvesting proceeds: enhance wealth creation without impinging on everyday income.

Additionally, be sure to nominate your beneficiaries. Should you die, having those nominations will avoid additional headaches for those left behind.

Helen Baker is a licensed Australian financial adviser and author of On Your Own Two Feet: Steady Steps to Women’s Financial Independence and On Your Own Two Feet Divorce: Your Survive and Thrive Financial Guide. Note this is general advice only and you should seek advice specific to your circumstances.

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