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Good time to share savings

ISSUES raised by Chifley Financial Services managing director Fergus Neilson at a FEAL conference have implications for the community.

Mr Neilson spoke on issues related to financial planning, particularly the role of trustees and superannuation fund secretaries.

Chifley is a Sydney-based financial planning company that surveys its savers and superannuants at its retirement planning and wealth creation seminars.

In May, more than 300 people responded to the survey. The results generated some interesting implications.

Mr Neilson said the four clear messages included:

l 49 per cent believed investing in shares is too risky (and 65 per cent thought property was a better investment than shares);

l 61 per cent saved regularly;

l 74 per cent said the bulk of their non-superannuation savings were in cash, on deposit with a bank or credit union; and

l 83 per cent identified their family home as their most valuable asset.

Mr Neilson’s view – and one shared by this columnist – is that it is pleasing so

many were saving regularly. The worrying corollary is that the bulk of savings tended to be directed to cash or in property.

Property and cash savings haven’t always provided the best returns.

To illustrate this, Mr Neilson pointed out the following facts:

l During the past 21 years, Australian shares have returned an average 15.9 per cent per annum before tax. Listed property trusts have returned an average 13.7 per cent per annum as at December 31, 1979 and cash has returned 10 per cent.

l During the same period, Sydney homes returned 14 per cent (where return includes capital, rental and reinvestment of rental income) and Sydney home units returned 12.8 per cent.

Putting these returns in dollar terms, Mr Neilson indicated that if you had invested $50,000 in Australian shares in December, 1978, that investment would now be worth $1.15 million after dividend accumulation but before tax.

A $50,000 purchase of listed property securities would now be worth $756,385 and an interest-bearing deposit of $50,000 in 1978 would be worth $378,934.

A Sydney unit bought in 1978 for $50,000 would be worth $321,210. If total net rental income before tax was included, with income reinvested at the cash rate, the combined value would rise to $649,020.

“The faith that most Australians have in the security of cash and the capital gain in property is clearly misplaced,” Mr Neilson said.

“There is still an education job to do.”

Views similar to Mr Neilson’s have been expressed many times in this column.

The job is still there for financial planners and it is hoped that through their association, the Financial Planning Association, the education process will be thorough and comprehensive and that the public can comprehend the benefits of the investment scene.

The survey also revealed concerns about future financial security and people’s lack of skill in managing their financial affairs.

Only 13 per cent believed they had the skills to manage their financial affairs and only 24 per cent believed their superannuation would be sufficient to meet their retirement needs.

This reinforces the fact that Australians clearly recognise the inadequacy of the superannuation system to cater for their retirement and they also recognised the need for advice from a financial planner.

On this basis it would appear Australian investors are:

l Conservative investors, favouring the cash and property sectors, to their own

detriment;

l Concerned about the adequacy of superannuation for retirement; and

l Prepared to seek advice from those that are qualified to provide it.

Opportunities certainly exist for financial planners and superannuation trustees to exploit these findings.

Services providing these facilities will be the way of the future.

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