Hi everyone, my name is Brad Zaknich GESB, and I'd like to thank you very much
for logging onto today's recorded webinar, so it's not a live one today,
it's recorded and it's about investing in super 101. So we're gonna go through
the ideas of investing through superannuation compared to investing
in other formats. So, for those who haven't used webinars before, very simple
technology, sit back and relax. Some of the normal interactive opportunities we
have with webinars has been turned off for today's session, obviously things like
typing in questions and clicking send, you can't do that today because there's
no-one to reply to them. So what we'll do is get through some of the housekeeping.
What we're showing you here is what you already would have received, well, in fact
what you're going to be receiving, is a webinar survey follow-up email, we do
still love to get feedback, even with recorded webinars, so if you wouldn't mind
setting a few moments it takes to complete that, that'd be greatly appreciated.
The webinar, like I said, is being recorded, and you'll be able to sit back,
watch it at your own leisure. You can move forward, you can go back in the slides,
and you can watch it as many times as you like, and from my understanding, this
webinar will be staying live on the GESB website, so probably around the end of
the financial year, at which point we'll most likely get a new presentation up.
Now, I'd first love to show my respect and acknowledge the traditional custodians
of this land, of Elders past, present and emerging, on which this event takes place.
And then you've got the all-important disclaimer. When talking about
superannuation, investing, money, finance, it's important that you understand that
we're not giving you personalised financial advice today. My job today it to
provide you with information, explain things, explain how things work.
It's not to get you to make a decision based on what I'm saying. So if you do
need personalised financial advice, you'll need to go elsewhere to get that,
as GESB only provides you general advice. Now in today's session there is a lot to
get through, some of which might be concepts that you're familiar with,
and some maybe not. So in this session we're gonna talk about the basics of
investing, and we're gonna talk about things like income tax, and how that
impacts investing, budgeting, where to use your money, borrowing, and debt.
Also going to talk about with investment concepts, the idea of compounding
interest, the value of superannuation, understanding the different asset classes
that exist within super, and what investment options are available.
Now hopefully you all know who GESB is, I work for GESB, GESB is a state
government department, and it just stands for Government Employee Superannuation
Board. Now we've been around for over 85 years, we've grown over $42 billion
in funds under management as of 31st December 2024, and GESB, being a
government department, we're a not-for-profit organisation.
So the only fees we collect from you, through your super, through your ??
are to run the fund, we are not-for-profit. And our returns are
competitive and long-term.
In regards to GESB's product structure, people often get a little confused,
but it's quite simple. GESB at the top of the tree there stands for Government
Employee Superannuation Board. Below that are the different schemes that we
administer. Now we're got some old legacy schemes like the Pension scheme
and the Gold State Super scheme, we're not going to be talking about
those at all today, okay, they don't sit within the ??? of today's presentation.
We're predominantly going to be talking about superannuation, that are in the
accumulation phase, and are accumulation accounts, so West State Super, GESB Super,
and some of the other invest, general super funds that work in a similar fashion.
When we speak about stuff that is general, superannuation, I'll make that very
well-known. When we're talking about anything that might be GESB specific,
I'll also make that well-known. What we're not going to talk about in great detail
today, or if at all, are the allocated pensions. They are the retired products
that most people use to draw down their retirement savings.
Well let's quickly talk about West State and GESB Super because there are some
differences between the two of them, and you need to be aware. So, West State
Super was the default super fund for WA State Public Servants who commenced
working for the government prior to 15 April 2007. The reason that is
important is that after April 2007, new employees to the public sector might have
had a GESB Super account open, or perhaps some other super fund, Australian Super,
Hostplus, something like that. The reason it's important to know, is that most
Australian funds like GESB Super, and most other funds, are considered to be taxed
super scheme. Why is this important? The government allows super contributions
to be contributed at a lower rate of tax than your normal pay. We need to remember
that super comes under the tax regime, and GESB super, like most Australian funds
is a tax scheme and that simply means when your employer puts money into your
super fund, through your employers' 11.5% guarantee, or you put extra money in
through your payroll process called salary sacrifice. Those contributions are
only taxed at 15%, compared to your normal tax rates through your income.
But it happens on the way into your account, and while your money's still
invested. If however you've got a West State Super account, your money's are
not taxed on the way in, because it's called an 'untaxed super scheme'.
So the money's from your employers' contributions and any salary sacrifice are
not taxed on the way into your account so the full contribution hits your account.
Any investment earnings or growth in your fund would normally be taxed at 15% in
a regular fund, they are not taxed in West State Super whilst the money remains
in West State Super, but what happens however is when you take your money
out of the West State scheme, that is when the 15% tax gets applied.
So it's important that you understand the difference, and there are some other
differences to talk about in a little while as well.
Now, when we talk about tax, you need to remember as well that the way the
Australian tax system works is relative to your income, is the more income that
you earn, the more tax you generally pay. So up to the first $18,200 you earn in
earnings through your salary, through your income, there is no tax applicable to that
income for most Australians. But once your salary gets above $18,201, up to $45,000,
I shouldn't say salary, I should say income, in that bracket your income is
taxed at 16%, okay, for every dollar over $18,201, up to $45,000.
Then, if you're earning over $45,001 per year, the earnings between $45,001 and
$135,00, that portion alone is taxed at 30%. So people often think 'well I'm
earning over $45 grand a year, I must be paying 30% tax. Yes, but only on the money
you're earning, above $45,000. And as your salary goes into the new higher brackets,
you pay more tax on the extra earnings. Now, as I said earlier, money's going into
superannuation from your employer's contributions, and through the process
called salary sacrifice. They are not taxed at your marginal, personal tax rate.
They are instead taxed at 15%. So when you talk about that, you can see that money's
being earned over $45 grand are normally taxed at 30%, money going into your super
only going to be taxed at 15% maximum. That is the benefit of superannuation,
so let's go through this. Let's start talking investing money, finances,
all those sort of things, and first thing when I talk about this is the basics of
investing and knowing where your money comes from.
So knowing where your money goes is extremely important, being able to track
your spending is an extremely important part of looking after your money.
Planning your goals, whether they be short-term, medium-term, or long-term,
basics of knowing where your money comes from, and what you're gonna spend it on.
But also being a smart borrower. There's nothing wrong with borrowing money,
but some would argue, borrowing money to purchase something that is declining in
value may not be a smart borrow, but that's up to the individual to decide how
they want to do that. Also understanding compounding interest.
Interest earnt, understand that maybe I'm making, for example, a 7% return on
my money, but when you understand that compounding interest is interest on top
of interest on top of interest, that's extremely powerful.
Albert Einstein once said 'compound interest is the eighth wonder of the
world, he who understands it, earns it. He who doesn't, pays it.' Something to
think about there. Well let's firstly talk about budgeting.
So there is a concept called the 'bucketing approach', cause when we talk
about budgeting, people get quite concerned and they think very heavily
about every cent that this, and every individual item, and that is fair enough.
But if you simplify things in budgeting into a simpler approach, it might be as
simple as dividing your income into three buckets, or three aspects of your income.
And you might allocate, for example, 50% of your income to your needs, so for
example your home loan, your rent, groceries, utilities and your insurances.
So 50% is just a concept, you might have more than that, you might have less,
but when you identify an amount of money, that is used for your needs, set
that money aside and you know that your needs are covered.
And then you might have your wants, and you might decide to allocate maybe 30%
of your income to your wants. And they can be things like your, upgrading needs,
money's for evenings out, hobbies, sporting events, holidays, but upgrading
needs we might talk about maintenance on your home, new cars, things like that.
And then you might decide to allocate 20% of your income towards savings.
And that might be an emergency fund for when things go wrong, or maybe long-term
savings for things off in the future, that might include other investments like
superannuation, shares, property, but it also might include the overpayment of your
debt, so paying extra money to pay off loans might be considered to be savings.
And when you break it down into 50%, 30% and 20%, it's a very reasonable starting
point, you might decide to put more money into savings, less into wants, but by
having structure, makes it easier to stick to that structure, and identify what
you're going to be putting your money into.
Let's now talk about being a smart borrower. Borrowing money is for most
people, a necessity in life, for certain things, but not all debt is equal, it will
depend on the purpose of the loan, it will depend on the interest rates
you're paying, how often and how much you payments are going to be, and it
should be consolidating different debts, or different loans, into one.
So for example, when they say 'not all debt is equal', if you're borrowing money
from a bank or institution, as an example, and maybe you're borrowing it
and you're having to pay, 5% interest or 6% interest to borrow that money,
but maybe you're borrowing that money to purchase something that's going to
increase in value by 7, 8, 9% per year, that might be said as being 'good debt'.
Whereas 'bad debt' might be something as simple as paying for a holiday, where you
don't have much to show for it at the end and you're paying extra when you get
back by way of interest. So understand, borrowing money is not necessarily a bad
thing, but understanding when you should, shouldn't borrow to purchase things is
something that you have to decide.
Now lets now talk about compounding interest, I'm gonna go through the example
we quite often use. Compounding interest is basically earning interest on top of
previously earned interest. So let's look at a case study of Jenny, who invests
$10,000 over a five year period. Now she's gonna, let's say in her example, she
receives 5% per annum compounded interest, compounded on a monthly basis.
Now, and the end of five years, her investments actually gonna grow to $12,834.
She's not just earning 5% on $10,000, so let's see how this works.
If she invests $10,000 at the start of year 1, by compounding interest at 5%
per annum monthly, she's doesn't end up with $500, which would be if she
compounded once, she ends up with $512, it's actually more than 5% over the 12
months because it's been compounded monthly. So at the beginning of the next
year she's got $512, which she earns 5% interest compounded monthly, for the next
12 months, she accumulates $538. Ends up with $11,049, and you can see over
five years, the interests that's been compounded grows, 512, 538, 565, 594, 625.
So compounding interest, we leave investments alone, and they compound on
top of each other. It's investments' interest on top of the last lot of
interest returns. That's where leaving things long term can generate greater
levels of interest, because it's not simple interest, it's compound interest.
And that's where these slides come in, excuse me, time is money.
People often talk about 'timing the market', it's often more important to spend time
in the market. What do we mean by that? Well let's say for example, you've got
a 20-year-old, a 30-year-old, a 40 and a 50-year-old, who all of a sudden decide,
with a starting balance of nothing, they want to put an extra $50 a fortnight
perhaps even less, in superannuation. So let's just assume this is extra money
you're putting into your super, above and beyond what you might already be getting.
What difference will it make by putting $50 a fortnight, now let's assume an
annual earning rate of roughly 7.8%, so you're probably in the growth plan.
Now if you start when you're 20, an extra $50 a fortnight, taken out of the
conversation inflation and things like that, when you get to 60, so after 40
years, you'll have $340,758 extra sitting in your account.
By only putting in $50 a fortnight. Now if you don't start until you're 30,
now I've got $154,000, you don't start until you're 40, about $64,000,
you don't start until you're 50, it's $21,000. Now you can see, even though
they're only 10-year periods separating each starting point, the amounts of
difference are massive. Because the person starting making contributions earlier,
is getting compounding interest every month on top of the contributions that
have already grown. And that's why the balance can be quite large, by putting in
significantly small amounts of money, if you start really early.
Well let's now focus on that $345,000 because we know that starting at 20,
over 40 years, should generate a figure that's similar to that.
But what if, you need that amount of money, but you don't start when you're 20.
Well if you don't start 'til you're 30, to meet the same objective, you'll need to
put in $112 a fortnight, significantly more. If you don't start 'til you're 40,
now you've gotta do $270 a fortnight, for a much shorter period of time.
And if you don't start 'til you're 50, now it's $807 per fortnight.
So this is where compounding interest can work against you, the longer you wait to
start making investments. And because superannuation can't be accessed,
generally until the age of 60 anyway, for a lot of people making extra
contributions in super, the benefits of compounding interest come along anyway,
because you can't get access to it. But what it does say, is if you want to
start growing your super, the earlier you start, generally speaking, the less amount
you've gotta make as a contribution a fortnight.
And what is the value of superannuation to you? Well the value of super is this;
It's a very tax-advantaged saving scheme for retirement, often more, better tax
advantages than you're gonna get through your income tax rates.
Why is superannuation compulsory, and it's been compulsory since 1992, it's so that
you have an alternative to, or a supplement for, the age pension.
The age pension, is not going to disappear anytime soon, but it is still seen as
being only a safety net for retirement. Because we've been getting compulsory
super now since 1992.
And the value of super for you might be to give you the options in retirement
that you might not otherwise have, by just relying on the age pension, or even just
compulsory super, maybe making extra contributions, will meet your objectives,
as to what your lives might look like in retirement.
Now there are different ways of getting money into super, and the main way is
your employers' contributions. Now down on the left-hand side you can
see, you can put super through your employers' contributions, through salary
sacrifice through your payroll, voluntary after-tax contributions, through cheque
or B-pay or even through your payroll. There are also personal deductible
contributions which we're not going to go into great detail about today,
and there's also spouse contributions. But across the top, there are two main
forms of contributions. One is called concessional contributions, one is called
non-concessional.
What is the difference? The difference comes down to the name. Concessional
contributions are moneys' that go into your super before you pay your income tax.
Now when I showed you before that for most Australians earning over $30,000 a
year, most of us are paying 30% tax on a fair chunk of our income.
So for when you have a non-concessional contribution, that means you've earned
your money, you've generally paid your tax on your income, which could be 30%.
So if you earn $1000, you might lose 30% being 300, you can get $700 into your
super, that would be a non-concessional contribution. But when putting money
into your super as a concessional contribution, the money comes out of your
income, before it gets taxed at your regular tax rate and instead goes into
your super and will only be taxed at 15%. So you earn $1000, only to lose 15%,
you're left with $850. So superannuation concessional contributions is like earning
$1000 and being able to invest $850, whereas non-concessional contributions,
which you can invest in anywhere, might otherwise be earning $1000 and only
getting $700 invested. That's the benefit of superannuation.
And what this slide here is showing, excuse me, is normally you earn your
salary, your salary gets taxed at your marginal tax rate, think 30-odd percent or
possibly more, at the top end, and money goes into your bank account.
Money that you can buy and invest elsewhere, the interest or earnings are
also taxed at your marginal tax rate. But when you put money into superannuation
through your salary, through salary sacrifice, it'll only be taxed at 15%,
either on the way into your account with most super funds like GESB, Australian
Super and Hesta, or the money on the way out, with West State Super, still 15%.
And not just that, not only do you pay only 15% tax on the contributions, you
only pay 15% tax on the investment earnings, as opposed to your marginal tax
rate.