Meridian Prime - February 2014
Welcome to Meridian Prime,
Meridian Wealth Management
The Meridian through Greenwich in England is also called the Prime Meridian and is set
Level 8 230 Collins St Melbourne VIC
3000
at zero degrees of longitude.
Just like the Prime Meridian, Meridian Wealth is the central point for whatever direction
you wish for your finances to take.
Meridian Wealth Management is your primary source of information on Investment,
Superannuation, Insurance, Estate Planning and Advice.
P 03 9650 5281
E [email protected]
W meridianwealth.com.au
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If you would like more information on any of the topics in this newsletter or any other
advice, please feel free contact us.
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and business colleagues.
Meridian Wealth Management Pty Ltd Australian Financial Services
Licence 446448 General Advice Warning: This advice may not
be suitable to you because it contains general advice that has
not been tailored to your personal circumstances. Please seek
personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to
future returns as future returns may differ from and be more or less
volatile than past returns.
Human fascination with immortality stretches back to
the time of Greek mythology with history littered by
charlatans, oddballs and megalomaniacs either claiming or
seeking the secret to eternal life.
H
owever, the modern tech-savvy
generation has discovered, quite
by chance, that an immortality
of sorts is now freely available via the
digital footprint they leave should they
meet an untimely end. It’s estimated
that on Facebook alone, more than
30 million accounts belong to
people who are deceased.
As if the pain of coping with the
death of a loved one isn’t difficult
enough, friends and family must
now consider the implications of
the deceased’s online life to go with
their material existence.
Your online footprint
Think for a moment about your own
digital presence. You’ll almost certainly
use online banking and shopping
facilities, perhaps an online wallet like
PayPal, email accounts, a frequent
flyer program, a social media presence
via Facebook or Twitter, along with
potentially thousands of personal files,
receipts and photographs.
Most people already understand
the importance of estate planning
to help pass on worldly goods such
as housing, savings and mementos
to their beneficiaries. But how will
your heirs even gain access to your
computer and your passwords?
Like so many laws relating to the
digital world, many are outdated or
irrelevant, and several online services
have already established their own
policies. For instance, Twitter allows
family or friends to download a copy
of your public tweets and close your
account. You need to nominate
someone in advance to provide
their name and contact details, their
relationship to you, your Twitter
username and a link to or copy of
your obituary.
Digital executors
No laws currently exist in Australia
to grant a Will’s executor automatic
access to someone’s social media
accounts. However, there are still
several options available to help
decide on how your online legacy
is managed.
The first step is to create a Digital Will.
In addition, you will need to select a
trustworthy digital executor to handle
arrangements for your digital assets
and digital legacy once you are gone.
Similarly, if you run your own business,
it will have its own digital incarnation
and its own digital legacy to maintain.
Some Australian Will makers offer
Digital Wills so people can ensure their
online legacy lives on – or fades away
– in accordance with their wishes.
Online vaults for safe storage
An increasingly popular alternative is
to store important documents and
passwords in an online vault. The
likes of SecureSafe, Legacy Lockbox
or Assets in Order pledge to provide
secure online storage of passwords
and documents.
Password management accounts
can be set up using software such
as Norton Identity Safe while Google
recently introduced a new program
called Inactive Account Manager, which
enables you to choose in advance
exactly what you wish to have done
with all your Google data – from Gmail
accounts to YouTube videos.
Considering how much of our
communication takes place online
these days, it’s worth investing some
time thinking about your digital
footprint and what is required to
manage it when you’re gone. A
good time to do this might be when
next reviewing your Wills and
Powers of Attorney.
With a little thought and preparation,
you can leave a lasting legacy
to your loved ones, well beyond
photos or videos, and avoid
complications associated with
your ‘digital immortality’.
Magic
The
of
compounding
A regular savings plan has the
power to turn pocket change into
hundreds of thousands of dollars.
This makes the beginning of a new
Financial Year a very good time to
take stock of your savings habits,
not just for your own benefit, but
for the future prosperity of your
children and grandchildren.
In fact, there is such a simple way to
set your child or children up for life, it’s
a wonder more parents don’t know
about it or follow it.
You can read all about it in the fable of
the “Fairy Godmother and the Magic
Train”, as told by popular Australian
finance writer Noel Whittaker (1). In
his story, Noel tells you how you can
buy your new born baby a seat on
the magic train for free and pay only
$2.74 a day to retain the seat – less
than the price of a decent cappuccino.
The train, which starts off the size of a
tiny toy, keeps on growing year after
year as it is loaded with more and
more gold, yet you (or perhaps the
child when he or she is grown up and
earning) never has to put in more than
$2.74 a day - $1,000 a year.
The end result is amazing. Assuming
a long term annual interest rate of
9.2% p.a. (High Growth Investor), the
child’s nest egg train will be worth over
$63,000 when he or she turns 21,
$257,000 at age 35, a million dollars at
age 50 and a staggering $2.6 million at
age 60 (2).
The magic, of course, is not in the
train but in compound interest. By
reinvesting all the earnings, you earn
interest on the interest and the capital
amount snowballs over the years. It
sounds so easy, there has to be a
catch – and the major ‘catch’ is time.
For example, in the last decade your
freight train turns into an express
train and more than doubles in value
from $1 million to $2.6 million. So to
maximise the investment, you have to
think long term and keep putting away
the small sum of $1,000 year after year.
A delay in boarding the train can be
expensive. If the child delays boarding
the train until they are 10 years old, the
initial investment has to be just over
$16,300 to buy a seat on the train and
get to the same place at the same
time with a daily investment of $2.74
($1,000 a year).
As you would expect, the other major
factor affecting the final size of the
nest egg train is the interest rate. If the
long term annual interest rate was only
8% p.a.(Balanced Investor), a daily
investment for a new born baby would
have to be $3.22 to achieve the same
outcome at age 21.
Converting $50,000 into $1 million
takes a long time and a bit of self
discipline – even though the annual
investment of $1,000 is only coffee
money. However, there is one
comforting thought. Even though
your child may not grow up to be as
disciplined as you are, the magic of
compound interest is still on his or her
side.
Here’s why: Let’s assume your child
takes charge of the investment at age
21, but stops contributing the $1,000
a year. As long as he or she keeps the
money invested and the capital is left
undisturbed and earning compound
interest, it still builds up to a very
impressive nest egg. In fact, if interest
rates were 9.2% p.a., the investment
would be worth a million dollars at age
53 and just under $2 million by age 60!
(3)
Thanks to the magic of compound
interest, a million dollars return on a
$50,000 investment is no fairytale!
1.) Noel Whittaker, More Money, 1990. The interest rate
used in the article was 10% p.a.
2.) Assumes interest is calculated monthly. The money
train concept is based on the power of compounding
and the time value of money. Inflation and other factors
will impact the present value of future returns. Interest
rates shown in this document are illustrative only and
they are not guaranteed rates of return.
3.) Work it out for yourself at http://www.moneychimp.
com/calculator/compound_interest_calculator.htm
Many people go through life
believing serious illness or injury
cannot happen to them.
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But in reality, the chances of a trauma
event are quite high. For instance,
one in three Australian men and one
in four Australian women will be
diagnosed with cancer before they
reach 75. The Lifewise/NATSEM study
shows that one in five families will
be affected by a parent’s death, or
a serious accident or illness that will
leave one parent unable to work. Not
only the victim suffers when a critical
illness occurs; such a situation has
serious repercussions for the entire
family. Thanks to advances in medical
science, survival rates from a serious
critical illness continue to increase,
but the direct medical costs and
associated financial impact can be
significant.
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Lump sum payment
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Trauma insurance, also known as
critical illness insurance, provides
a one-off lump sum payment when
an illness or condition specified in
the policy is diagnosed. The money,
which is tax-free, is typically paid
after the insured person has survived
for 14 days from the time a medical
specialist confirms the diagnosis.
Once the claim has been approved,
the lump sum payment is made and
the funds can be used to pay medical
costs, upgrade treatments or to
pay for private nursing, therapy or
childcare assistance. Some people
use the money to pay off their
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mortgage or other debts to help ease
financial stress during their recovery.
The lump sum payment can allow a
person some much-needed financial
breathing space to take stock of their life.
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injury. It provides an income while you
are unable to work, replacing part of
your wage or salary. For complete
financial protection, both a trauma
policy and an income protection
policy should be considered.
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What is covered?
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Most policies cover upwards of
50 prescribed illnesses or injuries,
including cancer, heart attack, stroke
and paraplegia as well as other
serious illnesses and injuries such
as major burns and kidney failure.
In contrast to trauma insurance,
total and permanent disability (TPD)
insurance requires you to be unable
to work for a minimum of six months,
and then it must be independently
determined you are unable to
‘permanently’ return to your ‘own’ or
‘any’ occupation ever again. Most
trauma policies offer child cover
alongside adult cover. While it may
be difficult to consider one of your
children being seriously ill or injured,
sadly it can happen. A lump sum
payment may allow parents to choose
the best medical care inside or
outside of Australia or give them the
ability to take time off work to focus
on family without worrying about the
financial implications.
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Know your policies
It is important not to confuse trauma
insurance with income protection
insurance. Instead of a lump sum,
income protection insurance provides
an income stream in the event you
cannot work as a result of illness or
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Susie’s story
Taking out trauma insurance proved
a wise decision for Susie and her
husband, Paul. Susie was diagnosed
with breast cancer when she was 43
with a young family. She had surgery
and then needed time to recover
and to have ongoing treatment. Her
husband Paul had plenty to worry
about - Susie’s illness, the children
and his own work responsibilities.
Fortunately Paul and Susie had each
taken out trauma insurance, providing
them with a $200,000 lump sum. With
this money Paul could organise care
for the children, ensure Susie received
the best medical help available
and take time off work to spend
with his wife. The Cancer Council
estimates that a cancer diagnosis
can on average cost a family more
than $47,000 in lost productivity and
out-of-pocket expenses. Life can be
full of unexpected events, both good
and bad. Having the right insurance
in place can reduce the financial
consequences of a traumatic event.
We can help you determine whether
your existing insurance cover will
allow you to meet the challenges of
an unknown future.
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