If you want to live well in retirement, investing well is the key, but there are risks involved. While you can’t avoid all risk if you want to thrive in retirement, there are some investments you should definitely steer away from.
Money in the bank
You will still need a bank account for your everyday spending money, but this is not where you should be investing. Cash rates are at all time lows and term deposits are barely delivering anything worthwhile. You may be attracted by the safety, but the fact is that you are much better taking that money out of the bank and buying shares in it instead.
Get rich quick schemes
At the other end of the spectrum from not taking enough risk is taking too much risk. It is easy to get swept up in media hype about certain investments (Bitcoin, etc) and then miscalculating the level of risk that you are comfortable with. It is important to remember the maxim high-risk, high return. If you take on more risk than you are comfortable with to make a quick buck, you could be left in a difficult place financially if that investment fails.
Tax minimisation schemes
Some of these schemes can be extremely complex, some can be illegal and some are just an outright scam. In these situations it is easy to apply a simple rule of thumb – if you don’t understand the investment avoid it. There are currently a number of schemes targeting Australians planning for their retirement. These schemes encourage individuals to channel money inappropriately through their self-managed super fund (SMSF). These schemes have some common features. They:
- are artificially contrived with complex structures usually connecting with an existing or newly created SMSF
- involve a significant amount of paper shuffling
- are designed to give the taxpayer minimal or zero tax, or even a tax refund
- aim to give a present day tax benefit by adopting the arrangement
- invariably sound ‘too good to be true’, and as such they generally are.
The penalties are substantial for those involved in deliberate tax avoidance schemes. And the penalties aren’t just financial; an individual may well lose their right to be a trustee of their own superannuation fund; or in some cases they could go to jail.
What investments would you recommend people avoid in retirement?
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