Beyond the conventional core investment classes, namely fixed interest, shares and real estate, there’s another segment called “Alternative Investments”.
A small subset of that segment, known as “Collectibles Investing”, is widely reported to be worth around US$450 billion. The market appears to be growing year on year as many more people combine a love of all manner of “collectibles” with an expectation (or perhaps a vain hope) of turning a profit from them.
It’s clear that there is absolutely no limit to the weird and wonderful objects that people like to collect including wine, furniture, books, manuscripts, jewellery, watches, sporting equipment, fine china, bottles, military memorabilia, shoes, old cars, registration plates, petrol pumps and artworks (both physical and digital).
So if collecting appeals to you, it’s worth reminding yourself of some key principles, especially if you’re investing with the hope of profit and not just the pleasure of it:
The value of “collectible” assets will often fluctuate, sometimes wildly, so factor that likelihood into your investment decisions because you may own the asset for a long time, especially in poor market conditions.
Your default position should be to not borrow to buy a collectible. Never say never, but if you must borrow in order to buy, think carefully about what security you’ll offer (the lender is likely to want your house) and how you’ll repay the loan should interest rates rise, the economy tanks or your personal financial circumstances change.
In most cases, collectibles are illiquid assets. That is, they cannot be sold and turned into cash easily (unlike publicly listed shares which are generally saleable within 24 hours). Therefore, it would not be sensible to “put all your eggs in the one basket”. Diversification is the key here. Make sure one collectible asset doesn’t constitute a huge percentage of your immediately available asset base, lest your circumstances change and you’re forced into holding a fire sale.
The market for collectibles can be complex. Therefore, it’s important to have a deep understanding of the asset type you’re thinking of collecting. For example, if you’re interested in collecting the work of a particular artist, research and understand the artist’s approach, style, methods, the range of the artist’s works on offer and the history of price movements over the long run.
The value of a collectible asset will be influenced by its condition and provenance. For example, in the case of a historic car its value will be greater if it’s in excellent original condition both inside and out, complete with its original engine, low kilometres and comprehensive maintenance records from initial delivery. You would also be wise to seek an independent expert’s report on your proposed purchase. That could be money well spent.
An increasingly common challenge for buyers of collectible assets is to make sure that the proposed purchase is genuine. Fakes are all too common and the phenomenon is increasing in categories such as collectible watches, art and even historic cars. This is also an area where you would be wise to seek the advice of an independent expert. It’s worth watching the BBC’s entertaining “Fake or Fortune” documentary series (available on ABC’s iview) to get a feeling for the issues. Of course, fakes have been around forever. It’s just that modern technology has made them so much easier to produce.
If you have the only one of what people want to collect, you’re likely to be on a winner. A good example of this is British Guiana’s 1856 one-cent Black on Magenta postage stamp of which there is believed to be only one in existence. As a result, the only known stamp was sold in June 2014 for $US 9.5 million…yes, for a one cent stamp! It’s an extreme case, but it emphasises the point that rarity can be very desirable to collectors, but not always (so do your homework).
If you become involved in regularly buying and selling of collectibles, you may be treated by the Australian Tax Office as running a business rather than simply engaging in a hobby. There is no clear line of delineation between a business and a hobby, although regularity of transactions, registering a business name and marketing your activities may indicate that you’re running a business. There may also be capital gain consequences in some circumstances. If this is of concern, we suggest that you should consult the ATO website or speak with a qualified accountant/registered tax agent (consult CPA Australia or Chartered Accounts ANZ).
Super can be much harder to quantify if you are a member of MSBS or DFRDB, known as defined benefit schemes. This is because the bulk of your super benefit will likely be in the form of a lifetime indexed pension, based on your years of service and final average salary. The longer you stay in Defence, the larger your lifetime pension. This cannot easily be compared to a standard accumulation super fund. Please contact the Commonwealth Superannuation Corporation (CSC) for an estimate or your current benefit.
If you have an accumulation super fund, like ADF Super, it’s much easier to compare the superannuation you get from Defence with that of a civilian employer. Generally employers pay super at a rate of 9.5% of your ordinary salary and allowances, Defence pays super to accumulation fund members at a rate of 16.4%, well above the minimum requirement.
You may not appreciate the value of your generous superannuation benefits now, but you certainly will in years to come.
ADF members receive, statutory death and invalidity cover, and rehabilitation services if needed. To replace this cover in civilian employment, you may need to take out personal insurance, such as death, disability, trauma and income protection. The cost would depend on your age and personal circumstances but could cost thousands of dollars a year.
The ADF offers free education and training and/or study assistance schemes. If you’ve been receiving tertiary education at no cost or received any form of study assistance, consider what it might cost to continue your education outside Defence.
Take some time to think about these and any other benefits provided to you by Defence to get a better understanding of the real value of your employment package.
As an ADF member you will usually receive subsidised housing or rental assistance if you are not living in your own home. If you buy a home to live in you may be eligible for a range of other assistance schemes.
If you are receiving rental assistance you can calculate the value by multiplying the fortnightly assistance amount by 26 to get an approximate annual benefit.
If you’re in service housing you can estimate your benefit by deducting the rent contribution taken out of your pay, from the amount of rent you would pay each fortnight for a similar property in the same area. Multiply the result by 26 to estimate your annual benefit.
Housing assistance schemes for members buying a property include the Defence Home Ownership Assistance Scheme (DHOAS), Home purchase assistance scheme (HPAS) and Home purchase or sale expenses allowance (HPSEA)
Serving ADF members receive a range of healthcare benefits, including free medical and dental treatments, rehabilitation services, psychological support and access to fitness facilities like gyms, pools and sporting fields.
To put a value on these benefits, think about what you might be paying for if you were not an ADF member. For example, what would it cost you for private health insurance, prescriptions, physiotherapist, dentist, specialist visits, gym membership or other fitness related costs?
Medicare covers the costs of being admitted to hospital as a public patient, some of the fees charged by GPs and other medical professionals, and subsidised prescription costs for medicines listed on the Pharmaceutical Benefits Scheme (PBS). ADF members don’t pay the Medicare levy, currently 2% of taxable income.
Private health insurance covers some or all of the cost of a range of services not covered by Medicare, for example, a private hospital and the doctor of your choice, as well as ancillary services such as dental, optical and physiotherapy, not covered by Medicare.
Your pay consists of a base salary, with the addition of employment-related allowances. Your base salary can be found at the top of your payslip on the right, listed as ‘Annual salary’. If you need help reading your payslip, see the ADF guide on Pay and Allowances.
Note: From 13 May 2021, service, trainee, reserve and uniform allowances will be rolled into a single ‘Military salary’.
The earnings section of your payslip lists any allowances you receive. The amount in the ‘Current’ column is the amount you get every fortnight for each allowance. You can add allowances by typing in the name of the allowance in the ‘Add allowance’ box and clicking the + symbol.
A deployment provides some ADF members with additional allowances that are not part of regular pay. We have not included these allowances in the calculation of your remuneration package, however, you may want to take the additional deployment allowances into account if you are comparing your ADF remuneration with civilian employment.
Medium-term goals are those that you want to achieve in 3-6 years. This could include saving for a home deposit, paying off your car or paying down all your loan debts. Having a budget and your goals written down.
Long-term goals are plans you want to achieve in around 7 years or more. This could include buying a home or paying off your mortgage, paying for your children’s education or saving for retirement.
For long-term goals think about investing some of your money. Get some financial advice to work out a good investment strategy to reach your goals.
Be financially fit from ADF Consumer Centre on Vimeo.
MSBS is a hybrid defined benefit and accumulation super scheme which closed to new members on 30 June 2016. If you are an MSBS member, your benefit will consist of a lifetime indexed pension (employer component) based on your final average salary and years of service. Some or all of this benefit can be taken as a lump sum when you have met a condition of release (the defined benefit). The scheme also has a member component made up of your compulsory and voluntary personal contributions, ancillary contributions and investment returns, that you will also receive as a lump sum when you have met a condition of release (the accumulation benefit).
The pension component can be taken from age 55. If you are retiring or resigning from the ADF after reaching age 55 or are entitled to a Class A or Class B invalidity pension, you will be eligible for a pension when you leave the Service. For all other members, your employer benefit will freeze and be preserved, increasing with CPI each year, until you are eligible to receive it.
The member component of your benefit may be left in MSBS, where it will increase with investment returns each year until you access it, or it can be rolled over to another complying super fund.
For more information contact the Commonwealth Superannuation Corporation (CSC).
If you joined the ADF for the first time after 30 June 2016, you will fall under the ADF superannuation arrangement, and will be a member of an accumulation fund, such as ADF Super. If you had previously served, and are a member of MSBS, you will be re-entered into MSBS on rejoining the Service.
For accumulation fund (eg. ADF Super) members, your benefit will be a lump sum based on contributions and investment returns. When you leave Defence, your money can be left in the fund, where it will continue to grow with investment returns until you meet a condition of release, or it can be rolled into another super fund.
If you’ve been in the Service for more than 12 consecutive months, you can keep your ADF Super account when you transition out and your new employer can contribute to ADF Super. In this case your insurance cover will change so contact the Commonwealth Superannuation Corporation (CSC) to find out what you need to know.
DFRDB is a defined benefit super scheme which closed to new members on 30 September 1991. If you are a DFRDB member, you will receive a lifetime indexed pension based on your final salary and years of service. Part of your benefit may be commuted into a lump sum, and you may receive an additional lump sum from your MSBS ancillary account, made up of voluntary personal contributions, amounts transferred in from other funds and other contributions, plus investment returns.
For more information contact the Commonwealth Superannuation Corporation (CSC).
Short-term goals are things you want to achieve within the next couple of years. These goals could be to pay off your credit card debt, buy a new TV, go on a holiday or buy a car. Whatever you have in mind, set yourself a realistic timeframe. The best way to save for short-term goals is to reduce your spending on non-essential items, like entertainment, dining out, memberships or subscriptions. It is often easier to stay on top of your spending if you use cash, EFTPOS or a debit card when shopping instead of using your credit card.
Make your savings work for you by putting your money into an account where it will grow. Savings accounts are great because you can earn compound interest on your savings. If you’re on a low income, you may qualify for one of the savings programs offered by some charitable organisations.