Silicon Valley Bank Collapse

People commonly believe that keeping their money in a bank is the safest option, but this is not the case. Consider the bankruptcy of Silicon Valley Bank, the bank invested in a large amount of seemingly safe long-term U.S. government bonds, but when the Federal Reserve began to raise interest rates to fight inflation, these bonds began to depreciate significantly, and when the economy was in bad shape and customers began to withdraw large amounts of money, the bank had to sell the bonds at a huge loss, and finally, within 48 hours, the $200 billion bank collapsed. As you can see, keeping your money in the bank doesn’t save your money 100%, and inflation is stealing your purchasing power, which means your money is worth less in the future than it is now.

Interest income to against inflation – wealth shrink

Although many people may still prefer to keep their money in the bank to earn interest income as a single investment, However, high inflation reduces the return investors receive from fixed-income assets. As a result, even though you receive the same amount of cash, your ability to buy things declines. So, it is obvious that it is unwise to rely solely on interest income to combat inflation, and investors should place some of their funds into assets that profit from inflation or at the very least keep up with it.

Investment strategy against inflation – fund, shares, or real estate

To maintain the purchasing power of their portfolios, investors should change their investment strategy to invest more in assets that outperform inflation, such as stocks, TIPS, real estate, and commodities. But it’s also critical to choose stocks wisely, such as those in the consumer goods industry that can pass on increased input costs to customers. And real estate and commodities prices typically increase in an inflationary environment. Moreover, TIPS are a wise choice since they have interest rates that are tied to inflation and are backed by the U.S. federal government. So, making investments in the above sectors will significantly lessen the adverse consequences of inflation.

Investment structure to be tax optimized – discretionary trust and unit trust – capital gain and dividend distribution streaming

Every investment has a cost. And, of all the costs, taxes are probably the most significant. That is why tax-efficient investing is important: it reduces your tax liability. To reduce taxes, investors can use discretionary trusts and unit trusts. A unit trust provides significant tax benefits because the trust’s income or capital is distributed before any applicable taxes are deducted. Furthermore, if the assets are held for 12 months or more, the trust may be eligible for a 50% CGT discount. Besides that, the trustees of a discretionary trust have complete discretion over how distributions are made among the beneficiaries, allowing them to distribute income based on each beneficiary’s tax rate, thereby legally minimising the amount each beneficiary is required to pay. Moreover, streamlining capital gains and dividend distributions can significantly lower taxes. This is because it enables beneficiaries to use appropriate discounts, use capital losses to offset capital gains, and possibly benefit from any franking credits associated with the franking distribution.

Investment mind from an accountant’s view – what are smart investments

In conclusion, smart investments are about maximizing returns while minimizing expenses within a reasonable risk range. This requires the investor to abandon the conventional single investing strategy and shift away from a rigid outlook that relies on bank interest. Investors must also increase the diversity of investments to reduce risk, particularly during periods of inflation, by investing in stocks, real estate, and other assets to hedge against rising interest rates and thus ensure the purchasing power of the portfolio. Moreover, investors should also consider reducing their tax liabilities through trusts and streaming capital gain and dividend distribution to reduce investment expenses, to make the best investment decisions.

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