Thinking of cashing up? There are implications that come from selling units in your investment, especially in volatile markets. So, before you decide to withdraw your money, make sure you’re aware of the three points below and speak with your financial adviser or call us on 13 13 36.
- Will you be liable for capital gains tax?
If you sell some or all of your fund, you may trigger a capital gains tax event. This also includes switching to another fund.
A capital gains event means you may pay tax on the difference between the original cost and its sale value. This tax is at your marginal tax rate which could be as high as 46.5 per cent. If you have owned the investment for more than 12 months, the tax liability may be cut in half, but it’s still worth checking with your financial adviser to assess any potential tax liability.
- Will selling 'crystallise' your loss?
Most managed funds fluctuate in value, often sharply. If your investment has gone down in value because of market volatility and you decide to switch or withdraw the possibility of recouping your losses is lost forever. So, it’s important that you weigh up the chances of an investment recovering, and speak to your financial adviser.
- Will you miss future growth?
It’s important to consider that you may be withdrawing at a time when markets, and potentially your investment value, are down. This means you risk missing a rebound in markets and any future growth opportunities. Even experienced investors find it almost impossible to successfully predict the movements of investment markets.
If you hold multiple investments and require access to funds, it’s worth talking to your adviser to ensure you withdraw from the right investment to minimise the impact on your investment strategy.
The chart below shows the performance of a $10,000 investment in the ASX 200 over the last 10 years. You can see the difficulty an investor would have, no matter how experienced, successfully picking the tops and bottoms of the market over the long term.
Source: Data to 30 June 2011. IRESS Chart shows the value of $10,000 invested on 31/12/79, S&P/ASX All Ordinaries Accumulation Index. Past performance is no indication of future performance.
Have you spoken to your financial adviser?
Before you withdraw, make sure you understand the effects this withdrawal may have on your investment strategy. If you have a financial adviser, they can be invaluable in this process as they can review your situation and help you:
- assess the effects of the decision
- explain what may happen and discuss alternative options with you
- assist you in balancing your short-term goals with your long-term needs
Alternatively if you don’t have an adviser we are here to help so please call us on 13 13 36. Although we are not licensed financial advisers, we may be able to help you understand some of the implications of withdrawing, or refer you to a qualified financial adviser.
- 1. Article - Volatile markets and what to do about them
- 2. Video - What type of investor are you?
- 3. Video - Why an adviser is important
The information contained in this document is based on the understanding Colonial First State Investments Limited ABN 98 002 348 352 AFS Licence 232468 has of the relevant Australian laws as at 27 April 2011. This is not advice and is intended to provide general information only. It does not take into account your individual needs, objectives or personal circumstances. You should assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. Product Disclosure Statements (PDS) for products offered by Colonial First State are available from colonialfirststate.com.au or by contacting us on 13 13 36. You should read the relevant PDS and consider whether the product is right for you. Past performance and awards are no indication of future performance.