How to Structure Your Investment Portfolio

Generally speaking, medical and dental professionals are considered to have a high-risk occupation.

Because of the kind of work you do, you’re subject to a wide range of regulations, and you have a high level of liability exposure. Changing economic conditions can also have a substantial impact on your operations, especially if a lot of your capital is tied up in your own practice or you specialise in providing elective treatments that depend on people having disposable income.

A smart way to protect your assets from these risks is to build a robust investment portfolio, but sometimes it can be difficult to know what investment structure is best for you and where to start. At Smith Coffey, we specialise in providing expert financial planning and investment accounting services to Australian medical and dental professionals.

In this article, we outline some of the more common investment structures and discuss their pros and cons.

Investing as an Individual

Creating a personal investment portfolio is the easiest way to start investing because you’re doing it in your own name and don’t need to set up a separate investment structure. The downside of this is that your assets will not protected if you’re personally sued.

Pros

• It’s cost-effective and easy to set up.
• You can gain access to the 50% capital gains tax discount.
• Tax advantages can be achieved.

Cons

• You have fewer options for distributing income.
• Your negatively geared assets may turn positive and thereby increase your tax liability.
• Your risk of exposure to creditors is higher because the investment is in your own name.

Establishing a Trust

A trust (usually a family trust or unit trust) is more complex to establish than a personal investment portfolio and requires a trustee to oversee its ongoing management. That being said, trusts offer greater flexibility when it comes to distributing income and reducing taxes. They also make it easier to protect your assets.

Pros

• You can distribute income and capital gains in a way that minimises your tax liability.
• Assets are not owned by an individual, so it is more difficult to be accessed by creditors or litigators.
• You can carry forward any loss incurred by the trust and offset it against future income.

Cons

• Trusts last 80 years, which can pose issues for estate planning.
• If your trust is negatively geared, you’ll need to have more than one income stream to make it effective in reducing your tax liability.
• They are more expensive to establish and maintain than simply investing as an individual.

Extra Superannuation Contributions

Additional super contributions are a great way to grow your investment incrementally over time. Some investors may be put off by the fact that you can’t access your super until later in life, but for others, this limitation is seen as a positive, setting you up for a comfortable retirement.

Pros

• You can enjoy greater financial security by significantly increasing your retirement savings.
• Your super contributions are generally taxed at 15%, which is likely lower than your own tax rate.
• Your personal super contributions may be eligible for tax deductions.

Cons

• The 15% concessional tax rate only applies to the first $30,000 of contributions each year.
• Additional contributions above the cap can trigger additional taxes and penalties.
• Super has low liquidity as an investment because it can only be accessed later in life.

Company Investments

More complex again than establishing a trust, a company investment structure is owned by shareholders and run by directors appointed by the company. While it is a more involved investment structure, it also affords even greater asset protection.

Pros

• A company’s assets have stronger safeguards.
• The company tax rate of 30% will likely be lower than an individual high-income earner’s.
• Companies do not end, so they’re an effective way to plan your estate.

Cons

• They’re more expensive to establish and run than investing as an individual or via a trust.
• They do not enjoy the 50% capital gains discount.
• You can only offset losses against future company income, not your own.

Final Thoughts

Choosing the right investment structure requires careful consideration of your financial circumstances and investment targets. At Smith Coffey, our team of financial planners specialise in helping medical and dental professionals achieve their financial goals. We’ll work with you to identify investment structures that align with your needs and long-term plans.

Interested in a free coffee and chat to discuss your financial future with one of our expert team members? Or want to explore our accounting and tax services for medical and dental professionals? Contact us today.