Inheritance of $1million.Hell, what do I do with it?

Discussion in 'Share Investing Strategies, Theories & Education' started by John Smith, 25th Apr, 2017.

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  1. John Smith

    John Smith Well-Known Member

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    Yes I have lucked out - big time. I don't wish to give any more details but it has taken a bad situation to end up being a good situation that I find myself in.
    I am 58 and would love to retire in 2 years and this money provides this opportunity.
    There's one problem - albeit a first world problem. What do I do with it?
    I have a little knowledge on investments shares/property but most of my money has gone into my industry super fund. This has a balance of approx $600k. Before anyone suggests seeing an advisor, I have had my fingers burnt in the past and my skin crawls when I hear this idea given to me. I am certainly happy to read random ideas as I see these as contributing to the puzzle that I need to put together in order to solve my "issue".
    I throw the floor open to people who know more than me.
     
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  2. Simon Hampel

    Simon Hampel Founder Staff Member

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    Step 1: learn as much as you can to avoid getting burned by advisers
    Step 2: engage advisers to help guide you around the incredibly complex world of retirement planning

    As much as I'd like to think you can learn all you need from a site like this - when it comes to retirement planning, the rules are so incredibly complex (and change so frequently) that I wouldn't dare presume to know how to proceed at that point.

    I'm hoping we can help guide you at least part of the way - but I would work on the assumption that you will need expert advice to sort out the final details.

    First question - if the money is in your super fund, will you actually be able to access it now to do anything with it before you retire? If not, it's kind of a moot point.

    Although, if you are looking at options such as rolling it over to an SMSF which will give you more control over things - that does open up some flexibility.

    If you're looking to retire soon - your first goal should be capital preservation. Last thing you want is for your capital to be eroded significantly due to market conditions beyond your control.

    It would help to know what other assets and liabilities you have - because reducing debt may be the safest strategy in the short term - or at least parking the funds in an offset account to minimise interest payments on loans (especially if non-investment related).

    If you're prepared to share a bit more of your current financial position (how much you have in assets and the nature of those assets, how much debt, how much income), I'm sure our members could come up with some strategies or suggestions for further research.
     
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  3. John Smith

    John Smith Well-Known Member

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    Simon,
    I wish to retire at 60-62. The money I have received is currently sitting in a 3 month term deposit at 2.65%. I put it there just to give me some "breathing space". I would be happy to invest in something that will bring a return of 5-7% per year if possible, and yes preserving my capital is a priority. I have two loans at the moment. One is an equity loan on a share portfolio and the other is on a property in Brisbane that I have held for 17 years. The loans total $310k. These two assets bring a total of $55k income.
    There you are. I have bared my financial soul.
    A little story about my previous experience with a financial adviser. He was investigated by ASIC and he lost his right to practice. Enough said.
     
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  4. Gockie

    Gockie Life is good ☺️ Premium Member

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    Oh wow. Good luck John Smith. So far, I think you've done the right thing, made it inaccessible for a little while to give yourself some time to think.
    Of course I can say LICs, but you need to know that you need to not trade. And you need to know you need to keep it there for the long term. Just keep buying.

    I liked this article:
    What if You Only Invested at Market Peaks?


    Not advice.
     
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  5. Simon Hampel

    Simon Hampel Founder Staff Member

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    From a risk management perspective - paying out those loans will probably serve you well.

    However, there is the argument that with such low interest rates, it should be fairly easy to get a better return than you would from simply paying them out, although that naturally comes with increased risk.

    If you're paying something like 5% interest, then paying out the loan is effectively going to give you a 5% return on your investment (because you'll be spending 5% less per year than you were when paying that interest).

    Assuming you're not looking to increase your borrowings that is - otherwise parking cash in an offset account is an alternative approach.

    I'm not an expert on capital preservation strategies - so can't really make any suggestions there beyond basic diversification.

    I like managed funds for their ability to spread risk across multiple stocks (indeed multiple asset classes in some cases) and if you are sceptical about a fund manager's ability to beat the market - then go for the low cost index funds or ETFs which broadly track an index instead.

    Another approach for increasing returns is to look at LICs - again they diversify the investment across multiple companies, much the same way that fund managers do - but with a bit more freedom to choose their investment approach (and the difference in structure gives them flexibility to do things like reinvest income rather than pay it out to investors - although that in itself adds another element of risk to manage).

    It would be difficult to justify parking your money into more direct real estate at your age since you'd need to use leverage to get access to enough property to diversify your holdings - and increasing your debt levels are going to substantially increase your risks. You already have some exposure to real estate anyway.

    You could look at simply getting a range of index funds / ETFs and some of the well established LICs, plus keep an amount in cash (term deposits spread across a number of big banks) - have some of the funds reinvest dividends to help grow the portfolio to deal with inflation and market downturns - and only draw out the income you need to live on. When diversified across a number of companies and investment managers and with minimal debt - it's going to be hard to lose much even in a downturn (and you could even use that as an opportunity to buy more).

    Also - I think there may be free services which can give you advice on what entitlements you may be able to draw upon. Pretty sure my father in law took advantage of those when he retired. I should ask him what his portfolio consists of now - I think it's combination of LICs and some blue chip shares and term deposits. He's pretty sceptical about the advice given by many advisers as well.

    Perhaps start here for more advice: https://www.moneysmart.gov.au/superannuation-and-retirement/retirement-income-planning
     
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  6. Hodor

    Hodor Well-Known Member

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    Structure should be considered to maximise your returns.

    Self managed Super Funds and Listed Investment Companies would be the two things I would be reading, specifically the older LICs with low fees and turn over.

    Basic idea of the strategy I like has two parts within a SMSF (for tax efficiency).

    a) Mix of dividend paying old style LICs
    b) two-three years of living expenses in cash/cash equivalents

    Key Points
    - Dividends from a flow into b you draw a regular income from b
    - You get extra income through refund of franking credits
    - Old LICs have extremely stable dividends even during crashes
    - Having two-three years cash gives more flexibility
    - Not selling down key assets

    Some SMSFs can be very cheap and cost effective, not all.

    I would also think about how you would invest the cash, lump sum, DCA each month, a variable DCA hybrid?

    A DCA hybrid could be something like this. You wish to average in over 2 years (when you want to retire) so you invest $40k each month. If the market drops by 10% you increase your monthly contribution by 10% ($44k) if it drops by 20% you increase by 20% ... or what ever works for you.

    Once you have an idea of what you want to do I would then interview a couple of financial planners to decide which one will put into place the plan you decide to go with.

    *not an expert just some rambling ideas.

    Sorry for your loss.
     
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  7. John Smith

    John Smith Well-Known Member

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    Thanks Simon, Gockie and Hodor for your efforts in responding to my posts.
    I appreciate your thoughts.
    I will respond to these after I spend some time mulling over your suggestions.
    ...... and Hodor thankyou for your condolences. It was my mother who passed away and no matter what age, the finality of death is difficult to accept.
     
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  8. twisted strategies

    twisted strategies Well-Known Member

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    John ( Smith ) ,
    having found myself in a similar situation in 2010 ,

    TAKE A DEEP BREATH !! and think !!

    what do YOU need to do ??

    first off , your chances of a ( full ) old age pension has been reduced ( drastically )
    but is that a bad thing ??

    SECOND , go to to see a quality doctor and get a full check-up ( i didn't , and may never get to retirement age ... but DID get a DSP .. probably for the rest of my life ).

    assuming you are in relatively good health , you then have a time-frame to plan on ( say you might live another 30 years ).

    if not in good health , check out Centre-link ( that health-care card is worth the effort).

    since the markets at near ( this cycles ) peaks , education and research before the next market dip would be wise ( even if you do get a financial advisor , later )

    a dip is possible within 3 months ( but not certain ).

    currently ... do you need an income source now ( apart from your bank interest ) ??

    if so some SMALL buys in some LICs or REITs ( that pay 3 monthly ) might help that , ( check the dividend frequency first , if chasing income ).

    but take a deep breath and form a sensible plan (for you)

    and.if you acquired a house in this DON'T just hire some contractors to 'clean it and sell it , some of 'that junk ' is highly collectible ( and valuable )

    do it yourself with some trusted friends ( to help ) ( yes it is hard emotionally , but maybe extra windfalls await ).

    BTW my condolences for your loss ( mine was partly expected .. just not that day )
     
  9. John Smith

    John Smith Well-Known Member

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    Hi Twisted Strategies and other "friends".
    I am still working, and together with my wife, we bring home $1400 per week net after I salary sacrifice to the max.
    Apart from the ideas provided by learned members of this community, the thought of being involved in a unit development has also been mooted. Even though I can see a good profit as the end result, the whole planning, building and selling process will take possibly max two years. There are holding expenses to consider including loan interest, rates, land tax etc. and these scare me a little. I suppose I am seeking an almost " set and forget" investment however I am not naive to understand that this is trusting of the "system" and no one should be that financially ignorant.
    Mmmmmm ....... decisions, decisions.
     
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  10. Simon Hampel

    Simon Hampel Founder Staff Member

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    Remember the old adage:

    Q: How do you make a small fortune in property development? A: Start with a large fortune.

    Seriously though - if you don't have any experience with property development, I would be very wary of entering that arena.

    I know plenty of people doing developments via my contacts on PropertyChat - but I also know plenty of people who have lost money (sometimes lost everything) doing developments that didn't work out the way they expected - or the market changed - or there were contractual problems - or the builder went under.

    If you are expecting to be able to retire shortly - I wouldn't be risking a significant part of your capital on anything you have no experience with.

    If you seriously want to go down that path - start slowly and make sure you find a good mentor to help you learn. Don't just hand your money over to someone who "promises" to make huge returns for you. There's so much due diligence required and so many cowboys out there taking big risks.

    Oh, and if you seriously do want to get into development - head over to PropertyChat and read everything there in the development section - learn who the people who know their stuff are - and pick their brains. Ask lots of questions on the forums and learn, learn, learn.
     
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  11. twisted strategies

    twisted strategies Well-Known Member

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    John ,

    since you have a partner involve her in the process ( extra brain, set of ears and eyes logic ).

    do NOT think set and forget ( i suggest you still review regularly even if you don't change anything )

    DO get you partner up to date with plans and aims ( there will be times when you can't make quick decisions )

    you will have heard of the 'property bubble ' when that bubble pops , some building companies will fail ( whether they have completed your project or not ) , QLD is showing increased signs of this .

    should you get the paperwork done ( on the planned development ) and sell with planning approval ( at a fortunate time ) or develop, later .???

    equity investments are above 'fair value ' ( expensive ) as well , so don't 'feel left out ' in time the market will correct ( over-correct )

    LEARN about interest-bearing securities , they are liable to be the 'next big thing ' but will have plenty of traps and false value ( but also the rare gem ).

    decisions , indeed , but also plenty to learn
     
  12. Hodor

    Hodor Well-Known Member

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    You won't be retired :cool:

    How are you valuing markets twisted? I see the US market as overvalued, AUS I see within a fair value window.
    I don't know when the next crash will come, if the US wheels come off AUS will hurt in the short term but recover much quicker IMO as revenue to price hasn't disassociated to the point the US has.
     
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  13. twisted strategies

    twisted strategies Well-Known Member

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    i use historic P/E ( with a realistic/pessimistic guess at future P/E ) but keeping an eye on debt .

    i planned for a crash in 2013 ( did i get that one wrong !! ) but now have to mix caution with boldness .

    Aus . v. the US in a crash .... the ASX hasn't reached pre-GFC peaks , while the US has set several all-time highs ( even recently ) .... so do we slip in parallel ( say both down 40% from cyclic highs ) or do we slip deeper say below 3500 ... a 'lower low ' logic .

    the NEXT problem is the wheels in Australia are already OFF , every reasonable growth sector is ravaged by regulatory change or indecision ,

    Rudd's ill-fated 'pink-batts ' looks like comparative genius .

    if you aren't a trainee suicide victim ( in the ADF ) you job prospects look terrible .

    China is slowing ( a good thing for the global economy ) , but the Canberra bunnies are stunned by the headlights .

    even public servants are being decimated by stress
     
  14. Rakhi Withanage

    Rakhi Withanage Member

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    Hi John,


    With contribution limits to superannuation changing as of 30 June I would certainly consider using your contribution caps for you and your wife this year (you may also be able to bring forward 2 years of contributions also). In retirement and over 60 you can then draw down on a retirement income stream which will provide you with tax free earnings within the fund and also provide a tax free pension to you.


    Whether you use a SMSF or industry/retail super fund will come down to what assets you want to hold within super. You could also investigate whether a transition to retirement strategy might work for you.


    In terms of the underlying investments we always recommend working out how much risk you are willing to take and then building a diversified portfolio which includes property, shares (both Australian and International), fixed interest, cash etc. Once you have worked out your risk tolerance could then determine what type of super fund might work for you and if you want the responsibility of running it e.g. SMSF.


    Retirement planning can be quite complex so I would recommend chatting to an adviser. Don’t let one bad experience shy you away from advisers forever!
     
    Last edited by a moderator: 2nd May, 2017
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  15. John Smith

    John Smith Well-Known Member

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    Thanks Rakhi.

    Is there a fee required for the advice? Only joking.

    Thank you for taking the time to pass on some advice. Yes I had already thought about 540k being placed in my wife's super account and an extra couple of 100k put into mine. I also wanted to build up her share portfolio knowing that she can earn 18k tax free outside of super in dividends. With her dividends, and mine, we then won't need to draw on our super for a while. Plus when we are 65, we are allowed a higher amount tax free - $58k due to the offset allowed for those who are pension age.
    Finally, I would be interested in REIT's and ETF's as a way to diversify and possibly a mortgage fund. Am I on the right track?
     
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  16. Rakhi Withanage

    Rakhi Withanage Member

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    John,

    ETFs are just a type of fund which are traded on the ASX. They can be used to get exposure to REITs (property), Australian Shares, International shares etc.

    We generally don’t recommend mortgage funds due to the way a lot of them ‘froze’ to redemptions during the GFC. But depending on a client’s risk profile we would recommend an exposure to fixed interest investments e.g. bonds

    Also, make sure you are very careful that either of you don't exceed your contribution caps as penalties can apply.

    As above – best to get someone who can look at your overall situation to give some advice on how best to proceed.
     
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  17. John Smith

    John Smith Well-Known Member

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    Thanks Rakhi.
    Corporate and semi-govt bonds are attractive as a limited risk investment. Are we talking 4 - 6/7% return?
     
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  18. Rakhi Withanage

    Rakhi Withanage Member

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    The yield is indicative of the risk being taken, with interest rates being so low at the moment anything with a yield of 7% would be much higher risk than a government bond or would be trading at a premium at the moment.

    Building a diversified portfolio around your time frame and income needs would be the most prudent thing to do.
     
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  19. John Smith

    John Smith Well-Known Member

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    Appreciate your response.
    P.
     
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  20. Rakhi Withanage

    Rakhi Withanage Member

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