Stratergy Stratergy Stratergy HEEELLLPPPP

Hello All,

I am studying financial planning by correspondence and this site has come in very useful so far. This time I have a specific scenario and I am looking for some direction on the best strategies for this scenario:

Fred 42 y/o income $120,000; married; Mary 37 y/o $140,000
* Just inherited $380k
* Looking to accumulate wealth in preparation for retirement & help their 2 teenage children with education cost, weddings, and first house deposits (we should all be so lucky)
*Super balances are fine and are not in the scope of this plan
*Happy to stay in there $650,000 home with $125,000 still owing
*$6000 in Credit Card debt, $2000 in store card debt
*investment property worth $280,000 with $150,000 outstanding (do not want to sell)
*They do not understand gearing and are time poor
*Goal is to maximize after tax returns
*They have considered another investment property or maybe REX, RIO and BHP shares.
*Risk Profile - Moderate???

I know thats a lot of info and the reason I am chasing my tail on how to turn this into an effective strategy to meet there goals.

ANY HELP WOULD BE GREATLY APPRECIATED!!!!!!!!!!

Thanks

 

if there moderate should the be investing in direct shares? Should they be investing in shares at all???

Im thinking though. Maximise after tax returns means growth assets and not income funds. Could also mean property as it would be negative geared which is good as there 40% + bracket, however captial gains tax would push them into the highest bracket when sold...

if there saving for expenses it means they cant risk loosing part of the capital (probably 100k each child) so could just use an offset account or a balanced fund... Alternatively you could look at a 5 or 7 year capital guarenteed investment (Mac Bank or something)...

Salary Sacrifice super if your allowed (part of scope)... but id say a key thing is try and reduce their taxable income.... Theres no point in putting them in a cash fund as any thing they earn will be taxed at 40% and at todays rate (7.5%) that would be cover any increase in inflation....

just my thoughts

 

Realised or unrealised returns ?

Is tax really an important driver ?

Timeframe ?

Regular withdrawals for consumption, or "lumps" e.g. for specific events (mentioned house, wedding etc.) ?

Willing to lock up longer term, maybe borrowing shorter term as needed to preserve "locked in" funds ?

Which concept of risk ? The only risk is that the money is there at the time you need it. Does short-medium term reduction in market values of investments worry them, or do they understand the concept of yields ?

Is mother likely to drop out of the workforce before father ?

Are there any employers willing to be flexible with salary packaging ?

Income/job prospects of children, & timeframe (many more years at college) ?

Estate planning ?

Risky occupations - likely to be sued (some of above alluding to trusts) ?

Don't know about a "lot of information", I think we are at the start of an extended intial interview.

Cheers,

Rob

 

Hi Toeyazz,

It would be helpful if you told us which subject you are up to.

Cheers,

Dan

 

What does time poor mean?

Not a long time frame to invest for?
Doesn't understand the concept of compounding?
Doesn't have free time to research investing?

 

Hey Dan,

I was hoping you would let it hang there instead of giving the answer to the 'Big Mack or the Cheeseburger' FPA teaching approach to solving people's financial plans !!!

Cheers,

Rob

 

Hi Rob,

I love the already has an investment property.
I had a similar client who only wanted cash investments but then was thinking of buying an investment property, who knows why as she was retired and would have been negatively geared, not sure how she was going to pay for it...

I agree with you saying that it's an extended initial meeting as there seems to be alot of unanswered questions, though educational assessments always like to leave many stones unturned...

Cheers,

Dan

 

Hi Toeyazz

That looks suspiciously familiar...you're being a bit naughty by asking us to help you with your Kaplan/Finsia IP1 assignment don't you think

BUT to kick you off..how about starting with clearing the card debt...and getting rid of non-deductible home loan debt?

 

...and perhaps pick up a dictionary and learn how to spell "strategy".

(yeah...I know.. not overly helpful but gee there are some shocking spellers about these days...and too lazy to even hit the spell-check button)

 

First Pay off store and credit cards.
Pay off PPOR

This leaves $220,000.

At this point it depends what their goals are. Do they want to continue to work hard? Or regain their 'time poor status'?

Their IP should be cash flow neutral or even positive with the LVR you listed.

I would diversify them into commercial property, so I would put $100,000 into a unlisted property securities fund yielding 8.5% PA.

I would invest another $100,000 into Australian Shares, and the remaining $20,000 into a cash fund.

You would also need to consider when they plan to pay weddings etc.. if its in the near term, then reduce how many australian shares they buy. But with their income, they should be able to save quickly new deposits and wedding costs so best to have the money working for them first up.

This plan would allocate some money into residential property, commercial property, shares and cash.. with their home paid off..

 

Thank You

I have not posted for a while as I have been busy completing my studies but I would just like to say thank you to all. I appreciated your time in replying to my post and the information allowed me to complete my assignment successfully.

In response to Nigel's tongue and check response, I thought using a forum such as this for research and information sharing would be encouraged. It shows further research outside the typical text book response to every question. It also helps people like myself who study by distance learning as they don't have the time/money to sit facilitated courses.

Anyway thank you again