James I bet you are loving this thread (by the way - I am expecting your answer on here soon!)
Absolutely. I've enjoyed seeing how other people would use the funds and seeing some of the logic behind their answers. As always, for me, the HOW and the WHY are more important than the WHAT.
Personally, I'm surprised at the number of people who'd still be looking at residential property investments.
I'm not, really; 'tis a property forum, after all. That said, I don't think that small residential properties would be high on my shopping list, either.
For me it's all about lifestyle choice and hence a focus on low maintenance, passive income.
(snip)
Then mostly forget about the investments, get out and enjoy life as time is the most precious commodity we have.
And that's exactly why.
Lower priced / mid-range resi can be great during the accumulation phase. Leverage is beautiful (when the banks play nicely) and there are usually ways of boosting the returns by finding a property with a 'twist' to add value.
However, in the 'retirement' phase - which is precisely where $5m cash would place most of us - the hassles, tenants and low yields would not excite me a great deal. In fact, one of the first things that I would do is sell down (harvest, if you will) any low/middle-end residential property still on hand. Then for peace of mind, and long-term security, there would be no debts anywhere in my plan; existing debts paid in full and future purchases would indeed be from cash only. Just leaving the full $5m in the bank, however, would not suffice as the time/value of money would erode the balance and income too quickly; $5m may not be quite the sum in forty years, that it is today.
My thinking is that I would want investments that will provide, as a whole, two things for me and mine:
- Passive income, and,
- Amusement.
Re the former. Dazz puts it best, I think; every man needs a shed. I'd be looking at circa $2.5m on that one. There's a large part of the passive income sorted.
The balance (minus say $250k for cash buffer) would be split between six or seven shares for dividend income and, more importantly, liquidity. Being able to draw down from those as needed for various projects will then satisfy the amusement.
I've always believed that boredom is simply a lack of imagination; I'm never bored.
Such projects could include active share trading, property development, a new business idea, a charity, private funding. Options are endless and having the funding quickly available is a beautiful notion. Being short-term projects would also mean they would be as regular or infrequent as I please, allowing for travel and other such pleasures without being tied down.
I'm also assuming that by this point, I would have moved on from my business (perhaps, the eventual sale of an accountancy practice is where the cash injection could come from in x years down the track). Otherwise, a significant amount of the funds would be placed there and continuing that business would be the first project, instead.
All that cashflow = lots of tax. What structures would you use to hold your investments to minimise tax?
Meh. For various reasons, I would likely use a discretionary trust or two but really, tax would be the least of my concerns. It may be significant but it can be minimised and the franking credits will help somewhat. And when the whole idea is to create a lifestyle, worrying about how to avoid writing cheques to the ATO is a completely unnecessary stress.
Then, with all of the above in mind... does this match how you invest today? And if not, why not?
Ah, the money question
.
Residential property and share trading are both tools, and the leveraged returns that they provide can accelerate that wealth creation process significantly. Any of us - and I know that many here already have - can invest our way to a $5m net worth. Having that amount of money hit the bank account (via whatever means) is not a massive goal and that's why I suggested such a low(ish?) figure, instead of something higher that would likely be just out of reach for most property investors.
So, am I currently investing in the way that I described my plan above?
Yes and no. Or; not quite, but there is progress.
There is no shed to speak of, yet, but a plan towards acquiring one. There is no seven-figure share portfolio, but the current holdings will continue to grow and should get there within a year or two. There are various projects off the ground already, while others are still just scribbles in my notepads to explore in more detail when the time comes. And, my business is growing beautifully and will keep me well amused for a long time to come yet.
All good fun, hey?
