Lots of money - what to do with it?


I have invested a fair bit in my own primary residence and in shares and instead of just putting more and more into my share portfolio which is mostly blue chip stocks like banks, manufacturing, resources and retailing etc I am looking at diversifying into the property market and see negative gearing as a good way to draw down my income tax from my job and realise capital gains.
Since my job is a technical role and in no way does it have any form of business, investing or commerce element to it - I am a bit lost as to how to go about it.
You don't buy property with a view to negative gear. It is an investment, designed to MAKE MONEY, not to lose it. Depending on what you buy, it may be, in the short term, negatively geared, but it does not stay that way.

I do enjoy it. I go to the U.S. every year skiing and don't need a flash car like a Merc or BMW. I give about $15K away each year to Cancer Council and about $5K to the royal flying doctors. I live a fairly modest life for the income I receive and like to walk around in my crappy shorts and thongs so am unassuming and like to stay that way but not drawing unnecessary attention to myself.

There is your tax deduction.

My apartment was bought for $1.245 million and have about $500K left to pay on it.

I'm keen to pay of the loan but like to have a good cash reserve in the bank and don't want to just keep topping up my woollies and bank shares all the time.
Open an offset account against this loan. Put your $400k into it. It has the same net effect as paying down the loan, but the cash is accessible, and at the same time it keeps the loan amount intact, so that, should you decide to move and turn this place into an IP, the loan amount will be tax deductable..

I would like you to stop and not do anything till you get up to speed with these basics, even if it means being in cash for 6-12 months whilst you do it. Or just pay your home loan off whilst you learn

Read these forums, book some hours with an accountant and get them to explain gearing, leverage, tax law etc, read books on investing

^^^^ With the exception of the offset account, THIS!!!!
Pay down your home loan, diversify into property if you already have a substantial share portfolio. Hold some cash for a rainy day then I would look to make a difference in other peoples/communities lives. Start your own charity, look at ways you could help others less fortunate either directly or indirectly as this could be a very satisfying and rewarding project.
It depends on how certain you are of the yearly 400k funds IMO
Take any random asset allocation numbers that are being thrown at you via the internet as exactly that - random numbers.

Personally at that level of income, I'd think about how much I liked my job. A few years at 400K well invested and you're set for life, and suddenly your time is much more valuable than your money
I think I'll pay of the home loan and buy some good investment books. Once I get the knowledge and talk to a few more people - that will put me in a good position to make some wise financial decisions.

No I will not buy you a Porsche because I don't even think there good cars anyway! What about the latest Ford Mustang coming out later this year - now that is a nice car! The cheapest 5.0L V8 to come out on the market and the most stylish I think.
I'd develop if I was in your shoes. There are a few very experienced developers on the forum like oc1 (oscar) and MTR with many many years of experience under their belts....find yourself a GOOD mentor whose been investing for sometime. Best would be to learn for yourself...i.e. learn to fish
How about talking to the person who is giving you $400K a year as obviously they would have some ideas on investing having accumulated a lot of spare cash or are running a very profitable business. Unless they happen to be drug dealers.:eek:
33% superannuation, 33% home loan, 15 % property investment trust, 18% gold/platinum.

What's with the metals? They're shiny rocks. No income, no intrinsic value...

When I was getting into investment, initially I thought precious metals had a place in a portfolio, but the more I learned the more I realise it's dead money.
700K of equity = 10 x 70K "portions"

You could consider doing an immediate 700K equity release, then using that 700K to fund the purchase of 10 x NRAS properties @ 400k - 450K each, contributing 70K each time to fund the 11.5% deposit + stamp duty + a 10K cash buffer for each purchase

Borrow the remaining 90% (88.5% + LMI) to complete each purchase.

With income of over 510K ( 11K + 400K) servicing for that amount of debt will be straightforward.

Those 10 properties will create @180K of deductible losses (@18K each) and add @ 100K tax free cash flow to your after tax position. (@ 10K each)

So you'd be earning 610K but paying tax on 330K of it. That would enable you to pay the PPOR debt off very quickly and return the property to unencumbered status within a few short years.

End result - you'd have a $4-4.5 Million property portfolio costing you zero to hold. Within 3-4 years you'd have a completely unencumbered PPOR with which you could repeat this process ( equity pull, buy 10 properties - although they wont be NRAS next time around) and all without having eaten into any of your capital, which you could continue to invest elsewhere.

Fast forward 10 years, and with even modest growth of 50% across your property portfolio, you'd have property assets of $8-9 million , unencumbered PPOR and hopefully a share portfolio also worth multiple millions.

You may then choose to pay down all the deductible debt, retire and enjoy a massive passive income for the rest of your days.
How about talking to the person who is giving you $400K a year as obviously they would have some ideas on investing having accumulated a lot of spare cash or are running a very profitable business. Unless they happen to be drug dealers.:eek:

This is something I was wondering about too. Who is handing you $400K per year, what is the source of this income and how long will it be coming to you (how many years)?

The answers to that might clarify the advice.
Ok I'll have bit of fun here. OP is in a great position. I'd approach it a bit differently. This will be fairly set and forget.

Pay off your unit. Establish trust structure and redraw / loan equity to trust. All your new investments will be in trust. Don't worry about cash buffer until your unit is paid off - your big pile of equity is buffer via redraw. Look at what you can do in SMSF too, tax advice is going to be very important.

you are eligible for investment banks sophisticated margin accounts..if you want to use very conservative gearing (say 30-40%) you can add a little extra firepower very cheaply ie. AUD 4.10%, USD 2.3%.

I'd be looking for some substantial international exposure via USD/EUR/GBP/CHF multi currency margin either via ETFs, LICs or direct stocks. Ideas like Berkshire Hathaway, Markel, Nestle, Unilever, Johnson and Johnson, Diageo, Exxon, Philip Morris would be a start.. As you can see I like consumer staples with brand power and developing market exposure. To keep it simple all are available on NYSE direct listing or ADRs..this keeps it simple, USD margin only. Fix an asset allocation and just keep buying as the money comes in. If you don't want to use margin that is cool, I'd buy the same kind of stocks regardless.

Keep investing in ASX stocks but probably just buy LICs or ETFs unless you like managing stocks yourself. I'd be all industrials that are reliable dividend payers for ASX part of the portfolio. Due to dividend imputation, I'd have a tilt here (home bias). Vanguard does the same with their unlisted funds.

You can either market time, or just dollar cost average..it's up to you. Regardless just know this is a long game and treat it as such.

Establish a significant cash buffer (after PPOR debt is extinguished) that can be used for opportunistic buying in property / stocks. Home equity or this buffer can also cover the unlikely event of margin call on your very low gearing.

Upgrade your PPOR every 5 years or so. CGT free asset.

Rough asset allocation say 40/30/30 (ASX/NYSE/Cash buffer - this is where PPOR upgrade money comes from too) pay all divs back in to cash buffer account for redeployment.

Quit work and travel. Give no ****s :)
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