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Q&A - Managing money

Q. I have received a surprise lump sum present of $50,000 and really want to invest it so I can always benefit from this windfall. I am 37 and have a couple of kids and my husband and I are comfortable. We would love to splurge it but we know this is a gift from heaven, so we don’t want to blow it. We have a home loan of $250,000.

A. I know it’s hard to be responsible but it really can pay off. Just for starters, by putting $50,000 against a home loan at 7% — the average rate you might pay over the life of a loan — you would knock 7 years and three months off the loan and save $105,000! If you invested the $50,000 in an investment fund which averaged 8% each year, the money would double in 9 years time and go to $200,000 in 18 years time. In 27 years time it would be $400,000 but you would pay tax on that money. If you invested in your super fund, the tax rate falls to 15% and the return would, in all likelihood, be a lot better. You could use the money to help fund an investment property. It could be a property where the rent is more than the interest repayments and other charges. This is called a positively geared property and while this is easy to live with, sometimes the capital gain can be slower. You could borrow and negatively gear it and this could reduce your tax bill and give you a property that has good capital appreciation. I reckon you should talk to an accountant when it comes to a property play with tax-saving implications. You could also buy art and if you buy well it can appreciate spectacularly but once again you will need expert help.

For guidance you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.



Published on: Thursday, August 27, 2009

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