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What to do with a windfall

I’m 25 and recently inherited $30,000. I earn $42,000 a year and I’m not sure what to do with the money. I’m thinking about buying a unit to rent out, as I’m going overseas soon, but my dad wants me to put it into super. What would you suggest?

This is a classic problem but a nice one to have to struggle with. Of course, it’s not classic that everyone ends up with a $30,000 windfall, but typically we don’t know what is the best way to invest.

I can’t give you specific advice as I don’t know all of your goals, but I can work through the pros and cons of the options you face.

If you’re going overseas soon, the best idea is not to rush anything and simply look for a fixed rate of interest deposit.

Look at the lock up time and link it to when you think you’ll be home and when you will be ready to invest it.

Your dad’s idea is brilliant for leaving you rich when you retire. I’d say $30,000 invested in super at an eight per cent return for 40 years, if you retire when you are 65 years of age, would make you a millionaire and more. It could make it easy to retire at 55, however you might want to use the money, so an investment property in a sought-after area for tenants – where rents are good and expenses are not too high – can be a good play.

It is especially good if you can live at home, but maybe one day it’s nice enough for you to live in. A rental property will also give you some tax reduction, but you’ll have to find the money if the rent from the unit does not cover your borrowings and expenses.

Get a big piece of paper and write down all of your options. Find out expected returns, costs and tax benefits and see what best suits your goals. If need be, talk to an accountant for the tax matters. Good luck.d.

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, November 26, 2009

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