How to Invest $500,000?

Lsator on 02/01/2017 - 15:31
Last edited 08/01/2017 - 20:49

My mate (best man) just won the Tattslotto ($500k). Lucky bastard, he threw in $2 for quick-pick!

Anyway, he has no idea what to do with the money, except that he wants to invest it wisely. He asked me for my opinion, but I've never been in his situation, so I came to the smartest forum for help =D

I did a little research on ozb and have come across:

  1. Property - Worried the market (Melbourne) is in a bubble or at least close to its peak… so hesitant to suggest.

  2. Shares - Know nothing about this. I've personally lost $$$ in the past.

  3. High Interest Saver Account ING DIRECT - There's a limit of $100,000 so not sure. Any alternative that's 3% but w/o cap?

EDIT: Thanks to Dozingquinn for reminding me to give more details re. mate's life status/situation.

He's in his early 30s, married, no kids -but mentioned that he's thinking about having only 1 in the next 2-3 yrs. Household income 200k-ish (secure).
They don't have a extravagant lifestyle. No debts obviously.

Also already owns a house in the outer west of melbourne $400k

FINAL UPDATE:
Just wanted to thank all the useful/productive posters for their help + some of the amusing ones too. The final strategy chosen is to put $400k into the Vanguard Growth Diversified ETF (wholesale), $50k for an emergency fund, and $50k to go with the redraw on their existing property to purchase an IP in Melbourne.

Financial

Comments

      • jellykingdom on 03/01/2017 - 21:37

        I've been considering that. The issue i see is the high unemployment rate and traditonally low house growth rate

        • sator on 03/01/2017 - 21:45

          So unless it's a crazy bargain, it's not worth it?

        • sator on 03/01/2017 - 23:45

          Yup, Adelaide seems like a TERRIBLE idea. See:

          http://citymag.indaily.com.au/commerce/commonwealth-games-pa…

        • muncan on 04/01/2017 - 10:16
          +2

          @sator: Yes, everyone keep out of Adelaide, thank you. We like it how it is. Great article.

        • sator on 05/01/2017 - 02:42

          @muncan: I don't think you have anything to worry about. It seems like most of the highly skilled/educated productive youngsters are emigrating out

        • muncan on 05/01/2017 - 07:59
          +1

          @sator: Our former state logo says it all (it's not innuendo, it's pointing to where to get a job). We churn a lot of international students so I don't doubt you.

        • jellykingdom on 05/01/2017 - 09:22
          +1

          @muncan: I'm actually from Adelaide, and my family live there. I did enjoy living there but the employment opportunities are almost non-existent. As one of the skilled youngsters that Sator spoke of, there's definitely a lot of brain drain going on, which is one of the main reasons the property prices aren't really going anywhere. Not going DOWN mind you, but barely going up

        • sator on 05/01/2017 - 12:16
          +1

          @jellykingdom: Totally agree with you. We visited friends who live in Adelaide (Norwood) last year. It's a stunning city, with gorgeous architecture (house) and tree lined too!

          You're able to purchase high-end property for 1/3 of the price you would in Melbourne.
          However, due to the lack of excitement and jobs, not may people would consider it as a place to live.

          I wouldn't mind retiring there

      • chumlee on 03/01/2017 - 21:52
        +2

        I bought my first house in 2001 and people said property was in a bubble. Sold that house in 2010 and bought a bigger house and in 2010 everyone said there is a property bubble.

        Same old rule always applies. Location location location.

        Ask Steven Keen if there is a property bubble. The fool sold his property in Sydney in 2008 as he said a property crash was inevitable. Now he's helping a landlord pay off his investment property

  • StewBalls on 02/01/2017 - 20:46
    +9

    Use some of it to pay for good professional financial advice…

    • sator on 02/01/2017 - 21:58
      +6

      With all the bad press about unqualified or dodgy FA, how can you be sure you can trust them? Won't they just end up sprucking the product that gives them the highest commission?

      • StewBalls on 03/01/2017 - 07:42
        +1

        The same way you'd choose any other professional…due diligence. This research is a lot easier now with those interwebz…

        • Scrooge McDuck on 03/01/2017 - 11:35
          +1

          Might as well just research the financial advice yourself.

        • StewBalls on 03/01/2017 - 11:49
          +2

          @Scrooge McDuck: Mate, I check out the bonafides of every professional (those I do not know personally/professionally) whom I pay to do a job for me…simply paying someone to do some work does not absolve you of the responsibility for ensuring that you are making informed choices, not by a long shot.

          I check out my doctors, but I don't do my own medical procedures…
          I enquire about mechanics, but I don't do my own servicing…
          I suss out my tradies, but don't do my own construction…

          Why should financial advice require any less due diligence???

          It's just commonsense…if I was risking $500k, I'd sure as hell put at least a little bit of effort in…

        • Scrooge McDuck on 03/01/2017 - 11:52
          +1

          @StewBalls:

          I check out my doctors, but I don't do my own medical procedures…
          I enquire about mechanics, but I don't do my own servicing…
          I suss out my tradies, but don't do my own construction…

          All of those require labour and skill.

          Financial advice is purely academic.

          FYI: I'm not advocating against financial research, I'm advocating doing that research yourself.

        • Tech and cars on 06/01/2017 - 13:12
          +1

          @StewBalls:

          I feel like a Financial advisor needs to be wealthy and then I would only listen to his advice.

          • you wouldn't want someone overweight to be your personal trainer.

          I feel like it's hard to measure the effectiveness of a Financial advisor.

          How do you generally quantify it/ trust someone?

      • Scrooge McDuck on 03/01/2017 - 11:34

        With all the bad press about unqualified or dodgy FA, how can you be sure you can trust them? Won't they just end up sprucking the product that gives them the highest commission?

        Hire a good professional adviser of good professional financial advisers?

      • DWH on 06/01/2017 - 12:30

        The best way is to use a full fee paying FA that does not earn any commissions.

        Expect to pay $7-10k, but you'll get unbiased advice.

        • sator on 07/01/2017 - 16:18

          WTF, that's excessive. If that's the case, I think i'll be changing careers very soon

        • DWH on 08/01/2017 - 11:47

          @sator: I agree. It's a tough one to swallow. The alternative is to go to a 'free' one and they'll put you into investments that they'll earn much more than this each year in commissions… (depending on how much you have to invest).

          $7k @ $100 per hour = 70 hours, almost two weeks 1 person full time working on your financial plan. Depending on the complexity of your situation of course. If you are starting out/simple I'd expect maybe half the amount.

        • sator on 08/01/2017 - 14:14

          @DWH: or you could go and do the diploma or whatever they did. I don't believe that they are particularly brilliant or anything, otherwise they'll just be managing their own money.

          I'm on OZB so have a strong frugal streak. It feels too much like I'm getting milked

  • shadowarrior on 02/01/2017 - 21:11
    +7

    First and foremost, invest $80,000 by purchasing a luxury car. Then before wasting any time, contact a Westpac Financial Adviser. That will sort everything out.

    shadowarrior on 02/01/2017 - 21:11 (Collapsed - Offtopic. Show)
    • xoom on 03/01/2017 - 04:50
      +1

      Only if one puts looks first over safety as a car requirement. Gotta impress the future colleagues with it.

      • airzone on 03/01/2017 - 13:04
        +1

        Luxury cars are a high yield investment.

    • OliverKlozoff on 05/01/2017 - 09:35

      As a westpac customer (probably a pretty clueless one), is there a running gag on the incompetence of Westpac Financial Advisors? Or have i misread this?

      My savings account is building up too and I've been meaning to consult with them to see what they think I should do :S

  • [Deactivated] on 02/01/2017 - 21:43
    +1

    Please tell him to invest it in my business. I will promise he will make ( well not much) but he will feel very good as I train rescue dogs in various dog shelters. Damm it if only our ong had won that cash…

    • jelko on 02/01/2017 - 22:28

      Train dogs to do what? Sniff out drugs, rescue people?

      • [Deactivated] on 02/01/2017 - 22:33
        +1

        drugs that's where the money is…

        • StewBalls on 03/01/2017 - 08:41
          +6

          First you get the sugar… Then you get the power… then you get the women.

  • Candour on 03/01/2017 - 08:22
    +1

    go and join a good industry fund. make sure they allow you to invest in etfs on your own. put it in aggressive if you are younger. leave it till retirement. learn about investment [not trading]. ozzie sites give trivial info. providers have self interest. so dont trust anyone. do a course in financial planning with tafe if you must. or learn about it the harder way like me - ad hoc and paying for bad advice from incomptent or negligent 'advisers'. safeguard this windfall. educate yourself. no one else will.

    • The Araldited Wallet on 03/01/2017 - 12:29
      -4

      … and help whichever union is attached to that particular super fund, funnel six figure sums into Labor Party coffers, just because they can.

    • sator on 03/01/2017 - 13:29

      Thanks for the sound advice! You sound really knowledgeable.

      Are ETFs very worthwhile?
      Do you suggest a diploma in financial planning? What to do in the mean-time with the money spending a year doing the course?
      Any TAFE provider or do you have any good suggestions? Lol, please don't say the SAGE institute =D

      Really appreciate you sharing your experiences, so others don't get fleeced by the unscrupulous financial sector

      • Candour on 05/02/2017 - 14:09

        it takes years to read and learn investing, and technical analysis and I never got all that into my head. after wasting money on brokers or planners with get rich schemes, reading about investment from reputable US sites (not australian which are poor in info and ensnare you with product) will let you get a feel for what is best. some keywords to research are passive investing, ETFs (yes to both), and industry funds (cheapest is best), reputable news providers (many US ones) who are not compromised (google best financial blogs and see what to read widely to learn investing), trading is high risk and only rare geniuses have skill, even active managers rarely have skill to beat the index they benchmark after 10 years, long term returns are real not short term >=10 years, be prepared for lots of volatility every year in shares, etfs etc, disregard mainstream media, read great investors like buffett but read widely as he is not God; I respect tafe as I ws a tafe teacher and know that private providers may have low standards. eg my accounting into student had an adv dip from s brand name provider but could not do basic accounts. any TAFE should have the recognsied standards for Dip Fin planning. you must get registrable with ASIC and they are changing to degree I think. confirm you will get full registration for the trouble of studying. very useful to learn fin planning anyway for life skills. sage is not tafe from what I saw about them.

  • Brendoo on 03/01/2017 - 08:38
    +2

    Whatever he does, don't put it in the bank, it will barely keep up with inflation. I would suggest to buy property with it, in an up and coming area, avoid the potential bubble suburbs. Do some good research and find a highly reputable agent who can assist with that. Get some good rental income and appreciation, negative gear it, it sounds like he's on a good salary so could get a good amount of tax refunded. Get good financial advice on that topic as well, he'll make a killing with 500k.

    With ol' Trumpy about to come in office I'd avoid the sharemarket (unless he wants to take a huge risk - could pay off big time, could also lose half of it), who knows what the hell is going to happen in 2017 globally and here.

    • SBOB on 03/01/2017 - 09:09
      +5

      Whatever he does, don't put it in the bank, it will barely keep up with inflation

      though putting it immediately into a 'high' interest bank account or short term deposit is a wise choice while they work out what to do with it…

      • sator on 03/01/2017 - 13:32

        Will definitely pass that on. Thanks!

    • sator on 03/01/2017 - 13:31

      Any real concern for the discontinuation of negative gearing?

      I understand that most politicians one IPs so self interest will probably prevail. However the concern is that the Labor party is going to the next election with it

  • Cheap Steve on 03/01/2017 - 09:29
    +8

    Franchises. Video shops, records shops, book stores and any other type of business that can't be disrupted by the internet.

    • sparkanum on 03/01/2017 - 13:15
      +3

      This. Cash in on that sweet, sweet, newsagency money before everyone else cottons on to it.

      • Duram on 04/01/2017 - 09:31
        +16

        woooosh

        • sparkanum on 04/01/2017 - 10:34
          +2

          I'd like to think Goro got half way through that response and suddenly realised what was happening, but decided to keep going because of all the research they'd already put in.

          Otherwise, yes; woooosh.

      • [Deactivated] on 04/01/2017 - 11:37

        hahaha gorodemon

        don't take his bait so easily

  • blackfrancis75 on 03/01/2017 - 09:53

    If he's worried about both property and shares as investments, but want to beat the relatively low interest that a term deposit will pay, AND benefit from AU tax laws; he could 'hedge his bets' so to speak by investing in both

    1) Purchase a modest 1/2br apartment using $250K as the deposit on a mortgage that he pays down using a tenant. This approach has scope for negative gearing benefits, depending on your preferences. By paying a decent deposit you are less exposed to possible bubble/ interest rate rise risks.

    2) Get advice on how to compose a $250K portfolio of dividend-paying stocks. Go for companies whose share price is relatively static but pay decent dividends. Prefer companies with fully- or at least partially-franked dividends (for tax reasons). Diversify across many industries/sectors

    • sator on 03/01/2017 - 13:46

      But aren't apartments in Melbourne about to implode due to oversupply, poor design (1 bedroom shoe-boxes) and poor quality?

      So the debate is whether to go after capital growth or cash flow?

      • blackfrancis75 on 03/01/2017 - 21:20
        +1

        Only in the CBD. Out in the (right) 'burbs there's plenty of good stock

        • sator on 03/01/2017 - 21:46
          +2

          Thanks, will keep that in mind, though isn't buying "land" the way to go?

        • blackfrancis75 on 03/01/2017 - 21:52

          @sator: He could certainly consider buying a stand-alone property; I only suggested an apartment so that he could possibly start off with substantial equity (i.e. owe less than half the value of the property).
          Having said that, I personally think this mind-set is unnecessarily limiting.

  • redraoh on 03/01/2017 - 11:06
    +1

    Someone bought be the new Barefoot Investor book for Christmas: The Only Money Guide You'll Ever Need.

    Highly recommend it. If he owns his own home and has that much cash now, he's well ahead of the curve.

    • sator on 03/01/2017 - 13:50

      Not just good marketing?

  • adn on 03/01/2017 - 11:27
    +5

    buy a few gtr r34. store them and sell it to america in a few years.

    • [Deactivated] on 03/01/2017 - 21:39
      -3

      Yeah RHD genius

      • adn on 04/01/2017 - 10:03
        +2

        You realise you can drive certain LHD cars in Australia?

        You realise you can drive certain RHD cars in US?

        do some research before being a smart arse

    • mavis30551 on 06/01/2017 - 13:05

      lol why?

  • Vanit on 03/01/2017 - 11:31
    +3

    250k quick-picks?

  • Cluster on 03/01/2017 - 11:38
    +3

    I would lock the money away somewhere where it will pay interest and I cannot easily access the money. Wait six months, or even a year, for the 'zomg, I'm rich' feeling to wear off. Then think about spending/investing.

    Too many lottery winners go on big trips, buy expensive cars, and spend like there's no tomorrow. There are plenty of stories of multi million winners blowing it all within a few years because the things they buy require expensive insurance and maintenance.

    • Skramit on 03/01/2017 - 11:49

      Not only "blowing it all" but actually filing for bankruptcy. Probably due to poor advice or lack of any financial advice to begin with. OPs mate is at least seeking advice. The first step!

  • Skramit on 03/01/2017 - 11:43
    +12

    I'm in a similar situation to your mate although I have 1 kid. This is what I'd do:

    Assuming he has no mortgage left on the 400k house.
    Assuming he does not want to move house or renovate.
    Assuming he is living comfortably and already saving some each month.

    1) Buy an investment property with interest only loan. Spend ~100k on the 20% deposit.
    - All of the interest payable is tax deductible.
    - Rental income
    - Capital growth

    2) Buy $300k of shares. Speak to a broker about long term (10+ year) investments.
    - Diversified portfolio - Mix of high growth/low dividend and low growth/high dividend stocks.
    - Dividend income
    - Capital growth.

    3) $50k remaining in a Savings Account
    - Easily accessible cash.
    - Low growth but nice to have a chunk of disposable cash to enjoy life if required.

    Since the money he won in tatts is tax free, I wouldn't put it in to my super unless I wanted to avoid investing in shares my self as per 2 above. Putting $350k in super is dead money as you can't liquidate it if necessary for 30+ years.

    If he wants his future kid(s) to go to a pricey private school, put the earnings from the rental income and dividend income in to a high interest savings account for future school fees. :)

    • sator on 03/01/2017 - 13:58

      Fantastic advice! How did you learn so much about managing your finances?

      • Skramit on 03/01/2017 - 14:06

        Practise :P

        Learned from my parents, my tax accountant, my stock broker and just a general interest in wealth building with low risk.

        Also realised my typo in the above. I'd buy $350k of shares not $300. Too late to edit it now. Also a note on the shares, I'd be waiting for the "right time" to buy shares. Buying at a low point rather than at a high point in the market volatility would be advisable. But that's where stock brokers come in for professional advice.

        • sator on 03/01/2017 - 14:59

          We're at a very high point in market volatility? Unfortunately, most are not as lucky as you to have so many financially savvy people around them =D

        • Skramit on 03/01/2017 - 15:05

          @sator:

          Sorry bad sentence by me.

          Fixed my poor grammar:

          I'd be waiting for the "right time" to buy shares. Buying at a low point rather than at a high point in the market, given the market volatility, would be advisable.

        • kingmw on 04/01/2017 - 10:48

          It is a known myth that you or any professionals cannot accurately time the low or high points of the market. If they could, then no managed funds will ever perform worse then their performance indices.

          I would highly recommend putting the 350K into a number of different low cost (i.e. Australian based and worldwide) ETF index funds like Asgard or iShare.

          If you don't believe me, then you can always ask Warren Buffett.

          http://finance.yahoo.com/news/buffett-most-mportant-investme…

        • Skramit on 04/01/2017 - 10:52

          @kingmw:

          Agreed 100%.

          I guess I was more suggesting to be cautious and get good advice before diving in. There's no rush to buy in if the market is crazy volatile or your broker advises you to wait because the market is bearish.

        • sator on 05/01/2017 - 02:46

          @kingmw: Most likely going with vanguard ETFs. Global stocks, australian stocks, and australian commercial property. Are you suggesting Asgard or iShare(Blackstone) is better?

        • kingmw on 05/01/2017 - 10:51
          +1

          @sator: Whoops I meant Vanguard!

        • sator on 08/01/2017 - 00:07
          +2

          @kingmw: haha, you've been watching too much Thor.

          Buy ETFs now or wait for a few months to see effects of Trump?

        • Skramit on 08/01/2017 - 21:44
          +1

          @sator: you've missed the trump boat already I'm afraid. The stock markets set sail on nov 9.

        • kingmw on 08/01/2017 - 22:12

          @sator: Doesn't matter when you buy as long as you are in it for the long run.

  • smhto on 03/01/2017 - 11:55
    +1

    $200k ETF, $50k TD, $250k towards an investment property

  • asrey1975 on 03/01/2017 - 12:04
    -8

    0 Pay off any debits first, you will save money on bank debit intrest immeidately :D

    1 dont put eggs in one basket

    2 cash interest in bank is a really dumb option

    3 if you pay any financial adviser, they will help you lose it quickly or at the very best give you a poor return

    4 Use some of the money to pay for investment education training, remember to invest in different options.

    5 if you dont trust yourself and have no idea what else to do, put in super for now till #4 comes through :)

    6 ask someone who has MADE $$$ for advice. Not someone who manages $$$ for a living (as they will surely try to sell you financial services/products and transfer your wealth to themselves).

    • Nillionaire on 03/01/2017 - 13:36
      +9

      Mate, increasing text size and making it all bold makes it harder to read. Work on formatting instead.

    • moonphase on 03/01/2017 - 13:55
      +3

      you mean debts right?

  • Ion on 03/01/2017 - 12:10
    -7

    $500K is nothing these days…I would re-invest it on more Lotto tickets until I hit at least a few million.

    • sator on 03/01/2017 - 14:20
      +1

      $500k is still a lot of money for me =(

    • sparkanum on 03/01/2017 - 16:36
      +4

      I loved this idea so much I had to do the stats.

      If you took the whole $500k and invested it in Powerball, then repeated with the winnings each week until you hit a $1m, you'd generally last about 2-3 months before you ran out of money. After the first week you'd be pretty lucky to have even half of the original $500k left.

      You'd basically have to hit the jackpot to have any hope of getting your $1m target. But you've got a less than 1% chance of that happening even in the first week.

      Yay! Maths!

      • Ion on 03/01/2017 - 19:17
        -1

        Yeah, I was making a joke but got downvoted haha

        What about Saturday Lotto? The chances are a bit higher on that. I get around 6% chance of winning 1st division if you purchased $500k worth of lottery tickets.

        • sparkanum on 03/01/2017 - 21:33

          Had a quick look. Compared to Powerball:

          • It is a much better likelihood of winning the jackpot (bit less than 1 in 10 over the course of a few months).

          • But, because the division payouts are fairly low it's jackpot or bust; by the end of the first week you're far more likely to walk away with less than half your investment than you did under the Powerball version.

          • Either way, you're still fairly likely to lose it all within about 2-3 months.

          • You'd be better off putting it all on black with odds like that. If you played it all three times and won, you get a $3.5m win (lotto division 1 dividends are less certain, and can be much lower), and the odds are better than 1 in 10.

          (Yay! Maths!)^2

  • machej on 03/01/2017 - 12:39
    +2

    Consider putting some solar panels on the house. Only put as much as you need to cover your daily electricity usage as the feed in tariffs are no longer any good. You should get an easy 10-13% ROI and they last for 25 years. It will only cost $4-6k but an easy investment that is much safer than most.

    • sator on 03/01/2017 - 14:22

      He's turning the current house into a IP though, so maybe it won't work in this case

      • Steptoe on 03/01/2017 - 15:23

        turning the current house into a IP though

        Thought you implied he owned his current house outright.

        • sator on 03/01/2017 - 15:38

          Yup. Moving out in the near future to rent

        • Steptoe on 03/01/2017 - 15:41

          @sator:
          No deductible debt doing that. Rent will be taxable.

        • sator on 03/01/2017 - 17:08

          @Steptoe: Sorry for being dense, but what should he do?

        • Steptoe on 03/01/2017 - 17:18
          +3

          @sator:
          Get some professional advice before doing anything.

        • kingmw on 04/01/2017 - 10:59

          @sator: If he really wants to negatively gear it, he should sell this current home and buy a new one with a large mortgage!

  • Peace Maker on 03/01/2017 - 12:44
    +12

    Why has no one mentioned eneloops? I have an impressive battery portfolio.

  • Nillionaire on 03/01/2017 - 13:31
    +4

    Also check out r/personalfinance as they're a pretty large community.

    For Australia, r/AusFinance.

    • sator on 03/01/2017 - 14:24
      +3

      Awesome, thanks for pointing these out. No wonder you're a nillionaire!

  • mhs m0nk3y on 03/01/2017 - 14:33
    +7

    Hookers and blow.

  • [Deactivated] on 03/01/2017 - 15:19
    +1

    Long Gold

  • NickosFoivos on 03/01/2017 - 16:27

    Sh!t! Is he making 200k pa? What does he do?

    I would def spend some on some luxury holidays or make a dream come true.

    • knk on 03/01/2017 - 16:30

      that was joint household income

    • mooboy on 03/01/2017 - 17:14

      Isn't winning the lottery already a dream come true?

      • NickosFoivos on 03/01/2017 - 23:59

        A dream come true is what you can get with winning the lottery!

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