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

  • Ace26 on 03/01/2017 - 17:43
    +1

    Given your mate earns a decent wage and doesn't have kids. I would suggest below

    100k in an index fund
    40k FD or high interest account for emergencies
    120k × 3 investment properties

    Assuming his mortgages is paid off if not. Pay that off and then use that equity as security when buying investment properties. Better for taxation purposes.

    Hope he spends it all wisely. If he plans well he can retire at 45 or so

    • sator on 03/01/2017 - 18:14

      Where would you suggest the IP be located? Apartments in Melbourne seem like a terrible idea

      • Ace26 on 03/01/2017 - 19:54
        +1

        Given your mate is not after massive cash flow and will start off with a decent equity. I suggest looking for properties with better potential for capital gain yet giving decent returns. DHA has some decent properties that offer some convenience features. Look up at their website.

        Alternatively closest you can buy in a capital city would be better. Say 10-15kms radius of Sydney, Melbourne or Brisbane. I much prefer houses or Townhouse over units. Hope this helps.

        Also, in the past I bought property predictions report from residex and found them useful. They do cost a bit but in theory should assist in selecting a few suburbs

        • sator on 03/01/2017 - 21:04

          Thanks, will get him to look into DHA. Concerned about a bubble in Sydney, Melbourne or Brisbane though

        • Ace26 on 03/01/2017 - 22:20

          @sator: Best time to invest in property is yesterday, ask anyone who bought a house in the last few years. Property is usually a long term investment and will go through growth cycles and your mate will be better off on it eventually. Having said that it's not a sure shot if you are not prudent with investment selection. I suggested DHA because they offer upto 12 years of lease back, that should give your friend some comfort.

          But definitely diversify investment, suggestion in property was to reduce yearly tax bill by differing it. (As you mentioned your mate earns 200k/year)

        • sator on 03/01/2017 - 23:29

          @sator: Had a quick look into DHA, and it appears the rental yields are quite low ~4% + locations not ideal

        • sator on 03/01/2017 - 23:34

          @Ace26: From my understanding, he's not that risk adverse. Currently the best strategy does seem to be keep:

          $50k as an emergency slush fund
          $200k into ETFs
          $250k into property (standalone house <$800K)

          At what price do you get the best balance between rental yield and capital growth?

  • ahly92 on 03/01/2017 - 18:10

    Hi TattsLotto…welcome to Ozbargain! ;)

    • sator on 03/01/2017 - 18:18
      +2

      Lol. Not affiliated. I actually think the lottery is for people who are too lazy or stupid to work hard on improving their lives… a tool used to keep the lower "socio" resigned/content with their lives. + alcohol + reality TV + car/personal loans =D

      • 00 on 04/01/2017 - 23:06

        '+ OzB

  • coztopia on 03/01/2017 - 18:15
    +2

    He should make sure he's contributing $30k p.a. to his and his wife's super balances (the $30k includes his employer's 9.5% contributions). That's the maximum concessional amount before you're taxed on contributions. In an industry fund of course.

    • kingmw on 04/01/2017 - 11:03

      100% agree, especially since their combined income is already 200K and I would expect it will be even higher after investing 500K.

    • sator on 05/01/2017 - 02:50

      Good idea!

  • Tech5 on 03/01/2017 - 18:24
    +2

    Keep in mind that a project that followed lotto winners found most were bankrupt and worse off from where they were to begin with. Tell him to be cautious, be critical and be discerning.

  • zealmax on 03/01/2017 - 18:45
    +1

    Buy gold and diamonds. Diamonds have never fallen in price, curve points north. Oh, when I say diamonds I don't mean buy from your local Prouds the jeweller. You lose money that way.

    • sator on 03/01/2017 - 21:10
      +3

      Isn't the diamond industry/commodity, just a dodgy scam maintained by the evil monopoly De Beers?

      • zealmax on 03/01/2017 - 23:03

        Yes it is some sort of scam like the Australian property market. However as long as there are people throwing money at it, the scam will continue. Very popular for weddings. Lots of people have weddings.

        • sator on 05/01/2017 - 02:52

          And soon gay weddings too! It's a booming business =D Personally would not recommend dodgy businesses e.g. blood diamond, child labour… even it gives good return. Karma is a b***h

        • quaddie on 05/01/2017 - 13:11

          @sator: Maybe he could invest in a diamond mine and child labourers in a war zone. Big risk big reward.

  • happydude on 03/01/2017 - 20:11
    +5

    Spend half the money on gambling, alcohol and wild women. Waste the other half.

    • Tech and cars on 04/01/2017 - 11:19

      lol, love the username and the advice.

  • dandandan on 03/01/2017 - 21:31

    The boring and proper way to do it in my opinion, if you are not experienced or confident enough would to be find a financial adviser that family or friends can recommend and have a discussion with them. Someone that you would expect to pay a % of assets yearly as a fee or even a negotiated annual flat dollar fee that would just initially be worked out as a % of assets converted into a dollar amount. I would be looking for someone with a minimum of 10 years experience and be wanting to see how they invest their portfolios and ask to see some returns over 1, 3 and 5 year periods. My view is your friend already has 1 property worth about the same amount as his windfall so maybe seeking an adviser out to invest across a balanced portfolio of investments could be suitable for him. An experienced financial adviser should be able to structure your friends assets in the appropriate entity based on who earns what incomes etc and may look at establishing a family trust etc.

    • sator on 03/01/2017 - 21:48

      What sort of % is normal?

    • kingmw on 04/01/2017 - 11:07
      +1

      If your friend goes down this path, go for a "fee for service only" and not an ongoing management fee because this will destroy a lot of gains.

      • sator on 05/01/2017 - 02:54

        Yup. Had a quick look into this. Rather get his wife to do a diploma in financial planning, then to pay someone thousands for basic-ish advice. His situation is not that complex. + ongoing annual fees for "reassessment" is just retarded.

      • Bunnyburger on 06/01/2017 - 23:50

        You're right, managers have to beat the market and on top of that their hefty management fee.

        • sator on 07/01/2017 - 16:21

          And it has been shown that they can't! Would consider one if personal situation was complex, and you want to find way to hide from the tax man

  • Paul Atreides on 03/01/2017 - 22:00

    just tell him not to forget to invest in his partner.

  • peterw1 on 03/01/2017 - 22:56
    +1

    Remind him he is already 34 years older than his unborn kid. Assuming his child follows his path and has kids at 34 he will be around 69 when his first grandchild is born. If he dies at 83, in good health, he will only spend 14 quality years tops with his eldest grandkid, less with any others. This assumes both of them don't have miscarriages etc. if his wife is of similar age to himself, they should get the motor started. The windfall can be banked and used for life expenses when one has to stop working to look after the rug rat. Often those who think they will have one go on to have another, hence another reason to get going. The oz birth rate is declining. Australia has treated you well, (think how your life would be if you were born in Syria), go forth and create some future Australian taxpayers.

    • sator on 03/01/2017 - 23:38
      +1

      It really seems like the majority of the middle/educated class now only have 1 offspring due to:
      1. Wanting to maintain their current lifestyle standards
      2. Minimise financial burden
      3. Allow female partner to return to work quicker, so that their career trajectory is better

      • xoom on 04/01/2017 - 07:47
        +2

        all I'm seeing is +ve here.

    • WillKillfor5Cents on 05/01/2017 - 21:08
      +2

      Curse of the developed world… Statistics don't lie…

      Pretty much once you have kids, any asset protection you may have against your wife is as good as dead in the water… Family Law in this country has destroyed marriages.

      I know I am going to get a lot of negs, screw it! I have seen to many people around me getting the sh*tty end of the stick in a divorce. It's sickening. :(

  • RiderX on 03/01/2017 - 23:39
    +11

    Perhaps your friend should invest money on buying $80K cars.It's the "investment with high yields".

    • jno on 04/01/2017 - 07:41

      Haha omg i wonder what that poor fellow ended up doing

      • Skramit on 05/01/2017 - 08:56

        It was a troll post IIRC

        • leetguy101 on 06/01/2017 - 06:40

          Bloody hope so, otherwise that guy is in for a rude awakening.

        • jellykingdom on 06/01/2017 - 09:15
          +1

          I don't think it was.the guy took the time to get pissy with anyone (incl me) who suggested he was a poser and a poor future financial planner

        • Skramit on 06/01/2017 - 09:19
          +1

          @jellykingdom:

          Haha yeah but maybe he was just a better troll than you think ;)

        • sator on 07/01/2017 - 16:24

          @Skramit: Why do people have time to troll? It just points to a very sad and bored individual

  • sushirais on 04/01/2017 - 02:33
    -2

    lol invest in ASB or something similar in Malaysia..govt backed dividends so no risk and it's been getting me and fam at least 6-11% per annum.

    • sator on 05/01/2017 - 02:56

      Thanks but no. Don't trust Malaysia nor Indonesia. Their governments are somewhat "nutty"

  • milobob on 04/01/2017 - 07:37
    +1

    Do not take this as financial advice.. but with 500k you could buy a 800k property in the south east of Melbourne and positively gear it… If property continues the way it still is in the south east (5-10% pa) it is a much better return than a 3% interest in the bank and paying for interest.

    That or buy a heap of collector Lego sets and sell in 5 years for double.

  • siraitken on 04/01/2017 - 09:51
    +3

    Since posting you now have a scattergram of suggestions with a whole heap of bias.

    If your friend is new to investing or financial management then seek professional advice.

    Regardless of what investment vehicle is chosen you need an experienced tax accountant.
    A tax accountant can advise on a proper investment structure that is tailored to your needs.
    This may be a self managed super fund (SMSF), trusts, property deductions & taxes.

    For property you will need:
    - Mortgage Broker
    - Conveyancer/Solicitor
    - Buyer's Agent (optional)

    For shares you will need:
    - Stock Broker

    I wouldn't be just looking at the $500k I would be reviewing my whole portfolio.

    For example the $400k house shouldn't be "paid off". The 400k should be in an offset so it can be transferred in a tax effective manner to their next personal home.
    Your friend probably has $50-100k in super, who's managing that?

    A lot of people are hating on financial advise and that's because they haven't seen the benefits, believe advisers are in it for themselves or are too tight and don't value their time. Quite often these people are "penny wise, pound foolish".

    Good luck to your friend. Advise them to get it right from the start.

    • Skramit on 04/01/2017 - 11:03
      +1

      What he said ^^^

  • Swim1976 on 04/01/2017 - 11:16
    -1

    All investments have risk - but generally make money over the long term. the smartest way to diversify against risk is to spread the investments across multiple investment types. IF this was me i would split $500k in the following way.

    $200k in investment property. Property will nearly always go up in the long term and will provide income (rent) and tax benefits while you own it. pay a large deposit with the loan portion fully covered by rent and let it pay its self off over time with a good chance for capital growth. buy close to schools, beaches, as these areas generally recover first after down turns.

    $200k shares: index funds are your friend, loads of info out there as to why. i use stockspot but there are many good options out there. stockspot has 5 levels of investment (from high risk/reward - more conservative) invest based on where you see your self needing the money.

    $100k Gold/term deposit/Bonds: i.e. safe harbour investments, sounds like you friend may be risk adverse and traditionally if property and the stock market crash people flock to gold. think of this portion as hedging, if property and shares lose value there is a good chance gold will increase.

    • sator on 05/01/2017 - 03:01

      It sounds like you're suggesting positively gearing property. With their income, shouldn't they negative gear to reduce tax?

      Can you please elaborate on stockspot. What made u choose this over vanguard or ishare? Those 2 are the largest providers of ETFs and such

      • Swim1976 on 31/03/2017 - 12:46

        this article outlines positive vs negative http://www.mwcgroup.com.au/media/positive_vs_negative_gearin…. Would you rather pay a small amount of tax on a profit or have a loss partially offset by a tax reduction?. even if a negative geared property goes up in value in the long term you will still pay tax on any capital gains when you sell.

        i cant remember why i originally chose Stockpot, i think it was to do with the way the investment portfolio were set up. - i remember comparing to vanguard and somewhere else and they were all in the same ballpark for fee's and features - i.e. the main advantage of index funds is they are a simple approach i would say each is a personal taste.

  • Shwayne on 04/01/2017 - 11:24
    +3

    Hi I am a Nigerian prince, I can definitely help.

    • sator on 05/01/2017 - 03:02
      -1

      Yeah, me love you long time

  • JuryWheel on 04/01/2017 - 11:44

    On a slighty different topic, we are planning to sell our place and will have the money sitting in the bank until we find something else to buy. This could be 1 week or 1 year…the amount will be about 350k - where is the best place to 'park' this money until needed for the new house? Cheers

    • syousef on 06/01/2017 - 13:25

      Under the mattress of course.

    • sator on 07/01/2017 - 16:25

      RTFF, but the answer is if it's short term parking, then a high interest savings account e.g. ME

  • Brokenluck16 on 04/01/2017 - 12:37

    Index fund and gold (75:25)

  • bomberswarm2 on 04/01/2017 - 13:02

    Two houses in usa, collect rent at 2k a month total, use this to buy more properties, end up getting 5k rent per month and retire at 30.

  • Bunnyburger on 04/01/2017 - 13:08
    +1

    I recommend he reads a couple of books like The Intelligent Investor, A Random Walk Down Wall Street and One Up on Wall Street. If anything they taught me not to invest in individual stocks.

    Consult an independent financial advisor with a legal fiduciary duty.

  • jsediv on 04/01/2017 - 14:07

    Eneloops.

    • syousef on 06/01/2017 - 13:24

      Only the Japanese made ones!

  • Trying2SaveABuck on 04/01/2017 - 14:08
    -2

    I have an idea send me the 500,000 and ill triple it in 3 weeks! ;P

  • banzini on 04/01/2017 - 15:31
    -1

    strips

  • VBO on 04/01/2017 - 15:38
    -2

    Hookers and meth.

    • sator on 05/01/2017 - 03:06
      -4

      It's cocaine, not meth. Don't joke about meth, that is really f**ked up stuff. It destroys lives and communities. Being facetious shows poor taste

  • NoRotation on 04/01/2017 - 16:27
    +3

    If your mate wants peace of mind then just dump it into a Vanguard growth wholesale fund, it's basically perfect since 500k is the minimum balance to enter into a Vanguard wholesale fund. It's going to be better returns than the bank, generally pretty damn safe given how diversified it is. There's also a conservative and balanced option if your risk tolerance is lower and a high growth if you're adventurous.

    Unless they want to make a serious effort into learning how to invest and trying to beat the market, a mutual fund like this will all but guarantee the average market returns, which really aren't all that bad considering you don't have to lift a finger.

    • sator on 05/01/2017 - 03:07

      How is the wholesale fund better than the standard vanguard fund? From a quick, it seems that the fees are similar

      • NoRotation on 05/01/2017 - 12:15

        Depends on what you mean by "standard", click on "Asset Class" dropdown and select "Diversified". If you mean the retail fund with a min of $5k then the management fees are a lot lower for wholesale. If you mean individual ETFs then they don't offer a diversified ETF so you'll need to put in the effort to keep your portfolio from becoming lopsided and cough up the transaction fees for the rebalancing.

        • sator on 05/01/2017 - 14:29

          He's not very proactive about watching the market, so would be the diversified wholesale option be the best? Any other companies better than vanguard for this? State Street doesn't seem to have a diversified option.

          Also, do you think this is the right time to buy ETFs considering the trump effect and rising interest in the US?

        • NoRotation on 05/01/2017 - 14:47
          +1

          @sator: In my opinion yes, it represents a diversified position in just about anything worth investing in. Vanguard I think offers the best value of diversified portfolios, other funds offer much more focused investments into very specific sectors in specific countries. Vanguard's fees are quite low from what I've seen, they are also the largest mutual fund firm in the world and was established on very solid principles. I think Vanguard would be hard to beat.

          There is no way to time the market, nobody can tell you whether the market is going to be up or down in a week or a month, but most would be comfortably saying it'll be up in 10 years, that's what this investment should be for. Planning for a 10 year investment, it feels a bit silly to wonder whether you should enter the market during week 1 or week 2. Ultimately if you just ride it through then the market will give you returns no matter when you put your money in.

        • sator on 07/01/2017 - 16:32

          @NoRotation: His only concern is that he's going to Europe ($30K) and wants to have a $50k emergency/buffer fund. Should he take money from the property he paid off?
          Other option is just to get 200k in oz shares ETFs and 200k in US shares ETFs, through state street -has low fees for retail amounts.

        • NoRotation on 07/01/2017 - 20:53

          @sator: Well I would call up Vanguard to see if they would be willing to set up an account for 400k, people say they sometimes get away with less than the 500k limit. Buying just AU and US share ETFs is not as diversified as I'd prefer, having some bonds in there would probably be better.

          The funds are also withdrawable from the funds with 4 business days transfer, so it's not like they can't take money out of it if an emergency happens. I think the Vanguard wholesale is a pretty sweet deal that not many have access too. I would definitely recommend AGAINST the suggestions in here about putting the money into a single property, a couple of bank shares or on cocaine.

        • sator on 08/01/2017 - 00:17

          @NoRotation: cool, will get him to call them on Monday and see if they're willing to push it down to 400k…

          Damn, was hoping you would say cocaine was a good idea =D

  • TightAssDrake on 04/01/2017 - 16:51
    +4

    Travel the world.
    Invest in yourself.

    • sator on 05/01/2017 - 03:09

      He's already doing
      Plastic surgery is fantastic =D Jokes aside, they are very much about personal growth already. This money is purely for investing. They have sufficient to ensure a fulfilling lifestyle

    • FatBlanket on 05/01/2017 - 21:15

      I did that and I didn't get much of a return.

      • sator on 07/01/2017 - 16:37

        Maybe you just need a little more

    • syousef on 06/01/2017 - 13:23

      Bad investment: Long term outlook is death in less than 70 years so that's some expensive worm food.

      • sator on 07/01/2017 - 16:36

        Who cares when you're dead

  • Petesdragon85 on 04/01/2017 - 18:37

    Always diversify your investments, but get some of that money into Bitcoin. Has almost a 57% increase in the past two months, so watch it and wait for a dip down and get in. https://bitcoinwisdom.com/markets/btce/btcusd

    • John Kimble on 05/01/2017 - 11:17

      Man, Bitcoin still does my head in!!!

      • Petesdragon85 on 05/01/2017 - 13:34
        +1

        The fact that it exists? Understanding it? The fact people throw real money at fake money? How does it do your head in?

    • John Kimble on 06/01/2017 - 14:31

      Apparently it dropped 20% out of nowhere today…

      • Petesdragon85 on 08/01/2017 - 11:50

        Yep, very volatile…good time to buy more.

  • bigboblad on 04/01/2017 - 18:44
    -1

    $500k invested in shares of a bank (Commbank, NAB etc) should give you a post-tax annual payment of around $30k. Much better return than any long term deposit can offer since the % rates are so incredibly low. Also, you get the tax back that was paid on those shares.

    OR

    Invest in local business. We are struggling in this country to create enough competition to go up against the big guys that control the majority of market share in their fields.

    I recently worked for a company that is going for $30m p/a market share in (message me to find out) this year alone(currently at 18 stores, 30 by July). I'm starting an online version and intend on tackling at least $1-2m, hopefully overtaking them within 24months. I know that their marketing is completely cancerous and expect you to know who they are.

    Want to help a local? I need 10-25k to really get a head start in the game. 50% share is on the table if this person is willing to take the risk. It's not the product that will make an impact, it's about who pushes the product and who can connect with its audience - me :)

    Send us a message if they are keen to be involved. The sooner it is launched, the better. It is a rapidly growing market, and I intend on grabbing my fair share.

  • freakatronic on 04/01/2017 - 20:20
    +1

    Two shares of Birkshire Hathaway.

    • sator on 05/01/2017 - 03:11

      Aren't the Class A closed to the public now?

      • freakatronic on 05/01/2017 - 19:05

        Wouldn't know. Too broke :')

  • AussieDolphin on 04/01/2017 - 20:22

    How lucky.

  • IWoNdEr on 04/01/2017 - 22:00
    +1

    Invest in the original "The Intelligent Investor" by Benjamin Graham
    The best investment is always to educate oneself.

    • sator on 05/01/2017 - 03:12

      What's so good about this book? How does it compare to the barefoot investor (mentioned several times already)?

      • leetguy101 on 06/01/2017 - 06:08

        Benjamin Graham was Warren Buffett's professor at Columbia.

      • IWoNdEr on 08/01/2017 - 10:34

        It's the investing philosophy behind it.
        It all comes down on how one perceive "Value" and invest with a buffer (i.e. buy the investment product when it is below its intrinsic value).

        Haven't seen barefoot investor yet.

        Also looking at The Most Important Thing by Howard Marks at the moment - recommended by Warren Buffett.

        • sator on 08/01/2017 - 14:11

          But I imagine, determining the intrinsic value of shares would be difficult or time consuming.

          Thanks, will look into that book

  • HoneyComb on 04/01/2017 - 22:09

    So you win $500,000 and too tight to spend a few hundred dollars on professional advice. lol

    • sator on 05/01/2017 - 03:14

      It's actually thousands if you're after personalised advice opposed to general advice.. the concern is whether they will provide sufficient good advice to justify cost.

  • VerticallyIntegrated on 04/01/2017 - 23:01
    +2

    Hookers and blow
    /end thread

    • DrC on 05/01/2017 - 01:16

      +500,000

    • sator on 08/01/2017 - 00:20

      He's married and gets drug tested at work

  • drnrg on 05/01/2017 - 01:21
    1. The number one rule of making money, is to make money, e.g. negative gearing is a loss making strategy for sometime
    2. Don't invest in anything you don't understand
    3. What level of return is he seeking? Term deposit is not really worth it unless paying well over inflation rate
    4. Give the $500k to me and I can guarantee a 100% fun return (n.b fun != profitable)

    :D

  • Venison93 on 05/01/2017 - 06:41

    If he's thinking of starting a family, I suspect that majority of that windfall will go to the 'dream home' for his family (and by family I mean wife). Happy wife, happy life as they say.

    • sator on 07/01/2017 - 16:39

      He's already talked the mrs out of that. They'll be renting an apartment in the city $550 p/w

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