Inherited 1.6 Mil. How to Secure My Family Future

So I've just inherited $1.6 mil. How should I diversify my money to ensure my family future? I don't believe in financial advisor as "if they're so good, where are their yatch?"

Current financial position:

  • Cash inherited: AU$1.6mil
  • Cash saved: AU$200,000
    All cash assets are currently sitting in an offshore account with an annual interest rate of 7% for … tax purposes.

  • Shares in Commsec: $60,000

  • No house, Renting atm.
  • No other debt.
  • Lost job since April.
  • 1 wife 2 kids. I'm 29 yo and kids are 3 and 1.

Living in Auckland but looking to move back to Sydney when their border opens up.

Why asking Ozbargainer, because we're frugal with our money. Also I've been a longgggggg time lurker.

I'm thinking we need a house, but won't go and spend the whole lot on one house and that would be silly. What % should a house take up in my case but still have enough cashflow from the interest and dividend for a future proof recession?

Comments

  • This seems so absurdly trollish, but just in case you are legit - get some decent advice from an advisor who you pay upfront, as opposed to on commission.

    If you have money offshore for tax reasons, I presume you have a deceent accountant (or you're f-cking insane trying to DIY AND posting about it on the internet, but whatever), so why not ask them for a referral to someone they recommend and trust with other clients?

    • Currently no accountant and no FA (and yes everything has been DIY). I worked in financial industry for a few years dealing with FA. Will probably book an accountant appointment soon but as far as I am concern, they can only minimise tax and not how to grow/keep the current asset.

      I like the idea of upfront payment for FA. Will look around. Thanks.

      • "I worked in financial industry for a few years"
        Then you should know the optimal long term strategy is always a highly diversed portfolio with just enough liquidity to allow you to maintain your desired level of consumption in lean investment periods.

        You're right not to put too much of it into your own house - but of course do put some as it is a tax sheltered investment as well as providing a stream of housing services (ie it is non-cash income). Keep a majority of the rest overseas in more than one region - more as a countercyclical hedge against wobbles up and down in the (commodity dependent, hence volatile) Australian economy rather than as a tax dodge, for which it is actually high risk.

    • If you have money offshore for tax reasons

      $1.6m not worth it. More trouble than it is worth.

      • Ah, he says he's got 200k offshore for tax dodging reasons…

        • I said sending his $1.6m offshore is not worth the trouble, because if you get an accountant it is legit and cost of advisers on such a small sum is not worth it because if you are not working $1.6m in dividends on the index is $48k pa (3%) plus franking credits will make your tax basically zero.

          Even his $200k offshore isn't worth the trouble. 7% interest on cash basically means you are in a high inflation country, good example is India where even India RBA publishes 1 year term deposits are 5.5%. But those countries get into trouble (look at Argentina) and the currency devalues and loss of capital will outsize your interest. You wonder why India people prefer to hold gold rather than their currency (read up on how India outlawed large bank notes basically overnight).

          • +11 votes

            @netjock: I thought India outlawed large bank notes because people were hoarding money? Basically the opposite of what you just said. They essentially had 2 systems called white/black / light/dark money, which translates to essentially taxed money and cash in hand money. People would hoard great sums of cash in their basements (dark money), a lot of times a significant portions of their life savings just sitting in a box.
            This practice was absolutely ingrained into the culture, where things would be advertised with prices signifying how much light/dark things costed. This is what caused the bank note removal, they even offered an armistice on bringing your money in to a bank, pay ~20% (i think) tax on it and no further questions asked AND people still didn't do it.

            After the outlaw, they put a very small cap on the amount of the large notes that could be deposited, literally wealthy people became poor people basically overnight, as they had no means of converting their money over (and the lines at the bank to do the conversion were insane).

            note: not indian, just lived with an indian house mate when this all went down - so I could off on the details

            • @tarb:

              I thought India outlawed large bank notes because people were hoarding money? Basically the opposite of what you just said

              What you said.

              You wonder why India people prefer to hold gold rather than their currency (read up on how India outlawed large bank notes basically overnight).

              What I said.

              India is the second largest consumer of gold by tonnage

              What you said doesn't make sense. Lets analyze what your house mate said.

              1. Taxed money
              2. Untaxed money - if the government told you tomorrow your money would be worth nothing and you could pay 20% tax why would you not? Unless if you get caught for another crime like corruption which carries a high criminal punishment.

                This practice was absolutely ingrained into the culture, where things would be advertised with prices signifying how much light/dark things costed.

              Australia has a culture of "how much for cash," no difference. But if the government says bring out your untaxed cash and pay 20% or it would be worth nothing tomorrow I know what the choice is. India GST is between 5% - 28% so it makes sense people trying to horde cash but paying 20% is getting off easy but you might get done for VAT fraud.

              Generally people who put their life savings in the basement are those who distrust banks for one reason or another. Alternatively the can be under served by banks because they don't have ID.

              • @netjock: why is cash on hand taxable?

                If it's sitting in a box somewhere, it is not earning interest. So why would you pay tax on it? Presumably you got it either from employment or investment, both of which would have been taxed already before you withdrew it.

                • @lostn:

                  Presumably you got it either from employment or investment

                  If you have it from a legit source why have you got a mountain of cash sitting there not earning interest. Especially in a high inflation country like India, having money sitting there is losing money.

                  Question answers itself if you think about it.

                  We are not talking about legit money. We are talking about money that even if you pay 20% tax you might escape tax authorities but not other criminal investigation (bribery, corruption, sanctions etc). Don't think a tax amnesty avoids other enforcement actions.

                  EU got rid of 500 euro notes and thought about getting rid of the 200 euro note for similar reason

                  • @netjock: Suppose you got your money by scamming dumb aussies over the phone. And you tried to deposit it in a bank. What does the Indian govt do? Do they ask where you got the money? And if you say it was gift, what do they do?

                    Their government is not even interested in busting scammers. As long as they're scamming foreigners and not other indians, they see no harm no foul.

                    • @lostn: LOL does our government or banks care?

                      There is so many scams going on there isn't enough resources to shut them down when they pop up. The problem is everyone is sending their money offshore motivated by greed then crying when it is out of reach to recover the money.

                      If you are sending it offshore to save a few dollars in tax then it might cost all of your capital. Remember the disclaimer, "capital at risk, you might lose all your money" sometimes you might if it is high risk enough. Giving people large amounts of cash or sending money offshore.

                      • @netjock: Well not really. People who fall for Tech Support scams or ATO tax debt / iTunes gift card scams aren't motivated by greed.

                        • @MementoMori: Moved by greed of not having being arrested for ATO debt or malware stealing all your money.

                          Over ride of logic:

                          ATO debts, generally are not custodial sentences and it doesn't get to that state that quickly
                          Tech support, nobody from tech support ever calls you unless you call them first. It isn't a charity.

              • @netjock: From memory there was a limit on the low tax rate, and many people had far in excess of the limit

              • @netjock: The Government didn't say pay 20% today or tomorrow your money won't be worth anything. They said to pay 20% to convert white to black. As soon as that offer expired they demonetised high-value notes to punish people who didn't take the scheme. At that point had they said to pay 50% and we will fix it for you people would have taken it but there was no way to fix it. In fact, the rule was if you have $100 you pay $50 tax and another $70 in fines so you ended up giving up all the black money and then some. Most people sold high-value notes for a few cents on the dollar causing the current economic crisis as the bulk of discretionary spending was in black money.

                A large portion of currency in India is high-quality fake money which is printed in Pakistan with the help of China. All this money was exchanged during demonetisation which meant the government still made a loss after demonetisation.

                • @El Grande:

                  the government still made a loss

                  Central banks can't make a loss when they have the sole right to print as much as they need.

                  The USA is gearing up to print another USD2.2t out of thin air for which they never have to pay back.

              • @netjock: I'll tell how they get black money & save under their house.
                Say a building contractor has a house ready to sell, worth 20 Mil in India. When they sell it, they quote 20 Mil, but when they register the house on paper they put the price as 8 mil only, while remaining 12 mil is taken only in cash (offline transaction).
                So seller saves tax as he got to pay tax for 8 Mil only.
                So officially a house is sold for 8 Mil, but the remaining money is still taken by the contractor but he doesn't declare it or prefers to hold the cash on safe at home or at a trustees place.

                It's not due to lacking trust in the bank but to avoid taxes.

                On the other buyers side, if he is a person having lots of black money.
                He pays 8 Mil via bank loan + 12 Mil in cash.
                While a person with 9-5 job,
                Pays 2 or 3 Mil via cheque, + remaining on loan.

                • @Zviar: But the problem still is Mr 12m of cash. If the government says you can pay 20% tax and retain 80% of value or lose 100% what would you do?

                  The problem is you think all Indians are flipping houses. There might be a proportion but it doesn't explain why people would take a 100% loss rather than a 20% loss or whatever the government is willing to give as sweetener.

                  Unless the money showing up leads to inquiries of corruption. If you are tax avoiding / evading you get a big fine in this country but corruption you got to jail.

                  Stop wasting time detailing how you can get black money but look at the reasons why people would take a 100% loss rather than even a 40% loss.

          • @netjock: I'm betting that's what the OP means by offshore for tax purposes. English doesn't seem to be their first language so I'm guessing their 'offshore tax evasion' is just sitting in a high interest term deposit in their home country.

            • @macrocephalic:

              tax evasion

              Tax avoidance. Tax evasion is illegal.

              • @Chandler: Judging by his other comments about it, what he's doing isn't legal.

              • @Chandler: I never see a tax accountant advertise their services as tax avoidance. Tax planning is legal. Tax avoidance isn't legal.

                • @netjock: The meaning of the word tax avoidance has been clarified in case law.

                  This is from Gleeson CJ in R v Meares (1997) 37 ATR 321.

                  Although on occasion it suits people for argumentative purposes to blur the difference, or
                  pretend that there is no difference, between tax avoidance and tax evasion, the difference
                  between the two is simple and clear. Tax avoidance involves using or attempting to use lawful
                  means to reduce tax obligations. Tax evasion involves using unlawful means to escape
                  payment of tax. Tax avoidance is lawful and tax evasion is unlawful. Although some people
                  may feel entitled to disregard the difference, no lawyer can treat it as unimportant or
                  irrelevant. It is sometimes said that the difference is difficult to recognise in practice. I would
                  suggest that in most cases there is a simple test that can be applied. If the parties to a scheme
                  believe that its possibility of success is entirely dependent upon the authorities never finding
                  out the true facts, it is likely to be a scheme of tax evasion, not tax avoidance

                  • @whooah1979: Thanks for that whooah1979.

                    there is a simple test that can be applied

                    Pub test.

                  • @whooah1979: Problem with this ruling is it is on appeal of a ruling. Read the full analysis here

                    ATO will prosecute for tax avoidance and evasion but you can only get away if it was managed avoidance using law abiding ways like salary sacrifice of your bonus before you got it into super etc. Aggressive avoidance you are still stuffed.

                    Unless you are super rich, just a small court case would take out any benefit you thought you would have received as part of avoidance.

                    I would not be giving anyone advice that tax avoidance is legal because it isn't clear whether the person will go onto do aggressive tax avoidance schemes.

        • ATO has entered the chat

    • +1 vote

      This seems so absurdly trollish

      Fake account.

  • You won’t see a financial advisor as they have no yachts

    Yet most people on ozbargain (myself included) froth over half price tacos because we are so poor.

    Oh please, cut the troll posts.

    And please do tell us of the offshore location, as 7 percent is sweet, but reeks of b.s.

    • Can't tell you the offshore location for security reason. But it's one of the developing Asian country. Their biggest banks are still offering it.

      Being frugal is how I saved money in the first place.

      • +63 votes

        Yeah, soon as I see posts that contains “but I can’t tell you” I dismiss it as bullshit.

        • you win. Here is a screenshot

          1st column = 1 month then 6 months, 9 months and 12 months. Value is % per year.

          Post to prove they exist. Location you probably can sherlock it.

        • It’s Phillipines

        • I'm gonna guess Myanmar. But why waste your time on a measly 7% when Venezuela is offering 39% ?

          • @RecklessMonkeys: It's quiet simple. Venezuela GDP shrinks 15% while this particular country GDP grew 7% in 2020 and still grew GDP in the first half of 2020. So I don't expect a wild swing in currency exchange ?

            • @johndough2020: Yes, that was tongue-in-cheek :) I was hinting that higher rates are commensurate with higher risk. I think it's not a bad strategy, really. Past performance doesn't guarantee future performance though…

              You're obviously aware of currency risk.

              It is somewhat risky to have all cash in the one basket. If you need to access it when the exchange rate is poor, you have no flexibility.

              I wouldn't rush into buying a house in Sydney.

              I would also say look after your health. Having oodles doesn't mean much if your health fails.

            • @johndough2020:

              GDP grew 7% in 2020

              Do you mean 2019?

              Based on all the hints you've given, I've narrowed it down to: Vietnam, Nepal, Bangladesh, Cambodia (although they had negative growth in 2020 so can't be them), Tajikistan.

              • @lostn: that rate is from vietnam but you'd be dumb to put that amount into the country, unless you know how to siphon that amount out of the country once you need it. The country loves your dollar but trying to convert your dongs to international currencies is another story. Remember interest rate in Vietnam is pretty much on par with inflation and exchange rate is unofficially pegged with US dollar so you'll be at the mercy of the us exchange rate. And the countries is highly subsceptible to foreign reserve at times when their debts are due, there were a few episode of this happened around 7-8 years ago and if that happens when you need the money, you can be screwed.

                Also recently they're talking about banning their people from buying house overseas, and together with this pandemic causing mass shutdown of outsourcing manufacturing, holding their dongs can be a risky move.

      • Right, telling me a banks location is a massive security breach.
        Well guess can’t help you. Thanks for providing me with Sunday morning bullshit story.

        • I don't see why the location is important? Replied screenshot above to prove those bank and interest rate exist. Now would you help me?

          • +36 votes

            @johndough2020:

            Replied screenshot above to prove those bank and interest rate exist.

            Hold my beer while I go mock up a 45% interest rate screenshot……

            • @JimmyF: How many more screenshot of different banks would you like? I'll comply to post. Be reasonable.

            • @JimmyF: JimmyF, could you come back and get that beer? It's gone warm sitting in my hand…

            • @JimmyF: some banks in Vietnam still offering 5 to 6% annual interest rate when I checked a month or so ago. It is not unusual in Asia to see smaller banks offering very high interest to attract customers. Also if anyone has more than (the equivalent of) 500K in case, almost all the bank will be very happy to negotiate a relatively large bonus on top of the normal interest.

          • @johndough2020: you realise if this interest rate is indeed true, it weakens the currency it is in, otherwise every man and his dog would move it here

            shit interest rates in Argentina or Venezuela are probably sky rocketing.

            uzbeki banks have 20% interest rates, why stop at 7%

            • @Donaldhump: I do realise that. I've been tracking this currency vs Aussie for a long time, its economy is growing at 6-7% p.a The $200k was initially only $170k in March, then I bought back Aussie dollar when it crashed in March, sold back into that currency in June and it deposit it again.

              So yes, in theory it weakens the currency. But so far I've only seen my Aussie value grows. Happy to be pointed out to something I am missing.

              • @johndough2020: paying cgt on this?

                • @Donaldhump: I won't deny nor confirm.

                • @Donaldhump: Don't have to. It is gambling really.

                  • @netjock: So is the Stockmarket, gold, crypto, real estate, buying a business, opening a car dealership. I guess ur saying these are cgt free

                    • @Donaldhump: Think you don't get the joke.

                      Tax avoidance is off the books. People who make money don't want to pay tax, they just it to be on the books when they claim a loss.

                      Most of the examples you use has some paper trail. Stocks to open broking account you need to do KYC, real estate via land registry and ID&V, business need to be director on ASIC.

                      • @netjock: Yeh I still don’t get your joke.

                        So transferring money back and forth between two foreign bank accounts leaves a trail too. I don’t know the cgt law on forex but I’m sure the ato will sniff large deposits in and out.

                        • @Donaldhump: ATO doesn't sniff anything into your bank account. It only starts falling apart when ATO does a tax audit. Only reason ATO does a tax audit is if you do something really stupid like declaring a $30k income but have a $150k Tesla in the drive way and the paperwork says you own it.

                          The banks report the transaction to AUSTRAC. Even then if you prove it to AUSTRAC it come out of your own account and it is your money, it came from a legit source then no other action. It is possible for AUSTRAC to refer you to ATO but if you are just sending your own 200k back and forth unlikely, you're small fish.

                      • @netjock: Tax avoidance is legal, what you are referring to is tax evasion and off the books or not is illegal. Whether or not cgt applies to forex I don’t know, but deco leaves a trail unless you are courting money in a brief case, so the ato will see the transactions.

                        Especially since countries have open disclosures of earned interest with Australia. The earned income has to be declared on the tax return.

                        • @Donaldhump:

                          Tax avoidance is legal, what you are referring to is tax evasion and off the books or not is illegal.

                          Both are illegal.

                          Tax planning is legal. You see accountants advertise "tax planning" not "tax avoidance" because avoidance is the same as evasion.

                        • @Donaldhump: I think you meant Tax minimisation is legal, Tax Avoidance and Evasion are both illegal in Australia.

                          • @Besean: https://www.investopedia.com/terms/t/tax_avoidance.asp#:~:te....

                            tax avoidance is legal in uk, usa, europe, seems terms just mean different things in different countries

                          • @Besean: There is a difference between avoidance and evasion.

                            This is from Gleeson CJ in R v Meares (1997) 37 ATR 321.

                            Although on occasion it suits people for argumentative purposes to blur the difference, or
                            pretend that there is no difference, between tax avoidance and tax evasion, the difference
                            between the two is simple and clear. Tax avoidance involves using or attempting to use lawful
                            means to reduce tax obligations. Tax evasion involves using unlawful means to escape
                            payment of tax. Tax avoidance is lawful and tax evasion is unlawful. Although some people
                            may feel entitled to disregard the difference, no lawyer can treat it as unimportant or
                            irrelevant. It is sometimes said that the difference is difficult to recognise in practice. I would
                            suggest that in most cases there is a simple test that can be applied. If the parties to a scheme
                            believe that its possibility of success is entirely dependent upon the authorities never finding
                            out the true facts, it is likely to be a scheme of tax evasion, not tax avoidance

                  • @netjock: If you make money and say it is gambling money then no tax, just most of the time you lose and can't claim the loss.

                    • @netjock: So I just ring up the ato and say my income and stocks are gambling so I am cool to pay no tax. Sweet I’ll call them tomorrow.

                      • @Donaldhump: You are still confused. If you open a company (PTY LTD) and sole shareholder to sell stuff on eBay. It is the underlying business. You can't say you went to the lengths of buying Woolworth's shares and call it gambling because you are buying an underlying business with profits and you know it is going to give you a dividend + franking credits.

                        Forex, unless you are an FX trader by profession (I don't mean make 10k a year I mean 100k a year+) then you're probably just taking a guess as to what the cross rates are doing and just getting lucky.

          • @johndough2020: Well I would say anywhere paying 7% on cash at the moment is far from secure.

            Location is important to make your story remotely believable. You know, so people can check out this 7% interest claim. Doesn't involve you giving up any personal info so what's the issue?

            Unless none of this is real of course.

            • @Brianqpr: It's in Asia, does it really matter if it's in India, Afghan, Pakistan, China, Vietnam, Singapore, Malaysia, Indo, Korea or Japan?

              • @johndough2020: Yes, as some of those nations are clearly more financially/politically stable and developed than others.

              • @johndough2020: If it's in Vietnam, then it's pretty easy. This is what my family does, search for a crowded area, then look for lands about 10-20km away and buy them. Our annual return unadjusted in 5 years is minimum 25%p.a., could be over 70% p.a. if we're lucky.

                Pretty much how 90% of Vietnamese gets rich

            • @Brianqpr:

              Doesn't involve you giving up any personal info so what's the issue?

              Because it is such a good deal that half of Australia would go for it. When the stock market returns on average about 6% a year half of which are full franked dividends. Rather buy the index, but then making an extra 1% and having something to brag about at dinner parties.

              • @netjock: Funny you said that because I already had 1/3 of my asset sitting in VAS and various stocks as disclosed above pre inheritance. What's your suggestion for what I should do now instead of just trying to be smart ?

                • @johndough2020:

                  What's your suggestion for what I should do now instead of just trying to be smart ?

                  Listen to the Bogleheads on investing podcast. Sounds Investing by Paul Merriman. Start there.

                  If I have to start giving serious financial advice that costs serious money. As Warren said, "Good advice is expensive, don't expect it from cheap people" therefore indexing is the best thing you could do when you want to be cheap.

      • Your money is gone.

      • Money is in India.
        Just tell people… not much point masking unimportant information.

        India also has currency controls, so you will likely have a hard time getting it out of the country to Australia/NZ.

        • This is the perfect environment for a decentralised, permissionless and non-custodial way to settle transactions.

        • It's not in India as they tax interest from saving account. Also please stop focusing on where the money is.

    • as 7 percent is sweet,

      A 7% APY is average if one is willing to think outside the box.

      • By "outside the box" I assume you mean taking greater risk on the credit rating of the institution you invest with or the underlying assets?

        • I’m referring to taking a leap of faith and investing in 21st century technologies.

          • @whooah1979: So yes, greater risk then. Potentially greater reward but absolutely greater risk. For every tech stock that flies there are many that completely fail.

            OP was talking about cash deposits paying 7%, not speculative investments that may or may not pay off.

            • @Brianqpr: The greater risk to OP's plan is to do nothing thinking that the 7% APY will remain the same and enough to support a growing family.

              • @whooah1979: anddddddd that's why i started the thread. I was happy putting 200k there because it wasn't much. Now that 1.6 came into the equation, suddenly I have no idea what I should do with it. Leaving it there earning interest is a no no.

    • confirming some banks in Vietnam are offering 7-9% for term deposits.
      the mortgage loan rate is still like 13%+ over there.

      emerging markets.. they said.

      • The higher the interest rate, the higher the risk of investing/depositing with the institution offering it. That's how it works, they only pay those rates because they have to to attract capital.

        As long as you're ok with that then fine. Just don't expect a risk free scenario.

        • Communist country, what the government says is law. Makes Dan Andrews look like a baby in child care when they get nasty. Just look at the Chinese CCP. They spent $190bn on domestic security.

    • Vietnam mate.

  • half on APT, half on bitcoin

  • +13 votes

    Must be a quiet Sunday morning - newbie who has just won the jackpot and doesn't know what to do with it.
    $200k in an offshore account earning 7% - what currency? Zambian Zwacha?