Ask LH: What Should I Do With This Money I've Inherited?

Hey Lifehacker, I've recently come into a decent amount of money but I'm not really sure what to do with it? Fortunately I'm debt-free and have no dependants. How should I go about investing it for the future? Thanks, I'm In The Money

Australian money picture from Shutterstock

Dear IITM,

You don't mention whether or not you own your own home. If you don't, then it's hard to look past using the money to cover the deposit on purchasing your own place. Property investment has a number of advantages in the Australian market: you're not subject to capital gains tax on your own residence, and if you're buying an investment property you can use negative gearing to reduce your overall tax bill. Check out this guide to buying your first home for some more basic ideas.

The other area with a considerable tax advantage is investing in topping up your existing superannuation. We've recently seen the amount of compulsory superannuation that employers have to contribute frozen at 9.5% until 2021, so if you have the option to top that up, you'll enjoy a better lifestyle in the future. There's a cap on the amount you can contribute into a super fund from after-tax income; for 2014-2015, this is $180,000.

Those are both basic ideas, but if you're not keen to learn the details of stock market investments or other money-making approaches they definitely make sense. What other strategies would readers recommend? Tell us in the comments.

Cheers Lifehacker

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Comments

    Or: Get married.
    Problem solved.
    You're welcome.

      Hehehe, I managed to get my wife to pay for most of our share of the wedding (we split it 3 ways, my parents, her parents and us).

    With a term deposit I can get 4% per annum. But I read an SMH article about 'How to become a millionaire' and it suggested I could get 11% just by playing it safe on the stock market.
    Here: http://www.smh.com.au/money/investing/how-to-make-a-million-in-shares-20140918-10iq64.html

    And now I feel foolish just getting 4%. But the stock market just feels like gambling / a scam.
    I really am torn.

      Remember that Inflation is about 3% so the 4% in a bank is really only holding value, not actually increasing in real terms.
      Putting it in Super is going to be huge for the future, but putting it into shares or the bank leaves it available for a House Deposit.

      Generally safe if you invest in blue chip type shares.

      IE commonwealth bank plus you get dividends every so often :)

      What's the point of sticking your money in a term deposit over a high interest savings account?

      Places like Rabobank and Rams are offering 4% or better, and you're not restricted like a term deposit.

      Read up on investment forums. Try not to take advice from people who aren't successfully following their own words. The price of financial freedom is eternal vigilance.

      You can get 5% per week with a sportsbet account, just drop it on the lowest paying AFL game of the week. The payout is usually a sure things and the winnings are tax free.

    Take a small amount of that money and go see a reputable financial panther. One who doesn't make commissions. That you'd ask Lifehacker for financial advice already fills me with concern.

    You could also look at managed funds or index funds.

    I'm personally a big fan of index funds.

    Even if you already have a house, buy another as an investment property. Rent it out for a few years and get an appraisal after a couple of years. If you feel the time is right and the return is good enough, sell.

    Although the non-concessional cap is $180,000 you can trigger the 'bring forward' rule to use the cap for the next 2 financial years, effectively taking the cap to $450,000. Putting this amount into a Self Managed Super Fund may give you more flexibility for investment options depending on how close you are to retirement eg an investment property purchased through the SMSF. But speak to a planner, the first appointment is usually free!

    I'm i this exact situation at the moment. My mother has terminal cancer and i will end up inheriting a couple of hundred $k. I own my own home, own a couple of investment properties, and will also wonder what to do with the money when i receive it. As for the person in the original article, buying a home is a good idea, not just for living in, but to use as capital to borrow money to invest in either shares or property (one is not better or worse than the other, its about timing, and what you feel comfortable with). If you do own a home, definitely invest in property, but with prices going up, its at a time when shares are starting to be a better return on investment. Read a book, Building Wealth through Investment Property by Jan Somers, for how to invest in property, go with what you feel comfortable with. Invest enough of your cash so that the rent/tax benefits are about zero to positive geared after all expenses, with top up with a loan (ie, 5-15% your inheritance, the rest a bank loan). You might be able to get a couple of properties this way. If you don't feel comfortable with housing, try shares. Find a good broker who will show you their own personal portfolio, if they don't trade or have shares themselves, can you really trust them. Take their advice on what to get, but with a good inheritance, possibly get 8-10 good blue-chips in different sectors. 2 should go awesome, 6 will go average, and 2 will bomb, but overall it will increase over time. Don't put all your eggs in one basket with shares or have large amounts in speculative shares, as that's more gambling, and 1 will pay off, but more than likely you will bomb. Blue-chips with good fully franked dividends are better for tax free wealth building, and if you really don't need spending cash from the dividends, look at putting the dividends back into dividend re-investment plans. And remember, all investments are long term growth, no immediate growth (measure investments in years), and don't sell unless you have a reason to, with a goal of what to do with the money, whether is re-investing in something else, or a holiday or a car as you have to enjoy life too. But good luck with it.

    Superannuation isn't an investment - it's a tax shelter. It's what happens to the money after it's in a super fund that's the investment. Owning your own home is a great investment, especially if you're relatively young and don't want to lock your money up in super for a long time. Personally, I'd keep the money in bank accounts for a while. The interest rates are lousy at the moment, but the current property boom will peter out sooner or later and there's nothing better than having cash when (not if) it turns into a buyer's market in real estate.

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