# What would you do with $2.5M?



## duckmeister (6 October 2014)

In early November I will come into an inheritance of $2.5M. I don't want to leave it in cash as I now have no other employment so intend to live off of it and I'm 10 years from being able to draw on super (of which I don't have all that much anyway).

I was thinking of entering the stock market in November or December and investing in a spread of ASX200 shares that give some decent dividend yield. I've bought an apartment off the plan that will be ready Dec 2015 so will need to peel out $550k then, and another apartment in Dec 2016 so another $1.5M comes out which needs to be capital stable. The other half million or so can be invested for longer term. I figure I'll live in the nice place, rent the other one out, and the rest will come from the portfolio which I'd dearly love to not have to eat into. Owning the apartments outright I could even draw back equity at cheap interest for geared investments or trading which opens up most of the portfolio again.

The market looks to be softening a bit so waiting a month or three for the right timing is fine.

What would you do?


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## pinkboy (6 October 2014)

You bought $2mil worth of OTP property? And you haven't got the cash yet?

Yuck.

pinkboy


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## duckmeister (6 October 2014)

pinkboy said:


> You bought $2mil worth of OTP property? And you haven't got the cash yet?
> 
> Yuck.
> 
> pinkboy




Yeah, pretty much. But by next month the cart and horse will be back in the right order again.


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## CanOz (6 October 2014)

duckmeister said:


> In early November I will come into an inheritance of $2.5M. I don't want to leave it in cash as I now have no other employment so intend to live off of it and I'm 10 years from being able to draw on super (of which I don't have all that much anyway).
> 
> I was thinking of entering the stock market in November or December and investing in a spread of ASX200 shares that give some decent dividend yield. I've bought an apartment off the plan that will be ready Dec 2015 so will need to peel out $550k then, and another apartment in Dec 2016 so another $1.5M comes out which needs to be capital stable. The other half million or so can be invested for longer term. I figure I'll live in the nice place, rent the other one out, and the rest will come from the portfolio which I'd dearly love to not have to eat into. Owning the apartments outright I could even draw back equity at cheap interest for geared investments or trading which opens up most of the portfolio again.
> 
> ...




Well we cannot give specific financial advice here on ASF but if i were you i'd bank it in the big three banks with the best interest possible and then travel around Australia, enjoying every moment of risk free life to the max. 

With that much as a one off you're pretty set for the rest of your life. Live conservatively on a nice budget but never want for anything. Maybe buy a nice apartment to live in close to the beach or the mountains, spend some time finding out what your true calling in life is, writing, painting, music...

In any case, good luck with it all and i hope the new freedom treats you well.

CanOz


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## pinkboy (6 October 2014)

Are you in a position to complete if there are hold ups with the inheritance? These things will and do happen.

You're in a scary place right now if you can't! 

pinkboy


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## qldfrog (6 October 2014)

so out of 2.5 m, you already put 2m (4/5th) in real estate.
Does not this simple facthit you straight in the face as extremely wrong?
Why not 80% in gold, or iron ore miners, forex on the rouble  or a casino in Macao;
I am afraid you are asking this question a little bit too late;
You have already put nearly all of your assets on red at the casino.
i only hope you will be lucky  'cause it is not the return of your rent which will give you much income!
eggs in the same basket..I assume both properties in Australia so no currency exposure either?


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## duckmeister (6 October 2014)

CanOz said:


> Well we cannot give specific financial advice here on ASF but if i were you i'd bank it in the big three banks with the best interest possible and then travel around Australia, enjoying every moment of risk free life to the max.
> 
> With that much as a one off you're pretty set for the rest of your life. Live conservatively on a nice budget but never want for anything. Maybe buy a nice apartment to live in close to the beach or the mountains, spend some time finding out what your true calling in life is, writing, painting, music...
> 
> ...




This has to be the most Zen-like recommendation ever.  I will embrace the spirit of it you can be sure.


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## duckmeister (6 October 2014)

pinkboy said:


> Are you in a position to complete if there are hold ups with the inheritance? These things will and do happen.
> 
> You're in a scary place right now if you can't!
> 
> pinkboy




Nahh, that part is solid.


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## duckmeister (6 October 2014)

qldfrog said:


> so out of 2.5 m, you already put 2m (4/5th) in real estate.
> Does not this simple facthit you straight in the face as extremely wrong?
> Why not 80% in gold, or iron ore miners, forex on the rouble  or a casino in Macao;
> I am afraid you are asking this question a little bit too late;
> ...




Yeah, that has been bugging me a bit. There were some prior factors leading up to that but as you say I put the bet down on red before asking how the table was looking. I agree the property income by itself is insufficient. No currency exposure. I should have mentioned I also have about $200k in a side investment that yields over 20% ROI, and I'll have another $350k coming in the next year or so from another source so that offsets the income pressure somewhat. The property should have good growth over a 2-3 year period - I have reason to believe the big one will be worth around $2M by 2018 but that still leaves me with tied up capital unless I sell it as the rental return won't be better than 2.5%. I will still thinking I could use the equity for my own self-funded margin lending.

Thanks for the reply, I appreciate you telling it straight. I guess in essence you're saying "there's not much you can do at this point".


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## galumay (6 October 2014)

duckmeister said:


> Nahh, that part is solid.




mmm...i wouldnt be so sure, i have seen some very lengthy delays with probate. It also varies by state, WA is shocking for instance, 18 months is not unusual.

Why on earth have you put so much of it into property? There is almost universal agreement that Australian property is in a significant bubble.

Anyway, I hope for your sake probate is not delayed and the bubble doesnt pop. At your age that amount of money invested sensibly would allow for a very comfortable lifestyle with no need to do any paid work.


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## Julia (6 October 2014)

Nice that at least CanOz had the generosity of spirit to congratulate the OP and wish him well.


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## pinkboy (6 October 2014)

Thread title should read 'WWYD With $400k' - coz that's all that's left after the property purchase/SD/Legals.

pinkboy


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## minwa (6 October 2014)

galumay said:


> There is almost universal agreement that Australian property is in a significant bubble.




Almost the exact reason it is NOT in a significant bubble, yet. Don't listen to the masses. Honestly for someone not educated in shares or property, I'd rather invest in property. Rent is more reliable than dividends.

Do NOT just invest in term deposit:

_"The inflation rate in Australia was recorded at 3 percent in the second quarter of 2014. Inflation Rate in Australia averaged 5.23 Percent from 1951 until 2014"_ 

After tax, you will have LESS purchasing power every year. If you're early 50's, 2.5m in cash will not last you if you live to 80+.


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## galumay (6 October 2014)

minwa said:


> If you're early 50's, 2.5m in cash will not last you if you live to 80+.




It might not last you, it would last me just fine!


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## qldfrog (7 October 2014)

duckmeister said:


> Yeah,  I should have mentioned I also have about $200k in a side investment that yields over 20% ROI, and I'll have another $350k coming in the next year or so from another source so that offsets the income pressure somewhat.  I guess in essence you're saying "there's not much you can do at this point".



well if you have an extra 550k that changes things a bit in a positive way
you end up with 2m in RE and 1m available (or soon available);
out of the 1m: i would keep some cash in an at call account for day to day expenses(will match inflation) and be ready to jump in if a market crash occurs, get some major O/S exposure in US AND elsewhere (ETF can provide that easily) and put some in an ASX ETF.
Then get a life and follow the "Zen" advice given previously;
i mean it
2.5m give you income for life/forever with no work and is an aim many will only aspire to.Good on you


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## rb250660 (7 October 2014)

Cash is king!


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## barney (7 October 2014)

CanOz said:


> In any case, good luck with it all and i hope the new freedom treats you well.
> 
> CanOz




Yeah, good luck "Duck"  ..... I wish I had your problems


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## duckmeister (7 October 2014)

qldfrog said:


> well if you have an extra 550k that changes things a bit in a positive way
> you end up with 2m in RE and 1m available (or soon available);
> out of the 1m: i would keep some cash in an at call account for day to day expenses(will match inflation) and be ready to jump in if a market crash occurs, get some major O/S exposure in US AND elsewhere (ETF can provide that easily) and put some in an ASX ETF.
> Then get a life and follow the "Zen" advice given previously;
> ...




That's very interesting and helpful, thank you.

There's some timing issues with the money but that's correct and I think you've given me the bones of a good plan. I'll dump the cash into highest interest cash account I can find (ANZ Online Saver seems okay, haven't looked at Macquarie recently, they used to be alright). Early on I'll push about $500K into a broad exposure spread and look at large caps and ETFs to track the indices. I don't like US or UK at the moment, they seem to be too hot and high. Ideally there'll be a correction or even crash sooner than later to take advantage of. I feel that the All Ords is okay value at sub 5500 but 4500 level would be great to buy into (even if the market is still diving down past that point). I'm going to live in each property for a year sequentially and then treat them just like stocks in that I will sell off after a year onwards. If I can wing it right I'll take CGT-free profit by serial occupancy. I also have a trading scheme I've been running in WealthLab for sometime that works very well on backtests *except* it dies if you're holding stock at a market peak followed by a crash. Obviously. It's hard to beat buy'n'hold for 10-20 year runs. So I would only employ that scheme in the early phases of post-crash bull runs with a portion of the meony and exit all positions by say 3 years in. The buy and hold in ETFs or big caps with decent dividend yields seems otherwise the way to go. Still getting my head around all of it but trying to do the right thing by keeping an open mind and seeking as many inputs as possible.

And then that Zen thing.



minwa said:


> Almost the exact reason it is NOT in a significant bubble, yet. Don't listen to the masses. Honestly for someone not educated in shares or property, I'd rather invest in property. Rent is more reliable than dividends.
> 
> Do NOT just invest in term deposit:
> 
> ...




I agree, and cash isn't attractive to me for the erosion. Maybe if interest rates were double digits it would be another story. The properties are apartments in Brisbane CBD fringe (<3km) with city views and in highly desirable areas (ideal for couples, families, or yuppies if they're still called that). I think that Sydney/Melbourne could easily be argued to be in a bubble but Brisbane is further behind and supply is definitely trailing demand. By the time it's bubbling I think there will be measures in place to stabilise the markets (all that talk about limiting LVR and such to steady the investors). I'm comfortable that I'll see a steady, compounding 5%+ annual growth in value until such point as selling looks good.



barney said:


> Yeah, good luck "Duck"  ..... I wish I had your problems




Thank you. These things are never exactly as you'd hoped/planned in your head. But there are much worse problems to have. :-D I can say that actually now having something of worth of value gives an unexpected additional thought which is to NOT **** IT UP! I only get one go at this and I do not want to be looking back in five years seeing where I went wrong. 

I will post a follow up with what I actually end up doing and how it works out for those who are interested. I'm pretty sure that "Zen" involves palm trees so if I end up on an island you're all welcome to come along and slurp Pina Coladas with me.


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## prawn_86 (7 October 2014)

I would move to the Caribbean and not have bought 2m worth of property, but horses for courses. 

Other members please note it is against the law to give specific financial advise so please be careful what could be inferred in your posts

Thanks


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## duckmeister (7 October 2014)

prawn_86 said:


> I would move to the Caribbean and not have bought 2m worth of property, but horses for courses.
> 
> Other members please note it is against the law to give specific financial advise so please be careful what could be inferred in your posts
> 
> Thanks




My bad for soliciting it, but nobody has done more than give me broad, constructive guidelines. Oh, and some very specific admonishments, but I don't think that's against the law. ;-) I think Forbes wrote an insightful article on the benefits comparison between prudent investing or moving to a beach populated by younger members of the opposite gender, must dig it up. I am fond of dark rum.


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## Joe Blow (7 October 2014)

Just want to clarify here. It's fine for people to say what they would do with $2.5M, it's just not OK to offer specific financial advice to others about how to invest theirs. If they actually have it, of course.

Other than that, please continue. Most people enjoy thinking about what they would do with a large sum of money, and just as many enjoy reading about what others would do with it.


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## sydbod (7 October 2014)

Hmmmmm!!!! I had/still have a similar problem, but no where near the $2.5M mark.
From my experiences and what I am doing for myself, maybe you can get some ideas for yourself.

YES, I have a few cheaper flats that I inherited and are being rented out at the moment.
For me this is my worst asset class since after removing Body Corporate fees, council rates, management fees, land tax (this is a killer for investment properties), routine maintenance (even just having each battery in a smoke detector replaced every year cost $100 each), and the never ending phone calls about leaking taps, sticking doors, hot plates sometimes not working, having to replace hot water systems every 5 or so years, having to replace the kitchens every 10 years, having to replace the carpets every 8 years, etc, etc, etc and the cost for all these things if one does not do them oneself becomes very significant. I am lucky to get NET around *3%* return. We have now had our routine huge capital gains and for at least my flats, I no longer expect any extra capital gains over the next 7 years or so. Only reason I am not selling them is because the current capital gains on each is well over 70% (been in the family for a very long time), so the CG tax payable would be huge.

Yes, I have a nice little investment in shares.
Initially I tried investing more so into the speculative end of the market, and it was just dumb luck that I came out of that without any loss. Now I have moved into the boring type of investments like most SMSF tend to invest into. Things like the big banks, Staples, a bit of energy, and some Telecom shares. Nothing special, just the ordinary safe boring type of Old Fart type of investments. Am finding these (in my portfolio) are giving me a little over 6% dividends (when franking credits are included) and am getting well over 3% capital gains per year average ( so increasing faster than current inflation).

Yes, I also have some cash in the bank, but I don't consider this an investment as the interest rates are way too low. I keep about $50,000 in the bank so that I have a ready cash reserve should I require it for emergencies. I normally require around $35,000 a year for living expenses so that cash alone could keep me going for some time between dividends (LOL).

Yes I also practice ZEN activities like cruises, going overseas on holidays etc, but always do these things off season so the prices are very cheap. During Peak Season I usually spend more time at our holiday house on the coast in a small township.

That has been my journey so far at least. Good luck with yours.


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## DB008 (9 October 2014)

pinkboy said:


> Thread title should read 'WWYD With $400k' - coz that's all that's left after the property purchase/SD/Legals.
> 
> pinkboy




+1

Congratulations to the OP nonetheless.

To everyone else, l'll be starting a thread shortly too, after I will the $40 million Powerball tonight


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## pixel (9 October 2014)

DB008 said:


> +1
> 
> Congratulations to the OP nonetheless.
> 
> To everyone else, l'll be starting a thread shortly too, after I will the $40 million Powerball tonight




Hey DB: Get in line! This Powerball Jackpot has "Pixel" written all over it!


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## qldfrog (10 October 2014)

on option not discussed in that thread is commercial real estate:
aka a warehouse/an office etc;
if you have the cash, the returns are much better than residencial IP, and far less sources of worries
one area not to neglect


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## duckmeister (10 October 2014)

qldfrog said:


> on option not discussed in that thread is commercial real estate:
> aka a warehouse/an office etc;
> if you have the cash, the returns are much better than residencial IP, and far less sources of worries
> one area not to neglect




I don't think I'd like to directly invest in one of these but via an ETF might work for me.



sydbod said:


> Hmmmmm!!!! I had/still have a similar problem, but no where near the $2.5M mark.
> From my experiences and what I am doing for myself, maybe you can get some ideas for yourself.
> 
> YES, I have a few cheaper flats that I inherited and are being rented out at the moment.
> ...




Not a bad journey.  I am coming around to not wanting to hold apartments (apart from principal place of residence) for exactly the reasons you've described. A beach holiday house down the track would be just the ticket. I'll post separately but I think from all the inputs I've formed Plan A...


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## duckmeister (10 October 2014)

Right then, Plan A has formed in my mind. To recap, I have $400K that can be invested for long-term (10-20 years), $550K needed back for 2016 for Apartment A (principal place of residence until Apartment B is built), then $1550K for 2017 for Apartment B (next principal place of residence). Because I'll be living in Apartment A for one year I can dispose of it CGT-free as I leapfrog to the next one.

Looking at ETFs, I like Blackrock/iShares, Vanguard, and State Street/SPDF. They have all the products I think I need. I will have the money by November and intend to immediately push it all out. If I take an asset allocation approach for risk profiles then I've come up with:


$50K - cash
Portfolio 1 - 10-20 years, $400K - 100% equities, ASX20 25%, ASX Small Caps 25%, ASX200 25%, Global ex Aus 25%, this gives me a good spread of the ASX equities to round out the volatility and some international hedging of markets/currency
Portfolio 2 - 1 year, $550K - 90/10 cash/equities, ASX High Dividend Yields 10%, Cash 30%, Fixed Interest 30%, Gov Bonds 30%, this should be fairly capital stable with reasonable return
Portfolio 3 - 2 years, $1500K - 75/25 cash/equities, ASX High Dividend Yields 25%, Cash 25%, Fixed Interest 25%, Gov Bonds 25%, this should be fairly capital stable also

Portfolio 1 stays forever but will get rebalanced down the track when yet another $320K or so comes into my hands in a year or 2. At that point I might spread a bit into other sectors such as commercial property and specific verticals. All through ETFs - I love 'em. Portfolio 2 is redeemed at the end of 2015, and I no longer have to rent which reduces my living costs. Now for end of 2016 when it comes time to fund Apartment B I can redeem Portfolio 3 or a combination of disposing of Apartment A CGT free - whichever way I'm winning most on either local property or the market. That would see me with back to over $1M in equities. Further down the track when I might want to travel or be mobile at least I may dispose of Property B and inject it back into a new stock portfolio.

I also still have about $220K in a side investment pulling in 20-40% which I'm using to feed my super and it's via a company I own so am using it for "business" costs (phone, internet, travel).

I think I have enough to live on indefinitely out of all that and I can't see where I could go wrong. I think my only regret in five years might be as to whether I should have been more aggressive with equities, but it's just gambling as the ASX seems to be just tracking sideways and can't decide if it's about to go into a Bear market or run the Bull another year or so. The best I can do is hedge everything and preserve the capital ahead of inflation as best I can.

Always pleased to hear from anyone who would do something different from the above (apart from the OTP properties which I'm stuck with). This really is a once-in-a-lifetime opportunity and I cannot express how lucky I feel to be so fortunate and am glad it's happened at a stage of life when my first thought is not to spend it all on "lifestyle excesses".

Cheers, Mr Duck


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## qldfrog (10 October 2014)

seems fairly reasonable, a bit too heavyresidential RE overall to my own taste, but hey  just an opinion and when excluding PPOR, not that bad


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