What would you do with $2.5M?

[duckmeister]

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?

 

[pinkboy]

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

Yuck.

pinkboy

 

[duckmeister]

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.

 

[CanOz]

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?

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

 

[pinkboy]

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

 

[qldfrog]

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?

 

[duckmeister]

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

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

 

[duckmeister]

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.

 

[duckmeister]

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?

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".

 

[galumay]

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.

 

[Julia]

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

 

[pinkboy]

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

pinkboy

 

[minwa]

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+.

 

[galumay]

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!

 

[qldfrog]

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

 

[rb250660]

Cash is king!

 

[barney]

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

 

[duckmeister]

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

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.

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+.

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.

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.

 

[prawn_86]

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

 

[duckmeister]

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.