What would you do with $2.5M?

[Joe Blow]

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.

 

[sydbod]

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.

 

[DB008]

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

 

[pixel]

+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!

 

[qldfrog]

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

 

[duckmeister]

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.

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.

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...

 

[duckmeister]

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

 

[qldfrog]

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