Invest in wealth of experience
If you have a burning money issue, or you want to win a fight with your spouse, put your questions to Barefoot Investor.
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QUESTION: I’m 22 and want to be a multi-millionaire. I have $60,000 in a goal saver account, saving $500 to $600 per week, and $4000 in Mojo, saving $50 a week. I don’t go to university, and don’t plan to pursue a career. To be honest, I don’t want to work in general — I just want to be a guru investor and make my money work for me. I fully intend to buy an investment property every year and build a portfolio. What do you think I should do with my money to achieve the financial abundance I seek?
Melanie
ANSWER: I don’t know whether to hug you or slap you. You’re doing really well. Most people twice your age don’t have $60,000 in cash, and fewer still have a Mojo account. So you’re obviously one smart cookie. However, you’re also a little deluded (the only “guru investor” I know is 84, and he’s still tap dancing to work each day). You’ve got to earn money first, and then you can live off it. In your 20s you learn, in your 30s you earn. At 22, I wouldn’t make money your “soul” goal (or you’ll risk losing your soul, and wind up working in banking). Instead, I’d continue investing (in both shares and properties) and spending equal amounts of time trying to find work that you really love doing.
SAVINGS IN HOME LOAN SWITCH
Q: I just wanted to let you know I always read your weekly column and recently we’ve acted on your advice! We are changing our home loan to Heritage Bank, and will be saving quite a bit of money per year in doing so. We’ve proved the big banks wrong, so thank you so much!
Kristina
A: Congratulations for taking action. Very few people do. That’s how our largest bank, the Commonwealth, gets away with having a stated policy of not offering the cheapest deals in the market. That’s great for shareholders, but bad for customers!
SUPER PLAN NOT USING THE NUGGET
Q: My partner and I opened up a self-managed super fund (SMSF) so we could invest in gold. Now that we’ve done that, we don’t know what to do with the remaining or incoming money in the SMSF. Of the $80k in the fund, we’ve put $40k into gold and have the other $40k sitting there earning minor interest. I’ve heard that, long term, investing in a bank is better than depositing into it. Please can you help point us in the right direction?
Mel
A: Good lord, you’ve right royally ballsed up your superannuation. With $80,000 you don’t have enough to justify the fees you’ll be charged for operating your own self-managed fund. You’d be much better off in a low-cost industry fund. You’ve invested half your nest egg into a lump of metal that doesn’t produce any income whatsoever, whose value moves up and down based solely on the greed and fear of international traders. You sound like you’re preparing for economic armageddon. However, that’s just one potential scenario, when you’re talking about something long term like super, you need to plan for multiple outcomes. The best way to do that is to be a part-owner in quality businesses that have a history of earning profits in good times and bad.
WORKING AROUND CAPITAL GAINS
Q: I bought a home in 2009 and lived there until I took up a job in the mines last year. Because I’m a FIFO (Fly In Fly Out) worker, and a total tightwad, I’ve been renting it out and shacking up with my girlfriend when I’m in town. How long can I continue renting it out without incurring Capital Gains Tax?
Patrick
A: Well done for being a tightwad. Hopefully, you’re paying your girlfriend back in kind. Under the Capital Gains Tax (CGT) rules, you can rent out the property for up to six years, as long as you don’t have another home. Therefore, you could theoretically rent it out until 2019 and still sell it CGT free.
BANKING ON A COMFY RETIREMENT
Q: I’m 62 and would really like to retire now. I feel like I’m in a good financial position to do so without much strain. I own my home, have no debt, and have a combined $630,000 in super, term deposits, property and shares. I currently live on about $40,000 a year, and I’ll be eligible for a pension in 3.5 years. Do you think I’ll have enough for a comfortable, but not excessive, retirement?
Ian
P.S. My financial adviser told me he hates you! But that’s probably because I’m asking a lot more informed questions now, thanks to you.
A: I’ll take that as a backhanded compliment! The Association of Superannuation Funds of Australia releases a guide to how much retirees need for retirement. They reckon a “modest retirement” is $23,489 for singles and $33,784 for couples. Yet who wants to be modest in retirement? To have a comfortable retirement (holidays, nice wine, trips to the flicks), you’ll need $42,597, and $58,326 (couples). With $630,000 conservatively invested with good-quality shares, and a part pension, you’re on track for a comfortable retirement. However, I’d encourage you to play until the final siren (your 65th birthday), and sock as much as you can into superannuation. You can never be too comfortable.
Originally published as Invest in wealth of experience
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