Barefoot Investor’s strategy for single mum who doesn’t want the complexity of a $3m inheritance

Barefoot Investor has labelled Grace, a single mum of two, a weirdo for not wanting her life to be up-ended by a $3m inheritance. But he has a strategy to help her adapt.

Scott Pape is the Barefoot Investor. Picture: Jason Edwards

This week I’ve watched my share portfolio get hammered as markets have plunged across the globe.

And in response I’m doing something I rarely do … I’m issuing a warning to all investors:

It’s time to play dead.

Seriously.

I’ll have more on the how and the why in a moment, but for now let’s dip our hat to the headline writers, who have well and truly earned their peanuts this week. Take this one for example:

“Bloodbath strikes Australia’s sharemarket … $102 billion wipeout!”

Scary stuff.

However, you could rewrite that headline as:

“Shares fall to levels not seen since January.”

Not so scary.

However, if I was allowed to write the headline this week, here’s what I’d have written:

“Investors rejoice: shares go on sale!”

Most people are still working and are therefore still adding to their superannuation, so they should be cheering on the chance to buy at lower prices.

No one ever does, of course. Instead, they totally freak out!

And that’s why, many years ago, I made the decision to put my investing plan on autopilot. Each month I automatically buy the same index funds.

It’s what I call a ‘one and done’ decision, and it works in my favour: you see, the truth is that, on average, the share market has a drop of 10 per cent or more almost every year. And it’s also true that shares have never failed to recover and hit new highs.

So, finally, why do I think it’s time for investors to play dead?

Well, Fidelity, one of the biggest asset managers on the planet, did a study on their top-performing client accounts. Guess what they found? Over 10 years, the best returns came from clients who had either forgotten about their investments, or were dead!

Tread Your Own Path!

Best returning super funds

Hey Scott,

I was reading about the best performing super funds, which were Mine Super, Colonial FirstChoice, and IOOF – all of which earned over 10 per cent and easily beat my super fund (AustralianSuper). Have you looked at these super funds in detail, and would you consider switching if you were me?

Russell

Global stockmarkets have endured a volatile week.

Hi Russell

I view annual super fund returns tables like I do a tacky beauty pageant:

Fake tans. Fake nails. And the winning fund managers strutting around in evening dresses, posing for investors. Pass me the vomit bag!

The truth is that you do not want to be in the latest ‘hot’ fund.

Why?

Because statistics show that the lucky fund this year is just as likely to be next year’s dog.

Standard and Poor’s looked at the top-performing share fund managers two years ago and found that only 2 per cent of them remained top performers today.

That explains why, over the past five years, 95 per cent of Aussie share fund managers have underperformed an equivalent index fund ETF, after fees.

That’s why I think we should rejig the current super fund table – and instead rank them on fees. Any super fund charging its members over 1 per cent should be made to get in a bikini and parade down Martin Place.

Single mum turns down $3m

Dear Scott,

I’m a single mother raising two children on my nursing wage. I have just paid off my house in Tasmania and am now adding 10 per cent to my super each pay. I don’t renovate or travel far. No dishwasher and a broken oven. It has come to my attention that I am to inherit $3m from a relative. This is generous but wealth like that brings complexity. I have set myself up to retire on $42,000 per year when I’m 65. I don’t need more and I prefer the simple life of living within my means. And I want my children to do well in their own right and own a home eventually. However, I don’t want to take the satisfaction of doing it themselves away.

I was thinking of purchasing a large parcel of land in Southern Tasmania to protect it from developers in the future. What would you do?

Grace

Grace is about to get a $3m inheritance and she is not happy.

Hi Grace

You are obviously a weirdo.

However, your weirdness comes from a place of deep contentment, wisdom, and living your values.

You have something that most people will never have:

ENOUGH!

Yet while it’s true that wealth does bring complexity, it also has its advantages, especially for a single working mother. So if I were in your shoes I’d divide the inheritance into three accounts:

First, I’d put a small amount in an online savings account for emergencies (and to fix your oven!).

Second, I’d put a large amount into an ethically invested index share fund (given you’re bent that way).

Why would you want to do this?

So you can be in a position to do the ‘Barefoot Property Ladder’ with your kids. You can incentivise your kids to save as hard as they can by matching their house deposit savings, dollar for dollar. (And remember, your kids may not choose to live in Tassie. If they instead choose to live in Sydney, you’ll need a bloody big ladder!)

Finally, I’d set up a private ancillary fund (PAF), which is a type of charitable trust. You donate money into the PAF and receive an immediate tax deduction. Then each year you can use the money to give to the charities you choose. The key is to get your kids involved in deciding where to donate this money. Who knows, hopefully some of what you’ve got will rub off on them!

Trouble on the menu

Dear Scott,

I am a single divorcee, recently retired at 70 with about $650,000 in super after selling my inner-city house and relocating to the far north coast of NSW. My son is 37 and absolutely passionate about his chosen career as a chef, at which he is excelling. He used to talk about opening his own restaurant, but this hasn’t been mentioned for a while.

My ex-brother-in-law (a real estate agent) is trying to convince me to go into partnership with my son in a restaurant by gifting/loaning him $100,000 out of my super, saying that we will both make a motza. But I am really concerned about this for several reasons: Firstly, I’m pretty sure it would take a lot more than that to open a new restaurant! Secondly, my son and I are in a good place now (after some rocky times) and I don’t want to spoil that with the possible stresses of a business partnership. Lastly, I want to spend time travelling, and I don’t feel that I can afford to lose that $100,000 if things were to go pear-shaped.

I trust my son with the money and I know absolutely that he would do his best, but I also know that hospitality is not all roses at any time. Am I being reasonable or simply overcautious?

Cautious mum

Hospitality is not all roses at any time, says a recently-retired mum who is being encouraged to invest in a restaurant with her chef son.

Hi Cautious Mum

You’re doing me out of a job!

Literally, I couldn’t have answered your question any better than you just did.

Do not doubt yourself … you are 100 per cent right.

The only thing I’d add is to remind your ex-brother-in-law that he’s an EX for a reason – and to butt out of your business!

Screen-free Sunday

Dear Scott,

I wanted to let you know we were impressed with Screen-free Sunday and have instituted it for the second week running. (Though my kids point out that it should be followed swiftly by Mum-free Monday!) I just can’t get over how many families don’t do it, and I suspect it’s because many parents are attached to their devices too. In fact, that’s what is revolutionary about Screen-free Sunday – everyone has to participate!

Kelly

More families are embracing screen-free Sundays.

Hey Kelly

Congratulations!

We’re still doing it as well – and, like you, loving it! The only problem we’ve encountered is when the Melbourne Demons are playing an away game. My daughter is very much a stickler for the rules, which means we have to listen to it on the tranny!

DISCLAIMER: Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions.

Originally published as Barefoot Investor’s strategy for single mum who doesn’t want the complexity of a $3m inheritance