INVESTING
The advice I would give myself is the same I would give to any of my clients - firstly, let's have a good look in the mirror to consider my current financial situation, my goals, my values and also my attitude towards risk. With that information, the answer will quickly become clear. The reality of my financial situation in 2020 is that my financial buffer has taken a beating due to some additional expenses and lower income, with my tenants not paying full rent. Without a doubt the best investment I can make right now is to retain that $10,000 in cash, to protect myself against further curveballs that may be coming around the corner. I would love to be investing extra in the sharemarket right now, but that would not be prudent given my current situation. The best return on investment I can get is by sticking with cash. An interesting smell test on your game plan for a $10,000 windfall: think about if you received the money evenly throughout the year, say $833 per month, would you still act the same? Often, the answer is no, which is a good indicator you might need to reconsider. This is one of the most frequently asked questions I receive as an adviser, and it makes my heart sing that families are asking the question rather than going on auto-pilot and putting cash into a child's bank account. Selecting a strategy for your child will depend heavily on their age and the goal in mind. I have a young family, so there's ample time before the funds would be required. The goals and support we want to provide our children may look similar, from private education and buying their first car to helping them get into the property market. However, how far away this is will have a significant impact on the best way to get there. In the next couple of years If your goal is less than three years away, we really don't want to take on any risk, because we haven't got sufficient time to ride out any volatility (changes in the value of our money). This means sticking with cash. If you've got a mortgage, the best value is to save cash, directly into your offset account. If you don't have a mortgage, a high-interest savings account is your strategy. Cash right now isn't sexy and it feels slow. But that's the reality for short-term goals: we must accept a low (or no) return in exchange for not taking on any risk. Setting up an automatic savings plan, with direct debits, will ensure that your strategy is executed. In three to 10 years When our horizon extends beyond three years, we should consider investing. This is because we've got time to account for volatility, and taking on additional risk will likely be compensated by higher returns than cash. Investments such as exchange traded funds (ETFs) will give an opportunity for growth and diversification at a reasonably low cost. When assessing your options, the level of "growth" will line up with how much time you have until your goal. The shorter the timeline, the less growth (and therefore less risk). A portfolio of ETFs can be an excellent way to save for your goal regardless of your starting balance. It's also well suited to building up over time with regular contributions. 10 years plus If you've got 10 years or more until your goal, insurance bonds are a great solution. They are an investment structure, like superannuation, that allows you to invest in a tax-effective way. So you can invest in, say, ETFs and managed funds, but through an investment structure that will save you tax. This option will also work well for most starting balances and you can "save" into this over time. It's a clear winner. Alternatively, if you've got a big starting balance and lots of time, property might work. This might be the case if flexibility is less important, and perhaps your goal directly links to property itself, such as giving your kids a leg-up on the housing market when they are older. No matter the goal You need to be intentional on how you're going to get there. Hope and love are not a viable financial strategy. Parents with time on their side need to shift their mindset away from piggy banks. The decisions we make now, compounded over time, make a difference. Start early and start with what you have, and you will reach Get stories like this in our newsletters.Where would you invest $10,000? We spoke to eight finance experts to find out what they would do with such a windfall.
Where I would invest for my children
your goals.
