Consider more properties but don’t rush in
Sam is CEO and senior financial adviser at Henderson Maxwell, host of Foxtel’s Sky News program Your Money, Your Call. hendersonmaxwell.com.au
A good adviser should utilise strategies and products to help you build wealth – that’s why people choose to work with them. The important thing is that those strategies and products are appropriate to your needs and objectives and closely aligned to your risk profile, experience and knowledge. Unfortunately, the industry has had a bad rap because of the potential conflicts of interest between institutional planners and their associated product sets such as managed funds, so I understand your concern. That said, I reckon you’re on track already.
Nevertheless, a good adviser should be able to assist you and make a material difference to your lives. For optimal advice and solutions, I simply put myself in the client’s shoes and ask, “What would I do?”, without pushing the boundaries too far. The more advanced the client, the more advanced the strategies I can use.
I’d start with your structures, which appear fine and simple at present. There’s probably no need for a family trust or a company. I agree with your strategy of putting the cash-like liquid assets (cash and shares) in your name and the geared assets (property) in Tim’s name as you’ve done for tax efficiency.
Without being too complex, I’d consider a third and potentially fourth property similar to the ones you have in a similar area in inner Melbourne. Avoid the postcodes where some banks have stopped lending owing to potential oversupply. Don’t be in a hurry to buy as the market is looking toppy but use a price pullback as an opportunity or scout around for that rare fixer-upper bargain.
Leverage off the existing equity
in the flats and leave your home unencumbered if possible. I would also invest into a basic and cheap portfolio of exchange traded funds (ETFs) in Kathleen’s name to create an income. This is a good chance to review your existing shares or roll them into the mix of a managed portfolio. Read my article about building an ETF portfolio in October’s
Money magazine. Check out the following ETFs: Vanguard Australian Shares (ASX: VAS), iShares S&P 500 (IVV), Betashares Dividend Harvester (HVST), Vanguard Australian Property Securities (VAP), Vanguard International Credit Securities (Hedged) (VCF) and Vanguard MSCI Index International Shares ETF (VGS) to name a few. These are available directly on the ASX and provide diversity. ETFs don’t pay commissions to advisers like many managed funds used to and they’re cheaper than managed funds and, statistically, perform better.
A self-managed fund may also allow you to buy a property in super. I’d put down around a 30% deposit on a $500,000 one-bedroom apartment or similar and use your husband’s $25,000pa (the lower amount next financial year, down from $35,000pa) to reduce the debt. I’d also make around $20,000$50,000 of non-concessional contributions a year, or more if your inheritance is higher. It might be worth putting these into your name instead of Tim’s for diversity and he can also super-split with you to top up your retirement savings.
Use this opportunity to review your insurances (life, Tim’s income protection and potentially trauma) and update your estate planning to include wills, powers of attorney and a testamentary trust.