6 paths to wealth
You’re entering the most expensive time of life – growing a young family with plans to reduce to a single income. You’ve built a great foundation and you have options, which all depend on your decision around moving to Hobart.
I see your wealth position growing from a base today of under $1 million up to possibly $2.18 million over the next 10 years, depending on which way you go.
Across scenarios, your total wealth outcomes are similar – because it’s not so much the investments driving your wealth creation, it’s your earnings and savings rate. You need to focus on not “losing” money (through diversification) and focus less on “making” money. Even the debt reduction option sees you in a strong position.
You are prime candidates for getting personal financial advice and I implore you to seek this out, so that you can confidently move towards your short-, medium- and long-term goals.
All options assume Jen takes five years off work to grow the family and returns to work earning $80,000pa. Your annual living costs are $80,000pa. You could:
1. Stay in Perth and focus on clearing home debt by 2027-28 at 41-42. This would involve applying all available surplus to your debt and being disciplined.
2. Move to Hobart in 2020, spend $900,000 on a new home, borrow $720,000 and use offset cash as a deposit. Keep the Perth properties as rentals. Debt would be $1.74 million and this is therefore the greatest risk option, heavily overweight to property.
3. Stay in Perth and direct $100,000 now and all surplus cash flow over the next 10 years to a diversified portfolio in Jen’s name – 100% Australian and international equities. I’ve assumed a total return (dividends and growth) of 10%pa.
4. Stay in Perth and both salary sacrifice super up to the annual $25,000 concessional cap ($337,000 contributed over 10 years). Beyond this, any surplus cash flow could be directed to your home loan. It has less risk than the diversified portfolio strategy (includes defensive assets and growth assets) but with the tax savings is pretty close to matching the 10-year outcome.
5. Stay in Perth and invest $100,000 of cash in an investment bond, where tax on earnings is capped at the company tax rate rather than your personal rate. If you hold your account for 10-plus years, you get to sell without any capital gains tax.
6. Stay in Perth, invest 100,000 in the investment bond (tax savings but 10-plus year timeframe), then $50,000 in the next 12 months from cash flow into a diversified portfolio (this is more accessible if you need it) and $6000pa each to superannuation as concessional contributions (tax effective and a long-term investment) – so a blend of ideas. This is the strongest outcome of all the Perth models.
I get a sense that family will draw you back to Hobart. However, I would be concerned to see you with such high debt. If you were to sell your Perth home and use those funds to support the Hobart purchase, then you have a much lower debt level and the opportunity to consider the investment options above.