Build a share portfolio using low-cost funds

To keep building wealth, Sarah could ...

Q I am 40 years old, my husband is 44 we have two kids, 9 and 7. We earn about $140,000 each, we own our home worth $800,000, we own our cars and other than credit cards we have no significant debts. Both kids are in private schools (about $25,000 a year in total) and we go on holidays (roughly $10,000).

I work for the private sector and salary sacrifice $1000 a month; my husband is in a government defined benefit scheme, to which he is also co-contributing, and it should pay him $100,000 super each year when he retires at 60.

I have about $250,000 in super and as a way of growing our investments we bought an off-the-plan apartment in the inner city for $500,000. It will be built in 2020 and we will look at renting and negative gearing. I also hold some shares (about $10,000) and have a high-interest savings account with UBank.

We aim to save about $3000 a fortnight, which we put into the high-savings account. Other than salary sacrificing super and putting money into a high-interest account, we don’t have any active investment strategies and we’re concerned we are not being proactive enough.

What is the best investment strategy in terms of putting our savings towards something? Do we need to buy more property, get into the sharemarket or set up a family trust? You have made life easy for me, Sarah, as you have your finances very much under control. Simply doing what you are doing now until you are around 60 would mean super will provide the lifestyle you want. You are in great financial health.

This leads me to what I think is the key issue: your work plans. With your husband’s defined benefit scheme, I am sure the projected $100,000 a year will only apply if he works into his early 60s. So if early retirement is an option, this will need some planning.

However, it sounds as if you will wait for the defined benefit plan to pay out the maximum, so the issue right now is what to do with your $3000 a fortnight in savings. You could apply your $78,000 a year to buying another property or investing in shares and other liquid investments.

As you already own an investment property, plus your home, and you are topping up your super, it would make a lot of sense to start to build a portfolio of local and international investments. A simple way to do this would be to use a low-cost indexed manager such as BlackRock or Vanguard or one or more exchange traded funds (ETFs).

While you have two children under 18 I don’t think a family trust will be of much value. They are expensive to set up and run each year. Where they are useful is if you have non- income-earning adults who you can distribute income to.