30 Year Old with $1mill: what to do!

well, lucky bugger, one of my good friends has had a string of good good luck,

he had a consulting business which was netting him about $50-$60k, some guy came around and offered him $400k for it, he took the offer,

checked out some shares he paid $20k for when he was 18, now worth $200k, cashed out

Parents won some money on lotto, I believe they won about $700k, they gave him $200k,

$200k from some unknown source, he jokingly claims its loose change not funny when the $200k is not yours

he's now got $1m sitting in the bank.

he's invited his friends round for a party and near the end of hte party when most had left, it was down to myself, him and another guy who im not too familiar with.

he asked us, what shall he do, he hates his job, and he thinks/believes he is no good at it, hence why he was only earning $50-$60k, he says his qualifactions are about to be outdated and then he'd be competing with every other graduate from India so things will get tougher, other then that he really doesn't have any qualifications or skills,

he thought that 1mill was enough to retire, but we quickly told him the reality.

I suggested property investment or even development full time, but he is scared of development, and he thinks investing is a good way to set upa nest egg.

What would you guys recommend, (Im asking on his behalf), Ive never been in that situation so I wouldnt have a clue!

thanks eveyrone

Property Meister said:

he had a consulting business which was netting him about $50-$60k

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OK, so I'll assume that, as he got by on 60K pa before, he can get by on 60K pa.....it's triple the pension and double what the Govt reckon is a comfortable retirement income, so he'll be just fine I'm sure.

Property Meister said:

he thought that 1mill was enough to retire, but we quickly told him the reality.

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If he has no other debt, I reckon he might do it. What reality did you tell him ??

Property Meister said:

What would you guys recommend

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Without even thinking about it, he could do a very foolish thing and buy CBA shares outright with the 1m. At the current price of $ 49.23....he'd get 20,312 of them. They pay $ 3.02 in fully franked dividends, so his nett yield would be ;

Dividends = 20,312 * 3.02 = $ 61,342 per year

Imputation credits (bonus) = 3/7ths of Divs = $ 26,289 per year


The imputation credits would completely wipe out his entire tax liability and then some, so he could get some little part-time job of his choosing to keep himself active and all of that income would also be tax free.


He could live the life he wanted, rent somewhere comfortable, do things and eat to the same standard he did before with his previous job and be better off.


Obviously, the CBA would not bother him him rates, land tax, repairs or moaning about a leaking tap or a hole in the roof in winter.


That's without thinking.

What 'tard sells 200k of shares, unless they are looking to underperform in the future? Nice tax bill. I call BS on the story, thats just me.

But I'm thinking along Dazz's suggestion, 1 mill in shares, work any job and if you want to have a bit more money, low level gearing. Get it to 2.5 mil by 2020 and reassess. Quite simple, no time constraints, no shackles.

CJProperty said:

What 'tard sells 200k of shares, unless they are looking to underperform in the future? Nice tax bill. I call BS on the story, thats just me.

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well, I dont exactly recall whether he said he sold, but he knows nothing about shares,

tax bill: I don't think he would have any idea about it
underperform: whats that! (he hasnt touched shares so his knowledge is minimal)

CJProperty said:

But I'm thinking along Dazz's suggestion, 1 mill in shares, work any job and if you want to have a bit more money, low level gearing. Get it to 2.5 mil by 2020 and reassess. Quite simple, no time constraints, no shackles.

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why gear it?

if you're investing for cashflow, you have to ignore "growth", or "lack thereof".

with CBA's dividend about to go up it might not be such a bad thing.

but then, if I had a cool mil in cash, i know what i'd be doing - sanj? sanj? where are you?

Aaron Sice said:

why gear it?

if you're investing for cashflow, you have to ignore "growth", or "lack thereof".

with CBA's dividend about to go up it might not be such a bad thing.

but then, if I had a cool mil in cash, i know what i'd be doing - sanj? sanj? where are you?

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Well it all depends on your goals, I suggest gearing because I don't think there are many people out there who want to sit on 60k a year when there is greater potential, yet I concede that at such a point rapid growth isn't exactly neccessary. Hence why I suggested low level, perhaps at say 25-50%. This way a part time job would easily cover the interest, and if you work it right, push him down into a lower tax threshold.

CJProperty said:

Well it all depends on your goals, I suggest gearing because I don't think there are many people out there who want to sit on 60k a year when there is greater potential, yet I concede that at such a point rapid growth isn't exactly neccessary. Hence why I suggested low level, perhaps at say 25-50%. This way a part time job would easily cover the interest, and if you work it right, push him down into a lower tax threshold.

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So it would seem that including the original poster, we dont know enough about what this guy wants out of his life etc yet

This would be the first thing to find out I'd think....

He may well be happy to live on $60k depsite "greater potential" (I know plenty who woudl suggets they woudl do this),

He'd be crazy to put all his cash in one stock. Even one as blue chip as CBA. If there is a regulatory change, or the economy tanks, or a hundred other things that could affect the price of CBA. bang, there it goes.

He should go for a diversified portfolio with a mix of growth and divs. I'd say a portfolio of no less/no more than 10 would be nice. Steer clear of a fund.

Aaron Sice said:

why gear it?

if you're investing for cashflow, you have to ignore "growth", or "lack thereof".

with CBA's dividend about to go up it might not be such a bad thing.

but then, if I had a cool mil in cash, i know what i'd be doing - sanj? sanj? where are you?

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hahaha i was reading this thinking the same thing!

CJProperty said:

Well it all depends on your goals, I suggest gearing because I don't think there are many people out there who want to sit on 60k a year when there is greater potential, yet I concede that at such a point rapid growth isn't exactly neccessary. Hence why I suggested low level, perhaps at say 25-50%. This way a part time job would easily cover the interest, and if you work it right, push him down into a lower tax threshold.

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my issue with this is the guy in question sounds like he may not be the most knowledgable/experienced investor. i think he would be better off going the conservative route here, be it a mix of shares like CBA or a fully leased commercial property (admittedly the issue of lack of knowledge will affect this as well).

being able to put in cash offers at the moment would mean he would get some good deals so a lack of any gearing for now could be a good thing. of course he could just put the money in the bank for 6-12 months while he works out the best option for him.

either way good on him, hope it all goes well

evand said:

He'd be crazy to put all his cash in one stock. Even one as blue chip as CBA. If there is a regulatory change, or the economy tanks, or a hundred other things that could affect the price of CBA. bang, there it goes.

He should go for a diversified portfolio with a mix of growth and divs. I'd say a portfolio of no less/no more than 10 would be nice. Steer clear of a fund.

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well I personally bought into a geared fund in 07
and another bluechip fund

one is now worth 75% of original value while the other is worth 53%

I thought I was doing the right thing by diversyfing in various industries and blue chips.

its so bad I dont even count it part of my asset cos its depressing

sanj said:

my issue with this is the guy in question sounds like he may not be the most knowledgable/experienced investor.

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My issue is that anything other than putting in in a TD (even this has associated problems!) will be burdened by his lack of experience. I'm sure you can lose a LOT of money doing development without any skills.

What I was suggesting that with the appropriate education, this is the approach I would suggest. Property IMO is in the poo right now, cash buys is going to get him an asset which is shedding capital value with pre-tax yields around 4.5-6.5% average whilst also requiring maintenance, PM costs, tenant woes. May as well have kept it in the bank. Development requires SKILLS, and has a huge risk of losing a large sum of his seed capital as a beginner.

Then there is 'blue chip' shares. Not exactly exciting, but if he put in some serious study over 6 months he could get to a comfortable point of entering the market, should opportunities present themselves.

It's really not that hard to understand.

with his lack of experience i'd suggest he go down one of two paths (or a combo of both).

as suggested, good dividend yielding blue chip shares. keep them australia so not subject to fluctuating currency etc.

or

buy 4 units at $250k ea throwing off $300/wk ea for rent and get them pm'd. say take home $250/wk - give him $1000/wk, or $50k/yr plus potential capital growth.

acutally ... stick with the shares. don't worry about the value going up and down, just look at the dividends.

lizzie said:

buy 4 units at $250k ea throwing off $300/wk ea for rent and get them pm'd. say take home $250/wk - give him $1000/wk, or $50k/yr plus potential capital growth.

acutally ... stick with the shares. don't worry about the value going up and down, just look at the dividends.

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wouldnt CIP be a hell of a lot easier especially since he is looking for income?

lizzie said:

acutally ... stick with the shares. don't worry about the value going up and down, just look at the dividends.

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I might propose a slight moderation, don't worry about the daily gyrations, they mean nothing. However look for the long term path, otherwise you might end up buying Qantas or Telstra shares thinking they must be doing excellently.

You want good earnings growth which is sustainable at the very least. Otherwise you'll be in a perpetual high div yield from lowering capital value.

Buy Value.able, stick the remaining $999,950 in a high interest account. Six months later look for entry points.

Choose about a dozen blue chip Australian shares on the basis of stability and yield.

Pocket the $60k or so per year it will generate.

Go find a job you like to do and and do it.

It's worth remembering that even good yielding blue chip stocks will grow over time, so it's almost certain that over the years to come the value of the portfolio, and the value of the yield, will increase at a rate greater than inflation (on average).

This guy doesn't sound like he needs too much help.

For someone that doesn't know anything about shares he sure has done very well (albeit for the selling).

How many 18yo would even think to plonk that much on some shares, even if they had that kind of money on them, and make that kind of profit, if they knew nothing.

I think he's pulling ya leg.

The answer here depends on so many factors, what his plans and goals are, what his interests and skill-sets are, his investing knowledge-base etc...

But if he needs a regular and relatively reliable income to replace his former job income, then I think shares would be the way to go.

I'd suggest something like my own share portfolio (outside of super, about 0.06% of my gross assets ), which is a roughly equal split between 5 low-cost LICs:

AFI
ARG
MLT
WHF
MIR

No worries about individual stock selection or timing, very diversified, very low-cost, tax-effective, stable/less volatile and growing dividends, good long-term performance record against the index, plus you get to go to AGM's and Investor Briefings and feel important...

Boring, but very simple and very passive.

If he's single with no dependents, he could go to a developing country and retire indefinitely on a modest income.

Then he can spend some time figuring out what he wants to do with himself, work another job he likes, start another business, further education, learn more about shares, CIPs, property developments etc...

Wow, Good on him !

If it was me I would be splitting it up eventually but right now I would be sticking it in a range of term deposits.

Not good for a young bloke to be able to get his hands on that much cash, too many scammers around that will be glad to help him spend it.

In time I would be buying a house that a family could live in so that he does not have to move should he ever want to get married.

If there was any left over buy STW and let it follow the index and pay a dividend every 6 months.

Easy and bulletproof as can be in todays world.

ING Direct

GG

Seems to me like the bloke doesn't need any help at all, as mentioned earlier.

Discounting the 200k gifted by his parents, he's still managed to build $800k through business, investing and savings (assuming the other 200k came from savings), in the past 12 years.
Seems to be a pretty rounded approach.

Why would things suddenly turn around and go bad for this guy?
To have been investing in shares for 12 years and letting it build, without temptation to sell and spend the money shows he has self control and patience.

The only advice I would give him is find something he enjoys doing, since he hates his current job.
He's been sucessful before, so don't see why he can't continue his sucess, as long as he is flexible and can adapt as situations require it.