Ask Paul: Should I pause my investing on maternity leave?

Dear Paul,

We are a married couple, aged 35 and 42, who are about to have our third child.

We have an emergency fund of $10,000 and smaller amounts of savings in various sub-accounts that all offset our home loan of $670,000.

Our house is valued conservatively at $1.2 million. Our combined super is currently about $370,000. 

We recently started investing and have a small portfolio worth $2000. While I'm on maternity leave, we are not sure if we should continue to invest with the tiny surplus we would have each fortnight or retain that in our emergency fund until I return to work, given the uncertainty of interest rates at the current time. 

Having just got the investing bug, we are acutely aware that time out of the market is likely to impact our compound interest. 

We also have an investment bond that we set up for our first child five years ago. It has subsequently become a nest egg for our second child and soon-to-be third, but now that AMP is part of the Resolution Life Group we are feeling nervous about the returns. 

Should we take the tax hit and switch to a different bond provider that would give more confident returns and better customer service/portal that would show our investments, invest that lump sum into shares, or leave it where it is until the 10 years are up? - Jessica

Well, Jessica, you are one of the few homeowners who don't need to worry about interest rates, as you are effectively debt free. What a great position this is to be in as your third child comes along.

One of the advantages of shares is that they are highly liquid. Obviously, you should have a rainy day fund, but in your situation I'd keep investing whenever you can.

An investment bond is a perfectly sensible investment for a child. As you know, it pays 30% tax and funds are available tax free after 10 years.

It is certainly a tax hit to pull your money out inside this period, so I'd be taking a hard look at the new manager and its investment strategy. If you are not confident about the returns, which means a lack of confidence in the manager's investment team, it is probably worth the tax hit.

But if the investment strategy makes sense and fees are low, maybe you are better off putting up with a lower level of service for a while.

Personally, I still prefer to invest for kids and grandkids in a low-cost growth fund or ETF, with the lower-tax-paying parent or grandparent as trustee. Here I find a great deal of transparency, with no tax inside the fund, which I believe puts me in control.

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