Ask Paul: Where to invest $400k short-term?

Dear Paul,

My dad is in his mid-70s and just sold his property. He has bought an off-the-plan apartment, but it won't be ready until mid-year. 

What's the best thing he can do with his money now? He will also have around $400,000 left after paying off the other property.

What will be the best strategy? Currently, he doesn't have any super. Should he start a super fund? - Tammy

I would be very uncomfortable if anyone looked at investing in growth assets such as property and shares with less than a minimum five-year view. Who knows what could happen in a few years - the market could be up or down by a significant amount. Time smooths out risk in investing markets.

This is why super funds, for example, with a very long timeframe, own growth assets.

Your dad could certainly have a chat to a super fund, his accountant or an adviser about his eligibility to build up super with the $400,000 he will have after his property settlement.

This is quite a "rule specific" area and not one that can be answered lightly. An adviser would be very valuable here, as a strategy for the remaining $400,000 could be developed now and implemented.

What is interesting, though, will be his strategy around maintaining a part pension. He would qualify for this as a homeowner with $400,000. The cut-off for a part pension for a single homeowner is currently $622,250.

A safe and simple "holding pattern" is just keeping all his funds in a term deposit. Rates have moved up dramatically and returns of around 4%, with safety and security, are available with any of our banks.

The really important issues here are your dad's timeframe for investment and his attitude to risk. If his risk appetite is low, term deposits become well worth looking at. A year ago they would have paid about zero, but 4% or a bit more in a super-low-risk investment is quite attractive, though over time inflation will see the purchasing power of his $400,000 decrease.

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