Ask Paul: I migrated to Australia with $1500 and a suitcase

Deepak migrated to Australia in 2008 with just $1500 - should he buy another property, invest in shares, or boost super for the best long-term wealth strategy?

Reader question

Dear Paul,

I migrated to Australia in 2008 with one suitcase, $1500 in savings and a student visa.

Since then, my spouse and I (ages 37 and 34) have built a family with two children (ages eight and four) and a household income of around $250,000 per year. We have no car loans or credit cards.

We own our principal place of residence, valued at $880,000 ($450,000 mortgage) and one negatively geared investment property ($700,000 mortgage) in Melbourne.

I contribute the maximum concessional cap of $30,000 per year into super starting from last year.

We have around $230,000 invested in shares and ETFs, plus $60,000 in our offset account.

For our kids, I've set up kids accounts and contribute $8 (ETF value $3400) and $4 (ETF value $1200) per week (based on their ages) and invest in ETFs for them every couple of months via CommSec Pocket to teach them about money.

Looking ahead, I'm unsure whether it's better to buy another investment property, continue maximising super contributions, or invest more heavily into ETFs and shares.

Which option would be the most effective wealth-building strategy given our income, existing assets, and long-term goals? I have been following Money magazine since 2020. - Deepak

Paul's response

I love your suitcase, $1500 and student visa start to life in Australia, Deepak.

We also appreciate your support of Money magazine. It seems a long time ago that we launched the first edition in 1999. I certainly have a lot more grey hair!

I can see we share a commonsense view when it comes to personal finances.

Building your career or business to generate income is the starting point, then it is spending less than you earn and applying the surplus to saving and investing.

Sounds easy, but we all know it is not; life gets in the way. But you have done all the key core things at an early age.

At 37 and 34 you have done well to own a home, an investment property, you are building super and investments outside of super and the family home. Now I think about it, looking back to when I was 37, you are significantly ahead of me at the same age.

I'm also delighted you are teaching your kids about money.

There are programs such as Ecstra Foundations Talking Money programs in schools, but teachers time and resources are very stretched.

Teaching kids about money, without boring them to tears, is a major parent and grandparent responsibility.

Money skills are not a nice-to-have, they are a must-have.

I am so grateful to my parents for putting a little money aside for my sister and I, plus talking to us about our family finances over the dinner table. Too many parents keep this very secretive. That is a bad plan for your kids.

I don't need to spend much time on your money, because you are seriously good at it.

Frankly, just the $30,000 a year into super via salary sacrifice is a very clever strategy. That alone will see you with a huge super amount in say 30 years or so.

But you can't access that for decades, so building wealth outside of super is also a great plan. That takes us to property or shares. The choice here is more emotion than logic. A well-located property or a low cost global and Australian share portfolio will deliver solid returns over time.

It is technically correct that your average share portfolio will outperform your average property, but not by a lot.

Personally, I lean into shares. I love the dividends, often fully franked, plus no issues renting a property or fixing the broken toilet. The liquidity in shares is also good.

Of course you could borrow to buy shares, but most do this with property. At your age and income, while gearing increases your risk, over the long-term debt should be your friend.

The obvious comment I would make is you have far more in property than shares, so spreading risk is not silly.

My advice is to do your planning. Look closely at the risk another leveraged property means to you and your family, but I cannot argue that in your situation, sensible risk, using debt, is a viable strategy.

Whether from here you prefer to build wealth via shares or property is not really the critical issue for you. Just keep doing what you are doing and barring a major unpredictable global event, I can see you will be financially independent at a quite young age.

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