INVESTING

Ask Paul: Where should I invest my $30k compo payout?

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I am a low-income earner working part time. I earn just over $24,000 gross a year from work and receive around $14,300 a year from Centrelink from the carer pension and carer allowance.

I have a super balance of around $11,000, which has $2687 employer contributions going into it each year. I have $1669 going out of it in fees and insurance premiums.

I have about $4000 in various shares with nabtrade and about the same amount in employee shares for which I salary sacrifice $1000 a year.

ask paul clitheroe what to do with compo payout

I will soon receive (after legal fees) around $40,000 in compensation for medical expenses and section 56 and 58 entitlement. I will use $10,000 of this to pay off two credit card debts. I do not have any personal/car loans.

I'm too low an income earner to be able to get a mortgage over $145,000 because most financial places will not count the carer pension as income. I currently live in government housing, paying $312 a week (my son pays half because the rent is based on both our incomes).

I'm looking for some advice on what to do with the remaining money. - Alison

An extra $30,000 after you pay out credit card debts is going to be very helpful, Alison. I have to say I am pretty unhappy about you having a super fund with $11,000 in it and $1669 coming out in insurance premiums and fees. That is about 16% of your balance each year!

I am delighted you know exactly what the costs are in your super fund - very few people can tell me that. I really want you to have a chat to your fund and understand exactly what insurance you are paying for.

You mention your son lives with you and you may need death insurance to help him and also income protection insurance to help you out if you get sick, but I would like you to make an informed decision about whether the cover you have is right for your situation.

Then, of course, I would want you to be in a large, low-fee super fund. There are plenty of these about, such as AustralianSuper, Hostplus and Cbus.

Having the right fund is important, as adding your excess money to a super fund is an option for you. But it is critical you understand your ability to access that money in the future, what the fees are and how it is performing. A good chat with your super fund is needed here.

If super is not the right option for your excess money, then you need to consider how long you can invest it for and the level of risk you would find acceptable. You may find an easy and effective solution is to invest in a balanced-type option with one of the large fund managers.

They will help you online or over the phone. Vanguard, for example, is a very sound, low-cost manager of money. Perpetual is another example, but there are plenty of other reputable managers.

Historically you could expect returns in the range of 5% to 8% a year on average, but in years of poor market performance your investment would fall in value 
and good years would tend to see high returns. This means it is wise to invest for longer periods - I would suggest five to seven years.

If it is invested well, this pot of money should grow in value over time and provide you with a little more income in retirement, which I am sure would be really valuable.

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the television show Money, radio, and most notably this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is Chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Click here to email Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. Please view our disclaimer here.
Comments
Paul Eardley
May 27, 2021 7.10am

Come on Paul. You can do better than that. It is obvious that this lady needs some more defininate advice. EX. Insurance companies outside super that are mentioned in previous Money Mags, or the Best of the Best. She may not subscribe to MMag on her budget.

Andy Cattell
June 1, 2021 9.22am

Thanks Paul Eardley, you took the words right out of my mouth. Paul Clitheroe probably had the work experience kid write his response!

Markham Dawes
June 1, 2021 10.44am

I would invest in the barefoot investor book,paying off credit cards is a great move.

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