Ask Paul: What should I do with $80,000 inheritance?


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Q. I am a 27-year-old owner-occupier of a property worth $500,000 ($320,000 mortgage with $60,000 in an offset account). I'm planing to rent out the house next year at about $450 a week as my employer will provide our accommodation.

I have $220,000 in super, a share portfolio of $20,000 and savings of $5000, as the majority goes into the offset account. My gross income is $110,000 and my partner earns $55,000 gross.

Soon I receive an inheritance of about $80,000. I also envisage a wedding and children with my long-term partner in the coming years.

ask paul clitheroe inheritance

I believe that my super will continue to remain healthy and as such I am happy to take some measured risk at this point in my life.

I'm hoping you could provide some astute advice on how best to invest this additional income (pay down the mortgage, second property, shares, etc?). - Paul

A. Congratulations, Tim. Not only are things financial going well for you but your financial literacy skills are terrific.

It looks to me that you have total equity in your house, superannuation and share portfolio of $485,000. This is significant at any age but really impressive at 27. I recall owning a Datsun 1000, worth $300, when I was your age.

Your wedding will be a wonderful occasion but it can be hard on your cash. That I will leave to you but it is very clear you have financial discipline and you have surplus income. I agree about your superannuation. You are young and your employer contributions are enough right now.

The answer to your inheritance question comes down to one word: risk. How much do you want to take? Paying down the mortgage is sensible and super safe. But at your age, putting aside wedding costs, I think you may well benefit from a bit more risk.

This could be some sensible borrowing to buy a well-located investment property, shares, exchange traded funds or whatever you prefer. I can't get too excited about which one you choose. For me, the major upside over time is geared returns.

Only you can determine your risk comfort level. If in doubt, keep building that offset account. My feeling, though, is that given your age, current equity and savings capacity, well-planned risk is likely to be your friend.

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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 Money TV show, and 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 ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. Please view our disclaimer here.
March 6, 2017 1.17pm

Hello Paul, I have followed you're advice in 1997 regarding a money show on TV that year. It was to invest $2000 in four shares, CSR, NMW, LENDLEASE, and I don't remember the last one. I still own Lendlease, but out of these four shares only one when up and up and up. I started with these $2000 and you can add two zeros these days, thanks to you to be able to convince me. Now my question is, I'm 66 years old, retiring next month with $200,000 in super and $200,000 in shares, mainly small caps which don't give much dividends. What do you think I should do? Thanks again for your sound advice.