Your top 10 money questions answered by an expert

We got Aussies from around the country to send in their mortgage, money and superannuation questions. Here's what Aussie finance guru Peter Switzer said in reply.

I have been left $80,000 in an inheritance and want to invest for my future. I’m 26 and am not sure how I should invest the money. Jason, Sutherland, NSW.

You could use it to buy an investment property that you one day might move into. If your income from rent is less than your costs including interest, you can deduct it from your income and get a tax refund. The taxman helps you invest. You could buy a place to live in as well, which can be very tax-effective as we don’t pay capital gains tax on our principal property. You could slam it into super and it would make you very rich in retirement with $80,000 rolling over in super for forty years bound to be more than $2 million! If you want to access the money you could buy an ETF or exchange traded fund for the S&P/ASX 200 index, which means you invest in the overall stock market. This tends to go up by 10% per annum over a 10-year period and half of these returns will come from dividends. You could get a broker to create a portfolio of stocks but I’d recommend dividend-paying stocks if you are a cautious type or you could invest say $40,000 into two different funds. One might be a safe dividend-paying fund and one might be a more risky small cap fund that would pump up your returns. However, these can be high returning but then can lose heavily, so be prepared for volatility. You might put $60,000 into a couple of funds and then out $20,000 into term deposits but interest rates are low nowadays. Finally, you could go to an advisor and tell him or her your goals and they could help you invest the money for the long-term. Also read this website regularly and watch my TV show — Switzer on the Sky News Business channel!

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I want to know if I should pay off my house quickly or add to my super. I am 45 years of age and my kids are now working and they’re no longer helping me to drain my bank account! I have about $500,000 in super and a $350,000 mortgage. My wife and I bring in about $120,000 a year after tax combined. My wife’s super is about $300,000. William, Terrigal, NSW.

A. Over the years for our clients we have run computer model tests to see what option works best and the answer varies case to case, depending on debts, income, lifestyle demands and goals. Often the bottom line answer is that both work out to be positive strategies but one is slightly better. Some clients opt for doing both and in the case of small business operators, getting a lot into super can make sense because your super money is protected from bankruptcy, provided it can’t be proved you put the money into super to try to beat your creditors. You could use home loan repayment calculators and super estimating tools to answer this question yourself, but if you think it’s beyond you it might be a reason to talk to an adviser given the momentous time in your life when you have lost the ‘drainers’!

What do you think about gold as an investment? Rob, Albert Park, Vic.

A. I find gold to be like currencies – they are hard to predict. The experts think gold goes higher because there are a lot of uncertainties out there, but it has risen a lot in recent times. Have a look at this chart to see my point:

 

As you can see the best time to get into gold was March this year. Gold is now around $US1,316.90 an ounce. Here is the forecast from The Economy Forecast Agency, which is just an expert group doing their best to pick the price trend for gold. “Gold forecast for May 2017: The forecast for beginning of May $1368. Maximum price $1580, while minimum $1292. Averaged gold price for month $1419. Gold price at the end 1436, change for May 4.97%.” They could be right. They could be wrong but I hope they’re not crazy! Good luck.

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I am 65 years old and about to retire and want to sell my home and move to the country. Will the proposed rules about super with a $500,000 limit on non-concessional contributions stop me getting more than a million into super? I don’t have any and always planned to downsize my home to give me some super. Alex, Cronulla, NSW.

The toughest measure that has hurt older Australians is the $500,000 lifetime limit on non-work-related super contributions. Before the Budget, you could put in $180,000 a year and $540,000 in one go but it meant you couldn’t put more in for three years.

Under the old rules, you could get your money into super in about six years. However, under the new system, you could put $500,000 in and that’s your limit for what is called non-concessional contributions. You then could put $25,000 in until you are 75 as a concessional contribution, so you could get $750,000 into super. However, your leftover money would be outside of super and taxed at normal tax rates. Of course, if you were married your wife could do the same thing and so you could get $1.5 million into super if she is the same age as you. The Government used to make under 75s pass a work test but this has been dropped, which is a good thing.

My son wants me to go guarantor on a business loan for $200,000. What advice would you give to ensure I don’t lose the money? Angie, Hawthorn, Vic.

You might love your son but you need to look at this professionally. I’d get an accountant involved to monitor his business and do the accounts regularly so he or she knows how the business is doing. This could help your son do business professionally and at the same time it would mean your money might be protected against poor business practices.

Of course you are at risk to bad business conditions, poor health of your son, business fraud by an employee, fire and flood and even a divorce if your son is married! This is why a lot of advisors advise against going guarantor, so I suggest you go into this with your eyes wide open and with a professional on your side or not at all!

I run my own business and have no super. I’m 45 years of age and I have always used my profits to support my cash flow and I have no debt in my pretty good business that profits about $200,000 a year. Should I think about super with all of these changes in the wind from the Turnbull Government? I am paying off my house comfortably and have no plans to move. Jason, Fitzroy, Vic.

I’d seriously think about super and you could put up to $25,000 a year, even under the new regulations, and if you did that for 20 years or until you were 65, you could get $500,000 into super, which could snowball into a very good nest egg. If you are married, combined you could slip $50,000 into super and you’d be set for life.

I think you’d benefit from talking to a trustworthy financial planner who could even work out whether you’d be better off paying off your mortgage or starting to build some good super balances. By the way, super is taxed very charitably at 15%, which can be good for your wealth-building goals and if you should ever go broke, they can’t get at your super but they can make you sell your house!

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What do you think about Defence Housing Australia (DHA) as an investment? Janine, Bondi Junction, NSW?

I think an investment in these properties can provide a reliable stream of income. With a DHA property you get a guaranteed rental income for up to 12 years. They calculate your rent from the date of settlement. Rent is accrued daily and is paid monthly in advance. The properties undergo an annual rent review and your rental income won't fall below the starting figure. DHA also does a lot of the repairs and maintenance. At the end of the lease agreement, the property is returned to you.

This means you can move in, rent privately or sell as you wish. Generally these investments give a good return without being spectacular and if the properties are in good areas for capital gain, they can be a very rewarding play. Make sure you know all of the fine print details and get as many experts to advise you about the pros and cons.

I’m new to business and have received a very good reaction from my existing customers but how can I build my customer base without spending too much? I’m pretty good at online stuff but there’s a lot of competition to get on the top of Google, so I think I have to try more conventional marketing but this can be pretty expensive. Alison, Mollymook, NSW.

A. You haven’t said what your business is so I’ll give you some general tips that hopefully will fuel your marketing appetite further. If you’re good with online ‘stuff’ as you say then work that to the fullest. You can do that with relatively little cost. Work your Facebook profile if that activity suits your business.

I was talking to a person recently who has a gift store in country Victoria and he keeps encouraging his wife (who owns and runs the store) to develop their online presence. I notice that you’re from Mollymook so I’ve used this example of a country town.

The store is currently in a shopping strip and he feels there’s real scope to encourage shoppers in by informing Facebook fans about discounts, new items etc. She says she doesn’t have time so he is encouraging her to pay a local young person skilled in this area to do it for her.

This person can help her tweet, put photos on Instagram, help her work her Facebook presence, etc. You might be able to do this but do you have the time? And because you’re so busy doing other things, nothing perhaps is being done in this online area!

In terms of more conventional marketing, the best thing you can do is get people talking about your business. What are you doing that is remarkable? Are you trying to get stories written about you in local newspapers and online?

Have you read Seth Godin’s book Purple Cow? This book has so many marketing tips just waiting for you to read and implement. Try that as a starter and come back to me after you’ve read it and there’ll be more tips that hopefully will help you grow your business.

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When should someone seriously think about setting up a self-managed super fund? Robby, St. Ives, NSW.

A. I reckon you could spend around $3,000 a year running a SMSF if you can’t do a lot of the work yourself. Accountants, auditors and broker’s fees could hit you with $3,000 worth of charges and on $300,000 it would be a cost of 1%.

There are industry super funds that are good performers but charge less, but 1% is not a bad slug to do your own super. However, make sure you really want to do the work or have the experts to help you do as well as the fund managers that drive the returns of the best industry super funds.

It’s no good driving down your costs by 1% but then you only make 5% when funds are doing 7-8%. If you really want to be your own fund manager you do have to commit to becoming pretty professional in the way you construct and manage your portfolio of investment assets.

My adviser wants me to switch super funds but I’m not sure why I should say yes to it. What should I know before saying yes? Jan, St. Ives NSW.

Your adviser should have asked you questions about your goals and appetite for risk. Ideally the advice should be in a Statement of Advice. The fund should have a better track record than your current one and could even be cheaper. Of course if the risk profile is different, then the returns might be historically lower.

If you were switching from a balanced fund to a conservative one, then this could be the case. The adviser ideally should not have a conflict of interest and this can happen when a financial adviser from a financial institution recommends a super fund from his or her organization.

You could go to websites — www.supperratings.com.au or www.chantwest.com.au to check out your old fund’s performance and costs against the recommended one. You could also look for those funds that have the best long-term performance and then ask your adviser why he or she is not recommending them? ASIC gives advice on switching super on their website.