Here’s what to do if you’re just starting out
Let me tell you about one of the best letters I’ve received this year.
(Actually, it was a Facebook post — not even my grandmother writes letters these days.)
It was from a young bloke in his twenties. He’d uploaded a photo of himself sitting in a hospital chair, holding his brand new baby.
He looked absolutely terrified.
It has a good ending though. Despite the fact that he probably hadn’t yet worked out which way a nappy went on, he was confident about his family’s financial future, thanks to the advice he’d gleaned from being a Barefooter
That got me thinking — there’s a lot of young people in his shoes. So why not devote an entire column them? Let’s do it.
Love Me Two Times
Hello Barefoot Investor,
My 12-year-old son has recently lost his father and come into just over 200k. I have to invest the money in trust for him, and I am looking at turning this into a lot more by the time he is 18. As interest rates are low and the stock market is volatile, I am considering purchasing a block of land and changing the title to his name when he is 18. Would land or property give him the best return, or should I consider another source of investment?
Kind regards, his mum
Hey Mum,
Let’s back up a bit before I get into the investment meat and potatoes.
This money is as much about you as it is about your son. You’re a single parent now, so you’re operating without the financial safety net. The best (financial) thing you can do for your son is to learn about money yourself — starting with where to invest the $200k.
Trust me, you don’t want to sink the money into a block of land. You won’t get any income from it, and the maintenance costs will be a drain on his funds over the years.
Instead, I’d like to see you put the money into an insurance bond. Don’t get confused with the lingo — an insurance bond is more like a standard managed share fund, but with some very attractive features.
First, your son can hold it in his name, and be taxed at 30 cents in the dollar, rather than being hit with kids’ penalty tax of 66 cents in the dollar. Second, you can nominate a transfer age, and not pay any capital gains tax (CGT) after ten years.
That’s all great, but here’s your biggest risk: giving your son the dough when he turns 18. I’ve repeatedly seen the damage that sudden, unearned wealth does to a young people who don’t have the maturity to handle it. (And that includes many young AFL footballers I’ve advised).
If you put the $200k into a bond and choose a growth option, it could be worth around $300k in six years’ time (in today’s dollars, adjusted for inflation). Though let’s be honest, it could also be worth a lot less if there’s a crash in the next few years.
That’s why I’d suggest you stretch it out for 13 years. Give him the money when he’s 25, at which time he might well have around $500,000 (again, in today’s dollars — tax free).
My entire life changed when my old man sat me on his knee and taught me about shares. Just because your son’s father has passed, it doesn’t mean he can’t have the same impact.
Too Many Conflicts
Hi Scott,
I’m a long-time follower of yours and a big fan. The wife and I have moved in with the in-laws to save for our first home, but we have a huge $35k debt. We plan to save half our income and pay the loan as much as possible, but inside I feel it’s pointless saving with that amount of debt (with interest). Should we go all guns on the debt and then start to save?
Thanks, Rory
Hey Rory,
Yes, attack the debt first and start saving for your home with a clean slate. It’s the easiest way to make 18 per cent on your money, tax-free.
It sounds like you could be in for a long innings. That being the case, I’d really think through the prospect of living with your out-laws. And when I say ‘think through’ I really mean that I reckon you’re completely nuts.
I wouldn’t want to live under another man’s roof — too many conflicts. You’re a married man. If you want to save extra money, do it by working two (or three) jobs — but keep your independence.
Tread Your Own Path!
