Alternative to Term Deposit for Retired Investor

Hi All

I’m trying to help my folks out with some spare cash that they have in the vicinity of 150,000. It was previously in an underperforming fund and moved into a term deposit when rates were a bit better.

But with the current rates being as low as they are, I was wondering what thoughts would be on a safe investment option. They don’t intend on using the money for at least 5 years or so. They are pensioners.

I invest in index funds so was thinking maybe even putting it into something like VDHG or a VGS/VAS combo? But also considering whether there is another investment vehicle that might be more appropriate for them?

cheers in advance.

 

Put it into a super fund such as Aust Super. I've certainly been impressed.

 

The balanced option has been wearing well.

 

For a hassle free, hands off approach - doesn't get better than AustSuper or HostPlus balanced options.

What is Total Super balance for each member? Can start a pension so gains can be tax free.

Make sure it won't affect their aged pension etc. Seek advice.

 

Thanks everyone for taking the time to message back. I’ll definitely look into the Aust Super option. Cheers.

 

Depending upon their ages (you mention they are pensioners) then if they dont meet the requirements to put it into a superfund, then perhaps a LIC (AFI, ARG, WHF) or an ETF perhaps like MVB which is an ETF of the 7 major Australian banks.

 

Thanks for this added detail. I’ve been doing some reading and think I may not be able to put the term deposit money into a superannuation account for that exact reason - ie they are both in late 70s. The money was previously in a super account and moved into a term deposit about 4 years ago when interest rates were a little better and my parents wanted something more certain. But they want to see some growth to these excess funds and the term deposit just isn’t cutting it anymore.

 

Then I would assume that they don't meet a work test (so can't contribute further to super if they work <40 hrs in a month).

 

Yeah, that’s correct.

Any suggestions on where to invest a spare 100k in those circumstances will be much appreciated. I’ll obviously do my own research but keen to hear and suggestions.
Cheers!

 

Any other recommendations now I’ve clarified some detail?

Given age of the investors being late 70s, moving term deposit to super is not an option. They don’t intend on using the cash unless absolutely necessary but they have other emergency funds.

I’m leaning towards a strong performing LIC (like AFI) or a diversified ETF (like VDHG or VAS/VGS combo).

Any further thoughts or views?

thanks!

 

Have a read of Motivated Money by Peter Thornhill. Its a short book written by an Australian that address the issue you face.

Spoiler alert - he advocates LICs (names his preferred) and only holding cash for the short term. Despite being retired, that money still has an approx 20 year investment time frame.

Im at a different stage of life so glossed over that chapter pretty lightly, but pick up copy and read over an afternoon.

 

Thanks very much - I actually have the book to help with my own investment strategies so thanks for reminding me about that chapter! I think I also glossed over it given it wasn’t relevant to me. Cheers!

 

You might want to consider Ymax or Umax, especially if you want yeild,upside may be a little less than VGS/VAS as they sell call options which limits capital gain a little, and limits down side some what, but gives income . Umax can give some diversification, exposure and good yields from US markets, but there is some exchange rate risk.

 

This is false. It does not limit downside risk whatsoever. The downside risk is unlimited. It is the upside risk that is limited.

You never responded to my earlier comment on what an utterly atrocious product YMAX and UMAX are here. They are clearly targeted at uneducated people who are unable to figure out that

• income does not lead to higher total returns
• Betashares advertising video which says "lower volatility" does not explain that there is virtually no difference in downside volatility (the important one, especially for a retiree as per this thread), and it only limits upside volatility
• the high fee will eat into their return significantly and they are not rewarded for this.

I've explained in that link exactly why it is such an atrocious product. Maybe you would like to explain why you continue to recommend it, along with why you continue to spout the lie that it limits downside risk. Do you legitimately not understand that downside risk is unlimited in this product and that it is only upside risk that is limited as I explained previously, or are affiliated with BetaShares?

This kind of misinformation causes serious financial harm to unsuspecting newbie investors, long after you wash your hands of what happens to them and blame it on them for not knowing better (after being misinformed by you and by Betashares advertising).

 

In general, anyone reading here should understand that:
1. It is against the law for any of us to provide financial advice.
2 There is a statistical certainty that some bad advice exists, e.g. buy umax, don't buy umax (one of them is incorrect).
3 Each investor has an individual situation that requires a unique strategy.

TL;DR: DYOR.

 

YMAX

As a retiree I hold YMAX and yes there is no mechanism to limit the downside but the attraction is the very large yield which I need at this stage of life. Yes option trading does limit the upside gain but YMAX still had a capital gain of 15% this year. I am comfortable with the trade off and maintain that YMAX can form part of a balanced portfolio as I have other holdings with a lower yield and a greater potential for capital gains.

 

And with YMAX where is the yield coming from? Doesn't appear to be from dividends if I read the 2021 Estimated Distribution breakdown correctly with franked dividend accounting for 14.9% of the amount. AMIT cost base decrease was 83%. Hmm.

 

If your parents are happy holding the money in term deposits, then maybe just leave it there.

Unless they are experienced with shares and market fluctuations, the worry it may cause them would not be worth it, unless they desperately need more income.

 

Worth questioning why you need a very large yield at this stage of life.
Dividends are not safer than selling stocks — Passive Investing Australia

 

Buy a lease back lot from a developer , returns in the region of 6%. No maintenance and longer term rental contracts.