Windfalls come to you by selling a home or business, or through an inheritance.


But you can lose a windfall as fast as you receive it, because windfalls involve large lump sums of money that you may not have experience in managing. So what do you do with a windfall in the short to medium term?


Let’s assume you want to park the cash for between six months and two years in preparation to buy another home or start a new business in the near future. I would begin by consulting an accountant to understand your tax exposure. This could save you tens of thousands in taxes right off the bat. Next, I would tell anyone without investment expertise to consult with a financial planner. But before that, you should get up to speed on the “cash” and other straightforward investments that are available to you.


Let’s look at several different options that offer low risk and regular income.


  • You can look into ‘bonus’ savings accounts which offer better returns than traditional at-call products.
    But be careful. Bonus accounts often promise high interest rates for three or four months-or some other catch-before dropping back to an unattractive rate. And they will typically cap how much you can invest in the account.
  • You might also consider term deposits of between three and 12 months. They generally provide better interest rates than at-call deposits, however, you should know that your money will be locked away for the term. Some banks allow you to break TDs, but please read the fine print.
  • Have a look at actively managed cash funds, which invest in deposits and floating-rate Australian bank bonds. They carry slightly higher risk than a vanilla deposit, but they have delivered returns between four percent and five percent. Look for products that allow you to move your money in and out, and those where the fund manager is invested alongside you.
  • Another option is ASX listed bonds. The more highly-rated bank bonds are paying between four and five percent annually. You can buy these yourself in the same way you buy shares, or you can outsource the decision-making to professionals via an actively managed cash fund.
  • I’d steer away from fixed-rate bonds and toward variable-rate bonds whose interest rates increase when the RBA increases its cash rate. Fixed-rate bonds are likely to suffer if the RBA raises rates.
  • Finally, don’t put all your money into one solution. Spread it across an at-call account, TDs, cash funds and ASX bonds. And, if you’re not being advised and you’re not an expert, don’t feel pressured into buying equities or any higher risk investment where there is a greater chance of losing capital.


Source: NineMSN Finance