What should I do with a lump sum: Save, super or invest?

Tom Hayes (0:00)

Most of these pays 0% interest. So if you get your 20,000 in there, it's earning you nothing, precisely. It's one of those things that you don't need it to when you need it, okay? And when you do, it's very important. Credit card loan, personal loans, car loans, these are all sort of wealth creation killers, as we say. Oh, everything was going down, so I sold everything to be safe. And you're like, oh no, that's the worst thing we can do. Superannuation remains the most tax-effective wealth creation vehicle in the country. Four out of every five calendar years, markets go up, they end higher than they started.

Jess (0:34)

Welcome back to Get Started Investing, a show that helps you make the most of your money. I'm Jess, and this year I finally started investing after spending years completely avoiding thinking about money. Naturally, as a beginner investor, I have plenty of questions about investing. As it turns out, so do you guys. So each week I get to sit down with an expert to answer them. Today we're tackling how to make the most of a lump sum. Imagine you have received an unexpected chunk of money. Maybe you don't have to imagine. Well, lucky you. It could be a bonus, an inheritance, a gift from family. Maybe it's the profit from selling an asset or starting a side hustle. It's exciting, but it can also raise some really big questions of what to actually do with it. So in this episode, I walked through the different options with the financial advisor, Tom Hayes from Shadforth. We use real numbers to walk through like the pros and cons of each option. And hopefully you can make a decision that fits in with your goals in your life. Alrighty, let's get into it. Thanks so much to MLC for sponsoring this episode and helping us keep all of our content free.

Tom, welcome to Get Started Investing.

Tom Hayes (1:30)

Thank you for having me.

Jess (1:31)

Good to have you here. So a bit of context for this chat. We at Equity Mates are currently going through our review process, as I'm sure a lot of other people are. I know we've been following my journey. I don't know what that's going to look like if I'm getting a bonus, I hope so.

And then on top of that, we've been getting a lot of questions in from the community as always, obviously all different circumstances, but the overall theme being what to do with a lump sum of money. We talk a lot on the show about dollar cost averaging and what to do with your paycheck and how to manage that in a spending plan. But it's this lump sum piece that I would like to focus on today, if that's okay.

Tom Hayes (2:10)

Yeah, great. Sounds good.

Jess (2:11)

I want to talk to you in a case study.

I want to look at it as if I'm coming into your office, I'm on let's say $110,000 as a salary, to make the numbers as easy as possible. Yeah, thank you. And let's just say I've got a $20,000 lump sum. I think the first thing to touch on, Tom, would be trying to figure out why this is such a common question. There's so many people that write in to us about a lump sum, whatever that may be or for whatever reason, but there seems to be the sense of almost anxiety around it. Do you see that with your clients?

Tom Hayes (2:46)

Yeah, we certainly do. And I think a lot of it stems from a feeling of responsibility to make sure they do the right thing and not put it to waste.

Unfortunately, if you're tuning in today to find out what the right answer is, you're not going to get it, okay? Because it depends, to be blunt. It's going to depend on your personal situation. It's going to depend on your lifestyle and your needs and your objectives. It's not going to be the same for every person. There's going to be the best financial outcome, but you need to find a balance between that and what works for you as an individual.

Jess (3:17)

I guess you said they're not going to find the right answer, but I think what we can do is I hope I can ask you the right question so that they can see the maths behind the numbers and I guess work out what works best for them. Would you say is that what you do with clients?

Tom Hayes (3:33)

Yeah, definitely. Our job is to work through all the different scenarios.

Have a look at the different outcomes from doing this or from doing that and walk through all the different scenarios so that they understand the impact of the decision that they're making.