A Real Life Example of Investing

A salary earner at the age of about 50 started investing semi-regularly.  All dividends that she earned ware reinvested in various shares.  She kept at it.  At about 65 she retired.  Already at that stage she didn’t qualify for a Centrelink pension.  Even after retirement, any cash and dividends she didn’t use purchased more share.  This lady ignored downturns and recessions.  She lived through the GFC.  She just kept investing what she didn’t need.  At 80 years of age she became our client.  I received a phone call asking if I would take over the paperwork and look after her tax lodgement obligations.  On review and during the rebuilding of the history of the portfolio, I even found shares in companies that didn’t even exist anymore.  But still she invested.  The rebuilding process took about 60 hours.  Was it worth it?  It sure was.  The investor’s portfolio was worth $1.8 million, had approximately $75,000 worth of dividends deposited into her cheque account as well as approximately $30,000 imputation credits. She had also received bonus shares purchased by non-taxable dividend income (pre CGT arrangement) of about $40,000.  The next two years were similar from an income point of view and in year two, the portfolio was worth $2.4 million.  The third year of her engagement of our services the portfolio rose to $2.5 million.  This portfolio has risen even more since.  From time to time I receive phone calls from the investor seeking advice on share acquisitions to invest surplus income.

It should be noted that in this case study, no borrowing was ever used.

This was only one case study.  We have families that are falling over their wealth, because they know the rules for successful investing – consistent and long term.  Investing in expensive cars and a nice house will keep high net worth people looking rich, but cash poor over the long term.  My advice for someone heading for this lifestyle would be to hold off, get on with investing, and you’ll set yourself up and your for a financially worry free future.  We coordinate the estate planing needs of high net worth people so the family’s wealth which has been carefully built over decades is not depleted in months or years of inheritance disputes.

A common killer of wealth generation is the over reliance of tax planning.  Unfortunately, planning wealth around tax strategies will more often than not mean less tax (the good part), more interest, little or no (net) income and limited reinvestment opportunities.  The use of borrowing to invest needs to be very well considered before accepting it as appropriate.