Not the best time to help a child with a property loan
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Opinion

Not the best time to help a child with a property loan

We have three adult children – all married and in happy relationships – but our daughter needs some help to buy a home. We are both 69, self-funded, own our home and are debt-free. In a number of years we will need to rely on the pension. There are many ways to help our children but we are conscious of being equitable with them all and we are not with unlimited funds. We are leaning towards offering our daughter a formal loan with a minimum of interest to be repaid if the property is sold or we both die, then the outstanding balance will be included in our Wills for a three-way equal distribution of our estate. We may need the money in future but I am mindful that it is more important to help our daughter when she needs it most. Our two boys are already in their own homes. M.F.

All good fathers want to help their daughters but you also have to consider your wife’s future. If in good health, she could live another 20 to 30 years, or more.

Property remains overpriced in relation to even pre-COVID-19 average incomes.

Property remains overpriced in relation to even pre-COVID-19 average incomes.Credit:Rob Young

It would be unfair to deprive her, and you, in your old age of what appears to be a substantial sum.

Other matters for you to ponder include that this is not a particularly good time for your daughter to buy a property.

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Prices continue to drift, as they should, given the overpriced nature of property in relation to even pre-COVID-19 average incomes.

Post-coronavirus incomes are likely to fall further when the expensive JobKeeper program ends in September, although I suspect it may be phased out at a later date than is planned.

It is becoming apparent that the economy will not snap back to pre-virus levels any time soon.

In the absence of a vaccine, overseas travel, incoming overseas students and tourists, and as the threat to our trade with China rises, the outlook is not a happy one for a few years at least.

For older people who have been saving for their retirement, I have been criticised for projecting future returns at a maximum of just 5 per cent a year and a minimum of 3 per cent.

As savings accounts approach zero interest and listed companies reduce, defer or eliminate their dividends, it may prove that I may have been too optimistic.

You have previously written about investing for a grandchild and provided information on Colonial First State (CFS) and Vanguard products. I have two grandchildren – aged six and four – and would like to invest $5000 each for them until they turn 21. Would you recommend Vanguard ETF products, or are there better funds? I would put it in trust for them. N.C.

The fact that you would have control is likely to see the trusts taxed in your name.

You might as well keep the money in your name, which would allow you to tweak them over the 15 to 17 years as markets change, then stipulate in your Will which investments go to which grandchild.

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I am not keen on derivatives. They have historically proven capable of vaporising money.

However, if you are looking at Vanguard, I would consider the Australian Shares Index ETF (ASX code VAS) and the new Ethically Conscious International Shares Index ETF (VESG).

I have mentioned before that I prefer the wide choices and customer service of CFS funds and, from those, would nominate Fidelity’s Australian Share and the Magellan Global Share funds – both award-winning and, ironically, available as ETFs.

I have held a Self-Managed Super Fund for six years and have been with a planning firm but the return from this fund has been abysmal and I have no confidence in their ability to improve the situation. In brief, I am 82 and my wife is 78. Our finances are: SMSF $255,000; bank deposit $5000 and Australian shares $295,000, in my wife’s name. We also get a $14,000 Centrelink pension. I would like to cash out the money in the fund and either start a share portfolio in my name, or open another SMSF. A.C.

Since you, and presumably your wife, are members of the SMSF, you are also the trustees, or perhaps directors of a corporate trustee. As such, you have control and don’t need to start another fund, or even withdraw the money.

All you need to do is to cease paying your adviser, assuming no contract exists, and then consider whether to sell the poorly performing investments and invest elsewhere. Or you might sit in cash for a while.

If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Help lines: Australian Financial Complaints Authority, 1800 931 678; Centrelink pensions 13 23 00. All letters answered.