Tax for investors: Get more from your tax windfall

Jason Prowd  |  09 October 2018  |  7 min read

Key Points
  • Taking care of yourself financially comes first – pay off debt, and have a savings buffer.
  • Your tax windfall can do much more for your wealth when you invest it.
  • A ready-made portfolio or global ETF could be ideal, depending on your investment budget.

Stayed ahead with tax during the financial year? Then you could be sitting on a tidy lump sum when your notice of assessment comes through.


But before rushing off to spend it bear with me for a hundred words or so and learn why investing your tax windfall—or at least part of it —could be the best money you’ve ever spent.

(I know, I know: your wellbeing will take a hit if you don’t get that holiday in Bali right away, but think of the peace of mind – and future island holidays – you can look forward to thanks to investment earnings.)

Get your finances fit first

Although investing is one of the best things you could do with new found wealth, it’s not always the right move. You should check your investment fitness first before sizing up potential assets for risk, return and fees. If you’re swamped with debt, particularly credit card balances and loans with punishing interest rates, then any investment returns are likely to be cancelled out by the cost of servicing your debt for longer.

So clearing debt is your first priority, followed by having a bit of a savings stash for a rainy day. That’s to stop you going into debt again just to meet everyday expenses if you were to stop earning for a while. And when you’ve taken care of that, take a look at your options for investing in and outside of super. Super can be super-beneficial for tax savings, but your money is tied up until you retire.


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No point playing a waiting game

Some pundits might tell you timing matters when it comes to getting started in this investing game.

They’re wrong.

Many have tried to time their market entry only to be left on the sidelines for years. Timing the market is just about impossible. So for the majority of investors getting started and adding to your portfolio over time is key and then watch those compounding returns pile up nicely. By putting off your investing journey, you’re just talking yourself out of potential returns.

I get where they’re coming from – why not wait until the next downturn to pocket a few bargains?

They’re framing the problem poorly, though. It’s not about investing versus not investing. The key question is: where should you invest when you do?

Take ten to invest

Doing something on the promise of becoming better off isn’t nearly as exciting as spending money right now. That’s psychology for you, and there is a simple way to get around our natural urge to procrastinate and get on and invest. Make the goal achievable. By committing to spending just ten minutes – you can even do it over a glass of wine – to do some online research or make that phone call to follow-up on a tip from a friend, you can push past your stubborn self and see where it takes you – a step closer to that home deposit that’s so elusive, perhaps.

If you’ve got $10k+ to invest, your 10 minutes would be well spent checking out what we offer in the way of ready-made portfolios at Morningstar Next. We’re by no means the only ones offering a simple way to get instant exposure to hundreds of companies. But whether it’s one of our portfolios you choose or not, you should be on the lookout for robust diversification and the right balance of risk and return for your situation. And all for a reasonable cost, too.

Have less than $10k lying around just waiting to be spent? It’s still enough to be worth investing, perhaps in an exchange-traded fund (ETF) like those we use in our investment portfolios. As off-the-shelf investments go, ETFs are hard to beat for diversification and running costs, especially when you have a smaller sum to invest. You’ll get exposure to companies spread across the globe in a product that’s quick and easy to buy and sell.

10 minutes well spent? I’m sure you learned something – string together a few ten minutes sessions and a Bali holiday or three won’t be too far off.

When your finances are in fairly good order and a windfall comes your way from the ATO (or any other source, for that matter), try not to miss out on this golden opportunity for some wealth creation on the side.


Jason Prowd leads Morningstar Next: ready-made investment portfolios.

More on this theme

Am I ready to invest? Your financial fitness checklist Cash in the bank? Why your savings could be working harder for you. Tax for investors: Four tax efficient ways to save

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© Morningstar Investment Management Australian Limited (‘Morningstar’) and any related bodies corporate that are involved in the document’s creation. Whilst all reasonable care has been taken to ensure the accuracy of information provided, neither Morningstar nor its third-party providers accept responsibility for any inaccuracy or for investment decisions by any person on the basis of the information included. Past performance is not a reliable indicator of future performance. Morningstar does not guarantee the performance of any investment. Any general advice has been prepared without reference to your investment objectives, financial situation or needs. You should consider the advice in light of these matters and if applicable, the relevant disclosure document before making any decision to invest. Refer to our Financial Services Guide for more information.

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