Pause before you decide

A large payment can arrive with a lot of emotion attached – particularly if it’s compensation for an injury or illness linked to your service, or a payout at the end of your ADF career.

• Give yourself time. Holding the money in a secure, easy-to-access account (such as a bank savings account or term deposit) while you plan is often a sensible first step.
• Understand what you’ve received. Check whether it’s taxable and whether it affects any pension or allowance. If you’re still weighing up a DVA offer, see our guide to permanent impairment offers.
• Don’t make big commitments straight away. Large purchases, loans to family and new investments can wait until you have a plan.

Start with your goals and timeframes

How you invest depends on what the money is for and when you’ll need it. It can help to split your goals into three buckets:

• Short term (under three years) – an emergency fund, a car, home modifications, study or a transition gap between jobs. Money you’ll need soon is usually kept in lower-risk options such as cash.
• Medium term (three to seven years) – a home deposit or renovations.
• Long term (seven years or more) – retirement income or building wealth for your family. Longer timeframes give you more time to ride out market ups and downs.

Emergency fund and debt first. Before investing, many people set aside a cash buffer for unexpected costs and look at paying down high-interest debt such as credit cards or personal loans. Paying down a home loan can also be worth comparing against investing.

Risk, return and diversification

Every investment involves a trade-off between risk and return. Investments with higher potential long-term returns, such as shares, usually rise and fall more in value along the way. Lower-risk investments, such as cash, are more stable but may not keep pace with inflation over time.

Diversification means spreading your money across different investments so you’re not relying on any single one. The main asset classes are:

• Cash and term deposits – stable, with lower long-term returns.
• Fixed interest (bonds) – regular income, generally less volatile than shares.
• Property – direct property or listed property trusts, offering income and potential growth.
• Australian and international shares – the highest long-term growth potential of the main asset classes, with the most short-term ups and downs.

How you combine these depends on your goals, timeframe and how you’d genuinely feel if your investments fell in value for a period. Past performance is not a reliable indicator of future returns.

All at once or bit by bit? Once you have a plan, you can invest the lump sum in one go or feed it in gradually over months (known as dollar-cost averaging).

• Investing all at once gets your money working straight away, but you’re more exposed if markets fall soon after.
• Investing gradually smooths out your entry price and can make market falls easier to live with, but money waiting on the sidelines may earn less in the meantime.

Neither approach is right for everyone. What matters most is a plan you can stick with when markets get bumpy.

Investing inside or outside super

Super is a tax-concessional environment for long-term savings, but money you contribute is generally preserved until you meet a condition of release, such as retiring after reaching your preservation age. Money invested outside super stays accessible but is taxed at your personal rates. There are caps on how much you can contribute each year:

• If your total super balance was under $500,000 at the previous 30 June, you may be able to use unused concessional cap amounts from up to five previous years.
• In limited circumstances, contributions from certain personal injury payments can be excluded from the non-concessional cap. Strict conditions and time limits apply, so check eligibility before relying on this.
• Going over a cap can mean extra tax, so it pays to check what’s already been contributed for you. Our guide to military superannuation explains how the Defence schemes work.

Ownership structures

Who owns an investment affects tax, flexibility and estate planning. In broad terms:

• In your own name – simple and low-cost. Income and gains are taxed at your personal rates.
• Jointly with a partner – income and gains are generally split between you, and jointly held assets usually pass to the surviving owner.
• Family (discretionary) trust – can offer flexibility in distributing income and some asset protection, but involves set-up and ongoing costs, and the Government has announced a proposed minimum tax on discretionary trusts from 1 July 2028.
• Company – profits are taxed at the company rate, but companies can’t use the capital gains tax discount and getting money out can create more tax.

It’s worth getting tax and legal advice before setting up a structure.

Tax and costs

• DVA compensation. The ATO lists compensation paid under the Military Rehabilitation and Compensation Act 2004 as tax-free, except income-related payments (such as incapacity payments), and Veterans’ Affairs disability pensions are also tax-free. However, the interest, dividends, rent and capital gains you earn from investing a lump sum are generally taxable.
• Capital gains tax (CGT). Under current rules, individuals and trusts can generally reduce a capital gain by 50% if they’ve held the asset for at least 12 months. New laws passed in June 2026 replace the 50% discount with indexation of the cost base, and introduce a 30% minimum tax on capital gains, for gains that accrue from 1 July 2027. Gains built up before then are still covered by the current rules.
• Franking credits. Dividends from Australian companies may come with franking credits for company tax already paid, which can reduce your tax – or be refunded if your tax rate is low enough.
• Pensions and income tests. MRCA permanent impairment payments aren’t counted as income for social security purposes. But once a lump sum is invested, those investments can generally count under the assets test and deeming rules if you or your partner receive, or later apply for, an income-tested payment such as the service pension or Age Pension.
• Costs and fees. Investment, platform, brokerage and advice fees all reduce your returns. Small differences add up over many years, so compare the total cost.

Protect yourself from scams

People who have just received a lump sum can be targeted by investment scams, including fake advisers, impersonated brands and “guaranteed” high-return schemes promoted online. Moneysmart and ASIC suggest you:

• Check the licence. Look up any adviser on ASIC’s Financial Advisers Register and check that a business holds an Australian financial services (AFS) licence or is authorised under one.
• Be wary of pressure and promises. Unsolicited contact, promises of high returns with little risk, and pressure to act quickly are warning signs.
• Verify independently. Contact organisations using details you’ve found yourself, not those given in a message or ad.

Things to weigh up

• What the money is for, and when you’ll need it.
• How much to keep in cash for emergencies and short-term plans.
• How much risk you can afford to take – and how much you’re comfortable with.
• Whether super’s tax benefits outweigh having your money locked away until retirement.
• How any investment could affect current or future DVA or Centrelink payments.
• Who should own the investments, and what happens to them if you die or lose capacity.

Common mistakes to avoid

• Rushing into decisions in the first weeks after receiving the money.
• Investing money you’ll need in the short term in growth assets.
• Putting everything into a single investment or a tip from a friend.
• Forgetting that investment earnings on tax-free compensation are usually taxable.
• Exceeding super contribution caps by accident.
• Lending or gifting large amounts without considering the impact on your own future.
• Dealing with anyone who isn’t properly licensed.
• Not updating your will and super beneficiary nominations after your wealth changes.