You have indicated that your income is sufficient to cover ongoing living costs and so it may be worth directing some of your term deposit funds towards investment.
You should make sure to put aside an appropriate level of cash holdings as emergency funds in the first instance, with the balance allocated towards a long term and diversified investment portfolio.
I would suggest directing a portion of your portfolio towards listed debt securities in order to increase income, moderate portfolio volatility and provide you with the ability to take advantage of any pull back in the share market. Our preference is to invest in floating rate securities which pay a margin over the bank bill swap rate. Pricing of such investments is less vulnerable to changes in monetary policy as compared with fixed rate securities. This is a more defensive type of investment than shares and would offer you a higher yield than cash or term deposits. For example, a portfolio of listed debt securities in accordance with Morgans research would be expected to provide ongoing income (including franking) of more than 6% per annum. This compares favourably against cash (circa 2.5%) and term deposits (circa 3.5%). It is important to note that listed debt securities are subject to market pricing and have a lower credit rating than cash and term deposits. They are therefore not suitable for short term investment.
The balance of your portfolio may be suited for investment in a range of blue chip equities such as BHP Billiton, National Australia Bank, Telstra and Wesfarmers. The dividend yield from these companies range from 4.8% to 8.4% once franking credits are included. In addition to providing superior yield than cash and term deposits, these investments would allow you to participate in capital growth over the long term which is subject to company performance. Whilst equities offer the potential for greater returns, it is important to note they are significantly higher risk than cash and debt securities and display high levels of volatility.
Exchange Traded Funds (ETFs) would also be a suitable inclusion in your share portfolio. These are listed vehicles that track an index such as the Australian Stock Exchange 200. Due to their passive nature, ETFs generally offer high levels of diversification and low management costs.
We suggest that you look to establish a separate cash account to receive income payments from your investment portfolio. This will ensure the funds are earmarked for reinvestment and maximise the growth potential of the portfolio over time.
As an aside, please make sure that you have appropriate insurance in place so that your children are protected in the event that you are unable to generate an income due to accident, illness or death.
Obviously the above comments are based on the limited amount of information you have provided. Please seek advice from a qualified professional for specific recommendations in regards to your query.
By Ben Payne CFP®