$130k Annual Income (~$375 savings per week) - what NON REAL ESTATE to invest in?

rawm on 24/05/2016 - 15:00
Last edited 25/05/2016 - 10:39

As money is near and dear to us all, I thought I'd post this question. I'm assuming 'similar' questions have been put to the great people of OzBargain but would like to add a NO REAL ESTATE disclaimer to my question!

What NON Real Estate things can I do with the family savings?

See this: https://www.mywealth.commbank.com.au/strategies/how-much-of-…

Statistics from the Australian Bureau of Statistics (ABS) estimate the average household saving rate increased to 9% in the third quarter of 2015 from 8.8% in the second quarter of 2015.
But at the end of the 2014 financial year, the ABS estimated that the average household in Australia was saving 9.7% of its income – down from 10.3% in the 2013 financial year.

I'm yet to gain any proper financial advice, but after careful Googling and speaking to people in my social circles I am wanting to save 15% of my weekly household wage (~$375 per week based on $130k per year) and use this to invest/save etc.

Gender: M and F
Age: 32 and 32
Financial Status: Both worked for 10 years, ~$215k left on Mortgage, Married with 2 young children
Current Share Ownership: CSL Bioplasma $10k
Reside: Northern Suburbs Melbourne VIC

Note: I am very much looking for advice that has no direct link to real estate; negative gearing, beach boxes, you name it!

Thanks heaps in advance!

Update:

Thanks to the many respondents; I am currently leaning towards my current objectives:
1 - Pay off the mortgage debt ASAP via Offset account

2 - Obtaining some more financial advice that would supplement this paying down of debt with my main focus the reducing of reding my mortgage and paying off my principal debt asap!

Financial

Comments

  • bohn on 24/05/2016 - 15:09
    +14

    Anything wrong with putting it into your home loan (whether offset account or otherwise) ?

    • rawm on 24/05/2016 - 15:24

      I've been doing something similar with sporadic amounts over the past 6 years (~75k extra) but was thinking i should diversify (non real estate) a little.

      • Seraphin7 on 25/05/2016 - 10:18
        +4

        There are ultimately only two options if you don't want to extend your real estate portfolio …

        1. Pay off your current mortgage.
        2. Invest in equity based investments.

        The first is relatively straight forward as others have commented on here.

        The second is somewhat more complex, both in terms of investment selection and the most appropriate way to structure this for tax efficiency, particularly with respect to interest deductability. You should seek professional advice on this front as the mechanisms are far more complex than can be explained adequately here.

        Other investment classes are unlikely to generate sufficient returns for you based on your age, income, risk profile and investment horizon.

    • huntress_love on 25/05/2016 - 17:49
      -6

      Definitely pay off you home first, then you can borrow money to invest and claim tax on interest payment. But a good option to consider might be GOLD the physical kind where you can have it shaped to you in bars (of cause small sized bars), it's on it's way up and safer than other stock market investments. An online gold broker you might want to check out: http://goldforsafety.net/2

      • max2million on 25/05/2016 - 20:07
        +9

        Gold is terrible advice. Don't buy gold. It's financially volatile and I'm almost certain that none of us understand the gold market well enough to know where the price is going…

        • freakatronic on 25/05/2016 - 23:07
          +8

          Silver then.

        • huntress_love on 26/05/2016 - 00:56
          -1

          Don't take my word for it, it's what the wealthy invest in and is worth more than money in the bank.
          https://www.bullionvault.com/guide/gold/Why-gold

        • RubenM on 26/05/2016 - 07:28
          +2

          “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn't … pays it.”

          ― Albert Einstein

          No compounding with equities like gold, therefore you're missing A LOT of potential!

        • DWH on 26/05/2016 - 10:03
          +8

          The idea behind gold is not to 'make money', but to 'preserve wealth' during a time of economic collapse. It's a 'safe' form of savings that has been in use for hundreds of years. No yield, no ability to leverage - it's basically just a timeless form of cash.

          If you think all is hunky dory, then go for shares, bonds, cash, businesses, etc.

          If you think GFC 2.0 is just around the corner, then paying down your home loan and buying some gold (and silver) (say 15% of your net wealth) makes a lot of sense.

        • brightninja on 26/05/2016 - 10:19

          Gold is a good option if you want to hedge your dollars against the falling AUD. In this climate your gains will probably come more from the FX gain more so than the underlying increase in the gold value. Gold is also a safe haven investment, which has shown to increase in value in an inverse relationship to the global economy. Gold is also highly liquid, if I were you I would buy physical non allocated gold from an Australian Mint, pay a little premium for peace of mind.

        • Untameable on 26/05/2016 - 11:19

          @DWH: Is there any relative benefit between Gold and Silver?

        • hayne on 26/05/2016 - 18:34
          +1

          @brightninja: All correct but if you want to hedge against the falling AUD, you can just buy offshore (e.g. US) equities as well

        • 4agte on 26/05/2016 - 23:07

          @DoctorOwl:

          I believe silver would be a better long term investment. Should see more growth. Both are finite resources but we tend not to recycle our silver

        • DWH on 27/05/2016 - 11:35

          @DoctorOwl: Historically (i.e. hundreds of years) the price ratio of Gold:Silver has Silver massively undervalued. It also has more industrial uses and so it's supply is reducing slowly. Some believe it's the better bargain compared to gold. Robert Kiyosaki for example is very pro Silver.

        • DWH on 27/05/2016 - 11:39

          @hayne: G&S make sense if you want to hedge against ALL paper money, AUD + USD + everything else, which is backed by nothing more than a governments promise to tax it's citizens in the future. And with over $19 Trillion in debt and approaching a fiscal cliff, some say people will eventually see through it all, GFC 2.0 will ensue and we will go back to G&S (which will see their values skyrocket against paper money) until a new monetary system emerges. This is exactly why Russia and China are buying up gold big time.

          Watch 'Mike Maloney's YouTube video for a great explanation of it all.

        • brightninja on 27/05/2016 - 12:39

          @hayne: This is true, but the transaction cost can be a bit restrictive and there might be complications around your instructions to buy or sell.

  • lupiter on 24/05/2016 - 15:10
    +1

    How much risk are you willing to take? And how long-term do you see this investment? 1 year? 5 years? 20 years? Have you considered salary sacrifice into your super instead?

    While you're deciding, chuck it into an offset account on the home loan.

    • rawm on 24/05/2016 - 15:25
      +1

      Risk - Medium
      Investment term - 15-20 years
      Salary Sacrifice into super - now there's an idea, but is it a decent option?

      • lupiter on 25/05/2016 - 08:16
        +1

        Salary Sacrifice is pre-tax, and it's usually a good idea for a really long term investment. As to if it's your super decent investment, that depends on your super fund, and what options (if they have any) you picked.

        • rawm on 25/05/2016 - 08:25

          Would you then:
          1. Pay off mortgage to $0
          2. Move to then beginning salary sacrificing say 15-17% weekly income?

        • lupiter on 25/05/2016 - 08:30
          +1

          @rawm: I would check the returns your super fund is currently giving you, and also check how much you can salary sacrifice, there is probably some kind of limit. I would probably go:

          1. Pay off mortgage
          2. 5-7% into super, rest into an internet savings account

          But I'm young and don't want to be locking all my money away for 40 years :P

        • idontalwaysnotlie on 25/05/2016 - 09:33
          +1

          @lupiter: If you are planning to work until you are 70 then super is a great idea. Otherwise if you want something more than your mortgage then play around with some index shares.

        • macrocephalic on 25/05/2016 - 11:35

          @idontalwaysnotlie: Index shares are about the safest way to get into shares. They have very little overhead, and they just follow the market rather than a specific company. Historically you can expect about a 7% return on indexes IIRC.

  • Evil-Elmo on 24/05/2016 - 15:12
    +7

    I know you said no real estate - but if it were me I'd put it towards your mortgage and then worry about what to invest in once the mortgage is gone :)

    • one man clan on 24/05/2016 - 15:23

      I am not an investment advisor but I have heard this is a bad idea in the long term. The guy that used to right for the herald would say that for every dollar you pay off your mortgage, if you can afford it invest 10% (or something like that ).

      • tsunamisurfer on 24/05/2016 - 17:53
        +54

        Let's look at 3 options.

        1) Pay off the existing mortgage.

        Using the simple amount of $100, and the ANZ Standard Variable Rate of 5.37%.

        A person choosing to pay off the mortagge would be saving $5.37.

        2) Putting it in a Term Deposit.

        Using the simple amount of $100, and the ANZ Standard TD of 2.0%, and a personal tax rate of 32.5% (assumption they are in that middle bracket because of $130k divided by 2).

        $100 would yield $2 less $0.65 tax totalling $1.35 return after tax.

        3) Investing it in 'something'.

        For this investment to be worth it is must return in excess of the saving of $5.37 after considering tax.

        So thats 5.37% x (1 - .325) = 7.96%

        Do you think you can find something that returns MORE than 7.96% without risk?

        My vote….pay off the mortgage ASAP whilst the interest rates are at record lows.

        • mosquito on 25/05/2016 - 07:40
          +9

          The mortgage offset would result in compounding interest, ie. after the first month/fortnight would would save $x in internet, which would reduce your principle faster. And then the next month your interest would reduce further because the principal is less than what it would have been without the offset.

          For this reason offsetting the mortgage is quite a beneficial strategy.

        • Stoz on 25/05/2016 - 08:56

          tsunamisurfer is on the money here. Paying off your home loan is not even investing in real estate. You owe the bank $X which will not change if house prices go up or down. Even if you sell the house you still owe the bank the rest of the loan you took out.

          The key here, as said earlier, is because you have to pay off your home loan with money you've already paid tax on, reducing the home loan cost saves you after-tax money.

        • one man clan on 25/05/2016 - 11:09
          +1

          Wouldn't it be the opposite though? Pay down your mortgage becomes a better investment went interest rates are particularly high in raw terms but not so good when interest rates are low. I don't think it's as clear cut. A quick google seems to be particularly divided - financial advisors will tell you to invest (because that's how they make money) while others seem to say pay off your mortgage.

          For example - telstra shares have a yield of about 5.5% right now, plus it's 30% franked. Plus there's the chance of capital gains off that. Telstra's yield was about 12% at one point.

        • Evil-Elmo on 25/05/2016 - 11:17
          +5

          @one man clan:

          For example - telstra shares have a yield of about 5.5% right now, plus it's 30% franked. Plus there's the chance of capital gains off that. Telstra's yield was about 12% at one point.

          Yep - also worth mentioning that there is also a chance of capital loss though…

        • tsunamisurfer on 25/05/2016 - 11:34

          @one man clan:

          You are right in that paying down the mortgage where interest rates are high is even more beneficial.

          My angle was that now that the rates are low, you can really put a big dent into the Principal.

          You can get some very good gains from the ASX, or in fact any Exchange, it does however come with risk.

          If one were to be able to consistently achieve 12% returns, absolutely, invest the surplus income.

        • haha on 25/05/2016 - 15:30

          quote "So thats 5.37% x (1 - .325) = 7.96%"

          It is divide, not times.
          ie 5.37% / (1 - .325) = 7.96%

        • Stoz on 25/05/2016 - 22:13
          -2

          Regarding the dividends, remember the shares will drop in value by 5.5% the day they pay out the dividend. You're still relying on the share growing at least 5.5% between each payout to avoid a capital loss.

          When looking for advice online keep in mind that the USA has had very low interest rates recently so advice coming from America is not likely to recommend paying any additional money towards a home loan either directly or through an offset account.

        • one man clan on 26/05/2016 - 13:44

          @Stoz:

          I don't think that's a universal rule - otherwise shares with a yield would drop by 11% per year. They often drop immediately after a dividend but climb quickly back up.

          Telstra (because I own them) went ex on 1 March - they dropped 25c or about 4.7%. They were back up by 25c two weeks later.

        • ilikeradiohead on 26/05/2016 - 18:25

          @one man clan: They should drop by the dividend amount. If a company is worth $1bn, pays out $50m in dividends, it should be worth $950m. The shareholder should be no worse off though. Dividend paying stocks will have lower capital growth than non-dividend paying stocks since the dividend is effectively returning value to the shareholders.

        • hayne on 26/05/2016 - 18:37
          +2

          @ilikeradiohead: Exactly right - shares drop by the dividend amount because the dividend has been paid out. So it's irrelevant that the stock has dropped by 5.5% in Stoz's example above - if you hold the stock, you've received that money as a dividend. If there is then a capital loss, then you gain a CGT benefit. In that scenario, you haven't lost any money and you haven't gained any money.

          That's why TSR (Total Shareholder Returns, i.e. dividend yield + capital appreciation) is the more relevant metric. If you sit there and count your capital losses and ignore your dividend yield, then you've completely misunderstood the returns on your investment.

        • gwong on 26/05/2016 - 19:49
          +1

          But every ozbarbainer surely has a home loan rate of around 3.74%? Makes it 5.54% that you need to beat.

        • Stoz on 27/05/2016 - 09:47

          @ilikeradiohead: I might have used the wrong terms, but I was trying to make the point that dividends are not "free money", they are paid out of the value of the company.

        • one man clan on 27/05/2016 - 10:29

          @Stoz:

          They are paid out of the profits of the company.

  • ilikeradiohead on 24/05/2016 - 15:41
    +2

    Have you seen this thread? It's more general advice, but gives a good breadth of options.

  • Cheap Steve on 24/05/2016 - 15:43
    -5

    I would set up a share account and start buying small parcels of shares each month. Put them all on dividend reinvest. Sit back, collect your dividends and watch your little snowball grow over the next 10,20 and 30 years. The secret to shares is that they pay great income (dividends). Way more income than you will ever get out of any other investment eg cash, term deposits or real estate.

    • rawm on 24/05/2016 - 15:54

      I like this idea but with ~$1,200 per month, is this enough to do monthly?

      • ilikeradiohead on 24/05/2016 - 16:16
        +1

        Just remember that there are brokerage fees (bout $20 at the big 4 banks, might be cheaper elsewhere), so the fewer trades you make, the less you're losing out. Or think about it this way, $20/$1200 is 1.6%, so you need to make that back just to cover the fees. If you instead do it once every 2 months, you're now down to 0.8% in fees (and so on).

        • ss207k on 25/05/2016 - 11:30

          you need to add the cost of selling (assuming it's 20$). so the cost is 40/1200 ~ 3.3%

        • abb on 25/05/2016 - 13:24
          +4

          @ss207k: It's not that bad, as you don't have to sell in small packages.

          e.g. You could invest in $2000 increments, then sell as one $100k lump years later.

        • Elitebhy on 26/05/2016 - 17:31

          CMC Broking charges $11 per trade.

      • Cheap Steve on 25/05/2016 - 14:00

        Yes. Lol at the 1.6% brokerage fees. Share prices can vary that much in a minute. I am investing $1,000 per month and I'm well aware of the brokerage fees and I'm not selling. You will always have winners and losers in your portfolio but just keep buying more shares and dividend reinvesting. It's a great strategy that has worked really well for me.

    • [Deactivated] on 24/05/2016 - 15:56
      +3

      Yep, massive secret, shhhh don't tell everyone or they will all invest.

    • JetLi on 24/05/2016 - 17:01
      +20

      i did that with Telstra, the snowball got smaller…

  • tomleonhart on 24/05/2016 - 16:05
    +10

    like I said many times before.

    ON RED!

    • ykwon10 on 24/05/2016 - 16:06
      +1

      I would love to see you do that mate! hahahahaha… make it or break it!

  • Lcfc2016 on 24/05/2016 - 16:25
    +13

    The sooner you pay off your mortgage, the sooner you are debt free. Isn't that more important?

  • JetLi on 24/05/2016 - 17:07
    +2

    I agree with others who have said just pay off your mortgage quicker, this way, you'll be debt free in retirement and there's no risk you lose your money through a bad investment.

    • isthisreallife22 on 25/05/2016 - 03:41

      Im in a similar boat as the OP, but have no desire to live in my current property in retirement. I'll probably upgrade a few times by then also. Wouldn't be surprised if OP was the same…

      • JetLi on 25/05/2016 - 10:58

        there's still no harm in paying off your mortgage at present even if you has no desire to live in your current property in retirement. The premise is based on the fact there's no downside risk of losing your initial investment, the interest expense is not tax deductible, you are reducing your overall interest expense and you also have the flexibility of accessing those funds anytime either through a redraw or using an offset account. If there's a chance you may one day use your current home as an investment property, I would use an offset account instead of directly paying off your loan.

  • Ash-Say on 24/05/2016 - 17:33
    +8

    As a single income earner in family，we earn 50% of your salary and save the similar weekly amount which goes into offset account.

    I wonder how you are saving such a small amount. I wish we had our family income of 130k and then we could pay our mortgage in less than 10 years:)

    • decr on 25/05/2016 - 08:39
      +1

      My thoughts exactly. Earn more spend more I suppose. I've moved from a 1 bed studio to now a 5 bedroom house in 10 years just by trying not to spend unnecessarily. And yeah, single income nowhere near that $ figure.

      • Stoz on 25/05/2016 - 08:57

        Think of all the extra money you'd have if you were still in the 1 bed studio ;-)

        • decr on 25/05/2016 - 14:13
          +15

          I'm thinking more about the extra money I'd have if I never got married.

        • patinadiary on 25/05/2016 - 14:40
          +2

          All those eneloops need a place to stay!

    • deadcat on 27/05/2016 - 13:19

      You must have a bloody small mortgage. I earn more than the OP and I have an offset account - it's gonna take a lot longer than 10 years to pay my mortgage!

      • Ash-Say on 27/05/2016 - 18:06
        +3

        The monthly loan payment is more than $2000 so it`s no way small particulalry on my salary.

        I think it all comes down to priorties. If you earn more then you tend to spend more.

        We tend to save wherever we could. I am also very lucky to have a cooperative wife as she would save even $1 if she could to contribute extra towards mortgage repayment.

        Here are our saving habits:

        1) We have only allocated $30 for weekly entertainment and 99% of times we opt for food e.g. We eat Rashays on Monday so we could buy pizza and pasta for $20 and also order some chips for kids. It`s plenty to feed whole family.

        2) Do woolies or Coles shopping using 5%off gift card and we tend to stock items whenever there is half price sale.

        3) Make full use of bank promotions e.g. Parents came over in 2014 so we opened 4 ING accounts and got $1000 in Iconic gift vouchers. We still have some balance left even after buying dozens of items.

        4) Purchase movie tickets via Optus，NRMA or Telstra reward program. We only go for movies when we don`t want to use $30(point 1) on food.

        5) Car is Lpg so always buy milk from Woolies caltex to get 8cent off per litre. Lpg tank is above 100 litre so we easily save $8 duruing each refill.

        6) Buy kids clothes from Target clearance

        7) Recharge Opal using 5% off gift card at Woolies.

        8) We use Ozbargain which has surely saved us thousands of dollars. My special thanks to scott and team.

        There are many more but can`t think right now.lol

        • Evil-Elmo on 30/05/2016 - 09:04
          +1

          8) We use Ozbargain which has surely saved us thousands of dollars.

          I'm definitely doing it wrong…

        • deadcat on 31/05/2016 - 08:41

          Wow, that's pretty frugal!

          Thanks for the tips, I'm going to show my wife.

  • [Deactivated] on 24/05/2016 - 18:17
    +4

    Reduce work hours.

  • shadowarrior on 24/05/2016 - 18:21
    +1

    Have you thought of managed funds? (Amp flexible lifetime investments, mynorth investments etc, these two are Amp products, other companies have different similar ones). They are outside super. Different tax structures. In Mynorth you own the investment, so more flexibility. FLI has rebates depending on account balance. Risk is same on both, and depends on what investments you choose and how much risk you are willing to take. You have liquid funds and can withdraw within four weeks.
    Note: I am not a financial advisor. I just use these products for investment:)

    • powerhead on 25/05/2016 - 15:31

      what are the fees and minimum investment amounts on these products?

      • shadowarrior on 25/05/2016 - 20:35

        The fees really depends on the options you choose, and its a percentage of your balance. Better the returns, more the percentage. Think we had to invest minimum of $2000 to start with for Mynorth, then we chose to contribute ongoing investment monthly, but that was optional. If you go through a financial planner, they advice you on which options suit you based on your requirements, but they also charge a fee on top of the normal costs of the investments.

  • Devils Advocate on 24/05/2016 - 18:42
    +2

    Gee this thread is asking for trouble, everyone commenting be careful not to give tailored advice.

  • mrtin on 24/05/2016 - 19:03
    +2

    I would consider doing both (pay off debt and investing) at the same time but saying that I recommend you seek professional financial advice to work out how to allocate your surplus funds to ensure you meet all your goals (pay off debt, have enough for retirement etc).

    • isthisreallife22 on 25/05/2016 - 03:42
      +1

      Never found such a thing… sound professional financial advice. Who's best, an accountant?

      • mrtin on 25/05/2016 - 08:51

        I assure your there are good advisers out there. You just need to find one.
        A good adviser can suss out your goals and work with you ongoing to meet them. Referrals from someone you know who uses a financial planner is a good start.

        Accountants cant be held to account if advice is inappropriate (as they generally are not qualified to give personal advice) which i do see too.

  • jason101 on 25/05/2016 - 07:38
    +1

    Understand you've said no real estate but you are already a real estate investor by virtue of your owning your own home. My 2c is that the first reply with bohn is on track - the best you can do with the money is to slam it all into real estate (your existing mortgage). Might sound a bit boring but in 7-10 years you'll be sitting pretty.

    I wish I'd taken my own advice 18 months ago when I pushed my savings into Woolworths, CCA, ANZ - look how that turned out (30% of my money evaporated).

    • rawm on 25/05/2016 - 08:19

      Yeah I agree - sounds boring but looks like the best strategy! I held 18k in WOW shares for 10 years (2006-2016) and sold at $25ish. Dodged a bullet, but still copped a loss from the highs a few years ago. Purchasing shares can be nasty. Thanks for the advice mate.

  • Big Trev on 25/05/2016 - 08:01
    +8

    My advice (which is what I'm doing myself) is pay off the mortgage first. You're effectively getting a guaranteed tax-free return of ~5%, which to compete with that you would need to be earning over ~8% (pre-tax) from any other investment, with the attached level of risk.

    It all depends on what risk you want to take on. Paying off the mortgage isn't sexy, but it's what I'm concentrating on.

    • rawm on 25/05/2016 - 08:23
      +2

      Yep, as other's too have said, this isn't sexy but might be the best option. Like your backing up with data; Cheers.

    • Dan83 on 27/05/2016 - 18:03

      I'm sure you're right, but how is it 'tax free return of 5%' when paying off the mortgage? I'm legitimately asking, not stirring. The money you use to pay off the mortgage has been taxed of course. I assume you mean because whatever he puts in he won't have to pay interest on?

      • Big Trev on 28/05/2016 - 12:50
        +2

        That's cool, I know you're not stirring.

        OK, this is the way I understand it. Talking in round figures, if I have $100 in my pocket (which I've already paid income tax on), and stick it against the mortgage, then I've basically got a return of 5% on it, ie. I'm not having to pay 5% interest on that $100 now, it's come off the loan.

        If I take that $100 and invest it by buying shares, and the shares return a 5% dividend, I get $5 extra back. Then, come tax time, I have to pay let's say 30% income tax on that $5, leaving me with $3.50. In order for me to match my 5% "return" on the house, I'd have to earn about a 7% dividend to even up even after I paid 30% income tax.

        I know this doesn't take into account franking of dividends, and capital growth of shares etc. If you're into investing and reckon you can outperform a guaranteed 5% p/a, then go for it, I'm not saying not to. The conclusion I've come to personally is that I think that I'm best off reducing my mortgage than anything else.

        • Dan83 on 28/05/2016 - 19:03

          Well explained. Cheers.

  • [Deactivated] on 25/05/2016 - 08:40
    +4

    A bit of different advice: Maybe a Vangaurd index account? From memory, it historically pays around 4.5% dividend per year, and the capital value increases around 4% per year too (which means less tax when you sell your share).

    Warren Buffet recommends it. http://www.theaustralian.com.au/business/the-deal-magazine/b…

    I think the minimum investment is around $10k though, so maybe keep the money in an offset account and invest every 6 months or something.

    • strikerzebra on 25/05/2016 - 09:42
      +1

      Actually you can just buy any etf on the asx with a minimum of $500 I believe, there is VAS which is the top 300 shares, STW top[ 200, SFY top 50 shares, many people have a strategy of putting a few thousand in every few months and just continue doing this for your life until it compounds to a nice amount.

      • [Deactivated] on 25/05/2016 - 13:41

        The problem with ETF, in this case Vanguard funds is that it has lost money in last 1.5 to 2 years period by nearly 8-10%. I would be cautious about this advice as they recommend that incase anybody needs their money back in less than 7-10 years may not make much or even end up losing money.

        • strikerzebra on 25/05/2016 - 20:08
          +1

          Correct with any shares you need to hold them for at least a few years to weather any market losses

        • hayne on 26/05/2016 - 18:46

          That's not a "problem" with ETF. That would mean that equities as a class has lost value. So you took a bet on equities and it went the wrong way. Vanguard are known for having the lowest management fees in the ETF business (typically 0.15%) so it's not because they are charging exorbitant fees.

          ETFs are the solution if you don't have the knowledge to individually pick stocks. A lot of people (particularly retail investors) think they have the knowledge to pick stocks but they don't. They don't develop an investment thesis, they don't assess the P/E ratio vs peers to understand if a stock is overvalued, they don't identify catalysts for re-rating. They stare at the share price and think it's lower than it's been and therefore they should buy it - then they get lucky on a few and think it's because of skill. So ETFs absolutely have a place in your portfolio if you're thinking of diversifying outside of real estate - you'll get exposure to equities but you don't have to have in-depth knowledge.

          Extensive research shows that ETF outperform something like 70-80% of actively managed funds once you take out fund management fees (not unusual for them to be in the vicinity of 1 - 2%).

        • hayne on 26/05/2016 - 18:48

          @hayne: OP, if you want exposure to equities, look into Vanguard or State Street or UBS or Blackrock. They all have ETF products. Join Comsec (or better yet, join a broker with lower brokerage fees like e-Trade or IAB) and then find an ETF which covers the stocks you want - ASX:VAS, ASX:STW, etc.).

          If you want exposure to equities but aren't yet experienced enough to understand stocks, that's the way to go.

  • Bramey on 25/05/2016 - 09:42
    +3

    There is another option which no one has mentioned. If your put your savings against that actual loan (ie. not in offset) then do a redraw a couple of months later and invest it, the interest on that portion of your loan with which you used to invest is now tax deductible. This now means you only need to get a return equal to your loan interest to at least equal the savings if you had have just left it in an offset.

    This is just general advice.

    • SnoozeAndLose on 25/05/2016 - 09:49

      I am interested in this idea, but I dont understand , can you explain more?

      • Bramey on 25/05/2016 - 10:42
        +1

        It requires some calculations that the ATO provides the equations for to determine the deductible portion of the interest. Any repayments to the loan now reduces the principal of the non-deductible part and deductible part on a proportionate basis. Can be very calcuation heavy if done more than once. I've linked the ATO Ruling that relates to it. I think setting up a excel table with formulae would be the easiest way to track the deductible portion.

        http://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR20002/NAT/…

        The other way is to get a line of credit attached to the home loan, use it only to invest and the interest that builds on that line of credit is 100% tax deductible.

        It's hard to explain over a message so I would get professional advice before going down this track but it could be extremely befenificial for anyone who wants to invest but still has a mortgage.

      • MustacheFire on 26/05/2016 - 23:08
        +1

        In some of the ealier comments, people were saying the opportunity cost is say 4% risk free (mortgage rate), so you need to earn 8% to end up in the same position (assuming 50% tax as I'm lazy).

        If the interest cost is deductible, then any asset return above 4% leaves you better off. Because you pay tax not on the asset return, but asset return less borrowing cost. In this case (8% asset - 4% deductible interest) x50% tax = 2% post tax better off than paying mortgage. (I.e.The break even is 4% not 8%)

        One way to make the debt deductible is to pay off mortgage, then redraw for investment. Easier if it is a separate line of credit

  • [Deactivated] on 25/05/2016 - 09:50

    Take a trip to Colombia and buy a crate of 'souvenirs' then sell those souvenirs for about a 1000x mark up.

    • rawm on 25/05/2016 - 10:04

      Tempting but I've heard Jail time can be a drain on your savings.

      • deal seeking missile on 26/05/2016 - 18:04

        XD

      • natman on 26/05/2016 - 21:14
        +1

        I don't know - free rent, food, no bills. Might be a good way to preserve your savings.

    • Colombian on 25/05/2016 - 12:39
      +5

      Ey!! that is not funny :(

  • darkchoc on 25/05/2016 - 09:51
    +1

    Move your mortgage to a low interest rate provider that has an offset facility. I've seen loans.com.au on a comparison website with extremely low rates (3.84%) or engage a broker to find you the best rate.

    Will also help you with your savings if the interest you pay on your debt is cheaper.

    There might be a bit of work setting it up with a new provider, but the return on the effort will be worth it.

  • ChickenTalon on 25/05/2016 - 10:48
    +4

    As many have said. Every cent should go to your mortgage.

    Only times I can think of exceptions to this:
    You've got some super sweet inside information on a specific investment (or horse race).
    Using the equity in your home to raise capital for your own venture (think starting or expanding a business).

    You almost will never beat the guaranteed, compounding and tax effective returns from paying down your mortgage quicker.

  • wongsun on 25/05/2016 - 12:08
    +4

    Thought I would give my two cents as there is some misleading information being provided.

    Very subjective to say you will almost never beat the returns of paying down your mortgage or putting money into an offset.

    Putting money into your offset offers the lowest risk and you will get a decent return. However, you also need to have the discipline of not spending the money you are saving in your offset account. Many people get too tempted to spend it.

    Putting your surplus cash into a diversified basket of Australian or international shares can get you better returns over the long term but you also have to be able to handle the additional risk and volatility of such investments. Historical long term returns of Australian shares have been greater than the returns from putting money into an offset account. Also don't forget the tax advantaged franking credits of Australian shares.

    You could go the next level up in risk and back an individual stock. For example if you had invested in Commonwealth Bank Stocks 10 years ago you would be looking at a return of approx. 13% pa every year over the period. REA Group (group that owns realestate.com.au) has had annual returns of approx. 33% pa for the last 10 years. If you had picked a dud you could also have lost some or all of your money.

    It all comes down to risk and return.

    If you choose to invest I would not be putting your cash into stocks directly. A better way to do it would be to pay down your mortgage and then redraw the money out again as an investment loan. That way you are converting your non tax deductible home loan to tax deductible investment debt.

    peace

    • JetLi on 25/05/2016 - 12:43

      interesting point about not putting cash into stocks directly, with that strategy, his over-all indebtedness has not changed, yet has taken on more investment risk by buying stocks, yes, the investment loan interest expense will now become tax deductible but personally, I would rather try to reduce my overall indebtedness, thus reducing being at the mercy of the bank. Like you said, all comes down to risk and return, but personally, I'm not one who would borrow to play the stock market.

      • wongsun on 25/05/2016 - 13:56
        +1

        You are confusing the various strategies.

        For example, if he has $10,000 to invest. He could do the following.

        1. Put $10,000 into offset

        2. Invest $10,000 in sharemarket

        3. Pay $10,000 off loan. Redraw $10,000 and invest in shares.

        All I am saying is that option 3 is better than 2. You end up with the same shares and the same level of debt, but some of the debt is deductible.

        Option 1 is a valid strategy but whether it is better than 2 or 3 would depend on your own risk tolerance.

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