Invest Equity into Shares??

Hello fellow bargainers,

I am not very smart with money and investing so require some feedback from you guys on this. I am 30 and making 90k a year and wife makes about 15-20K and have just bought my first house. I have 5K in savings and 50K in equity @ 3.89% fixed for 2 years in the offset account. We have 1 toddler and paid off cars. I have just read the barefeet investor and the thought of investing has popped up in my mind. I plan to invest the 5K I have in ARGO and AFIC, but the question I want to ask is that does it make sense using up my equity to purchase shares in an index fund or should I instead concentrate my efforts on paying off the house? I intend to invest for at least 10 years and keep topping up with whatever I can.


  • +8

    Investing is a good idea in general, but right now, equities are at overpriced levels. In fact the P/E (Shiller) is as high as it was before the 1930s depression and the only time it was ever higher was in the dotcom boom (where worthless companies were trading at infinite p/e ratios). So I'd be very careful.

    Right now, paying down the mortgage seems wise.

  • +7

    It's usually best to keep it in your offset. That is a guaranteed return of 3.89% which isn't taxed because it isn't a capital gain, merely a saving of interest that you would have otherwise paid. If you invest in shares the gains will be taxed at 37% (based on your income tax rate) which means you effectively need to achieve a return of 6.17% (3.89/0.63) to break even compared to your offset account. Whilst this is certainly possible it isn't guaranteed whereas the returns from your offset are guaranteed.

    • It's usually best to keep it in your offset. That is a guaranteed return of 3.89% which isn't taxed because it isn't a capital gain, merely a saving of interest that you would have otherwise paid.

      I like this approach !

    • +1

      Just a note though. There’s a 50% capital gain discount if a share is kept for a year or more.

  • Are there any books I can read to make smarter decisions when it comes to investing? I work in IT and as you can imagine it’s quite common that people get laid off. I really want to be in a situation by age 50 that I work only if I want to and not if I have to- atleast thats the goal

    • I can recommend you don't read Barefeet Investor.

      • Why’s that?

    • "I work in IT and as you can imagine it’s quite common that people get laid off"

      If your money is in an offset account you are effectively earning 6.17% and have cash available if needed to pay bills while looking for another job.

  • Without knowing how much you have borrowed on the house, it is difficult to provide any useful advice. In general, most people with a newish mortgage are quite heavily indebted, and interest repayment accounts for a large share of your family expense. By moving the money into shares, you are effectively deferring your debt repayment to a later date.

    This is only a useful strategy if you expect shares to outperform house price growth over your investment period.

    • 400k

  • +1

    Using your equity to invest in shares is a bad move. Any of the following can happen:

    1. Property prices fall and your equity is diminished/gone
    2. Stock market drops and your $50K equity is much less in value
    3. Both 1&2 happen

    Just focus on paying down your mortgage as quick as possible and after that invest in shares if you want.

    If you are adamant in investing in shares, use a margin loan instead of equity bearing in mind Labor will abolish tax benefits of margin lending if they are elected

  • Yeap, this is the right place to come for life planning financial advice. Yehaaw!
    Sorry, just havng fun.

    I agree with brownbag above, and add that shares may overall fall or rise over the next decade.
    Housing is also unknown.

    The world's economics is unstable in my view, so here's my suggestion.

    Buy bluechip shares or real estate, with reliable income from divs or rent. So price drop is not critical.

    We may go to war, have system mass revolt, environment collapse for all anyone knows.
    So play it cool and safe is my opinion, until crazy world state is remedied.

  • Thanks for the input guys. I have decided that money stays in offset account and I use my savings (5k) to either buy FANG or vanguard shares - researching on this yet.

  • Using equity to invest isn't a bad move. However, buying any investment when the market is at an all time high isn't the best idea. We love our bargains so why buy something when it's expensive?

    On the other hand, it's hard to pick the top or bottom of any market so one of the investment strategy is dollar cost averaging where you make regular investments over a period. For example - buy $1000 AFIC this month, $1000 in ARGO next month and so on.

    Don't invest all your money immediately but tiptoe into the stockmarket using a cautious approach.

  • Ok, so is the idea to keep up with the news and buy at a time when market crashes a little bit? Like fb shares did few weeks ago??

    • I hate quoting warren buffet but he is the guru - Be fearful when others are greedy, and be greedy when others are fearful.

      Hence, I like to wait till prices are down before buying and yes, like fb shares a few weeks ago or when you see headlines - stock market tumbles…billions wiped off asx….

      I haven't been following fb but based on the charts, if you bought some few weeks ago at $160, it's $166 today. You would have made a 3.75% return.

      If you don't have time to follow the market closely, index funds will be a safer option and put a small amount in every month.

Login or Join to leave a comment