$200k cash + 15 year plan: what do you do?

Depends how you look at it and how fast you save. There is the most price efficient way. With NAB trade 19.95 will buy up to $20k and $14.95 up to $5k, so $20k trades are a lot cheaper, $5k is far more efficient than $2k which would cost $14.95 also.

However if you get dividends of 4% pa then you might want to factor this in as getting a smaller amount in sooner may give you extra dividends which may cover the cost of trading smaller amounts. The majority of dividend payers pay twice a year around half each time, $1k at a 2% dividend will cover the brokerage even on a small parcel.

Also consider your plan, are you just planning to dollar cost average in or attempt to time the market?

There are other things you could consider too, really I see brokerage as such a small % that it is irrelevant (to me) once you go past $2k, though many people say they aim for atleast $5k to minimise brokerage.

I base my investing on time, I aim to buy every 6 to 12 months, as that's how often I can be bothered.

 

If you want some examples of diversified portfolios, Stockspot - Online investment adviser | Robo-advice | Low fee hassle-free investing has a wizard that you enter some data and it generates a model portfolio for you. You don't have to invest through them though.

I find it hard to model the EFT portfolios. For example, on average VHY returns around 6% in dividends per annum and around 6% in capital growth. I don't know how to model that over time.

 

Just wanted to clarify. If you do a split and pay it in full with CBA (to then reborrow to buy shares) is there a risk that they close the split account automatically since it's paid off? If so, do you pay like $9990 to keep it open?

 

You can buy ETFs through IG for $8 per trade.

 

Have a read of the following linked article as an introduction to investing in Shares for dividends. It's by the author of Motivated Money. Then once you've done a bit of reading let your inner investor decide what's right for you. It miight be all Shares or a mix of property and shares. No need to rush. No matter how good an investing approach might be if your SANF is impacted negatively then it's unlikely to work.

In share investing, perception is reality - Cuffelinks

Whatever you choose perhaps consider the mood of the market. If there is a sense of eurphoria in the property / share market that is not the time to be dumping all your cash / borrowings into these all at once.

In regard to Shares this strategy might be helpful if wanting to take a cautious approach to investing a lump sum:

New to LICs, go here:
Beginner's Guide to Investing in Listed Investment Companies

 

I was advised by my broker that this would happen - so paid 9999 into the account, leaving a dollar.

 

Makes sense. Last time I did the same living $100 on $100k+ split.

 

If you ask the bank, they usually recommend $10. The interest on $10 will be quite negligible. I pay it down to a dollar though. I reason that it is unlikely the bank will close the account. They are not in the business of letting a dollar go that easily.

 

He he, yes. I leave $1 drawn against our LOC so it doesn't become inactive. Then borrow like mad then when the market tanks. Pay it all back except for $1 then repeat when opportunity arises again. It can be years in between opportunities.

 

Perhaps you could do both.

get a main residence and debt recycle into shares using the proceeds to pay down the loan further and then reborrow to buy more shares.

 

Blimey. So much to read about!
Once I'm more edukaited, is there a person (broker? agent? priest?) to speak to about how to structure the purchase(s) for tax (either in a single name or SMSF), and a roadmap of how to do it again next year, etc.?

 

My head hurts. ... great thread and comments. Re question - @Terry_w or an accountant?

What do you mean by road map? Are you wanting someone to review it each year to check that your structure is still appropriate? It could be pretty costly to change structures. Or are you wanting someone to review your portfolio to keep you moving towards your goal?

 

Thanks @Mac Fields - @Terry_w sounds just the expert .
By roadmap, I don't mean structure: that is something to get right at the start if possible. What I meant by roadmap was a plan involving property, LICs/ETFs and use of super and cash and equity to kickstart and approximately what to do/change to in future years (e.g. at 5 yrs to retirement it's likely change to X method or structure, then...). The future may change, but I like having a plan to understand how to get to the endpoint I want, even if the world intervenes to change the plan as time goes on.

 

You're looking for more a financial planner across property and shares, in conjunction with a tax advisor about tax set up etc?? I remember there was a similar question asked (I think) in the Finance section? (possibly do a search across the whole forum(s) for 'planner' or 'financial planner' (or something like this).

I have a financial advisor but I found their advice fairly narrow and didn't include how IPs could be incorporated into the mix. I find I've grown apart from my financial advisor as he directed me to direct shares. Would Dixon Advisory be worthwhile (I think someone on here said they talked to or used Darryl Dixon many years ago?)?

 

Hi Austing, first of all thanks for all your efforts. You have turned a complete novice who was scared of shares into a knowledge thirsty beginner who is starting to enjoy the thought of shares.

I would like to work an example here to see if I am understanding this.

$340k mortgage
$540k value
Take loan against house of $92,000 (brings LVR to 80%)
Use $92,000 to purchase LIC's.
Use dividends from LIC's to pay principal and interest on $92,000
As $92,000 decreases redraw it out to purchase more shares keeping LVR at 80%

Is this right?

Do LIC's generate enough cashflow to cover principal and interest at a 5% interest rate?

I'd love to see a more detailed example of exactly how this works and how it eventually brings your mortgage to $0.

Thanks in advance!

 

Austing maybe sleeping off a Tequila hangover in a gutter somewhere along the Maleny-Montville Rd.

Start here:
Tax Tip 2: Debt Recycling

 

Haha, thanks Pier1. I will give it a read!

 

Almost

What you would do is pay interest only on the $92k loan as it is deductible. Use the dividend income to pay for the interest. If it is not enough to cover it now there will be negative gearing benefits and the dividends will grow over time.

If the income exceeds the costs then divert the excess to the payment of the $340k loan if this is not deductible.

Every $10k paid off this could mean you could redraw (after splitting) and buy $10k more worth of shares.

Keep repeating as compounding kicks in.

Speed it up by periodically selling the LICs and using the capital gains to pay off the $340k loan even further and immediately buy back the LICs you have sold (seek tax advice first).

 

Thanks Terry, it is starting to become clearer. I am not looking to go any further into a negative cashflow position so am curious to find out how this would affect me. What's the likelihood of it being neutral? My understanding is LIC's return around 6 or 7% in dividends but I'm a little lost regarding if that is before or after tax with franking credits etc. Compared with a current interest rate of around 4.2% am I right in saying it would be positive considering you don't have massive costs like you do in property?

Also are the dividends a bit like rental income in that even if the share (property) value drops the dividend (rent) usually holds the same. I understand there are exceptions to the rule in property (mining towns, vacancy etc) and I assume there would be some exceptions regarding LIC's?

I know I keep saying it but thanks to everyone who is knowledgable on this subject and is contributing. You are changing people's lives!