Automated investing in blue chip shares?

Can you share an example of a share purchase plan? I've not come across these.

Can we replicate the DRP in another means, by putting dividends into our non-deductible debt, and using this as a trigger to buy more perhaps?

 

Share purchase plans are offers made to existing share holders to buy more shares, generally at a discount to the market rate and without brokerage, a great way to enhance your holding and remove a bunch of the aforementioned costs.

To make it akin to property, it would be like someone offering to build you a bedroom for 10k that increase the value by 15k (very rough approximation!)

This is always an option if you want to do it in the "pay 100 into an account each week" way. Draw down the equity (interest will be tax deductible if you follow Terry's tips!) and then just pay it down over a period, rinse repeat over time.

@albanga buying shares in $100 batches will be smashed by brokerage, you'll be paying $15 per purchase so it will just throw 15% of your money down the drain each time, you'll pay the same $15 (give or take) buying $5000 worth which is obviously far better. The alternative if you just want to transfer $100 a week and have it invested in in the share market is a managed fund that you transfer the money to each week and have invested, of course the management fees on these compared to comparable offerings will have largely the same effect on your capital base and a lot will require an upfront amount as the first investment.

 

Click here: Listed Investment Companies (LICs) - WHF SPP Example.

Bran, shame on you for not keeping up to date with the LIC thread.

 

Thanks @Bran & @wogitalia that makes perfect sense....I think.

Basically I split out say 20k of my house loan into a LOC. I then spend 5k on LIC's.
I then take my $100 a week and pay down the LOC until I get the balance back to $0 and then go again (unless something good comes up and then i can dig more into the LOC).

The reason this has all come about for my thinking as well is the ridiculously low interest rates. My money is currently just offsetting my loan at 3.98% which is not a great return because its also my PPOR which means the capital growth is going to happen regardless if I offset the loan.

I have read shares overtime have proven to pay around 10%? Would you say this is accurate?

 

Historically shares will return somewhere in the order of 10%, they've basically matched or outperformed property over the past 30+ years depending on what article you read and how much tax is taken into account.

Your idea is very solid, I'd be reading @Terry_w's tax tips to make sure that you get the drawdown done correctly to ensure the debt becomes deductible (he knows what he is talking about) as you can claim the interest deduction against the dividend income (no different to property except you'd expect it to be positive geared more than likely in the current interest rate environment). From there it's probably worth buying a couple of different LIC's, there is a great thread on these that is probably worth a thorough read to help you pick a couple and the reasons to pick up a couple rather just one, @austing and @The Falcon posts are particularly good.

You should be cash flow positive on the investment at that interest rate but realistically you're better off using the DRP (compounding returns) and going with your plan of paying down the debt. Again, the other thing to consider is where you want to buy the shares for tax considerations. Franking credits can be a powerful growth factor themselves when used properly (or they can just make you pay more tax if done wrong).

Welcome to the dark side

 

You've just made a very good point which was not discussed previously.

I'm currently also doing the same.
1. Pull out equity from the PPOR
2. Select a stock (direct or via LIC) which have dividend returns > interest rate of the PPOR

Any growth in the PPOR price or share price will be a bonus. Other than that, the investment will pretty much help in paying off the PPOR quicker. Assuming the dividend (just like rent) will be stable and grow every year.

I think this strategy will work very well at the current low interest rate environment and for now, I'm only focusing on ASX20 to reduce any substantial risks.

 

Do you mean to have the dividends directed into the PPOR offset account to pay down non-deductible debt?

 

Pretty broad statement... I would challenge this when looking at $/sqm increase, not just meduim house price increase.

 

It's an intentionally broad statement based on the research done by people whose full time job is analyse the results. Changing the criteria to try and make one look better than the other is just a ridiculous game of moving goal posts that achieves nothing. The simple fact is that the unbiased statistical analysis of the two over the past 30 years is that they're equals as investment classes give or take and trying to cherry pick to favour one over the other achieves nothing other than to prove that you can cherry pick statistics to prove anything you want, it doesn't change that when comparing them as apples instead of trying to turn one into an orange to prove a point that they come out tasting the same.

The below is only over the past 20 years but it changes little to go further and all the unbiased reports you can find will produce something similar:




Both asset classes have significant differences between them that can change an individuals returns. The ease of leverage on property in comparison to shares is one example that can make the real returns on property significantly higher, the entry price of shares can make starting in it far easier. The lower transaction costs of shares likewise can be an advantage. The stability and uses outside of investment can be a win for property. Timing the market on property can make a huge difference while picking the right share can achieve the same but on pure dollar for dollar returns, they're essentially equals over a long term perspective but all of those are external factors to the legitimate growth in the value of $1 invested in either class over a historical period.

It also doesn't mean that it will continue to be the case, there could be changes in government policy, macroeconomic factors or any number of things that make the historical data irrelevant moving forward but it doesn't change the facts of what that historical data says.

 

Yes, just like the salary paid by my employer going straight into the PPOR offset account.
Any issues with this set up?

 

@wogitalia haha I'm keen to give anything a go. Or perhaps I just want to act cool in front of my friends saying I play the share market whilst swirling my cognac and smoking a cigar.
They don't need to know my extent of knowledge is a propery forum

 

Totally overrated. I find those up here doing what you suggest is cool are usually broke and wanting to borrow money off me.

Drinking quality home brew and smoking the BBQ much more impressive.

 

Not a bad plan though I must say it's more fun to drink the cognac than to swirl it

 

Alright, I'm convinced. Time to get the fiancee a book on making homebrew.

 

Exactly, the genuinely wealthy drink it. Swirling is for the wanna-bees.

Wife's birthday today so bought her some expensive craft beers to sample tonite, with my assistance of course.

 

Keen to understand the process here. e.g you have 500K PPOR loan, you split in A 480K & B 20K. Once 20k is saved you pay down B 20K and redraw it and park it in offset account (I assume this is brand new offset) and use these 20K to buy shares gradually. This way interest on this 20K loan split in tax deductible. Plus unless you have DRP, cash dividend will be parked in either offset of A or B? Is that correct....

I assume you've sought tax advise on this and wondering if Part IVA could be in play here....

 

Yes, and... dunno. I don't think so. I'm paying down my home loan. I'm then borrowing money to invest. Not evading tax.

(Edit... my replies ( all yes's are mixed in your quote)

 

I know, I know. Too busy earning capital

 

Essentially if you borrow the money and use it for income producing purposes, so buying dividend yielding shares for example, then that money will be deductible. There are steps to ensure that the amount is deductible and you have to be careful not to taint those borrowings, which parking in an offset certainly could if there is any kind of delay in utilising it.

On the other side of the equation you can do whatever you wish with that income, there is no requirement that it is used to pay down that loan, if you were to sell the shares then the proceeds of that should be used to pay down principal or again you would risk tainting the initial borrowings and making at least part of the debt non-deductible.

Again, Terry has several excellent tips on how to use equity in otherwise non-deductible debt and end up with deductible debt instead.

 

Thanks. I'll review @Terry_w tips. what I've seen if you put 20K in to 20K loan split bank will close that account.

I understand every redraw is the new borrowing. I guess when redrawing money one will have to be careful it doesn't get mixed with any other money and gets invested directly. I guess brand new offset could suffice...