'Good' rate of return on shares?

Discussion in 'Share Investing Strategies, Theories & Education' started by mikey7, 28th Dec, 2017.

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  1. mikey7

    mikey7 Well-Known Member

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    So, I've just gotten back into shares (using only cash).We are still sticking to our savings plan to pay off the PPOR, and any left over money we're looking at investing further. I can potentially make a higher rate than what I'm saving when paying off the PPOR.

    What would YOU consider a good 'rate of return' for shares that DO NOT pay dividends?

    Example: 7% a year if you were to sell after fees.

    I know that to break even (roughly) I would need to multiply my PPOR loan rate by 2 assuming I'm on the highest tax bracket. Anything above that, and I'll be up compared to paying the loan.

    At what point would it not be worth investing, and just paying off PPOR (I assume my break even point or less)?
     
  2. The Y-man

    The Y-man Moderator Staff Member

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    I don't get this bit.....

    The Y-man
     
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  3. mikey7

    mikey7 Well-Known Member

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    Ok, if I had $1,000, I could
    a) Put it in PPOR loan to reduce its amount
    b) Put it into an investment.

    Let's say my PPOR loan interest rate is 2%. I would save 2% of that $1,000 every year having paid it off.

    If I put that $1,000 in shares, I would need it to earn 4% to break even. 2% is what I would have saved by putting it into PPOR loan [interest rate], and 2% goes to tax man assuming I'm on the highest tax bracket because its earnings.

    Does that make more sense? Or is my way of thinking totally wrong?
     
  4. 158

    158 Well-Known Member

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    You really need to study up on debt recycling.

    pinkboy
     
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  5. turk

    turk Well-Known Member

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    If the shares are not paying dividends and you hold them longer than 12 months you get a 50%
    CGT discount when selling which alters your calculation.
     
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  6. The Y-man

    The Y-man Moderator Staff Member

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    Assuming you got 4% (let's ignore CGT discount for now) return on selling your shares, even if you were earning $120k pa from work etc, you would pay only $14.80 of the $40 profit you make on the $1,000.

    Even if you invested $5m, I think you would still pay only $85.2k from the $200k profit you make.

    The Y-man
     
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  7. glowingsack

    glowingsack Active Member

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    Where do you see interest rates going in the next 7 years?
     
  8. mikey7

    mikey7 Well-Known Member

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    I'm glad you've prompted me into thinking more about this. I have the basic understanding of it - I will be speaking to my broker tomorrow to see what we can do.

    Up. And that's likely why I didn't bring debt recycling into my thoughts. My brain just saw it as higher interest rates.

    Looks like, with the right shares, I could definately accelerate my wealth compared to what I'm currently doing. And the boss has told me I can't buy anymore houses until the PPOR debt is a lot lower.
     
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  9. mikey7

    mikey7 Well-Known Member

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    Makes sense. I'll have to run some numbers.
    I haven't put much in shares yet (bought only $2k worth the other day), but hoping to up it significantly.
     
  10. The Y-man

    The Y-man Moderator Staff Member

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    Might want to talk to the accountant - you may not be able to claim income expense against non-dividend paying shares.

    The Y-man
     
  11. mikey7

    mikey7 Well-Known Member

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    @Paul@PFI
    Would I be able to claim the expenses?

    I want to buy about $50k of a particular Australian share that doesn't pay dividends. I intend to hold for 12 months.
     
  12. The Y-man

    The Y-man Moderator Staff Member

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  13. mikey7

    mikey7 Well-Known Member

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  14. willy1111

    willy1111 Well-Known Member

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    If no dividend income, unlikely to be able to claim against salary.

    Would likely be taken into account when cgt calculated as part of your cost base, so not all would be lost.
     
  15. pwnitat0r

    pwnitat0r Well-Known Member

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    If there are no dividends, then assuming the company is profitable and cash flow positive that means 100% of earnings are being retained to finance investment. I hope it's not a miner that is in the exploration stage!

    I would also hope it's not a company that is capex heavy or saddled with a big debt. I would also expect that they are able to earn the same, or better returns with the earnings they have retained.
     
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  16. BarneyRubble

    BarneyRubble Well-Known Member

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    Cannot think of a single stock I would own than does not pay a dividend, even a minuscule one, unless it is in my speculation portfolio.

    Sounds to me like mikey7 is planning on putting 50k into a single stock. This is not financially prudent. Not unless it is an ETF, and if it is please let me know, as I know of none than are growing at 7%
     
  17. Alex Straker

    Alex Straker Financial Life Coach Business Member

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    @pinkboy has given the best answer, DR lets you have your cake and eat it to. It's very difficult to find any good info on it in the public space tho, most of it is waaayyyyyyyyyyyyyy off the mark.
     
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  18. mikey7

    mikey7 Well-Known Member

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    Thanks all, and @pinkboy , I've applied to the bank to split my loan so as to recycle the debt.
    Gotta wait until 26th Jan before it happens :/
     
  19. Alex Straker

    Alex Straker Financial Life Coach Business Member

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    Using a single non dividend paying stock is not going to work for debt recycling, it's more like gambling.
     
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