Invest the "buffer"

STW (ASX 200) was 13.87% gain for year to June 2017

Next year...who knows

 

Buffer is money you don't touch. Period.

 

1. Will you get tax deductions from the interest paid on this buffer? That is, if it's not against PPOR or it's a LOC.
2. Are you in the highest tax bracket?
3. Do you have the means to pay off the $40k if the dividends from the investment fall significantly?

If the answers to all are yes, you could justify a low risk diversified investment of the funds. Interest rates are low (they will go higher) so a well chosen diversified portfolio will beat the current rate. But remember the market could tank at ANY time - DO NOT SELL. Conversely it could increase further.

The safer option is keep buffer and wait for tanking market to invest in discounted quality portfolio.

Not licensed to give advice.

 

I would do it (in fact I do do it!) It may not be cash in the bank but it is still a liquid, divisible asset which can be converted to cash in three days notice. Make sure you allocate to more then one or two stocks through, need to manage the risks on that new investment class.

Also, rather than just drawing cash out of the offset I would set up a new loan split on the loan you are offsetting (ppor?) then pay the cash in and redraw it to ensure interest payments are tax deductible.

 

What if the market tanks and he loses his job? In this unlucky situation, he won't be able to cover mortgage repayments without selling shares at a loss.

Depending on how long the unemployment continues for, the loss can be huge.

 

Great idea, I hadn't considered a new loan split to do this. Thanks, I'll chat to my broker.

 

Thats right, the asset is liquid but may be worth 50% of todays value tomorrow. I see very little marginal gain here in exchange for pretty significant downside.

Thread reminds me of Blaise Pascal's "all of humanities problems stem from mans inability to sit quietly in a room alone". ie. I need to do something here, anything!! etc.

It's either cash reserves, or its not.

 

Can always look for What ifs? What if inflation picks up and his cash devalues, What if the bank collapses and he can't redeem his cash, what if the share market soars and property collapses and @bob shovel has to work till he's 80 because he wasn't diversified enough.

It comes down to your own risk profile but for me I think $100k+ on the sidelines is too much. I am quite comfortable holding a diverse share portfolio as a buffer (as well as some cash). If you have a portfolio with both defensive and growth stocks chances are there would be something you could choose to sell down at a good price, even in times when the general market is down.

 

Exactly.

Only invest cash that is in excess of the buffer you need. And make sure you have a decent size buffer as what I affectionately call a 'Go to Hell fund'.

The structure of how exactly to put that excess cash to work and use it do as much as possible for the efficient progress of your position varies greatly depending on circumstances and goals/expectations eg: simple savings, reduce non deductible debt, split adjustment & redraw for investment purpose, create high tax adjusted yield asset, add leverage, protect risk, multi layer leverage, long term tax effective income streaming, etc.... and that is whole another almighty complex thing

 

buy land in a new estate and sell before land title, would that work??

 

just looking at the original post from @bob shovel

He was looking at putting $20-$40k into the market, but still retain his original buffer of $60k

I have 100k equity sitting aside for a buffer plus establishing a business in the near future (forget that for now) but was wondering whether it's wise to put say 20k (or more?) into shares rather than sitting there.

I'm very green with this so looking that it can be a starting point to learn plus get some money working. So I'm looking to kill 3 birds with one stone

I understand the risk of investing the buffer isn't ideal but really my buffer level was planned to be at 60k so I'm ahead. ​

 

You have to remember that when the exrement hits the oscillating device, it doesnt do it in a nice, neat, controlled format. It usually does it in the most violent, dirty and uncontrollable manner possible.

Lets take an example
In about 2009 a lot of people became unemployed in the US, in addition there were very few new jobs available, and those that were - had a lot of applicants. If you were out of work it was tough to get back into work - and if you could it was usually on a much lower salary.
At the same time the housing market tanked. 50% loss in value wasnt uncommon - and even if you wanted to sell, there were no buyers - so you probably couldnt.
On top of that you could throw in a ~50% loss in the sharemarket.

You could well have been looking down the barrel of having no job, having little chance of finding a job, having the value of your property at 50% of what is was 12months earlier - but not being able to sell it even if you wanted to - and a share portfolio worth half of what it was yesterday.
Plus, even if you had the capacity to borrow - banks werent really lending.

That is why we hold a cash buffer.

Blacky

 

I mentioned in another thread awhile back there were so many good deals coming up and I made the idiotic decision to use a large part of my buffer with the reasoning that I will replace the buffer very quickly. Well good ol Murphey came for me with a vengeance and the next 4 months was an (unexpected) living hell. I will never, ever do it again. Let greed take over and kill rational decision making. It's not worth it and it's how people can go bankrupt.

 

100%, every time, and all the time, it only happens when we thought everything is fine, then boo

 

Can you explain the story @Leo2413 ? I'd be interested to hear it.

 

Whats your reasoning/motive?

 

4 weeks ago they announced their first PO for iron ore in India. With consistent PO's to follow. They are cashflow positive for the first time. They have been over there for over 8 years and have finally cracked the Indian market.

They have s plant which is turning low grade Iron ore into 63%+FE and selling for a premium price which is resulting in huge profit margins.

They are currently at 2.5 cents a share and my prediction is they will be over 10cents by Christmas.

DYOR and you'll see things are looking very positive for NSL in the coming years.

 

It's got about 3 months to go from original post

 

We used a chunk of our cash buffer to buy a place outright ( didnt want to use borrowed funds) however at the same time we were doing 2 renos in China that needed more money than anticipated and also had 2 Provisional Sums that came out to be more so we had to cover the extra plus we had a huge medical bill for extended family. Also needed some cash injections for our tea shops plus we had a few big repairs that needed doing at the same time. So cashflow for the next few months was a little strained, something we're not used to or comfortable with. That's why I'll never use my buffer like i did before again. Just not worth the extra stress.

 

The book is way better