Seeking advice on wealth accumulation

Discussion in 'Share Investing Strategies, Theories & Education' started by KittyCat, 7th Dec, 2018.

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  1. KittyCat

    KittyCat Well-Known Member

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    Hello, and thanks for reading my post. I'm looking for advice on the best way forward. I'm sure there are things I've not considered....

    Idea 1
    Buy a much smaller home than initially planned paid with cash. Put 100k in capped Australian index funds, direct shares and old lics. Deposit $500 a week into these investments & retire in 35 years. With compound interest and reinvesting of dividends hopefully generate a large sum of which we could live off the passive income (dividends income only). Enabling us to leave our child with a significant sum. Still need to consider tax implications, perhaps worth doing in a SMSF? Any suggestions?

    Idea 2
    Buy the better house (still a small loan, possibly 200 to 300k) set loan up to enable us to use debt recycling to buy shares and claim the interest. This might potentially mean we can't start investing until we generate equity and we wouldn't be starting with as much capital in stocks which would significantly reduce the amount we end up with. What type of loan is needed to enable claiming interest legally? Possible split loan or loc? Why do people set up trusts as opposed to companies to manage tax of assets?

    Thanks
     
  2. Trainee

    Trainee Well-Known Member

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    Too wide to explain. Main thing is think about leverage.
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Or 1 buy a cheaper house, borrow 80%, then pay it off and have a cheap finance facility available for future use, if you need it.
     
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  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Any loan can be used to invest and claim the interest. You should get specific advice on the loan product and structure at the time.

    Companies offer no 50% CGT discount and little to no flexibility - unless its shares are held by a discretionary trust.
     
  5. KittyCat

    KittyCat Well-Known Member

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    Hi Trainee, are you suggesting think further about using leveraged money in another context? I've only really considered debt recycling....
     
  6. KittyCat

    KittyCat Well-Known Member

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    I had thought about this but maybe incorrectly came to the conclusion that the loan size wouldn't matter as we could redraw or use the line of credit to continue borrowing (probably not the right terminology). When we got close to paying it off we would take more out to invest.....
     
  7. KittyCat

    KittyCat Well-Known Member

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    Thanks that helps me to understand why the trusts are popular.
     
  8. The Y-man

    The Y-man Moderator Staff Member

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    Be very careful as there are many tax implications to consider with trusts, such as the deductibility of your loan costs (it's you loan, not the trusts), trapping of CG losses in the trust, etc. Don't do it just because it sounds fancy - there has to be some good reasons.

    The Y-man
     
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  9. Trainee

    Trainee Well-Known Member

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    Generally leverage magnifies gains and losses. One option is to use more leverage in property and put more cash into shares. 35 years is a long time for compounding to work.

    But alot depends on your risk profile.
     
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  10. KittyCat

    KittyCat Well-Known Member

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    No need for it at this stage. Only know people who use company structure instead of trusts.....not sure why probably the lower tax bracket
     
  11. KittyCat

    KittyCat Well-Known Member

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    Thanks Trainee, I will research your suggestion. Based on 5% growth in shares and dividends combine (very conservative) using compounding interest as well as weekly $500 deposits we would end up with around 4 million in about 35 years. Enough for us to live very comfortably in retirement. So we would cover the loan keeping it small and reinvest dividends.
     
  12. KittyCat

    KittyCat Well-Known Member

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    But I'm definitely not the brightest spark and new to investing so I might be missing some or a lot. :rolleyes:
     
  13. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    The trouble is if a lender knows you are borrowing to invest you will cop a higher rate. So best to maximise it at purchares.
     
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  14. KittyCat

    KittyCat Well-Known Member

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    That's annoying but not surprising.
     
  15. kierank

    kierank Well-Known Member

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    That is what we did. Used leverage to buy property and cash (in a trust, namely our SMSF) to buy shares.

    No regrets. Been retired for over 8 years now and still using leverage for property.
     
  16. Trainee

    Trainee Well-Known Member

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    How much will 4m buy in 35 years?
     
  17. KittyCat

    KittyCat Well-Known Member

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    Hopefully enough :oops: we will have no debt so that's to cover living costs....
     
  18. KittyCat

    KittyCat Well-Known Member

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    I would have though as it is compounding above 3% it would keep up with inflation and should be enough. Our property would do the same. Really hope it's enough....
     
  19. Trainee

    Trainee Well-Known Member

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    Your using hope too much. You have enough time to plan it properly.
     
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  20. KittyCat

    KittyCat Well-Known Member

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    True, I'm imaging it's enough but I need to do the maths. We will have our home and work super too ...