Shares or Offset for next deposit

Discussion in 'Shares & Funds' started by 2020 Property Investor, 22nd Feb, 2020.

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  1. 2020 Property Investor

    2020 Property Investor Active Member

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    Hi there

    My wife and I have just purchased our first IP for a buy and hold capital growth strategy.

    It may be a couple of years before we generate enough equity and liquid funds to refinance for the next property.

    Question is. With the low interest rate environment, would we be better placing saved funds into the share market or into an offset account?
     
  2. Trainee

    Trainee Well-Known Member

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    What does your crystal ball say the sharemarket will do?
     
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  3. datto

    datto Well-Known Member

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    If you're confident you can make better money on the stock market then go for it. Don't forget to pass on your strategy here. Otherwise I'd be inclined to go offset.
     
  4. Trainee

    Trainee Well-Known Member

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    If you understood the sharemarket, you wouldnt ask the question at all.

    if you have to ask the question.....
     
  5. Marg4000

    Marg4000 Well-Known Member

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    For a 2-3 year time frame, offset is safer, particularly if you have a PPOR loan.

    Share market if you are a gambler. You could gain or lose around 25%.
     
  6. 2020 Property Investor

    2020 Property Investor Active Member

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    Unfortunately I don't have a crystal ball however my observation is that the market will continue moving in cycles. Good thing is I buy select stocks, not the market. Working with the trend, rather than speculating and ensuring risk is minimized by setting stop losses and diversifying to between 5-10 stocks should work.
     
  7. 2020 Property Investor

    2020 Property Investor Active Member

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    Maybe I should focus the question somewhat.

    Shares when sold = capital gains event.
    Offset account = no capital gains event

    I am in the 2nd highest tax bracket.

    Question, what return would I need to make in the share market to equal or better the rate of return from placing funds in offset (current interest rate is 3.84%)
     
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  8. wylie

    wylie Moderator Staff Member

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    I'd put it in the offset. That's a guaranteed earning rate.

    Or if you want to play in the stock market a little, what about a bit of both?

    After not bothering to check our super balances and having had them in the aggressive area for years, they've done well (and we've not contributed for yearly ten years). I was never counting on needing the super, but now we are around the 60 mark and will be using super to pay a builder in a few months, I've tucked much of it into cash and the rest into a safer area.

    If the share market does a nosedive, we won't be able to pay the builder and I'm sure he won't be happy if I ask him to wait until I sell a house to pay his account.

    So, knowing we need it in a few months, it is safely sitting mostly in cash. If I had three years, I'd likely keep it in a less safe area within the fund.

    But the world is a funny place it seems someone powerful sneezes or we get the threat of an epidemic and the share market dives. We cannot take that risk at this crucial stage.
     
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  9. mtat

    mtat Well-Known Member

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    That's not a good thing, you should be buying the market. Buying 5-10 stocks is 100% speculation.

    Put the money in the offset or invest in the sharemarket long term.
     
  10. Fargo

    Fargo Well-Known Member

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    Share market if you are a gambler. You could gain or lose around 25%.[/QUOTE]
    NOT taking a POSITION is the biggest GAMBLE. you take and almost 100% sure to loose. If you invest 25% of available funds in a sound growing company the most you can loose is 25% tho extremely unlikely. A 5 or 10% lose, is may be a 30% chance. But the UPSIDE is UNLIMITED and a good chance of a 50% or 200% return on available funds. I would rather take a chance on getting a deposit that is high enough to give me a good cash flow positive house, than risk having to work to pay it off.
     
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  11. Fargo

    Fargo Well-Known Member

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    Who understands the stock market ? It is irrational ! It is driven by algorithyms and doesn't make sense. Invest in sound scalable companies with strong balance sheets and high recurring revenue growth You don't have to know anything, other than who knows their stuff, where to get good advice
     
  12. Fargo

    Fargo Well-Known Member

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    You should not be buying the market, Buy companies not the market 70% of the market is not worth buying is risky and will drag your returns down.
     
  13. mtat

    mtat Well-Known Member

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    Incorrect, it's actually about 98% of companies that are not worth buying. Good luck with your 2% chance of getting it right. You've got it upside down when you say buying the market is risky, and then recommend stock picking.

    Everyone knows about "strong balance sheets" and "recurring revenue growth", all that information is already priced in. The market is efficient, and outperforming it is almost entirely down to luck - that's academically proven. There's definitely irrational behaviour in the markets, but it's only ever obvious in hindsight.
     
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  14. Brumbie

    Brumbie Well-Known Member

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    Sounds like preservation of capital is more important than return. But if you are happy to either gain or lose potentially 50% then put it in the market. If you want your capital plus 4% pa back guaranteed then stick it in an offset. 2-3 years is not long enough a timeframe to invest in the market. It may crash tommorrow and then you have to wait 10 years to get your capital. An offset is a great return really, for cash. You cannot get better.
     
  15. significance

    significance Well-Known Member

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    When I bought a flat recently, I discussed with my financial advisor whether to sell shares from my portfolio to pay cash or whether to take out a loan and keep the shares. With interest rates as low as they are, we opted to take out a loan (I'm on 3.28% interest with full offset available, but it's a PPOR). At the same time, the share market might also be weak in the coming year, so I changed my strategy from re-investing dividends to paying dividends into the offset account. Between that and moving the money I had in my investment cash management account into the offset account, I now have about $100k sitting in the offset. I've discussed this with my advisor, too, and let him know that this money is available for investment if and when the market is looking strong enough to be worth losing the offset. So far, his advice is to hold my existing shares but not invest more just now.

    Often, the advice is to buy shares for the best returns if you are looking for a 5-year+ investment, but go with a less volatile option (such as your offset account) if it is only going to be a couple of years.
     
  16. Terry_w

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

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    What about debt recycling? Ask the advisor if it might be worthwhile to sell the shares and borrow to buy back more.
     
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  17. significance

    significance Well-Known Member

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    That's getting a little sophisticated for my comfort level. I can see how it might be effective, though.
     
  18. Rex

    Rex Well-Known Member

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    Well @2020 Property Investor since you are a property investor, you obviously have an appetite for some amount of risk. Put some in the market I say. Of course there is a small chance you could loose a chunk of your savings if there is a crash (or you pick some bad stocks) and you have to sell out before it recovers. But history suggests it's much more likely that you'll do better than the 3.5% or whatever you're making in interest savings via the offset, especially if it's offset against your IP loan.
     
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  19. kierank

    kierank Well-Known Member

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    Why not put one’s bet on a share that is heavily involved in the residential property market such as REA.

    44% pa total return in the last 12 months
    22% pa total return in the last 2 years
    21% pa total return in the last 5 years
    31% pa total return in the last 10 years​

    That ****** all over 3.84% pa in an Offset :p.

    It is not my money. So, what can go wrong?
     
    Last edited by a moderator: 23rd Feb, 2020
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  20. bookworm

    bookworm Well-Known Member

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    I personally have used conservative debt recycling for some buy and hold IPs into PL8 and some unlisted property - I like the manager and I like the monthly divvies. I use LOC to invest, then restructure into IO loan.

    With offset, you just need to decide whether say ~3% / (1 - marginal tax rate) is the best you can do, albeit a guaranteed return parking cash into an offset.