Thoughts on offset funds in shares/etf's

What are peoples thoughts on the following strategy.

Lets say you have a property/s and substantial amount in the offset account. At a current interest rate of 4%, every 100K in the offset would save you $4000 in interest.

Lets say, if you could, invest 100K of your money from the offset account in the share market, in particularly the ETF known as VAS. It has a current year return of ~7.15% after the fee. So that is $7150/yr. This equates to $3150 gain for the year after taking into account the additional 4K you would pay in interest after pulling out the funds from the offset account.

The VAS dividends have a high franking component, so I presume minimal tax paid, and because you have 4k further interest repayments on your IP, you would then have a furrther tax deduction to your benefit.

Would this be a good strategy?

 

If you can get a higher return after tax then it's always a better investment
BUT
Money in an offset is 99.9% secure (.1% for the bank going bankrupt) whilst the sharemarket is volatile. It's no different than saying why is that money not better invested in more properties?

 

Why wouldn't you pay the $100,000 off the non deductible loan and borrow to invest? This way you could claim an extra $4,000 in tax deductions.

 

Terry,

the only loans I have here are deductible loans with an amount in the offset.

 

I did the sums with some commbank shares as an example a couple of days ago on a napkin.

You come out about 4k in front with investing 100k. But... that is while interest rates are as they are, dividends are as they are, and no consideration to capital value.

I don't think VAS is fully franked though, what is its franking?

 

So that means it's a good decision as things are?

You can just float from one asset class to another when the conditions favour a move. Shares and ETFs are very liquid

 

I keep about 5% of my net wealth in cash, so yes. That's pretty much what I'm doing. But I certainly wouldn't copy me if I were anyone else. (But I have non-deductible debt also, so that's a bit of a brake/a priority)

 

Dividends

 

Invest the difference in going short on the Pound Sterling. Bugger, should have posted this a few days ago...

 

Curse my long-only strategy! Only move left in my book is to buy more while prices are low

 

Maybe go long on tea, specifically English Breakfast. Can you get it anywhere else?

 

The big brands have the ingredients sourced offshore and rarely packaged in the UK anyway.

 

No wonder they are going to hell in a handbasket (not discounting enjoying the pleases of a cup of Russian Caravan though...)

 

It's riskier because effectively you're leveraging your equities exposure to the tune of resi mortgage rates.

I do this because I'm young and greedy.

 

Can you claim the interest on monies used to buy shares and reit? Say from money in offset.

 

Tax Tip 59: Borrowing to Buy shares Tax Tip 59: Borrowing to Buy shares

Taking money from an offset is not borrowing.

 

What about if the offset was originally borrowed money using equity in property.?

 

See
Tax Tip 1: Parking borrowed money in an offset account Tax Tip 1: Parking borrowed money in an offset account