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Thoughts on offset funds in shares/etf's

Discussion in 'General Property Chat' started by JK200SX, 24th Jun, 2016.

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  1. JK200SX

    JK200SX Well-Known Member

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    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?
     
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  2. albanga

    albanga Well-Known Member

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    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?
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    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.
     
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  4. JK200SX

    JK200SX Well-Known Member

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    Terry,

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

    Bran Well-Known Member

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    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?
     
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  6. chylld

    chylld Well-Known Member

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    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
     
  7. Bran

    Bran Well-Known Member

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    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)
     
  8. JK200SX

    JK200SX Well-Known Member

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    Dividends
     
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  9. Ted Varrick

    Ted Varrick Well-Known Member

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

    chylld Well-Known Member

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    Curse my long-only strategy! Only move left in my book is to buy more while prices are low :p
     
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  11. Ted Varrick

    Ted Varrick Well-Known Member

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

    Nick Valsamis Well-Known Member

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

    Ted Varrick Well-Known Member

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