What to do with $200 000 cash?

I currently have $200 000 parked in an offset account for one of my investment properties as it's the only loan that's not fixed.

It's currently offsetting a 3.29% interest rate.

A couple issues with it:

I could save about 0.8% by fixing that loan and getting rid of the offset facility.

Saving interest on that loan means I pay tax on all interest saved as it's a rental investment.

I can't access the money I'm saving from the offset, it just pays off the investment loan quicker.

So realistically after tax I'm getting the equivalent to about a 1.75% return... which isn't great.

I'm 35yo and don't need the money any time soon. I don't want a high risk investment as I worked hard to get this $$$ and don't want to gamble it away.

What are some ideas for where I should put this money?

Thanks

 

Logically one solution would be to invest in something with higher returns.

But, what do you consider to be high risk investments?

 

I would think crypto or just buying shares in one company or one type of asset would be high risk.

So maybe a managed fund with a variety of investments would be good? Or just an index fund? I really only know about property investment though but I want a more liquid investment.

 

Depending on your timeframe, ETFs (index funds) are a slow and steady means to build wealth and passive income.

 

you've cleared your PPOR home loan?

 

Yeah I've just been watching some YouTube videos on ETFs and they are sounding like what I'm after. Now just have to decide on which ETFs and which broker. Vanguard index international and an Australian etf and selfwealth was recommended on the video I watched.

 

It's fixed at 1.99% for another 3 years.... Can only put $5000 extra payments per year towards it.

 

Vanguard International (VGS) and Vanguard Australia (VAS) are both popular, infact I own both myself.

I've never used Selfwealth but I doubt you will go too far wrong with any of them.

Personally I would progressively move the 200k into whatever ETFs you choose over the next 6-12 months rather than drop it all once.

 

VGS (international) or VAS (local AU) are slow and steady. VGS (international) being australian domiciled is easy for tax purposes. (for full disclosure, I hold VGS since 2016). And I for local shares, I chose the LIC path.

Good luck.

 

I'd add the top 100 Nasdaq companies to the list.. NASDAQ 100 ETF

For the past five years;
NDQ has been 208%
VAS 38%
VGS 84%

 

Thanks for the recommendations.

What would be the advantage of slowly buying ETFs? Just to make sure the risk of buying at a peak is reduced?

I would probably only want to do it gradually anyway because it would be pretty nerve wracking to transfer out so much money all at once.

 

Basically... yes (aka dollar cost averaging).

There is some argument against the inportance of it, but the popular and traditional opinion is that yes, DCA reduces risk of going all in at or near a peak.

Interestingly however I recently read a piece whereby over the last 100 or so years there has never been a period of time where the market has been in a negative position 8 years on from any prior period. I think that was Australian data, and I think that how the story went.
If I can find the article Ill post a link.

 

The search function is your friend.

Search Results for Query: lumps sum or dca - PropertyChat

 

Here it is:

Three all-time best tables for every adviser and investor

 

Okay so I watched a video on tax implications as I didn't want to ask a question I could get answered myself and waste your time. But just to clarify the main issue with owning international shares is the exchange rate complexities when calculating the tax on dividends in your yearly tax return? But VGS has international shares but is domiciled in Australia so it's counted as Australian earnings/currency is automatically in Australian dollars so all the tax headache with dividends and exchange rates isn't there?

Also dumb question, but do the ETFs also pass on dividends and they just end up in your brokerage account?

Thanks

 

Grab a cup of tea (or coffee) and something to eat then have a read.

https://www.vanguard.com.au/personal/en/etf

 

Thanks that was a good read

 

Use 145K to fund 20% + stamps for a 700K Dual Occ (180K land. 520K build)
Borrow 560K ( 80% of 700K ) as construction loan
When built, interest on 560K at lets say 2.59% IO will be $14,504.
Add $6500-7000 for all other running costs ( management x 2, landlord x 2, building x 1, rates x 1)
Total running costs = 21-21.5K
Rental income is 760 + per week. 39.5K ( but likely higher )
Surplus cash flow of 18K which will be fully offset by depreciation, leaving you with 18K NET
18K net return on 145K cash is 12.41% ( but likely higher )
Use the 18K to pay down debt faster.... getting a compound return on the 12.41%

 

Yes - The Australian domiciled ETFs such as VAS and VGS just pass on the dividends (strictly speaking called distribututions in the case of ETFs) to either your nominated bank account or you can elect to participate in the dividend reinvestment plan - which imo is not worth the administrative hassle to save a few dollars in brokerage.

End of the financial year they will send you out a detailed statement you will need to complete some of the ATO tax return boxes. Nothing complicated... its very paint by numbers.

 

Thanks for the time you put into the reply. But I can't borrow more money. And I've already got positively geared rental properties. This is just what to do with my surplus rainy day cash. I've already got $3.5 million property portfolio with about $2million equity.

I want some money that I can liquidate even when the property market takes a downturn and interest rates go up to 6% and I may need to dip into savings to cover loan repayments. But I don't want that rainy day cash getting eaten away by inflation so want a majority of it invested in something that outperforms inflation but also isn't super high risk or hard to liquidate.