What to do with $200 000 cash?

Awesome you've been really helpful thanks

 

Why not break the fixed rate and offset the funds, then?

 

The fixed rate is at 1.99% for the ppor which is super low. A 1.99% return right now on the money I have available to invest wouldn't be fantastic. I'm hoping to get a better return. At least until I come out of the fixed rate period in 3 years.

 

another helpful website is sharesight. you can play around and "project" how much dividends or total returns.

 

You take financial advice from a YouTuber ? This is something ASIC are warning about. Self wealth is merely a low cost broker. You can also buy Vanguard ETFs directly.

Take note that ALL investment comes with a capital loss risk if a market adversely moves. This is likely to occur overnight and a immediate loss on market open would then occur. Nearly all posts seem to adopt the view that ETFs = growth and wealth creation and almost none stop and consider what happens IF...A correction WILL happen at sometime. There is a lost of blind belief in a rising market without loss. Its a matter of when. The 2020 correction was a covid abnormality and should not be used as a likely example. The GFC is a better example. It took 11 years for the ASX200 index to recover.

 

Not all youtubers are bad and out there to get your money. wealth of information and, the issue is really to discern what is good and what is bad.

Peter Thornhill - look for him on youtube - has a series of videos, you will know it is him with the blue background. He explains things really well, especially the part about "yield trap".

Anyhow - don't make things complicated, ETF/VAS/VGS investing is really simple.

 

Yeah I think I'll lock in a fixed rate for all but 80k for my investment property, sit $50 000 against the offset account and add my day to day savings to the offset and I can easily pull that money out for an emergency. Then put $75k into VAS and $75k into VGS. Then in 3 years time when my PPOR is out of the fixed rate period I'll decide whether or not to cash in the ETFs and pay down my mortgage or if it's a bad time to cash them in I'll just hold them longer. And if I truly get screwed and lose my job or interest rates skyrocket and it's a bad time to sell a house then I can always just cash in the ETFs bit by bit to cover my shortfall. So it's not like if I'm 10k short I have to sell a whole house in a bad market to get access to that 10k. I can just sell 10k worth of ETFs and even if they are down 20% at the time it's still not a world ending scenario.

Does this sound like a semi logical plan?

I'll do more research of course but this is sounding like a decent option.

Thanks

 

Always good to diversify Tim, and educate yourself in this area, especially as you have so much already in property.

We did this years ago, and set up a share investment portfolio in my wife's name as she wasn't working at the time. Has grown well and provides some good comfort as an accessible asset - very easy to liquidate part when you need it.

I would take a long term view though - not just a short term park.

 

Yeah good points.

So you can just set the shares up in your wife's name? See that's another advantage because the property is in both of our names and I'm on 100k plus $15k for my half of rental profits and my wife is just $15k rental profits as she doesn't work a paying job.

So if she sets up the ETFs in just her name then we are saving a heap on the earnings from that due to my wife's much lower tax rate.

 

You will get spoiled as you see those dividends come in each quarter from VGS & VAS and you will see how hassle free it is as well in terms of tax time.

Good luck

 

I haven't even taken into consideration dividends.

What percentage do you normally get?

So basically what I would be doing is exchanging the current situation where I am increasing my rental return by offsetting interest. And then getting taxed like normal income across both myself and my wife. With Efts I would be changing that $200000 into largely generating income through capital gains where you then are eligible for 50% deduction after holding for a year plus the income would just go to my wife and will pay tax at a lower rate.

Plus it will allow me to fix my loan rather than offsetting it.

I calculated currently that $200000 is getting me $5321 after tax due to offsetting and increasing rental yield.

But if I fix the loan except for $80k, offset $50k and put $150k into efts and if they average just 5% return each year (I can hold for 20 years or so if needed so I only really care about the long term yearly average) then I will be earning after tax $10697 pa. So twice as much as just parking all of it in the offset like I currently am.

If I'm not really mistaken this is sounding like a good strategy?

 

When it is mentioned that it took x number of years to regain a price level post GFC it never seems to be mentioned that dividend/distributions were still being received. Yet when it comes to property it's all about cash flow.

Why the inconsistency?

 

Because share price data is available, but not really for a specific property? Also dollar cost averaging isnt really viable for property for most people.

 

NEITHER pay dividends. Both are trusts and pay distributions. Some, but not all, may be franked. And yes some do suspend distributions where adverse market conditions persist. Companies will suspend dividends meaning those ETFs will reduce or suspend their distributions in kind as we saw in the March 2020 through to August 2020 period. At tax time all the tax elements on the tax report must be considered and will comprise amounts actually paid "for" each quarter. You may be stunend to know we see loads of taxpayers who lodge incorrect ETF reported income which the ATO crrect or challenge. Esp commsec clients where the Commsec annual reports ARE ALMOST ALWAYS wrong for ETF income. There can also be AMIT and tax deferred elements which affect the cost base, some income may also be gains. ETFs can be far more complex than "simple" share dividends for the avg punter. The fact so many people cannot describe the difference and refer to "dividends" froma ETF is a great example of how little many consider. 2021 is the first full tax year when the ATO have assisted with reliable prefill.

 

Only thing I would add to the VAS/VGS solution is you need to have at least a 5y timeframe (at least). Dont invest your rainy day fund. If you lose your job/need cash chances are everything else is going to hell and you dont want to have to sell when everything is down.
On a CAPE basis (Cyclically Adjusted Pricing Model) US shares are right now pretty much as expensive as they have ever been. Not to say they cant get a lot more expensive, no one knows - but the last time they were at this level was the dot com crash - look at what the NASDAQ did after that.

As Buffet said "dont risk what you have and need for what you dont have and dont need...." or something along those lines.

 

Ta.

Only posted because I was bored waiting for the contrast media to kick in before having a PET-CT which was so much fun I want to do it again.

 

Yeah good points. A balanced approach is needed.

Maybe I just stay on the sidelines a little longer and do this strategy after the next crisis causes a dip? I'm not in any massive rush to jump into the market. But with that said, there are lots of people that have thought assets were overpriced in the past and then watched on the sidelines as they continued to go up.

Any crystal balls?

 

Don't over-complicate.

VGS over 20 year timeframe.


VGS over 2 year timeframe ...



I think you get the picture ...

 

Distribution history of STW since inception.

While the distribution has varied it has not suspended any distribution over the 20 years it has been listed.

SPDR S&P/ASX 200 Fund