This is a great debt recycling strategy and what I advise clients. you can always wait for a bot of cash to build up and then buy some more shares - paying down the loan and reborrowing first or keeping cash in the offset and borrowing if you have the equity. I also periodically sell, pay down non deductible debt (and tax) and reborrow to buy back.
Boglehead/Vanguard way to retire
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This is a great debt recycling strategy and what I advise clients. you can always wait for a bot of cash to build up and then buy some more shares - paying down the loan and reborrowing first or keeping cash in the offset and borrowing if you have the equity. I also periodically sell, pay down non deductible debt (and tax) and reborrow to buy back.
Thank you Falcon
Yep I moved some funds from my PPOR offset into paying down the loan and then reborrowed. I also borrowed against equity from IPs too. All separate loan accounts therefore should be fully deductible.
What's the advantage of doing this if you can release equity? Is it to exit a position and reinvest elsewhere e.g. sell Sydney buy Brisbane?
Sell to take profits, pay down non deductible debt and borrow = converting non deductible into deductible.
investing in index funds, broad based etf's etc is fine.
But that's not the real success to achieving adequate long term returns.
The secret is to apply a constant top up regardless of market conditions.
The reason the average retail 'investor' fails to achieve adequate returns is because they get excited when the market HAS been doing well. This is the point at which they start to invest.
When the market goes down, they run for the hills, and stop investing.
Market goes up, the retail person becomes comfortable and starts 'investing again'.
So essentially retail investors are always buying at the higher ends of the market.
Overtime this leads to subpar performance.
So looking at funds etc are all very well and good, just make sure your mindset is correct
But that's not the real success to achieving adequate long term returns.
The secret is to apply a constant top up regardless of market conditions.
The reason the average retail 'investor' fails to achieve adequate returns is because they get excited when the market HAS been doing well. This is the point at which they start to invest.
When the market goes down, they run for the hills, and stop investing.
Market goes up, the retail person becomes comfortable and starts 'investing again'.
So essentially retail investors are always buying at the higher ends of the market.
Overtime this leads to subpar performance.
So looking at funds etc are all very well and good, just make sure your mindset is correct
Very good point
Dollar cost averaging combined with some dry powder and the confidence to buy in major corrections will provide outperformance. But that second bit is difficult to achieve when the talking heads are claiming the sky is falling. So step 1 set up a dollar cost averaging program and never ever mess with it, and step 2 educate yourself as to how markets work and a history of financial market cycles this will help you on the second part, if you don't have a gamblers nerve 
Even for a etf investments, education and mindset are so important as IV points out.
Even for a etf investments, education and mindset are so important as IV points out.
Having a look at the AFIC site they only show 10 years of comparison to the accumulation index for outperformance, are there charts that extend further (20 years plus)?
Do I sense a naysayer?
Run the yahoo finance charts, their numbers go back to 2000, overlay XJO and you will see that AFI are short changing themselves by only quoting 10 years (which is the standard practice in the industry). I have seen the AFI chart over 30 years at an AFI presentation and it shows outperformance extending back that far. I might be able to get my hands on this in coming months if I remember.
Yeah AFI actually really gap the market in the early 2000s this would be from dodging tech stocks. This is stuff long term conservative managers do well, the once a decade blindingly obvious. If the business isn't profitable they don't hold it.. Nothing speculative. Wheras the index etf will drag you along for the ride.
What do you guys use for fixed interest exposure? Or do you just use a property/shares/cash mix?
Vanguard ETFs seem less efficient for this area, it seems an area underdeveloped in Australia, and doesn't recieve the tax kicks that shares and property do. However it seems much less risky, too.
I was listening to some of the Your Money Your Call Bonds episode and they had the guy on from the Laminar Fund - it's returned something liked 19% per annum for the last five years in fixed interest. Aims for 8-10%. That seems like an incredible return using fixed interest, which is generally far less volatile than equity. And they haven't had a negative monthly return since 2011!
Of course past performance doesnt equal future performance. However I also like their mix of Australian and overseas fixed interest, from a diversification perspective. And I wonder if they can safely generate some alpha simply by some conservative currency predictions.
http://laminar.com.au/private-clients/invest-through-a-fund/
I am thinking of putting 20 odd percent into a bond fund, for the diversity purposes, and must admit this one is a tempting option
Vanguard ETFs seem less efficient for this area, it seems an area underdeveloped in Australia, and doesn't recieve the tax kicks that shares and property do. However it seems much less risky, too.
I was listening to some of the Your Money Your Call Bonds episode and they had the guy on from the Laminar Fund - it's returned something liked 19% per annum for the last five years in fixed interest. Aims for 8-10%. That seems like an incredible return using fixed interest, which is generally far less volatile than equity. And they haven't had a negative monthly return since 2011!
Of course past performance doesnt equal future performance. However I also like their mix of Australian and overseas fixed interest, from a diversification perspective. And I wonder if they can safely generate some alpha simply by some conservative currency predictions.
http://laminar.com.au/private-clients/invest-through-a-fund/
I am thinking of putting 20 odd percent into a bond fund, for the diversity purposes, and must admit this one is a tempting option
So Laminar is an active bond manager, same DD and scepticism is required as for an active equities manager. 1% and 20% outperformance fee. No franking. The 5 year performance needs to be understood in the context of the market last 5 years. Bonds were really cheap. Personally in accumulation phase I don't have any interest in bonds, just cash and equities. The total payout and tax treatment id suggest is not great for top tax bracket owner/beneficiary looking to compound wealth over the long term. Those in distribution phase might find these bond funds of interest.
Yeah you guys pretty much echo my own skepticism - fund started in 2009 till present, which was perfect timing of the bond market. And skepticism regarding active managers.
I checked the holdings and over 50% are currently held in mortgage backed securities. These I don't totally understand, either.
However the returns they have had so far are rather fantastic, considered from a risk perspective (far less risky than equity, or property). 8 odd percent per annum (which is what they aim for rather than the last few years of 19%) even without franking, is a great return considering the far lower level of risk.
*Edit - typo. lower level of risk, not greater
I checked the holdings and over 50% are currently held in mortgage backed securities. These I don't totally understand, either.
However the returns they have had so far are rather fantastic, considered from a risk perspective (far less risky than equity, or property). 8 odd percent per annum (which is what they aim for rather than the last few years of 19%) even without franking, is a great return considering the far lower level of risk.
*Edit - typo. lower level of risk, not greater
I'll park spare cash into offset accounts and go on a shopping spree when the property/share market is on sale.
JM, why do you think 8-10% yielding bonds are low risk ?
Well I don't think the bonds they buy yield 8-10%. Like Vanguards bond fund, im sure a large amount of the return is from buying bonds that yield less, but that have also risen in value. Which is where an active manager who knows about bonds comes in (i couldnt pick these myself).
75% of the fund is in "investment grade" and only 25% in "non investment grade" - which might be the very high yielding stuff. And 30-50% is offshore, so I'm guessing that a large part of the extra return they've generated has come from sensible currency exposure - e.g. buying US bonds when the AUD was higher, etc.
As I say I'm no expert though, so correct me if I'm wrong with the above?
75% of the fund is in "investment grade" and only 25% in "non investment grade" - which might be the very high yielding stuff. And 30-50% is offshore, so I'm guessing that a large part of the extra return they've generated has come from sensible currency exposure - e.g. buying US bonds when the AUD was higher, etc.
As I say I'm no expert though, so correct me if I'm wrong with the above?
This sounds like a good method to me too!
My view; The stars aligned perfectly in the last 5 years...falling interest rates pushing yields up, and falling AUD (holding USD denominated bonds). Not being a bond investor, my comments aren't worth much, what I would say though is I would be leery of investing with a Pty Ltd that has only been around 5 years, and would look at someone like a Pimco or Oaktree Capital who are solid and have a very long history. Good Luck and I mean that genuinely (not being a smart ****
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