Can't sleep! The Q:Buy 'bargain' stocks or Let funds stay in offset?
- Thread starter antonio
- Start date
Cupcakes
The net position is the same except doing it terryws way gives you an
addional tax deduction of around $3000.
Maybe, think of this example.
A
$300,000 home loan with $100,000 in offset. Interest is only payable on $200,000. Now if the person takes the $100,000 in the offset and buys shares then the interest on the full $300,000 will be payable and none of it deductible.
Net position = $300,000 loan with non deductible.
B
Instead of the offset money they borrow. They could pay the $100,000 in the offset into the loan. Total loan is now $200,000 and then they set up a separate split and reborrow $100,000 for the shares
Net position = $300,000 loan with interest on $100,000 of it deductible.
A
$300,000 home loan with $100,000 in offset. Interest is only payable on $200,000. Now if the person takes the $100,000 in the offset and buys shares then the interest on the full $300,000 will be payable and none of it deductible.
Net position = $300,000 loan with non deductible.
B
Instead of the offset money they borrow. They could pay the $100,000 in the offset into the loan. Total loan is now $200,000 and then they set up a separate split and reborrow $100,000 for the shares
Net position = $300,000 loan with interest on $100,000 of it deductible.
I definitely think you should diversify, even if only a little, between different asset classes.
I bought bank stocks (among others) last week using money from my offset account. The bank stocks should be returning (anticipated) 7.5% per year.
You can also use Terryw's suggestion of borrowing to buy shares instead of withdrawing from offset, to capitalise on tax benefits. Getting a loan would take time though, and I wouldn't recommend buying truck loads of shares anyway if it's only your first time, so it may not be worth the effort.
Terry the only problem with this idea is that if the original loan is from a PPOR
you're converting a tax deductible loan to a possibly tax deductible loan depending on the use of the $100K (so you lose the advantage of taking those funds with you to your next PPOR)
A better option would be to access equity from IP's, get a separate $100K loan secured against 1 IP and to leave the PPOR loan alone.
Bill,
the security for the loan doesn't matter. As long as the loan for the new $100k is split from the main (non deductible) PPOR loan it should be the same as borrowing from an IP.
Ideally they would keep the money in the offset and then borrow an extra $100k for the share loan, or if this is not possible then pay down the PPOR loan and reborrow (separate split).
Terry
I was saying that if you put the $100K into the loan, it drops to $200K and then when you redraw the $100K it increases to $300K but only $200k is from the original loan so if in future you decide to move PPOR's the new $100K is no longer own funds but rather borrowed funds so you can't take them with you to your next PPOR.
Therefore, getting an additional loan of $100K (irrespective of security) is a better option than touching the money in the offset.
I hope it makes sense.
I was saying that if you put the $100K into the loan, it drops to $200K and then when you redraw the $100K it increases to $300K but only $200k is from the original loan so if in future you decide to move PPOR's the new $100K is no longer own funds but rather borrowed funds so you can't take them with you to your next PPOR.
Therefore, getting an additional loan of $100K (irrespective of security) is a better option than touching the money in the offset.
I hope it makes sense.
@ Everyone
Thank you all for your thoughts and comments
It sure helps so much with others more well versed clearing the fog
= = =
For clarification, the offset we have is against an IP loan (not PPOR)
(so any additional interest paid on the loan is tax-deductible)
So if I pull money from the offset...
- is this the same as what Terryw and BV suggested?
- ie get another loan to buy shares with?
or barking up the wrong tree
= = =
Of course, for total 'security' - I can just let things stay the same
and save 7% interest
Reason why I'm considering shares is diversifying a little
Will I trade like a madman and rack up transaction costs - no
More like buy and hold for > 5 years
Thinking will only liquidate when necessary or when it's a 'peak'
@Intrinsic_Value
What do you mean by secular bull market IV?
That it's best to only use buy and hold strategy in a rising bull market?
Thank you all for your thoughts and comments
It sure helps so much with others more well versed clearing the fog
= = =
For clarification, the offset we have is against an IP loan (not PPOR)
(so any additional interest paid on the loan is tax-deductible)
So if I pull money from the offset...
- is this the same as what Terryw and BV suggested?
- ie get another loan to buy shares with?
or barking up the wrong tree
= = =
Of course, for total 'security' - I can just let things stay the same
and save 7% interest
Reason why I'm considering shares is diversifying a little
Will I trade like a madman and rack up transaction costs - no
More like buy and hold for > 5 years
Thinking will only liquidate when necessary or when it's a 'peak'
@Intrinsic_Value
What do you mean by secular bull market IV?
That it's best to only use buy and hold strategy in a rising bull market?
Hi Antonio
If the offset is against an IP loan, then taking the cash from the offset should result in the same deductibility as if you took out a separate loan.
But it would still be tying up cash. consider what the effects would be if you needed the cash later own for a non-deductible item such as upgrading PPOR.
If the offset is against an IP loan, then taking the cash from the offset should result in the same deductibility as if you took out a separate loan.
But it would still be tying up cash. consider what the effects would be if you needed the cash later own for a non-deductible item such as upgrading PPOR.
Thanks Terry
Good point. Of course will always have a cash buffer - for a rainy day
Just don't want idle money taking smokos all the time
=P
One could sell the shares if a emergency scenario came up..then they ahve access to all the funds that existed originally and could mnake the emergecny personal payment for the personal expense. Is it really always about borrowing more & more ? especially when the person asking if usnure about the wisodm of borrowing foir shares in the first place
Share market volatility is a little crazy for some people I guess.
I watched a stock I bought a few months ago drop down to a paper loss of nearly 50%, now it's about 20%. Do I care? Not really.. nothing has changed fundamentally with the company.
But, when the market dropped I was able to pick up some shares for a 15-20% discount to what they were the week before, now I'm sitting on a 7% paper profit in only a matter of days. Do I care? Yes, a little.. I'd rather they stay down so I can buy more while they're still cheap.
I watched a stock I bought a few months ago drop down to a paper loss of nearly 50%, now it's about 20%. Do I care? Not really.. nothing has changed fundamentally with the company.
But, when the market dropped I was able to pick up some shares for a 15-20% discount to what they were the week before, now I'm sitting on a 7% paper profit in only a matter of days. Do I care? Yes, a little.. I'd rather they stay down so I can buy more while they're still cheap.
Bon i think you have figured out the real truth to making money from investing in the share market.
The key to investing in the market is to know the difference between value and price.
If one is confident of ones valuation, then you can play the market against itself.
ie When investing switch off price and focus on valuation.
When trading focus soley on price.
And for those 'property investors' out there the same theory applies 100%, with the only difference being that property moves at a slower pace.
Are you a property investor or just a property speculator?
The key to investing in the market is to know the difference between value and price.
If one is confident of ones valuation, then you can play the market against itself.
ie When investing switch off price and focus on valuation.
When trading focus soley on price.
And for those 'property investors' out there the same theory applies 100%, with the only difference being that property moves at a slower pace.
Are you a property investor or just a property speculator?
Actually you wish that their value continues to go up, but the price doesnt, and secondly that you valuation prediction is correct.
Antonio, Why not do both? You can get 100k worth of shares for less than 7k per year. You could leave 85% of your money in your offset, or do what ever with. You can get a 100% loan to buy shares with about 3.5% interest non recourse loan, but to do this you will also have to pay about 1% for put options and pay 3 years interest in advance plus brokers fees will cost you about 15k for 100k. Which is tax deductible. So after tax maybe 10k but remember you still have you money in the offset saving you about 18 k in interest over 3 years. You might like to try 50k just to diversify and get some exposure. I think you risk losing more by not acting than you risk by acting. As small risk of the underwriter of the options going bust and loss a small bit of interest is small compared to potential gains. You could buy some shares directly with put options so you only have 1% dowside risk and huge upside as an example bought santos last monday for $11 plus 90c for put option, at the momment I think 12.15 .
