Is it worth trading shares when you have a PPOR & offset mortgage?

[Propagate]

OK, so as usual when I'm bored at work (most of the time), my mind wanders off in search of ways to quit the workforce sooner and hopefully richer.

Something Emma and I have talked about doing for donkeys is putting a regular amount into shares each month. After being spurred on again by reading Evand thread in coffee lounge we finally sent the paperwork off today to open our Comsec account.

Just before we left the UK we had opened a trading account, but didn't get as far as actually trading. Emma proved to be quite the stockpicker with her paper trading though.

I was reading a thread earlier about where & in what people invest in other than property and got me thinking maybe we should also be diversifying a bit, in order to create more opportunities for generating profit and also to spread risk.

Currently we have a 100% offset account with our PPOR mortgage, and with interest rates on the rise I got to thinking:-

Assuming a mortgage rate of 6% for every $1000 we deposit into the offset we 'make' $60 off the mortgage. Easy peasy 6% and no tax to worry about.

We're in the 40% tax bracket, so to make the equivalent 'profit' from shares we'd have to make $100 per $1000, or 10%. 10% seems to be what people aim for, but being the share market is obviously not guarantied.

With interest rates on the rise it obviously becomes harder and harder to make the money invested in shares outperform what them same amount would do in the offset account.

So, I suppose what I'm asking is, how likely is it for a novice to the share market to consistently better 10% as a return?

For you guys that trade & invest in stocks and/or invest in other assets, are you generally mortgage free in the sense of non-deductible PPOR debt? If you had non-deductable debt, would you still put money into shares instead of an offset?

I think at the moment, in our situation, we're probably better off taking the guaranteed 6% and squirreling away any extra money into the offset account to try and save it up for subsequent IP's.

 

[Delilah]

You just put in writing my thoughts as to why I keep stuffing money into the offset rather than shares at the moment.

 

[Propertunity]

So, I suppose what I'm asking is, how likely is it for a novice to the share market to consistently better 10% as a return?

Can a novice to the share market make 10%? Yes
Can a novice do it consistently? Maybe not
Can a novice lose all the money in the share market? Probably not, but it could be done
Can a novice make 20 - 50% in the share market? Maybe

The trick is to not stay a novice. If you want to try something new (to you) you can and will lose money while you are learing the strategies and trying / selecting strategies that suit you.

After the lessons are learned, then you can go on to make some good money. Although some people do not.

My advice is to only play with money you can afford to lose while you are learning.

 

[Jazza]

You may consider putting a minimal amount into shares for the purposes of your own education and learning so that once your PPOR is paid off you're more informed and able to invest larger sums with less risk/more confidence.

By keeping it smaller you would be relying on smarter investing than 'more eggs' so to speak.

 

[hobo-jo]

In my novice opinion it's only worth it if you are going to speculate to make big $. No point investing in blue chips for an average return if you've got a mortgage and offset account, especially when we have just seen a 6 month, 50% rally and are potentially at another peak.

I had a bit of a play early in the year and then started pumping big $ into gold/silver stocks in August/September this year and it's paid off, I'm up 46% (not including some small profit earlier in the year) and with the price of metals still rising I'd say I will do pretty well. Certainly I would say my situation is not that of most novices though and I was reading up on the precious metals market for 9 months before placing the first trade.

 

[Propagate]

Thanks for the replies.

I hadn't thought of it in the way of only starting out as a novice.

We'll paper trade for a while and see how we go, then maybe split 50/50 the overtime that we'd normally leave accumulating in the offset account and start with some shares.

Cheers.

 

[wobbycarly]

You also have to remember that the 6% you save/make on your mortgage is effectively tax free. The 10% you make on share trading is (generally) subject to tax.

 

[joanmc]

It also depends on are you investing or trading? If you are investing Tax rates are only an issue when you sell, but trading is a different kettle of fish.

Is it possible for a novice to make money? yep, also possible to lose some too

I suppose if it is something you have always wanted to try then why not give it a go. If you make a loss then that is an expense in the business of trading. Once you start you won't be a novice for long! the market is a like a surly school marm, she will teach you.