I got my IP policy when I bought my first home with a mortgage at 29yo. Being single in a fairly well paying job, that was a no brainer.

I'm 47 now. Stepped IP policy premium has more than doubled - 8k annually and going up in big steps each year. I'm barely working as I'm busy with my family and running a household. My current annual income is less than 20k, and i dont see myself ever going back to full time work. Ie, minimal tax deductibility.

Spouse is working full-time making 200k annually and has his own Income Protection policy. Thanks to years of frugal living and a small inheritance, our PPOR loan and our investment property loan are recently fully offset.

Spouse has 150k in super and I have 100k. We are both personal services sole traders and have prioritised paying off the home loan. We are quite risk aversed. We do also have 20k in EFT.

I'm thinking of giving up my IP policy as there is no risk of losing my house without my income. It's an any-job cover, apparently a very good one that you cant get anymore, and won't ask too many qns if I ever need to make a claim. (Thats what my IP advisor said.) No claims for first 30 days.

I have developed an autoimmune condition since the birth of my daughter, but it's been fairly mild the last 12 years. Point is it'll be tricky to get a new policy if I want one. I have a small TPD and life linked to my super. Otherwise I'm fairly healthy and stay fit, don't drink or smoke etc.

Will I be stupid to kill off my IP policy? It just feels like such a big cost that is not reducing any risks.

Hello.

I have 315k sitting on offset (mortage covered) worth 575k. Have 6000k cash in liquid. Earning 180k net a year. Plan is to have multiple properties through trust. Residentials and commercials. All on interest only loans. My strategiest wants to spread thin at 88% loan / 12% deposit. + lmi But my accountant and broker suggest i stick at 80/20 (80% loan/20% deposit).

What ya all think? Can get better rate at 80/20.

Choosing between two similar portfolio options (A is most appealing):

Portfolio A: A200, BGBL, VISM, VGE (~20/55/15/10) Will start with A200 and BGBL. Then add in NDQ, and VISM and VUE after when the portfolio needs proportionate weighting.

Portfolio B: A200, VTS, VEU (~25/50/25) Alternatively could substitute IVV for VTS (less fees for less coverage, realistically US S&P 500

Ratios are flexible but ideally after a large-ish capture of the global market if ratios are optimised, for less fees than DHHF or VDHG. (I'm not after securities and don't like their allocations. Otherwise the DHHF would be an easy choice for ~0.29%)

Gameplan:

• Buy and hold
• CHESS only (for portability and stability)
• Lump-sum ~$200k via Stake (super-low 0.01% brokerage)
• Ongoing ~$1-2k DCA fortnightly via CMC (FREE brokerage <$1k/day)
• Overweight domestic for franking credits (no heavier than 30%)
• Capital growth favoured over ex Aus dividends (delayed CGT)
• Take advantage of DRP
• Diversity into investment property to spread risk

Pros/cons

Portfolio A

Pros

• All Aus domiciled: (easy tax, transparent MER for each fund)

Cons

• Higher MER (on paper)
• Less US coverage (no mid/small/micro cap)

Portfolio B

Pros

• High capital growth (delayed CGT on unrealised gains)
• Heartbeat trades (+ ~0.05%)
• Vanguard securities lending (+ ~001-0.05%)
• One less fund to manage

Cons

• US domiciled: tax drag obscures/increases MER (likely ~0.20-0.30%) Similar example
• VEU franking credits loss (miniscule, ~0.07%)
• W-8 BEN form 3 yearly (minor 5 minute job)
• Unlikely estate issues if not valid
• Risk of ruling changes (~$12m holding limit could decrease to ~$60k like non approved countries)

TLDR: Stick with Aus domiciled, or VTS/VEU US domiciled is sliiiightly better (given securities lending and heartbeat trades offsetting tax drag/MER)?

If anyone had approx numbers of MER for above portfolios, that would be amazing!

Hey everyone. Just curious to know what others do with their cash savings. I am with QBANK, their HISA pays 4.95 which I know is a bit low compared to what other banks are paying. I have 42k in there at the moment and am building it by about 1.5k a month on average.

Just wondering if others bother going through the headache of opening accounts with new banks and shifting cash around to get the extra interest? Is it worth the admin time and potential problems that people run into with their accounts being locked and losing access etc?

Thanks so much to everyone who always contributes to this sub. I grew up with parents who had zero financial literacy, so I’ve had to learn from scratch. This group has helped me so much in the last few months!

Addit: sorry, just to clarify- I was meaning do people think it’s worth creating new accounts with new banks to chase an extra, say, 0.5% in interest or do you just stick with your usual bank if your rate isn’t the worst, like my bank doing 4.95% for example?

Hi all, I am a 19 year old student, currently studying a first-year Bachelor of Commerce (majoring eco and finance) at a top Australian uni and I work a retail part-time job, earning me about $450 per week (for 18 hours).

Over this past year, I've really become interested in letting my money work for me rather than letting it sit in the bank (majorly thanks to my dad), so I've made some hefty lump-sum investments (IMO lol) in ETFs mainly towards the end of this year in July (5k) and November (10k).

Currently my approximate holdings are 4k in VGS, 4k in VAS and 7k in IVV, all are Australian domiciled, and I know some are gonna say that VGS and IVV are heavily overlapping (approx 70%), however, I guess I just want to put more faith in the US markets/S & P 500 (especially given the all-time highs currently), however, I'm open to criticisms.

On top of that, I currently have around a 5k buffer in a regular bank account (barely earning any interest). So I thought the obvious solution would be to invest it into a HISA at 5.50%, but my dad said why do that when his offset account on the mortgage earns 6.5% interest, so he put 2k of my funds into the account. However, unless I'm mistaken, isn't that just reducing the interest charged on my dad's mortgage, rather than earning me interest myself (unless my dad actually pays me his interest savings with my $2K). I tried to question this out to my dad and even if I wasn't earning interest, I was still happy to help repay the mortgage (although it was a very minuscule effort) but I think I pissed him off and he immediately transferred my 2k cash back to my old account.

Was my perception correct that my $2K wasn't earning me interest directly but rather reducing my dad's interest payments? Is it worth exploring this again with my dad?

My dad has been instrumental in helping me learn and he also taught me how to properly budget using YNAB and I currently spend about $600 each month including dining out, entertainment, petrol + rented car instalments, etc. So each month I'm earning about 1.8K, and saving about 1.2K. So I need advice of where to put my money now.

If I was to keep investing in my current ETF selection, what proportions should I do (I'm planning to sell these ETFs in 35-40 years), or should I look into any other AUS domiciled ETFs (although I know keeping it simple is best). My dad has been recommending that I invest in blue chip AUS companies like the big 4 banks, wesfarmers, etc., but idk whether I should do that or just raise my holding of VAS. Another option I'm also looking at is my super which I have about 1.5K. I know it is probably stupid to make extra contributions, especially given I cannot touch it till I'm retired, but would it be wise to make contributions to the FHSS.

Also is buying an investment property even worth it in today's landscape, I mean I'll save for a first home, but is investing in property worth it in the future given the market and cost of living crisis, or should I focus on sole shares strategy for my financial independence over the next 20+ years.

I'm currently open to investing about 1K of my savings each month, especially given I still have a 5K buffer (+$200 each month) which should be about 6+ months of emergency funds, however, I need advice on how to split my monthly 1K funds between potentially individual shares, ETFs, FHSS and HISA. I’m keen to hear your thoughts and learn from this community. Feel free to critique my strategy or offer advice from your experiences. I’m just starting out and want to make informed decisions!

Hi, i am new to this whole investing things and don’t know much. I am 23 and would like to start investing but unsure how much to put in regularly to leave enough money to be able to buy a property eventually. I am in sydney and i make 62K a year, works out to be 2K a fortnight after tax, i have 28K in my bank account and have 5K worth of ethereum and 5K worth of bitcoin. I am 35K in debt in terms of hecs and I want to get started investing but dont want it to impact my ability to pay a deposit on a house. Ij the next couple of years. Where and how should i get started. All advice appreciated.

Edit: I did not post this to create a war, i want to keep the crypto but want to invest from my savings, ignore i have any crypto, i am mostly looking at vanguard but i dont know where to get started and for how much.

I’m seeing debt recycling all over social media but the numbers are still not adding up to me? Can someone explain how this would be better than an offset account and maximising super contributions?

Assuming hypothetical high income couple taxed at 45% with a $1Mil mortgage at 6% and 100k in the offset account

·       Offset - Putting 100k in the offset is a risk free after tax return of 6%. To match, you would need to be getting an 11%+ gross return which is not realistic to achieve without additional risk. I can see that at lower interest rates the returns are not as good.

·       Super - Maxing to the 30k super concessional cap is also very simple to do and correct me if I’m wrong it would provide a 30% tax refund? If a couple had previously unused concession caps it would also be simple to add lump sums from their offset account.

·       Debt Recycling –  Assuming the couple debt recycled the 100k from their offset account instead they would still need to pay about 3.3% interest after tax deduction and tax on any dividends earned. Assuming the ETFS they invested in earned 7% growth and 3% dividends their total return is 7% + 1.65%(after tax) – 3.3% interest = 5.35%. Whilst not terrible all the additional effort to learn and manage debt recycling does not seem worth it when compared to the options above. However, I can see that at lower interest rates the benefits are increased.

Is there something I’m missing here?

Weekly Discussion Thread on all things FIRE.

Hi all, newbie here, thank you for all the great information you provide.

Do any Super funds offer direct investment options in a TTR or pension account? I am still working, but plan to retire in the next couple of years. I already have a TTR account but can't directly invest myself, which I'd like to do. I believe that on retirement any TTR account rolls over to pension, and some providers offer DIO in pension accounts, but I can't find any that offer DIO in TTR.

Any advice would be much appreciated, Thank you

I'm with Vanguard Super - current balance $80k. High growth option performance since launch (albeit only 2 years old) is 14.02%

With employer and extra contributions after tax I'm now putting $25k a year into it.

Insurance is $80 a year and fees are 0.56%

If I retire at age 65 (which is 30 years from now for me) and assume a 10% return, this online managed fund calculator tells me I'll be at 4.8mil after fees. https://moneysmart.gov.au/managed-funds-and-etfs/managed-funds-fee-calculator

However Vanguard future forecast tool on their app gives me a balance of only 1.9mil at 65.

Are they just working on a super conservative annual return? I mean 5% yoy gives me Vanguards 1.9m but would've thought 10% is reasonable to assume over that period of time as a minimum.

I'm thinking to move to Australian Shares member direct and putting it all in IVV if S&P will likely outperform it.

Does my thinking make sense? Thoughts?

Hello - not asking for advice but I need $2000 to get my savings goal for ING. It would net me $400 in bonus interest. Has anyone done similar?

I am going to sell $2000 in Bitcoin and then buy it back tomorrow with my yummy $400 bonus.

Is there tax implications for doing so? I feel I am going to pay CGT on it eventually anyway so why not get some bonus interest, right?

Thanks!!

My children are on the autism spectrum. While they get the best of support to ensure that they can live a fulfilling adult life individually, I understand the reality of the situation and it is likely that they will require substantial ongoing support. My current plan is the following:

Ensure financial self-sufficiency:

I have been in a privileged position career-wise and am sitting on a reasonable amount of wealth without sacrificing my current quality of life. My objective is to ensure that I build a corpus that ensures generational wealth. Considering that the length of retirement in this case is basically ~80-100 years, I am considering my retirement corpus target to be 33x current expenses. In other words, I am assuming that a 3% withdrawal rate from a corpus invest 100% into stock (equal weighted across the world) would support this objective. Does anyone have references that support or disprove this simplification of a retirement corpus target?

Structuring for continuity:

I have setup a family trust where the assets are maintained with the children as named beneficiaries. I have setup legal guardianship arrangements in the case that they are orphaned before they reach the age of 18. Finally, I also have setup a will with provisions for a testamentary trust to carry any remaining assets as well as taking control of the family trust. I have left a provision for the executor to fall back to the NSW Trustee and Guardian as the final option.

I wanted to ask the reddit hive-mind - what are other actions that you have done? Do you have examples of a sample budget that you have used to determine what your eventual retirement income would need to be?

I've had VDHG for a good few years now - my understanding when I bought it was that it was a balanced high growth portfolio with a small amount of bonds to help smooth out volatility.

But looking back at the past few years with the COVID & the printing & inflation etc, VDHG is far underperforming compared to even VAS.

Why is this the case? Isn't a high-growth portfolio supposed to have ridden the rise up with all the other asset classes? What was dragging it down?

I'm thinking of selling- taking the capital gains hit and just buying somethign else but not sure if that's a good idea. Or what else is a better alternative. I want to avoid paying broker fees as much as possible.

Hi guys! 26F and a I’m a newbie when it comes to ETF’s. I’ve been micro investing for a while but I want to level up 😎 I recently bought some NDQ. I want to invest in another ETF but unsure what one. I’ve been researching for a bit and can’t decide because honestly it feels overwhelming 😅

What would go well with NDQ to diversify? I was looking at IVV but the overlap I’ve read? Also what is the different between these two attached in the picture. Is it that one is just AUS and one US?

Also please feel free to share ANYTHING for a newbie investor that would be helpful!

THANKYOU!!

Good morning all. Please advise is not the right sub to post this.

I'm wondering if it is worth refinancing my loans.

It's currently split 5.09% and 6.33% 50/50. Owe around 470k.

I don't know if I may be able to tip one into the other and keep the 5.09 rate. As I don't need the variable interest loan anymore.

Otherwise was wondering about refinancing altogether. Have many been through the refinance thing over the last few months? Where were the best options ?

Reason being, I wish to get another block of land for the future with my partner (she isn't on my loans). Do that up to what is needed over a few years and sell this one when the time comes to retire to the middle of nowhere, most likely. Kind of a down grade for an upgraded simplified life.

Thankyou for any recommendations

Whether it is Super or ETFs, when do you say enough is enough? For example, some Balanced options in Super can cost nearly 1% in fees. Some active ETFs also charge similar fees. Even though it is the most wonderful investment option, you refuse to invest because the fees are too high?

View Poll

Noob sorry. I notice my WOW shares work as 100% collateral on new BUY orders (because it's listed on the ASX200 index) ? Just wondering if ETF's work as collateral ? Is it 50% or 0% ? Thanks for any help. New to this side of investing.

We have upsized, new home loan that Westpac will be the mortgagee on, settle mid-December. We used a mortgage broker and wanted a bridging loan and have ended up with Westpac and a Westpac Rocket Repay variable loan. There is a lot of information across Reddit on debt recycling, split loans, redraws etc. which is what I'm intending to try with this Westpac mortgage, but I have questions and want to avoid any problems as we go along. Hopefully the steps and questions (and answers please) and then updates will help others on a similar journey with Westpac.

The Loan we are getting is the Rocket Repay: Variable home loan with offset and we're getting the Premier Advantage Package $395 p.a. which gives a further discount on the interest rates, fees off, credit card etc. There are conditions and additional accounts needed for offset etc. - the typical increase of share of wallet stuff.

The steps I intend to follow to keep this "ATO proof" will be (source Passive Investing Australia)

1. Split the home loan (more on this below with a Westpac context)
2. Have enough money in the offset to cover the split loan (with redraw) that will be used for debt recycling
3. Open a new investment account (CMC Markets, Betashares Direct - etc.)
4. Transfer the full amount less $1 from offset to the Westpac split loan and redraw that amount straight away into the investment account.
5. Buy stocks\ETFs (that pay a dividend) through the investment account
6. Track the interest paid component on the split loan - for tax return
7. Confirm the dividends paid on the investment account (pre-fill) - in tax return
8. Rinse and repeat

Step 1: Splitting a Westpac home loan

The Westpac Rocket Repay site says it allows loan splits (Home Loan needs to be $150K minimum) but online information is all about doing this to support having a Variable Rate split and Fixed Rate split. All the online information also makes it seem like there is only ever two splits happening. I want to proceed with Principal + Interest (P+I) Variable in all the loan splits. I've read in other posts that Westpac can be convinced to split loans as multiple P+I Variable (if you explain that it's for a reno to be tracked separately for e.g. or for budget management - like Barefoot buckets) but I'd like to get a definitive answer if that's possible (or I'll confirm with my own experience later). Someone posted elsewhere that $10K is the smallest split and the Westpac splits info says $100K redraw max online per day but unlimited in branch so I'm assuming a split could be greater than $100K.

Question 1: Can a Westpac Rocket Repay Home Loan support more than one loan split?
Question 2: Can the loan splits (with redraw) all be P+I Variable; like the main loan (with offset) being P+I Variable?
Question 3: What is the largest size for a split and\or the smallest?

Step 2: Load the offset and save an amount to start a debt recycle.

Step 3: Open an Investment Account. Passive Investing Australia is pretty good with broker comparisons. After opening individual separate investment accounts, CMC Markets allows you to view them all in one portal. This is good to keep clear separation between loans splits and where the investment for the split remains.

Step 4: Transfer (less $1) and redraw full amount to Investment Account.

The reason for not transferring the full amount to the split loan is that some may close automatically.

Question 4: Is the Westpac redraw process - if online and less than $100K - as simple as on online transfer is e.g. BSB Account Number Amount? 

Step 5: Buy stocks\ETFs that pay a dividend.

Step 6: Interest paid on split loan. Can be claimed on Tax return > Deductions > Dividend Deductions

Step 7: Stock (Dividends) and ETF (Managed Fund Distributions) should be pre-filled automatically in tax returns.

Step 8: Rinse and Repeat

Being able to do this for the next split loan and then the next etc. is very dependent on whether the Westpac Rocket Repay loan will support many loans splits - let's say 5+, and each of these being able to be P+I Variable rate, and that the person approving the split loan each time is able to accept the split\redraw is for an additional reason (whatever that may be).

Question 5: As hopefully the splits continue, has anyone run into questions from the bank as to whether the splits are for non-home related purposes like debt recycling\investing?

Thank you

Hi all

I’ve got a parent moving into a retirement home and they wish to sell their house (to be with my other parent)

Both my parents are silent Gen and us children now manage their money.

A quick estimate is that after sale of house their assets will be 65% cash, 35% shares (almost all asx).

I’m thinking longer term a 60% stock , 40% cash would be better.

But dumping a large amount of cash into EFT at once does strike me as risky and even if it was a sound plan I doubt three sibling would agree on it.

I was thinking of increasing the allocation to efts by 3% a year till it reached 60 eft/40 cash.

A fair portion of the cash is held in the form of nursing home bonds which effectively return over 6% safely to pay for the nursing home.

Does 60 eft / 40 cash sound reasonable for a retired couple ? Does increasing efts over time sound reasonable?

They have (old style) state super and smsf ontop of this so would never run out of money even in a severe stock market downturn.

I've probably got a fair bit of overlap here and would like to consolidate my holdings. Any advice would be appreciated. I'd be happy to increase the value of any of the good ETF's with the proceeds of the sell-offs to a degree. I have a margin load of $29.5k I'd like to get rid of.

Hi everyone, sorry for the silly question here, just seeking clarification on the best option forward.

I have some accounts with ING, daily one + Savings + HISA

Daily+savings one offers 5.5% provided i meet the standard criteria of

- make 5+ settled card purchases

- Deposit 1000$ + from an external source

- Grow savings account balance [excl interest)

The savings account has around 60k which i keep as a back up for emergencies / an account i can dip into if i need some cash.

HISA one is 4.70% for balances over 150K, of which I have around 152 K saved. I'm looking to buy a house in the future and expect another 60 K in the next few weeks from an overseas account.

The account offers a variable rate of 4.7% with balances $150,000 - $5 million

I recently came across Macquarie Bank and they have a savings account that offers the below

Options

1. Would it be better to move my ING Hisa savings to the new bank ??

2, Move all the money to the ING savings account and close the HISA ?? \

3. Leave ING as is and move the inbound future 60k into the new Macquarie account and top it up??

4. Close the ING HISA and move that cash _ inbound 60k to the new Macquarie account.

So I’m a beginner investor and I was doing some research:

Dividends are taxed annually at your marginal rate.

Capital gains are taxed on sale, with a 50% discount after 12 months.

Retirement lowers income and reduces tax liabilities.

Franking credits partially offset dividend taxes.

Growth investments have higher returns but lower dividends.

Dividend stocks provide income but grow slower.

Dividends reduce stock price by the payout amount.

Reinvesting dividends aids compounding but may lag growth assets.

Selling shares sustainably depends on growth exceeding withdrawals.

Taxes apply only to the gains portion when selling shares.

Small annual sales minimise taxes with CGT discounts.

CGT is often better than dividend tax.

Growth defers taxes, boosting compounding.

High earners benefit more from growth investments.

So based on this, dividends don’t seem very useful? So if I’m 60 and retired. It would be better to just sell some of the IOO stock that would have much higher value than the ASX.

So what would be the point of investing anything into the ASX? Is there any point in having dividends at retirement when you can just sell the growth stock??

Ok, another debt recycling series of questions. Please go easy, this is my first post! I've had a read of some of the helpful info referenced here e.g. on PassiveInvestingAustralia (very good), and watched a couple of videos e.g. DebtRecyclingAu (also very good), but I'm still not 100% clear on some of the finer details.

My situation:

• PPOR owned with partner, both earning a similar amount.
• 3 loans and 2 offset accounts for PPOR as follows:
  • Fixed loan - 300k outstanding - coming to an end shortly
  • Variable loan 1 - 350k outstanding - P&I paid from Offset 1, interest offset against Offset 1
  • Variable loan 2 - 65k outstanding - P&I paid from Offset 1 (not a typo), interest offset against Offset 2
  • Offset 1 - 300k balance
  • Offset 2 - 60k balance

The "additional loan / offset" arrangement came about because we went over-budget on the PPOR, so we decided to set ourselves a goal of paying that amount off within a period of time. It was just a way of being disciplined at the time, by committing to topping up Offset 2 by a minimum amount every month, when we weren't as financially secure and staring down the barrel of a big debt.

My original plan had been to just let Offset 2 (60k) service Variable loan 2 (65k) by switching the P&I instruction when they equaled out, which should be soon... On the other hand, we've been planning to invest more money into our small ETF portfolio... And recently someone mentioned debt recycling, so I started to look into it.

So the revised plan is to debt recycle Variable loan 2... Maybe restructure the Fixed loan when it ends its term into a couple of smaller loans (maybe 150k each?), and then debt recycle them at a later date too.

My specific questions:

1. Does the loan (to be debt recycled) have to be "new" i.e. can I do this with the loans which I already have, or do I still need to make new arrangements?
2. Does the P&I have to be paid from a new / special account, or can it be an existing one e.g. an existing offset? Any pitfalls to look out for on that front?
3. The questions above really come under the heading: how do I avoid mixing money in the ATO's eyes? I get the need for a new, separate brokerage account and associated bank account, but aside from that is it just "make sure your home loan is split into multiple parts, and use any one of those parts for debt recycling if you like"?
4. I mentioned that like many, my loan is split with my partner i.e. it's in both of our names, as is the PPOR. We both earn a similar amount. Assuming we get a joint (new) brokerage account for this investment, I assume we both split the tax benefit: which bit of that equation needs to be changed so we can choose one of us for the tax benefit?
5. The 2 offset loans also state that they have a redraw facility - is redraw possible / common on a loan with an offset?
6. If I've understood correctly, my first step would be to transfer the full amount minus $10 into the loan (let's say $64990 if I were to start tomorrow), then withdraw that exact same amount and invest it via the dedicated brokerage account. In terms of tax, is 100% of the interest on the 65k balance then tax-deductable from tomorrow onwards, or does that $10 muddy the water e.g. do I have to calculate it as a percentage? Similarly, does timing matter for the first month (WRT tax claimable)?
7. How would DCA work best in practice - would it be a case of redrawing an amount every month? Again, at tax time, would this come down to "percentage of loan withdrawn vs interest charged that month"?

Thanks in advance. I appreciate this isn't a "financial advice" forum, but it's useful to get people's takes on some of the details which I don't fully get: at the very least I can better understand what I'm supposed to be doing / what the potential pitfalls are before embarking on this journey, and if I'm still unsure at least I can be better informed before seeing a FA.

Conventional wisdom states that investment debt should almost always be Interest Only (as opposed to Principal and Interest). The reasoning? Maximise deductible interest and redirect the cashflow savings to pay down your non-deductible home loan.

However, I’d argue this conventional wisdom is a relic of when IO and P&I rates were the same/similar. Nowadays, it’s more complex and P&I is better in most cases. 

But many in the industry continue to push this strategy without crunching the numbers. As a financial adviser, I'm often met with resistance when I suggest considering P&I to a client’s mortgage broker. 

So I decided to run the numbers. I modelled 6 scenarios to show when P&I or IO makes the most sense. 

Find the comparison here - https://docs.google.com/spreadsheets/d/e/2PACX-1vQQ1oebdTAop2QFKz4xq-tXiA7BiHmpyPb1X3jW1rX-vLkbtG7LGrpme2hD42Ie0kX-nOh5DbZEHGIl/pubhtml

I've run 6 scenarios and the "winner" and trend can be seen in the image below. Red represents the year in which IO becomes more favourable. However, if you’ve already repaid your home loan by that particular year, you’ll never reach that point and P&I will be more favourable.

https://preview.redd.it/mh50xxesbk3e1.png?width=1141&format=png&auto=webp&s=691b9f9eb4569b7dfe0e5f33e0cf3a8c75d0f336

Key Findings

1. Base Scenario

• Assumptions: $500k bad debt, $100k good debt, 39% marginal tax rate, refinancing P&I every 4 years to reset the term.
• Result: IO only catches up with P&I in year 27, and that’s after redirecting the tax refund (from higher IO interest) to the home loan. However, many borrowers have fully repaid their loan before year 27. Thus, P&I is usually better than IO. 

2. Higher Marginal Tax Rate (47%)

• A higher marginal tax rate reduces the time it takes IO to “overtake” P&I, but the breakeven still isn’t until year 18. The opposite trend would occur if your marginal tax rate is lower than 39% in that the breakeven point would be later.
• Depending on the time until you expect to repay your mortgage, IO could be more of a consideration if you have a higher MTR.

3. Lower Interest Rates

• Counterintuitively, lower rates favor P&I. While IO frees up more cashflow for non-deductible debt (below), the relative cost of the investment loan loading is bigger.

https://preview.redd.it/8goyy07ubk3e1.png?width=483&format=png&auto=webp&s=0032c7eb3ac3e7628588911db0a8b71b419d599a

4. Smaller Rate Loading

• As you would expect, if we lower the loading to 0.2%, IO becomes more favourable and the breakeven point is after 10 years (instead of 27).

5. No Refinancing

• If you never refinance the P&I loan to extend its term, IO only becomes favourable after 19 years, proving that regular refinancing significantly improves P&I outcomes.

6. Larger Investment Loan ($300k good debt)

• If the investment loan is larger relative to your home loan, IO is never justified over 30 years because of the higher interest costs. The opposite trend would occur if the deductible debt is reduced (e.g. from $100k to $50k in this instance) in that the breakeven point would be brought forward.

Happy to answer any questions or discuss feedback!

TLDR: Don’t choose IO automatically. Nowadays, P&I is often better than IO, so run the numbers based on your specific circumstances.

Cheers,

Kyle

Looking for feedback on my proposed core ETF allocation. Starting with 52k lump sum, will be investing 475 each week after that. I’m looking for 10+ year horizon. Looking for all AU domiciled ETFs with diversified exposure.

Thing the following at this stage:

30% A200 50% BGBL 10% VGE 10% QSML

Targeting minimum 20% VAS, 20% VEU and 40% VTS. The rest in Balanced. Looks good for now.

Hi Everyone,

After my post a couple of weeks ago I decided that from now on my strategy would be to DCA into DHHF. I have a fair amount invested in IOZ/IVV, so I quickly looked into replicating DHHF with these still included. From this, I found that an IOZ/IVV/IWLD/IEM portfolio would cover the same areas as DHHF. Looking at the fees it appears that this portfolio would be half the fees of DHHF (0.08% vs 0.19%). I know that having a more complex portfolio means more management time for me but also adds flexibility. Overall it seems like I could achieve the same objective in diversification with lower fees. It would also let me keep my IOZ/IVV holdings and avoid any capital gains tax as well.

Has anyone taken a similar approach to their portfolio?