DCA for VAS- Buy Now or Buy from LOC?

It's pretty simple. You work out your net negative cashflow (interest costs - dividend income) and get an approximate figure for tax refund by multiplying by your marginal tax rate.

So if you're on a 37% tax bracket and you've borrowed $10,000 @ 6% = $600 per year in interest and you make 4% return from dividends after fees = $400 per year in dividends then your net income is -$200 per year.

On a 37% tax bracket, you'll get a refund of around ($200 * 37%) = $74 for that $10,000 borrowing/investment (after tax net cashflow of -$126)

Those numbers scale up fairly well (so $100,000 LOC invested gets you $740 refund and after tax cashflow of -$1,260), although if you borrow enough to drop your taxable income down to the next tax bracket, you'll get even more.

Note that I'm ignoring franking credits, CGT and buy/sell costs in my simple calculations.

 

I think that largely depends on 1) the interest rate you are paying and 2) the returns you expect from your funds.

If you had PPOR debt, it would be a no-brainer ... hard to beat guaranteed returns from reducing non-deductible debt.

However, investment debt isn't quite so simple - and if you're borrowing at, say, 6% but are confident you can achieve an average of at least that in total returns from your funds, then I'd lean towards the funds.

It also depends on whether you want to consider total returns or just income in the equation. Most funds probably can't beat the income returns you'd get from minimising interest repayments - even on an investment loan with tax taken into account ... but once you add in some growth, you'll probably be better off with the fund.

Of course if you have a down year, your total return will likely be negative - but you can either A) actively manage your investment to move to cash and park it in your offset account, or B) hold on and look at the longer term average returns in deciding which gets you the better return.