After reading Steve's LoE articles, I thought I'd better stress test our fund returns with a 2% interest rate rise, and compare to leaving cash in a PPoR offset account. Current story is; Cash and LoC 50% Margin Loan I won't list all the funds here but Navra WS is 40% of portfolio Assuming 10% fund return Assuming 2% growth I think I've missed something, because it seems that after rates go up just over 1% (see attached spreadsheet), an offset saves the same amount? We are currently capitalising Margin Loan interest, but I have included 2 scenarios in the spreadsheet. Being new with fund investing, I appreciate any feedback and corrections!!

You're taking out tax first and then calculating expenses ... you need to calculate return minus expenses and THEN you pay tax on the remainder. I see that you do discount the interest costs by the tax rate ... but I think you would be better to do it the way your accountant would ... it will give a more accurate result. (You may get the same result - I haven't checked it in detail). Fundamentally, with an assumed total return of 12% (10% distribution + 2% growth), you've not got much buffer when interest rates hit 10%. You really need a lower LVR (your actual LVR is nearly 70% when the LOC is taken into account) if you really think that 10%+2% is the best you can do on your portfolio. As you've shown, your "risk free" return is pretty high - you need to think about whether the returns you can get with a high LVR and a conservative return on your portfolio justify the risk !! Perhaps some diversification into more growth funds would help ?

Thanks for the quick reply Sim. That makes a fair bit difference, much nicer outcome (updated in spreadsheet). After speaking with our planner, and also from reading on this forum, I gather that 10% distribution is a good (yet conservative) figure to use for planning. The purpose of this fund strategy is to generate some cashflow while we are paying back a family debt on our PPoR (gone any day!). Next step we plan to get a CG IP soon.