Managed Funds How are you managing your managed funds?

Would generally agree with most of those......

 

Agree with b) - d)

a) is a more complex question.

Good that you've worked through bemoaning 4 mths of straight losses. That's a pretty small window if you're an investor. You need to hold the course for longer than that...

 

In bad times particularly, don't listen to media reports or newspapers about doom and gloom. The reporting is generally sensationalised and only serves to increase anxiety. I've learned to focus on investor sites and only speak to informed people, stick to my core financial plan and breath, breath......

 

Hi guys,

Just on hold to ANZ Margin Services again... Another day another margin call really. Probably will cost me $20K odd to get it back to buffer. Hang on, they just answered the phone...

OK, they want $10,210.00 today to get me back to buffer. I'm actually $40K odd in margin call, but they're happy to ride the buffer limit and hope for a market turn. A quick BPay and worry about it again in a few days time. I've still got $150K in my cash reserves so a long way to go yet.

I'm more than happy doing this as I'm basically just moving money from one loan account to another. i.e. from my PPOR offset to pay down my margin loan. The only downside is that the interest is no longer deductible. I'm not concerned about the capital erosion as I see this all as short term and 2008 still closing above 7000 once the sub-prime and credit crunch plays out. In fact, when BHP sets the ore price at 30%-50% up on current contract prices I reckon it will get a little lift. Oh, and put 6th Feb in your diaries now for a nice little lift I reckon. BHP reporting and the put up or shut up date.

Maybe I'm the eternal optimist, but I'm a long term strategic investor and this is all just part of the plan. Take the good with the bad and ride the trend.

Cheers,
Michael.

 

I am a tad less than 4 weeks away from settling on PPOR purchase. Was hoping of using some ML funds to cover stamp duty and 15% deposit.

With ML sitting at 60% :-( I will have to take some action soon ... thankfully Steve N is back next week !

 

agree.. I have been holding since 2005, so its not that I have a 4 month view on things! but when gearing gets out of control, things don't look as good in the short term, so I needed to re-adjust and reduce gearing to more sensible levels. currently I'm at about 58% after selling down some neutral positions.

 

I agree, I just bought another $16k BHP at 36.52. I don't suffer from margin calls, as I use LOC entirely. But these are now nearly full, so I might move my shares into Mac Prime and start to free up a bit of cash... I could double my share portfolio and be at 50%... just kidding, I might hold off a bit more before I dive in like crazy! But I can't go past BHP at this price.

Michael, you mentioned interest deductibility being a problem since the cash injection is from your offset account. But by moving my shares into MPrime, I can keep the LOC near 100%. Would I then have a similar problem, if I moved cash out of MPrime into the investment LOC to allow continued capitilisation of interest within the LOC? In other words, taking cash out of the margin facility to meet the demands of interest on an investment loan?

Or am I simply moving investment loan funds around within my various investment loans, with the consistent purpose of maintaining an income-deriving portfolio, therefore not dirtying my loans at all???

 

I suspect Michael's offset account is against his PPOR mortgage. When he moves money out of this account he is 'exposing' more of this non deductible debt.

If all of your loans are designated as 'pure' investment loans, then there will be no exposure of bad debt. There is the question of different interest rates on the different accounts.

Tailcat

 

If you redraw equity to pay interest, the new interest is not tax deductible. The tax office basically says you can't deduct the same thing twice. Then if you repay the redraw into your PPOR, unless you have a split which clearly defined the tax deductible portion, placing cash back into the loan will be equally spread between the tax deductible and non-tax deductible part of your loan.

This is why its important to clearly have splits in your loan to define which parts are deductible and which ones aren't. Having one large pool of money between deductible and non-deductible makes a mess and causes problems when you wish to re-pay non-deductible debt only.

If that makes sense.

 

That's what I thought, thanks. Different interest rates simply means that I keep the LOC near max (lower interest rate) and keep the ML LVR as low as possible; this is what I plan to do.

 

Yeah, makes sense. But I'm not going anywhere near my PPOR, offset, or other non-deductibles. I don't have a split loan, only PPOR, IO IPL, IO LOC1, IO LOC2. LOC1&2 are both purely investment, LOC2 pays interest for both LOC1&2.

If I don't do anything at all, then the LOC2 will max out due to capitalisation... I'm just speeding this along with a bit more BHP. But to take advantage of market dips, I would like to free up some more buying power, ideally through a new ML facility.

Cheers
- Rod

 

I disagree ... the new interest is tax deductible. You simply it claim against the investment.

 

I kicked up a fuss about this with the ATO, and they said you can only claim the item once, claiming the interest from re-drawn interest is not deductible.. its not to say people don't do it, but if the tax office got shittie, they could get you on it.

basically you can only claim the deduction once, and claiming interest from interest is what they consider double dipping.

prehaps a accountant here can clear this up?

 

Let me pose this another way.
Say I have two loans, each 100% investment and both capitalising the interest.
Loan 1 maxes out, but loan 2 has some headroom, say $50k.
So I move some available funds from loan 2 into loan 1, so that both loans now have $25k headroom.
Does such a transaction cause any problems? I shouldn't think so. As far as I see it, I am not trying to gain a tax advantage, even if the interest rates differ; I'm simply attempting to maintain my investment.

 

I think it will cause problems, cause you will redraw $25k into the other loan, which will be spent to pay interest. Since that spend wont generate a income, IE the interest is gorn forever and wont pay a divident or collect rent, its not deductable.

You can only have as a tax deduction a income generating item. IE if you buy land, which doesn't generate income, its not tax deductable. If you buy shares or a house or business, which do generate income, it is tax deductable.

If you draw down a interest payment - it will never generate a income, hence you cant claim the interest on the interest draw down.

 

"Interest on interest" was a no-no up to a few years ago.
But now that the terminology has changed - we now call this "capitalising interest" - it seems the ATO's view has also softened.
Or was it just that the ATO was not sure itself until someone requested a private ruling?

Surely I'm allowed to move available funds from one LOC to another... otherwise I'd never be able to re-finance!

 

All i'm saying is check.. you can move money around from LOC to LOC, but it depends what the money is used for. It has to be used to buy something which is income producing.. and to my understanding, paying interest is not income producing.. but this could have changed as Sim said. If its capatilizing in a margin loan, or a home loan, the result is the same.. hence would have the same rule.

Everyone does it in their margin loan, and I'm not aware of anyone been challanged by the ATO doing this.

 

dow down 330 points.. another bank goes down..

 

Hmmm.........looks like another interesting day coming up......