Hi there, The question i keep thinking about at the moment, given the sideways (at best) movement of the stock market and property properties, is it best to pay off more of my PPOR loan? I have a loan of about $250k, paying both interest and plenty of principle per week. I have an offset account accumulating pretty nicely next to it. Is the money I am saving in interest (currently 8.75%) with the offset, outperforming any net gains I would be making in todays markets? Is it correct to calculate if I were to invest the money, I would need a gross return over 15%pa (nett would be less tax, fees etc)? Am I only looking at the short term gains, and avoiding some bargains to be made, with greater returns for the future when both markets pick up? Or should I just sit tight, keep growing the offset, then get in later? Cheers CC
Hi CC, What tax rate are you on? If you were on the 31.5% tax bracket you would need to make 8.75 / (1- 0.315) = 12.77% before tax on investments to get a better rate of return. So saving money in your offset account looks like a fairly attractive investment, in today market. Even more so if you consider the risks involved.
Thanks Ashwright Is it correct to think I am earning 8.75% interest on my savings, tax free and risk free? yet I am not benefiting from any (likely) growth in capital, right? cheers CC
Hi CC, Like AshWright said your 12.77% pa is before tax and risk-free. Can you get a 12.77% pa anywhere else which is risk-free? The only growth you are benefiting from would be the growth in your PPOR. Even a term deposit has risks and they are paying about 7% to 8% pa. Cheers, Dan
Hi CC, I would not say you are earning 8.75% (cause then you would have to pay tax), rather you are saving the money by not having to pay it. Also I would not say it is risk-free, bank deposits are not guaranteed in this country, and the tax laws could change. But it would have about the same risk as a term-deposit, which is a very low risk. I think you have the concept though.
perhaps i should say "Is it correct to think I am earning the equivalent of 8.75% interest on my savings, tax free and risk free? thanks CC
Hi CC, What we are saying is that you'd need to be earning roughly 12.77% pa on an investment (before tax, which is 8.75% after tax) to have the same return, with less volatility (ups and downs) than investing in shares or property. Cheers, Dan
Buy High Growth Property WITHOUT Buyers Agents! Buy High Growth Property WITHOUT Dropping $15k On Buyers Agents Each Time! Helping People Achieve PASSIVE INCOME Using Our Unique Data-Driven System, So You Can Confidently Buy Top 5% Growth & Cashflow Property, Anywhere In Australia » Learn HOW Now!