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awww geez no 3rd star? booo

Vince – you emailed me but your address is getting bounced. got another email?

well I got 5 or 6 emails, obviously everyone here thinks they have perfect finances, or maybe they just dont trust me

OK, free for all, ask me anything.

Heres a sample of a question I was asked, identity witheld of course:

“I have $80k in shares, $20k personal loan, $6k credit cards 17%, negative geared sydney IP, sydney PPoR mortgage, $100k in term deposit, and earning $200k. Any ideas?”

My reply:

1. sell the shares, cop the CGT. with the all ords up here, theres not much upside for a while.

2. either open a deal4free account, invest $4k @ 5% margin (your $80k back on) OR wait for the market to fall before doing this.

3. this leaves $76k (assuming no CGT), use $20k of it to pay off personal loan.

4. this leaves $56k, pay off $6k credit card.

5. this leaves $50k. the sydney IP should be sold, you wont get a better price for 10 years. consider using these funds plus your spare 50k to buy several properties in QLD. or you could pay off your PPoR, but with rates @ 6% you are better off investing in a fund paying 9% rather than reducing debt costing 6%. you might also look at a managed fund. funds can make money when the market falls also.

6. if you dont have health insurance, get it. not having it means you pay medicare surcharge of extra 1%, or $2k a year, so does your partner.

7. consider salary sacrifice into super. pay 15% tax rather than 48.5%. possibly set up a DIY super, and invest in QLD property.

8. set up an interest offset account between your mortgage and term deposit. you are paying 48.5% tax on term deposit interest, while claiming nothing on PPoR interest. offsetting this interest will save about $2500 a year in tax. once the term is up, pay off your mortgage.

Regina,

The Tort of Negligent Mistatement says that three conditions must exist to be liable:

1. a legal duty of care owing
2. a breach of that care
3. financial loss as a result of the breach

It is very difficult to prove #2, even if #1 is by the book. I doubt #3 could result could result based on my comments, and #1 would not be established. Secondly I do not take direct control of their finances and never have access to them, in fact I do not even know their identity. But I do see your point.

“Shares, could do cov calls against them, extra income.I would love a share portfiolio for that purpose.If the shares have been held less than a year, extra CGT.

Deal for free, risky, unless you have a water tight trading strategy.”

Covered calls are where you write one call, and buy another call with a higher strike. This has an element of risk (if you do not own the underlying shares) if there is a slow uptrend. perhaps what you mean is a buy-write, where you write calls on the stock you own, producing extra income, thus increasing the yield of the investment. I recommend this strategy, as it gives the best risk/reward of any option strategy. Just make sure you only do it on high yield div stocks. You could compare this strategy to positive geared IP’s, in fact, a lot of my book will be about positive geared share strategies.
You could do covered calls on your stock as well, but its a bit like trying to have your cake and eat it too. Its messy, stressful, and returns will not be as good as buy write alone, as you are spending part of your income on higher strike calls. it is fairly likely your stock will not jump 30% suddenly one day, which is the only reason you would buy the extra call. in a slow uptrend, you can have the written calls expiring worthless (assuming you were not greedy by writing them at the money), while also benefitting from capital growth in the fpo. But you probably already know all this. If not, feel free to ask.

re D4F, in this case I was suggesting they replace the shares they already had, but at 5% margin rather than the existing 100%. risk therefore is the same. I wasnt suggesting they take up trading, just because they open a D4F account. It can be used as an investment vehicle also.

brianhc

“Crashy wouldn’t the tax on Super be 30%, 15% + 15% surcharge as earnings over 100K?”

Quite right, thanks for correcting me. ‘experience is knowing you have made the same mistake before’. However in this case it didnt matter, as the person was self employed. still, I would rather pay 30% than 48.5%. dont you just love our tax system?