#### dungoofed

• Pencil Stache
• Posts: 661
« Reply #850 on: April 27, 2015, 04:22:46 PM »
Grim question, do you guys include your share of your parents' estate in any of your FIRE calculations?

I can see many reasons not to. But their passing if it happened today could possible catapult one into FIRE immediately, or at the worst case it throws a lot of the numbers off, including the "how much to have in super" figure.

#### KiniGula

• Bristles
• Posts: 300
• Location: Canberra, Australia
« Reply #851 on: April 27, 2015, 04:28:31 PM »
Except that 325 +250 is 575k i.e. @4%WR = 23k/yr, but @3.5% its pretty close to 20k. But as far as the math goes, yes thats the way I read terriers post.
Thanks. My calculation was done in bed and I couldn't be bothered to find anything closer to \$500k at that ratio. All right, this is starting to make sense.

see the attachment for an easy calculation of inside/outside super.
here is an example: from the attachment.
At age 40, you spend 32,094 per year.  So your FIRE number is  802,353.
You could have 802,353 outside super and you are FIRE.
But instead you could also have   457,819 Outside, and 374,485 Inside super.  This is easier to acquire than 802,353 outside super.
Plagiarised from Notch
Wow, thanks for this. I might have to tinker with this spreadsheet for a while to find some different figures, etc. But this is great.

The point is that your total stash remains the same. You just need a certain amount outside of super.
This is easier to acquire than 802,353 outside super.
Yep. This is a key point. You may as well use super. You just can't have all your money in there.
Ok, for the most part I now consider you right, Steveo, and I'm definitely thinking of contributing money to super, as I've always understood the part about accumulating wealth in super rather than out of. However, there is still the uncertainty of the preservation age. Definitely going to put some working on this subject into my journal now.

But, for those familiar, this is my month where I'm not checking anything to do with my current net worth. So I'm putting this on hold for two days. Good talk.

#### KiniGula

• Bristles
• Posts: 300
• Location: Canberra, Australia
« Reply #852 on: April 27, 2015, 04:42:13 PM »
Grim question, do you guys include your share of your parents' estate in any of your FIRE calculations?

I can see many reasons not to. But their passing if it happened today could possible catapult one into FIRE immediately, or at the worst case it throws a lot of the numbers off, including the "how much to have in super" figure.
Nope. Impossible to predict timing or amount. I want my philosophy towards FIRE to be of my own doing, and while it would definitely boost numbers, I don't want to think of myself as having relied on someones estate to get there. The only thing I can think I would add regarding early retirement and the passing of parents would be that, if I haven't already, something like that would certainly trigger early retirement, if I'm not there yet.

#### FFA

• Pencil Stache
• Posts: 525
« Reply #853 on: April 27, 2015, 05:31:30 PM »
International/US shares have outperformed Australian shares from about 2012-2014. Would've been great to ride that boom and sell some of the gains during the yearly rebalance to divert some funds towards Aussie shares that have been lagging (but still produce good yields).
a big driver is the AUD falling back to earth, giving international shares (unhedged) a huge tailwind in recent years. It might have some way to fall further yet, but I would expect the majority of the move is done now. Therefore less FX assistance to international going forwards.

Dungoofed, parent's estate : nope. Logically it might make sense to incorporate, but yeah it's grim and unpleasant. Another one I just throw in the safety margin...

#### bigchrisb

• Handlebar Stache
• Posts: 1231
« Reply #854 on: April 27, 2015, 05:43:40 PM »
Grim question, do you guys include your share of your parents' estate in any of your FIRE calculations?

I can see many reasons not to. But their passing if it happened today could possible catapult one into FIRE immediately, or at the worst case it throws a lot of the numbers off, including the "how much to have in super" figure.

I don't.  My parents are comfortable in their retirement, and naturally frugal.  At the moment I'm trying to encourage them to enjoy more of their funds - both my sister and I are able to take care of ourselves.  Never the less, there will likely be some form of inheritance at some stage.  My intent is to have that invested and passed through to the next generation.  I don't need it, and if I counted it in my FIRE metrics, I'd probably be lazier than I am.

Interested to see others viewpoints.

#### potm

• Pencil Stache
• Posts: 558
« Reply #855 on: April 27, 2015, 06:07:01 PM »
In the long run Australian shares have not outperformed international shares so I would be hesitant to use that as a basis for a higher withdrawal rate.
The higher payout ratio is not by itself an advantage, the franking tax treatment is though.

With salary sacrificing into super, from what I've seen, it takes about two weeks from my pay date until the contribution hits my super account. From what I understand the concensional limit counts on when the money actually enters the super fund. This can potentially make it tricky to max out super contributions exactly each year. Anyone have any experiences?

#### FFA

• Pencil Stache
• Posts: 525
« Reply #856 on: April 27, 2015, 06:25:49 PM »
Quote
I said at the beginning that the ‘search for yield’ continues. There is a line of discussion that tackles this issue from a cyclical point of view, thinking about how the balance sheet measures taken by the major central banks are affecting markets, the extent and nature of cross-border spillovers, what happens when the US Federal Reserve starts to tighten policy at some point and so on. I’ve spoken about such things elsewhere and have nothing to add today.
There is another conversation, however, that tends to take place at a lower volume, but which definitely needs to be had. That conversation is about what all this means for the retirement income system over the longer run. The key question is: how will an adequate flow of income be generated for the retired community in the future, in a world in which long-term nominal returns on low-risk assets are so low? This is a global question. Just about everywhere in the world the price of buying a given annual flow of future income has gone up a lot. Those seeking to make that purchase now – that is, those on the brink of leaving the workforce – are in a much worse position than those who made it a decade ago. They have to accept a lot more risk to generate the expected flow of future income they want.
The problem must be acute in Europe, where sovereign yields in some countries are negative for significant durations. But it is also potentially a non-trivial issue in our own country. In a conference about wealth, this might be a worthy topic of discussion
- Glenn stevens in a speech today

#### potm

• Pencil Stache
• Posts: 558
« Reply #857 on: April 27, 2015, 10:42:14 PM »
Funny that he notes those seeking to buy a stream of income are only those on the brink of retirement!
In fact they'll be the greatest beneficiaries of inflated asset prices if they had been buying over the course of their careers.
Higher asset prices hurt those who still have a lot of accumulating to do the most as well as those who have just stayed in cash and are trying to retire on interest from cash.

#### happy

• Walrus Stache
• Posts: 6517
• Location: NSW Australia
« Reply #858 on: April 27, 2015, 10:55:27 PM »
No to including any possible inheritance. Yes to grim and unpleasant. Could be very little and I don't know when. I like to look after myself, and if there is a little something, I'll invest it to pass on to my offspring at some point.

#### terrier56

• Posts: 99
« Reply #859 on: April 27, 2015, 11:52:35 PM »
Quote
I said at the beginning that the ‘search for yield’ continues. There is a line of discussion that tackles this issue from a cyclical point of view, thinking about how the balance sheet measures taken by the major central banks are affecting markets, the extent and nature of cross-border spillovers, what happens when the US Federal Reserve starts to tighten policy at some point and so on. I’ve spoken about such things elsewhere and have nothing to add today.
There is another conversation, however, that tends to take place at a lower volume, but which definitely needs to be had. That conversation is about what all this means for the retirement income system over the longer run. The key question is: how will an adequate flow of income be generated for the retired community in the future, in a world in which long-term nominal returns on low-risk assets are so low? This is a global question. Just about everywhere in the world the price of buying a given annual flow of future income has gone up a lot. Those seeking to make that purchase now – that is, those on the brink of leaving the workforce – are in a much worse position than those who made it a decade ago. They have to accept a lot more risk to generate the expected flow of future income they want.
The problem must be acute in Europe, where sovereign yields in some countries are negative for significant durations. But it is also potentially a non-trivial issue in our own country. In a conference about wealth, this might be a worthy topic of discussion

I think it's funny that the only thing that is considered to support retirees are low risk low return assets. I guess it's right if they can't simply go back to work like some of us will be able to..
- Glenn stevens in a speech today

#### dungoofed

• Pencil Stache
• Posts: 661
« Reply #860 on: April 28, 2015, 12:26:08 AM »
Ok it looks like most people on this thread would not be relying on an inheritance one day like some of the horror stories you hear. I was trying to think if there were any counter-intuitive ways to think about it.

For example, I don't think I'd ever buy REITS or property because like many baby-boomers in Australia my parents (and therefore me too, by proxy) have sufficient exposure.

Also, while there are certain features of superannuation that make it more predictable (until it's not - heh), the way you think about an inheritance has some overlap with the way you think about superannuation. One is the "sudden windfall" aspect of both. For some people the amount bequeathed would be much larger than what they expect to be able to have in super at preservation age. This money has the ability to make a massive difference in your life, especially among the MMM/ERE crowd.

I guess like super, it probably will influence certain decisions but ultimately no absolute decisions can be made based on the amount tied up in either.

• Bristles
• Posts: 323
• Location: Australia, Mate.
##### .
« Reply #861 on: April 28, 2015, 02:48:40 AM »
I'll be retired long before my prents die.  And I'm not going to take an earlier more agressive/risky FIRE date in the hope that my parents die soon.

It could be taken into account if there was more certainty, e.g. an  annual 'gifting' plan from the parents.

#### steveo

• Handlebar Stache
• Posts: 1943
« Reply #862 on: April 28, 2015, 04:57:11 AM »
No to including any possible inheritance. Yes to grim and unpleasant. Could be very little and I don't know when. I like to look after myself, and if there is a little something, I'll invest it to pass on to my offspring at some point.

I don't include inheritance but my in-laws would have like \$20 million easy to be split amongst 4 kids. My parents would have say \$2-3 million amongst 3 kids. If I include it I'd be reverse mortgaging and partying right now.

It could all though disappear so I don't trust it one little bit.

#### AustralianMustachio

• Stubble
• Posts: 167
« Reply #863 on: April 28, 2015, 10:33:34 PM »
Talking of dividend yields, can anyone explain why the hedged version of Vanguard's International Shares have paid out such a higher proportion of dividends vs the unhedged? I thought international shares paid out much less dividends than Australian shares. Is it to something do with the hedging, that some of the return gets converted to income?

Vanguard international shares numbers since inception:

Hedged
Gross: 6.04 Distribution: 5.67 Growth: -0.58

Unhedged
Gross: 4.24 Distribution: 1.25 Growth: 2.06

https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/viisf.pdf?20150428|091500
https://static.vgcontent.info/crp/intl/auw/docs/funds/factsheets/ret/vihisf.pdf?20150428|091500

#### superannuationfreak

• Stubble
• Posts: 126
• Location: Melbourne, Australia
« Reply #864 on: April 28, 2015, 11:26:41 PM »
Talking of dividend yields, can anyone explain why the hedged version of Vanguard's International Shares have paid out such a higher proportion of dividends vs the unhedged? I thought international shares paid out much less dividends than Australian shares. Is it to something do with the hedging, that some of the return gets converted to income?

Yes, the hedging of the hedged funds is done using currency derivatives and such gains in the fund are (in my experience) usually taxed as ordinary income.  As mentioned earlier in the thread, currency hedged international shares are best held in Super.

#### dungoofed

• Pencil Stache
• Posts: 661
« Reply #865 on: April 29, 2015, 05:23:50 PM »
On the Go Curry Cracker site here:

http://www.gocurrycracker.com/go-curry-cracker-2014-taxes/

he talks about two things, and I want to know whether there is something similar in Australia.

1) Moving money from Traditional Roth to Roth IRA ("Roth Conversion"). This would be similar to taking money out of Super before preservation age and being taxed on it now, except because your marginal tax rate is zero you don't pay any tax.

2) Capital gains harvesting. From what I understand this is selling and re-purchasing stock in taxable accounts in order to increase the cost basis, but paying no CGT.

My first thought is that these two tweaks are specific to the US and that capital gains in Australia are never taxed at marginal tax rates, but would be keen to have this confirmed.

• Bristles
• Posts: 323
• Location: Australia, Mate.
« Reply #866 on: April 30, 2015, 12:24:56 AM »
Quote
1) Moving money from Traditional Roth to Roth IRA ("Roth Conversion"). This would be similar to taking money out of Super before preservation age and being taxed on it now, except because your marginal tax rate is zero you don't pay any tax.

2) Capital gains harvesting. From what I understand this is selling and re-purchasing stock in taxable accounts in order to increase the cost basis, but paying no CGT.

(1) is impossible for australians, except in exceptional circumstances.  see here:
http://www.superguide.com.au/accessing-superannuation/accessing-super-early/legal-reasons-to-cash-your-super

(2) That is a wash sale and is illegal in Australia.  Also, if it was legal, CGT would be payable.
http://law.ato.gov.au/atolaw/view.htm?DocID=TPA/TA20087/NAT/ATO/00001

#### FFA

• Pencil Stache
• Posts: 525
« Reply #867 on: April 30, 2015, 12:37:30 AM »
Regarding CG harvesting, I noticed it on bogleheads and decided it's too much hassle to worry about for me.

T_I_M_U, I thought there might be other ways to apply it, if you were so inclined. e.g. sell VAS (to realise CG, if needed) and buy IOZ instead. Also means you need to be comfortable swapping IOZ instead of VAS, as they are similar but not the same. Anyway as I said at the start, is it really worth the bother after brokerage, admin, time ?

[ edit to strikeout after reading the ato link more closely ]
« Last Edit: May 01, 2015, 07:36:02 AM by FFA »

#### dungoofed

• Pencil Stache
• Posts: 661
« Reply #868 on: April 30, 2015, 12:43:57 AM »
Thanks & thanks.

#### superannuationfreak

• Stubble
• Posts: 126
• Location: Melbourne, Australia
« Reply #869 on: April 30, 2015, 06:04:06 AM »
Regarding CG harvesting

The main way tax gain harvesting can be useful is if you have a very low income tax year, for example if taking time off for travel, study or family.

One thing we don't get from tax loss harvesting that the US does is they can deduct 3000p.a. in capital losses from their ordinary income. We can only offset against capital gains. It can be useful for rebalancing I guess (which I'd still often prefer to do in super), but generally I'd like those capital gains to keep compounding before I pay tax on them.

#### FFA

• Pencil Stache
• Posts: 525
« Reply #870 on: April 30, 2015, 07:31:20 AM »
Thats a good point about low income years.

rebalancing, yeah best done in super and also by reallocating new funds to losers so you avoid selling anything

#### nonsequitur

• Posts: 42
• Location: Canberra, Australia
« Reply #871 on: April 30, 2015, 10:27:23 PM »
Quote

2) Capital gains harvesting. From what I understand this is selling and re-purchasing stock in taxable accounts in order to increase the cost basis, but paying no CGT.

(2) That is a wash sale and is illegal in Australia.  Also, if it was legal, CGT would be payable.
http://law.ato.gov.au/atolaw/view.htm?DocID=TPA/TA20087/NAT/ATO/00001

I looked at the link in (2) and it seems to be only illegal in the case of a loss.  In the ATO ruling TR 2008/1,

Quote
8. The class of persons to which this Ruling applies are all taxpayers that obtain a taxation benefit in the form of:

(i)
a capital loss; or
(ii)
an allowable deduction,
in connection with a wash sale.
.

Avoiding capital gains is not a capital loss.  But maybe there's something in the actual Act (which I haven't read), which contradicts this.  Also, it's important to note that the ATO wash-sale examples rely on judgment of intent to determine a wash sale.  In the US, re-purchasing the same asset after 30 days eliminates the wash sale condition.

#### deborah

• Senior Mustachian
• Posts: 10594
• Location: Australia or another awesome area
« Reply #872 on: April 30, 2015, 11:19:01 PM »
Actually it is considered illegal in both cases by the ATO.

#### AustralianMustachio

• Stubble
• Posts: 167
« Reply #873 on: May 01, 2015, 12:47:03 AM »
Found this article quite interesting. The table at the bottom about how a fall in house prices of around 20% would affect other asset classes, i found especially interesting. Drives home the case for investing internationally, if such an event where to materialise

"Impact of house price falls on other assets"

#### misterhorsey

• Bristles
• Posts: 363
« Reply #874 on: May 01, 2015, 03:28:11 AM »
Found this article quite interesting. The table at the bottom about how a fall in house prices of around 20% would affect other asset classes, i found especially interesting. Drives home the case for investing internationally, if such an event where to materialise

"Impact of house price falls on other assets"

My gut feeling is that there will be some kind of negative correction for property in real terms, over time. Nominal prices may stay the same for an extended period.  My justification is that it will simply be an eventual reversion to the mean, aided by eventual increase in interest rates to a more normal setting - eventually.

This has motivated me to lock in some profits on my (relatively small) direct holdings in banks and shift more of my investments offshore via the vanguard wholesale high growth fund, which includes some 40% international shares.

Will I be right about the property market? Who knows?

Is my strategy to diversify away from Australia a good strategy?  I think it is.  So even if my initial rationale could be like soothsaying and ultimately misguided, I think it is motivating me to make some sensible decisions re: diversification.

#### KiniGula

• Bristles
• Posts: 300
• Location: Canberra, Australia
« Reply #875 on: May 01, 2015, 11:49:43 PM »
Semi-Off topic question but since this is the Australia section...

Does everyone here have accountants to do their taxes and whatnot? If so, how much does it generally cost?

I'm thinking about using one this year to help with dealing with franking credits and to give me pointers for future tax returns. Is this something they do?

#### marty998

• Walrus Stache
• Posts: 7009
• Location: Sydney, Oz
« Reply #876 on: May 02, 2015, 01:51:57 AM »
I hope you don't go to an accountant just for franking credits :) They are quite easy to "deal" with.

Your dividend statements for each payment will show the components - franked, unfranked and franking credits.

In the dividend section of etax just input those components in and it will work it all out for you.

The franking credits are added to your cash dividend income and form part of your "total income". After deductions you get your taxable income which you are taxed on.

The franking credit is then offset against your total tax payable (much like your PAYG tax on salary).

Nuttin' to it!

#### KiniGula

• Bristles
• Posts: 300
• Location: Canberra, Australia
« Reply #877 on: May 02, 2015, 03:11:10 AM »
The franking credits are definitely something I can work out, as I had a parent working at the ATO for an extraordinary amount of time I've always known how to do my taxes to the best of my ability.

The main thing is I don't know what I don't know.

#### bigchrisb

• Handlebar Stache
• Posts: 1231
« Reply #878 on: May 02, 2015, 04:08:00 AM »
I use an accountant.  However, each year I've done my returns prior to taking them to the accountant.  Most years I've also come up with a list of ideas and strategies I'd like to implement.  Most of the things I come up with are within the tax law, some cross the line.  I pay my accountant to tell me when I'm getting too close to the line, and to keep myself legal/compliant.  To be fair, my accountant has also contributed a few significant ideas and concepts too.

Between my own returns, my trust, company, and SMSF, I spend a few thousand a year with him.  Its certainly not cheap, but I feel I get value from it for now.

#### marty998

• Walrus Stache
• Posts: 7009
• Location: Sydney, Oz
« Reply #879 on: May 02, 2015, 05:08:58 AM »
I use an accountant.  However, each year I've done my returns prior to taking them to the accountant.  Most years I've also come up with a list of ideas and strategies I'd like to implement.  Most of the things I come up with are within the tax law, some cross the line.  I pay my accountant to tell me when I'm getting too close to the line, and to keep myself legal/compliant.  To be fair, my accountant has also contributed a few significant ideas and concepts too.

Between my own returns, my trust, company, and SMSF, I spend a few thousand a year with him.  Its certainly not cheap, but I feel I get value from it for now.

Only a few thousand? So I guess that means you're not one of those 75 people who have total incomes over a million and have reduced their taxable incomes to nil with the "cost of managing tax affairs" deduction?   :)

The main thing is I don't know what I don't know.

If you've only got "individual" tax affairs, then there's enough info on the ATO website to get you through. Add in a Company, Trust, business etc and yeah there's a need to start getting experts involved.

Gotta find an accountant who is good at structuring your tax affairs, and not one who is just happy to sort out tax returns after the fact.

Most people only talk to their accountants in July-October. The right time to do it is April-June, because there's never a lot of scope to back-date transactions into a prior financial year.

#### JamesSyd

• Posts: 19
« Reply #880 on: May 02, 2015, 09:22:58 PM »

#### misterhorsey

• Bristles
• Posts: 363
« Reply #881 on: May 03, 2015, 12:50:08 AM »

#### steveo

• Handlebar Stache
• Posts: 1943
« Reply #882 on: May 03, 2015, 02:09:05 AM »
Those figures are a little funny. I don't believe that is the average in Sydney. That is for people who are financially stressed and I think its predominantly because of the low income.

#### JamesSyd

• Posts: 19
« Reply #883 on: May 03, 2015, 02:24:03 AM »
Those figures are a little funny. I don't believe that is the average in Sydney. That is for people who are financially stressed and I think its predominantly because of the low income.

Yeah, I agree. I thought the income was on the low side in that example slideshow thing.

Although the more meaningful numbers are probably from the Wesley Report: Facing Financial Stress:
"The proportion of technically insolvent households had increased from three in 10 to almost four in 10 between 2010 and 2014"

I'm not exactly sure what they mean by "technically insolvent," but I assume it means household net income is less than expenses. That is kind of scary, 40%!

#### steveo

• Handlebar Stache
• Posts: 1943
« Reply #884 on: May 03, 2015, 02:32:42 AM »
Those figures are a little funny. I don't believe that is the average in Sydney. That is for people who are financially stressed and I think its predominantly because of the low income.

Yeah, I agree. I thought the income was on the low side in that example slideshow thing.

Although the more meaningful numbers are probably from the Wesley Report: Facing Financial Stress:
"The proportion of technically insolvent households had increased from three in 10 to almost four in 10 between 2010 and 2014"

I'm not exactly sure what they mean by "technically insolvent," but I assume it means household net income is less than expenses. That is kind of scary, 40%!

I don't like those figures or the article because it doesn't explain the situation in the right detail so it becomes meaningless. If it stated this is the average scenario from families that are coming to use for assistance then it makes sense.

#### marty998

• Walrus Stache
• Posts: 7009
• Location: Sydney, Oz
« Reply #885 on: May 04, 2015, 01:53:53 AM »
Ordinary result from Westpac today... flat profit as compared to prior period.

Too early to say the good times are over but it seems like a pretty odd result given the run-up in investor loans (WBC getting the lions' share of them). I can't seem to work it out - analyst pack of 140 pages said nothing basically.... lots of pretty graphs, no real explanation why there was no profit growth.

ANZ and NAB to report this week, are the good times over?

#### potm

• Pencil Stache
• Posts: 558
« Reply #886 on: May 04, 2015, 02:06:08 AM »
I haven't looked at WBC's result but have a pretty good explanation. New CEO. Gotta leave some room for growth in the future.
First result is a freeby, wasn't your fault.

#### bigchrisb

• Handlebar Stache
• Posts: 1231
« Reply #887 on: May 04, 2015, 02:07:16 AM »
Yep, New CEO is also my WBC theory

#### marty998

• Walrus Stache
• Posts: 7009
• Location: Sydney, Oz
« Reply #888 on: May 04, 2015, 04:54:40 AM »
LOL you would hope these type of earnings management don't need happen in this day and age.

Contrast it with CBA when Ian Narev took over... profits went up more

#### Eamesy

• Posts: 4
• Age: 30
• Location: Queensland, Australia
« Reply #889 on: May 04, 2015, 05:44:25 AM »

#### AustralianMustachio

• Stubble
• Posts: 167
« Reply #890 on: May 04, 2015, 06:01:48 AM »
I haven't looked at WBC's result but have a pretty good explanation. New CEO. Gotta leave some room for growth in the future.
First result is a freeby, wasn't your fault.

Are you guys suggesting he deliberately delivered a bad result to begin with, in order to give himself some breathing space later?

Wow

#### KiniGula

• Bristles
• Posts: 300
• Location: Canberra, Australia
« Reply #891 on: May 04, 2015, 06:15:03 AM »
I would.

#### dungoofed

• Pencil Stache
• Posts: 661
« Reply #892 on: May 04, 2015, 08:06:58 AM »

#### potm

• Pencil Stache
• Posts: 558
« Reply #893 on: May 04, 2015, 11:37:40 PM »
Interest down, Aud up! What is going on. Was the market expecting more?
Sharemarket initially spiked up then quickly did a u-turn.

I'm happy about it though, lower interest on my loan as well as more spending power on my money.

#### bigchrisb

• Handlebar Stache
• Posts: 1231
« Reply #894 on: May 04, 2015, 11:59:31 PM »
Yep, I'm also somewhat perplexed - interest rate down, stocks down, currency up.  Not the standard reaction!

While this is curious, its not going to change my strategy - the saving on interest will just get tipped into the stash (debt paydown).

What I don't understand is how wide the yield differential is between stocks and home loans at the moment.  I'm borrowing money at 4.04% after this cut. The yield on the broad Australian stock market is currently about 4.4%.  Add in the franking credits, and its just over 6%.  So, borrowing money to invest in stocks nets 2% positive income.  I can't see how that is sustainable - either prices will be bid up to close that gap, or Mr Market is expecting a) dividends to fall, b) interest rates to rise, or c) pricing in a high likelihood of capital loss.

I'm fully intending on sticking with the DRP/BSPs, and knocking down my debt load with my savings.

#### potm

• Pencil Stache
• Posts: 558
« Reply #895 on: May 05, 2015, 01:44:42 AM »
The statement didn't have these words:

Further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target. The Board will continue to assess the case for such action at forthcoming meetings.

Most likely the reason for the reversal on the sharemarket and aud. We'll probably be on 2% for a while now.

#### marty998

• Walrus Stache
• Posts: 7009
• Location: Sydney, Oz
« Reply #896 on: May 05, 2015, 04:59:17 AM »
Yeah I don't believe there is any appetite for the Reserve to go below 2%.

Cash rate with a 1 in front of it is probably more likely to scare the punters (oh no the economy really is collapsing) rather than stimulate them to spend more.

#### JamesSyd

• Posts: 19
« Reply #897 on: May 05, 2015, 05:39:51 AM »
Yep, I'm also somewhat perplexed - interest rate down, stocks down, currency up.  Not the standard reaction!

While this is curious, its not going to change my strategy - the saving on interest will just get tipped into the stash (debt paydown).

What I don't understand is how wide the yield differential is between stocks and home loans at the moment.  I'm borrowing money at 4.04% after this cut. The yield on the broad Australian stock market is currently about 4.4%.  Add in the franking credits, and its just over 6%.  So, borrowing money to invest in stocks nets 2% positive income.  I can't see how that is sustainable - either prices will be bid up to close that gap, or Mr Market is expecting a) dividends to fall, b) interest rates to rise, or c) pricing in a high likelihood of capital loss.

I'm fully intending on sticking with the DRP/BSPs, and knocking down my debt load with my savings.

I think a) and c) are pretty much the same thing. If corporate profits fall one or both will happen.
Do you have any historical numbers of the difference between a mortgage rate and stock market yield? I'd be interested to see, should be somewhat related to equity risk premium.
To me the difference doesn't seem that attractive atm. I would not want to take the risk of borrowing money at 4% for a very flakey 2% extra yield given the state of the economy and how shaky things are starting to feel. But I'm probably just paranoid.

#### slothman

• Posts: 59
« Reply #898 on: May 05, 2015, 05:54:43 AM »
What I don't understand is how wide the yield differential is between stocks and home loans at the moment.  I'm borrowing money at 4.04% after this cut. The yield on the broad Australian stock market is currently about 4.4%.

Hi bigchrisb, I'll be borrowing at 4.16% after the cut. Your 4.04% is dang impressive!

Just wondering where you got the 4.4% dividend from, because according to the "Average P/E ratios and average dividend yield" on the following link
http://www.afrsmartinvestor.com.au/share-tables/

All Ords appear to be yielding < 4%. Additionally, the large LICs such as AFI/ARG/MLT are also < 4% net yields. I agree with you point about current yields and mortgage rates though. Still positive cashflow after taking into account franking credits.

Seems like everyone is using the easy money to bid up property prices. Whereas I've been releasing equity from my property portfolio to invest into shares...seems as though I'm swimming against the tide. Could be a good thing, or I could get wiped out. Fingers crossed I'm onto a good thing!

edit: make that 4.21% after the cut! greedy CBA only passing on 0.20% of the RBA cut
« Last Edit: May 05, 2015, 06:02:14 AM by slothman »

#### FFA

• Pencil Stache
• Posts: 525