What Would Be The Best $20000 Initial and Then a $3000/Month Recurring Investment ?

paul11 on 20/02/2020 - 18:14
Last edited 20/02/2020 - 18:47

I have ~$20K sitting in my bank account and I save about $3000/month and have a full time job. I am banking with uBank, and currently getting 2.10% interest rate. I am married with 2 kids. Wife does not work.

I also have an investment property loan of $430K with 3.27% interest rate. Current value of investment property is around $550K. I do not have any offset account currently. I enquired with a few banks for an offset account. The interest rate offers I am getting are between 3.75% - 4.00% with a 100% offset account. Other than this mortgage, I am debt free, no other loans.

I would like to invest this $20K initially and then do a recurring investment of $3K/month for the next 9-12 months. Plan is to buy another house next year till I have a decent deposit.

I am thinking of opening a stock trading account and buy broad based (ASX 200 and/or Nasdaq 200 focused) Blackrock/Vanguard ETFs. Last year some of these funds gave upto 30% returns. Now, I know past performance is no guarantee of future performance. I have done some research and read at many places that a global recession is likely in 2020, with worrying economic data coming out of China (probably due to coronavirus), Japan, Germany and Singapore. Should I wait till the mid of the year when things may get more clear?

Thanks for your suggestions/ideas in advance.

Poll Options expired

  • 11
    Buy a deeply discounted Holden and signup with CarNextDoor/Ola/Uber
  • 4
    Invest in Gold/Silver/Metals
  • 47
    Invest in Stocks/ETFs
  • 5
    Keep money in bank account and do nothing
  • 5
    None of these is a good investment
  • 31
    Open an offset account and park money there
Financial Investment

Comments

  • oscargamer on 20/02/2020 - 18:35
    +7

    Black

    or

    Red

    I forget which.

    • paul11 on 20/02/2020 - 18:41

      Not sure what you mean mate?

    • subywagon on 20/02/2020 - 18:42

      Can't you place it on the line between them both?

    • skullster704 on 20/02/2020 - 19:16

      Always bet on black. No wait, red…

      ~Wesley Snipes, Passenger 57

    • Chandler on 21/02/2020 - 10:46
      +1

      00

    • afah0447 on 21/02/2020 - 12:06

      Hell…why not go green!

  • Ocker on 20/02/2020 - 18:44
    +6

    Do yourself and see a qualified financial planner

    • TheBilly on 22/02/2020 - 07:20
      +2

      Yes go and visit a person with a TAFE diploma that probably has less personal wealth than OP and probably less experience with money.

  • sweefu on 20/02/2020 - 18:45

    What is the investment property worth?

    • paul11 on 20/02/2020 - 18:46

      The investment property is around $550,000

      • sweefu on 20/02/2020 - 20:46
        +1

        Offset investment loan should be circa 3.40 - 3.45

  • 87percent on 20/02/2020 - 18:47
    +1

    Do you live at home with your parents?

    • paul11 on 20/02/2020 - 18:50

      No, I live with my wife and 2 kids in a rented home.

  • shrek4 on 20/02/2020 - 19:11

    ETFs

  • crentist on 20/02/2020 - 19:15

    I thought recession was gonna happen around 4 years ago, when I had the same question. Very cautiously been tipping in a little money here and there, expecting losses, getting gainz. But staying very cash heavy because things always felt scary, especially now when a company already as big and established as Apple managed to double just in the last year. But that's just my caution, and I'd have been much better just YOLOing it all in any old stocks

    But then again, the 2008 recession halved the stock market. It's doubled since then. You could have lost half your money then and you'd be golden if you just waited a while.
    I expect that if anything happens soon it'll either be some end of the world scenario, or everyone will just pause for a few weeks before jumping back on the ridiculous gainz they've been getting used to, just like after 2008.

    For more about potential end of world scenarios, one leading hedge fund manager put out a video on the economic machine after 2008. Been a while since I watched, but I seem to recall it talking about ~10 year economic cycles of boom and bust, which 2008 fit into, and would place us due for another soon. More alarmingly though, it also predicted increased right-wing nationalism and social tensions based on a large 100-year economic cycle, and we would be nearing the end of that one too. This would be the end of world scenario, more akin to 1929, and potentially with a repeat of the warring of that era.

    Then again, that's like 9 years away, which would comfortably fit in another small boom-bust cycle. Plenty of time to live it up

  • Nutrino on 20/02/2020 - 19:17
    +8

    "Other than this mortgage, I am debt free, no other loans"

    Arr.. I dont know, pay off your mortgage?. Sorry when you pay peanuts you get monkeys for advice here on ozbargain.

    • 87percent on 20/02/2020 - 19:39
      +2

      I would be doing too, at least dumping it all into an offset

  • [Deactivated] on 20/02/2020 - 20:37
    -1

    Get into bitcoin

  • chumlee on 20/02/2020 - 20:43

    Buy a PPOR

    • paul11 on 20/02/2020 - 20:47

      Its not feasible. Monthly loan repayment on a PPOR will be almost double than what I am paying in rent. $1700 rent vs $3000 monthly repayment for PPOR.

      • chumlee on 20/02/2020 - 20:50
        -1

        Pay the loan down faster and get rid of the mortgage & your sums will be different

        • janidbest on 21/02/2020 - 09:40

          I'm not sure if this is a good idea, as OP wanted another investment house, keeping the first home loan with low interest rate and moving the funds to investment house mortgage might benefit saving some interest ( investment mortgage interest - owner occupied mortgage interest)

      • MrBear on 21/02/2020 - 14:22

        But you already have an extra 3000 a month, so it would only be an extra 1300 (+1700) = 3000 for PPOR and still have 1700 to invest in something.

        And then you own your home.

  • ego22 on 20/02/2020 - 21:17
    +5

    BLACK!

    anyone here who says red knows nothing about investing or finance and shouldn't be trusted.

  • Fusakin on 20/02/2020 - 21:29
    +3

    I would keep it in cash because 1 year in the stock market isn’t enough time to expect any kind of predictable result.

  • [Deactivated] on 20/02/2020 - 21:50
    +3

    Dump it into options. /r/wallstreetbets will start you off.

    • lubos on 21/02/2020 - 05:11
      +1

      Gosh, that subreddit is the funniest thing on the Internet right now.

  • [Deactivated] on 20/02/2020 - 22:21
    +4

    You should be able to get an investor mortgage with offset for 3.40 - 3.60%. Doing this and putting your $20k ++ in there earns you at least a saving on your current rate of 3.27% and this is RISK FREE and TAX FREE. This is really your best option if you want to have access to that money in the next few years. Building a large offset is the best way to be able to use that money later to buy a PPOR since you can return deductibility to that debt, whereas you cannot do that if you directly pay down your investment loan.

    If you really don't want an offset, put the money in your wife's bank account, she will pay less/no tax on the interest. If it's in your bank account you're paying your marginal tax rate on the interest earned.

    ETFs really need a 15 year minimum timespan to ensure they're a decent investment, 20 or even 30 years is much safer. 'Next year' is a bad time to be planning to pull money out because you don't know what will happen, no one does for sure. Trying to time it is also bad because a year ago 'impending doom' looked just as likely as now so waiting would have been a mistake, things do not 'get more clear' except in hindsight. For ETFs you want a plan to put the money in and forget about it for a long time.

    Don't ignore Super and any Spousal Super contributions you could be making, also (separately) the government super co-contribution for your wife.

    • paul11 on 20/02/2020 - 23:37
      +1

      Thanks @jkart, I have a joint account with my wife. I think I should have my wife own it 100% so that I don't pay any tax on interest earned. For Spouse Super contributions, the maximum tax offset I can get is $540 when I contribute $3,000, which I am already doing.

      I agree with your other suggestion to maximise my offset account. I have done some research and found the following to be the cheapest for an investor mortgage with 100% offset.

      https://www.86400.com.au/homeloans/ (3.44% P&I with 100% offset)
      https://www.statecustodians.com.au/promos/sc-investment.html (3.15% P&I with 100% offset)

  • donga100 on 20/02/2020 - 22:50
    +1

    Have you considered investing in your super instead? Based on your figures, I assume you are paying at least 37% income tax. Voluntary contributions to super are only taxed at 15% so for every $10k pre-tax you will have $8.5k in super compared to $6.3k in another investment which already represents a ROI of 35% before any gains earned by your super. If you are earning over $180k per year and paying 45% income tax rate this makes super an even better option. Of course, you'll be locking that money away until you retire so the flexibility is a downside.

    • paul11 on 20/02/2020 - 23:30

      Hi @donga100, Thanks for the suggestion. My employer is already paying almost $21K into my super per year. So I don't have much margin here. I think annual cap for before-tax super contributions is $25,000 p.a. and this includes the regular super contributions made by the employer.

      • lubos on 21/02/2020 - 05:10
        +1

        It's at least no-brainer to top up all the way to $25,000 on June 30th.

        Non-concessional contributions are capped at $100,000. Sure, it is more expensive to contribute beyond $25k but once the funds are in super, the future earnings will be taxed at 15% rather than your top marginal rate which I imagine must be sky high. Not to mention, you can avoid capital gains tax too.

      • s1998 on 21/02/2020 - 14:50

        You also have a rolling five year window to spread the concessional contributions across, up to the $25k p.a. limit.

  • prisonmike on 21/02/2020 - 07:16

    Penny stocks

  • Ven0m on 21/02/2020 - 07:31
    +3

    You're buying a house next year dude. Keep your money in a high interest account else you are risking seeing your deposit for that house be lower than it is today. You need to give stocks at least a 5 to 7 year timeframe before needing to access that money.

  • b0rnwithabeard on 21/02/2020 - 09:12
    +1

    The only true advice is “go see a financial planner” Which I want to assume you’ve already done?

    But given you’ve come here:

    I’d pay off your current mortgage faster, save for a larger deposit on the next property that you’re planning on buying, top up your super, then put the rest into a high interest account and play the long game. It’s not a sexy option, but you’re clearly comfortable and in no rush, so treat it like a marathon. Look at actually enjoying your retirement and leaving a bit to the kids when you and your wife shuffle loose this mortal coil.

    A big question is also how old your kids are and what expenses they’re likely to rack up, with schools, medical bills, bailing them out of jail, paying for drug rehab, putting braces on their teeth, or they realise they have a natural sporting talent and you want to give them the best coaches money can buy. Or maybe just find a way to get more money so you can retire early and spend more time with the family.

    i would LOVE to know what you do for a living. 2 kids, your wife doesn’t work, so you pay all the bills, plus paying off a mortgage, plus planning on buying another property and after all that you still manage to save $3k a month?

    • paul11 on 21/02/2020 - 20:15
      +1

      @b0rnwithabeard

      My kids and 10 and 7.

      I am an IT contractor, Sr programmer to be precise. Happens to know a very niche software for which some organisations pay top $$$.

  • Seraphin7 on 21/02/2020 - 09:57

    I would like to invest this $20K initially and then do a recurring investment of $3K/month for the next 9-12 months. Plan is to buy another house next year till I have a decent deposit.

    Either put this money against your existing mortgage and then draw it down later (assuming you have at least a basic redraw feature).

    Otherwise, keep the money in UBank. Your 9-12 month investment horizon is simply too short for anything other than cash-based investments … unless, of course, you're happy to take the risk of a market correction over that timeframe that could reduced your capital value below its current value.

  • OzHunterNSW on 21/02/2020 - 10:07

    Put it toward you property

  • Gelato on 21/02/2020 - 11:23

    Just put everything to your UBank saver for now.

  • atrolgehapis on 21/02/2020 - 11:35

    Have you maxed out your pre-tax super contributions?

  • rt1111 on 21/02/2020 - 12:24

    Would you mind sharing your occupation? Just curious!

  • ryurazu on 26/02/2020 - 09:52
    -1

    Definitely an offset account, not an financial adviser though so you situation might be different specifically to other people e.g you might need a car very badly, however Holden's are shitboxes sorry to be frank.

  • Diggins on 27/02/2020 - 14:15

    I would pay the mortgage off quicker with the money. maybe salary sacrifice some income into your super or your wifes super

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