$ cost ave vs lump sum

LKim DArcy on 18/01/2025 - 17:18

I've just paid off the mortgage. If I redraw $350k and dump it in ETFs the market could crash. If I wait the market could rocket without me.

As far as I can tell you're usually better off going all in, and then DCA from there. But usually is a tough pill if it doesn't work your one time.

Investments would lean US based to maximise capital gains and avoid dividends. But US valuations are silly high and the dollar too. So in theory I would be buying expensive shares with a weak Aussie. But the tax savings.

In the end I think it comes down to the size of my big girl pants. Or maybe I only go half way, $150k, and wait (till eternity?) for the crash to go all the way.

Are there actually any smart strategies or is it all in my head?

Poll Options

  • 66
    All in.
  • 18
    Half and half.
  • 15
    Leverage is silly.
  • 18
    Double your money with this one weird trick.
Financial

Comments

  • Edsanwong on 18/01/2025 - 17:26
    +1

    Depends on the time span. Otherwise get 50 50 to VGAD

  • freefall101 on 18/01/2025 - 17:36
    +28

    Buying investments without a clear plan because of FOMO. What could possibly go wrong?

    Not to mention borrowing to buy those investments while interest rates are probably at their peak (for a while).

    • wetsandwich on 18/01/2025 - 21:35
      +2

      If you think interest rates are high, isnt that the best time to buy? That means they have room to fall, which could also push up asset prices.

      • gromit on 20/01/2025 - 00:29
        +2

        Falling interest rates will indicate a more problematic economy with slower growth and More unemployment. They dont just makes rates lower for no reason.

  • sumyungguy on 18/01/2025 - 17:41
    +20

    Only if your super balance is below $500K, consider making all of your available catch-up concessional contributions

    • MrThing on 18/01/2025 - 17:54
      +2

      actual good advice

    • Kim DArcy on 18/01/2025 - 18:30
      +5

      Already done.

      • sumyungguy on 18/01/2025 - 18:50

        Is it then worth upgrading your PPOR?

        • Kim DArcy on 18/01/2025 - 18:59
          +1

          Probably. It's a bit of a shitshack.

          But it's comfortable enough and a little renovation would go a long way. Which I could still manage with a 2k mortgage payment.

      • Mechz on 18/01/2025 - 21:14

        Is 100% of your super in high risk? If not get onto it.

        • Kim DArcy on 18/01/2025 - 21:21

          All in ETFs.

          Most "high risk" super contains unlisted assets and some bonds.

  • elgrande on 18/01/2025 - 17:43
    +14

    No mortgage.

    Wants advice.

    Classic Ozb.

  • MrThing on 18/01/2025 - 17:54
    +7

    US stonks are in bubble territory ymmv

  • plmko on 18/01/2025 - 18:10
    -5

    Why not just buy call options without drawing on a mortgage. You lose what you can afford rather than being stuck no?

    • Kim DArcy on 18/01/2025 - 18:38

      1. Because I don't know how, I'll look into it.

      2. I can technically afford to lose a lot of that 350 (in the short term). I just need to maintain cashflow of 2k a month. Same as I needed last month to keep a roof over my head. Emotionally the costs might hurt.

    • wetsandwich on 18/01/2025 - 21:36
      +4

      While I would do it myself, I wouldn't recommend it to a newbie who barely knows what ETFs are. They'd have no idea what sort of strikes or expiries to go for.

    • djkelly69 on 19/01/2025 - 09:24
      +9

      Can't agree with recommending options trading for a clear novice.

    • Randolph Duke on 19/01/2025 - 22:09
      +3

      Make sure to join r/wallstreetbets at the same time

      • WhyAmICommenting on 20/01/2025 - 13:32

        And yolo on shorting Tesla or all in on nvidia

      • wetsandwich on 20/01/2025 - 14:50
        -1

        FWIW, options with a long expiry date can be less risky than shares, definitely worth learning more about.

  • Bruceflix on 18/01/2025 - 18:19
    +5

    I like to take all my eggs and only 1 basket just like my two girls and only one cup.

  • Daniel Plainview on 18/01/2025 - 18:24
    +2

    @Kim DArcy
    You're going to get more daft comments than logic on here. As someone with considerable funds in the market I would tell you you're damned if you do & damned if you don't. IMHO you know the logic that prevails i.e lump sum is superior ~60% of the time, DCA 40%. What time is now? Hard to say.

    I do think your half in now and keep the other half in liquid investment e.g HISA - so you have the option to enter at lower price points when there is a correction is a reasonable one - but bear in mind the chance you'll pick the right entry point is very low - and if you're struggling psychologically with putting money in now, it'll be a LOT harder when you're watching 10-15% come off in a day etc. i.e theory is easy, practice is hard.

    I have found the psychology of investing to be the biggest impetiment to success….I think most investors KNOW what they should do but due to fear or greed go on other routes that brings losses or avoids profits. So there is logic to saying, just stick with best practice EVERY time and mathematically you're in front. This being one of those times to follow this rule.

    As a relatively experienced investor I would say just make sure you have all your homework done before jumping in thinking it's quick profits time - know your plan, time frame and SELF before getting started, can be a painful lesson if you midstream realise you've come at things wrongly. Best of luck.

    • Kim DArcy on 18/01/2025 - 19:17

      Thanks. I think that counts as a "it's all in your head".

      So how to steel myself for taking on debt? Remember it's only 350k. Remember it's all about cashflow. Remember I felt this way before buying the house. Or just do it and forget about it.

      • Daniel Plainview on 19/01/2025 - 09:14

        Ummmm look honestly this is a subject where really one either needs more info on your risk profile (I assume you KNOW your risk appetite as an investor & how you will react in any number of different scenarios?) or overall financial position & goals.

        Broad ETFs are simple but still need proper application or significant losses can be incurred - especially when you're borrowing to put yourself in the position in the first place. Markets are at near all time highs, but thats historically often been the case & so can't be read into too much.

        I assume you've read over sites such as https://passiveinvestingaustralia.com/ ? Again I find a lot of folks jump into ETF as they have FOMO and think it's a no brainer - and they go in half cocked chasing past returns they feel are a sure thing, doesn't work like that and we've been very spoilt for the past 20yrs with the US's returns which are to a significant degree a historical anomaly.

        Doing it and forgetting about it makes sense IF you've investing for 5-10yrs - whats your investment time frame here? You've not mentioned this at all which is a bit of a worry IMHO as thats critical to anything. :-)

  • Nugs on 18/01/2025 - 20:02
    +1

    "big girl pants"
    Are they the same as granny pants?
    .

  • onetwothreefour on 18/01/2025 - 20:17
    +8

    Where's the poll option for not borrowing against your home? Why would someone pay off their mortgage only to go back in debt straight away?

    Genuinely interested as my mortgage has been fully offset for over a year and I have no plans on using that cash to invest.

    Edit - maybe I missed the leverage is silly option.

    • wetsandwich on 18/01/2025 - 21:25
      +12

      Why would they? Or why wouldn't they?

      It's commonly called debt recycling, aka reborrowing to then have tax deductability on the interest. If you're borrowing to buy income generating assets, it's tax deductible interest, much like negative gearing on property is. So you get dirt cheap borrowing rates (compared to a margin loan), you get to deduct the interest, you get the dividends from the stocks, and you get CGT concessions after holding over a year. So when you sell, you won't even pay much tax.

      So you actually don't need a huge return to come out ahead of the interest and essentially get 'free money'.

      Also, it provides diversification. A mortgage is an extreme level of gearing into 1 building, in 1 street, in 1 suburb, in 1 town, and 1 country. You don't get any gains on your Sydney property if Perth goes up, or if the bogans burn down your street, you aren't saved by them not burning down a street in Adelaide. So housing is a very concentrated risk. Borrowing to buy a mix of banks, supermarkets, steel factories, etc etc in an ETF is actually insulating your risk of a state government wrecking the state, or bogans burning your street down, etc.

      I have a mortgage and a separate 160k loan for ETFs myself. My apartment lost value, but my bank stocks ETF made me about $15k in gains over the last 6 months. The dividends paid for quite a bit of the interest, so the debt doesn't really "cost" all that much, certainly nowhere near 6%.

      The ausfinance sub on reddit will have a lot more information and knowledgeable people.

      • donga100 on 19/01/2025 - 01:39

        Are you sure you get to deduct the interest when the interest is being paid on the mortgage of your PPOR?

        • SBOB on 19/01/2025 - 07:10
          +1

          They said a seperate 160k loan

        • larndis on 19/01/2025 - 07:42
          +5

          The loan can be secured by your PPOR, that doesn't effect the deductibility. If the purpose of the loan is to buy income producing assets, you can deduct the interest.

        • wetsandwich on 19/01/2025 - 17:14

          I am not using my mortage for ETF borrowing (though I will reborrow to do so when i have paid it down more). But the tax deductability depends on what you spend the money on when you borrow it.

          If you make a fresh borrowing for buying stocks, that becomes tax deductible debt. At that point your PPOR is what the loan is secured against, but it isnt what the purpose of the borrowing is.

    • SlickMick on 19/01/2025 - 17:32
      +2

      Why would you have a fully offset mortgage on PPOR unless you intend using that cash?

      If you believe debt-free is the way to go, get rid of the mortgage.
      If not, you've got funds sitting there doing nothing that could be earning ~8+% + a tax deduction on the interest.

      Personally, I'm not comfortable being debt-free. I would be investing it if I expect to be working for at least another 10 years.

      • onetwothreefour on 19/01/2025 - 19:11
        +1

        Well I guess I was using it as my emergency fund until I built up my actual emergency fund a bit. Now I have some money in a HISA and some etfs then yes I suppose there's no point keeping the mortgage open any longer. Once I do that I never intend to go into debt again.

        My plans/forecasts have me being able to semi-retire in 9 years.

        • SlickMick on 19/01/2025 - 19:15

          fair enough.
          I was planning on keeping offset accounts in case we run out of money in retirement. Recently decided to scrap that idea and get rid of all the debt (haven't paid of PPOR yet though)… if we have to sell properties in retirement so be it.

          • onetwothreefour on 19/01/2025 - 20:31

            @SlickMick: It just goes to show there's more than one way of planning for retirement and as long as you are doing something as opposed to doing nothing then you should be OK. It all comes down to personal preference and risk tolerance.

        • SBOB on 19/01/2025 - 19:18
          +1

          I suppose there's no point keeping the mortgage open any longer.

          incredibly cheap line of credit though
          totally offset mortgage is essentially a free line of credit account, usable at 'home loan' rates if needed.

          • onetwothreefour on 19/01/2025 - 20:28

            @SBOB: Yeah a lot of people say that but that goes against this for me

            I never intend to go into debt again

    • May4th on 20/01/2025 - 15:57

      where else could you get a 2-3% loan after accounting for tax benefits? if you take the average return and peg a conservative 6-7% pa return on ETFs you will come out better off

  • vorsprung on 18/01/2025 - 20:42
    +3

    I had a decent chunk paid off my mortgage. Saving me 6% interest. Redrew most of it. Put it into 30% A200, 65% VGS, 5% NDQ.
    Don't need the money any time soon.
    Can now claim that portion of the split home loan interest on tax now, offsetting most of the dividend income.
    Will the market crash? Probs. Will it recover? Probs. Feel like I'll end up better off.

    • WhyAmICommenting on 20/01/2025 - 13:40

      Odds of picking the drop and the upturn are very low

  • wetsandwich on 18/01/2025 - 21:18
    +4

    Mathematically, you expect markets to always go up on average over time in fact you expect them to mostly always be hitting new all time highs, so that means you should be in with as much money, as early as possible. Yes, there will be major variance (aka a crash) at some point, however the next one could be more than 6 months away and it might only then crash back to today's price, or it might crash on Monday, who knows.

    The US market has just had a bit of a sideways correction since about the start of November, so I'd personally call it a better time to buy in than a lot of other times.

    If you're waiting for the next covid crash to get bargains at 40% off, you might be waiting years, and will you be too scared to actually pull the trigger when we're at that point in the timeline?

    • vorsprung on 18/01/2025 - 21:42
      +4

      Best time to invest is yesterday, second best is today.

  • AustriaBargain on 19/01/2025 - 07:53

    Join a gym, buy better clothes, and marry a wealthy cougar.

  • ForkSnorter on 19/01/2025 - 08:20
    +1

    Your shares would have to grow 8% per year just to break even (because you will lose 20% of your gains in capital gains tax and the interest on your mortgage will be 6%). Assuming your shares rise 16% per year, you will still only be slightly ahead. If it were me, I would pay off the mortgage, and start saving a deposit for a better property (PPOR). Australians' willingness to be perpetually in debt up their eyeballs is the reason why the housing market is in crisis and inequality is rising.

    • SBOB on 19/01/2025 - 08:25
      +2

      Your shares would have to grow 8% per year just to break even (because you will lose 20% of your gains in capital gains tax and the interest on your mortgage will be 6%).

      You haven't included the offset from tax deduction on loan interest in your calc

      • ForkSnorter on 19/01/2025 - 08:35
        +1

        Can you explain this to me? I didn't think there was any tax deduction for PPOR mortgage interest.

        • vorsprung on 19/01/2025 - 08:41
          +6

          Have your bank split the loan to simplify things, then redraw funds from the new split and only ever use those funds for investment purposes. Now you can simply claim 100% of the interest on that split.

          A redraw is considered a new borrowing.

          https://community.ato.gov.au/s/question/a0J9s0000001CUc/p000…

          • donga100 on 19/01/2025 - 11:32

            @vorsprung: Thanks, wasn't aware you could structure it like that. I assumed you would need to apply for a separate loan that was secured by the property which would then have a higher interest rate than a home loan.

        • SBOB on 19/01/2025 - 09:02

          I didn't think there was any tax deduction for PPOR mortgage interest.

          As other poster said, loan split.
          It's a seperate loan, doesn't matter that the underlying security the bank has on the loan is your ppor.

          Split equity in loan to new loan, draw from that for other investment makes that new loan deductible (assuming income producing asset bought)

          • vorsprung on 19/01/2025 - 09:21

            @SBOB: Yep. No Bitcoin. Has to produce an income I.e. distribution or dividend. At least that’s my understanding.

            • Smol Cat on 20/01/2025 - 15:25

              @vorsprung: No crypto at all or just no BTC?

              So it has to be something that pays dividends? This sounds like a big tax loophole. This is the first time I'm hearing of this, why isn't literally everyone who has a mortgage doing this?? Sounds like free money.

              • vorsprung on 20/01/2025 - 19:17
                +1

                @Smol Cat: I don’t know honestly about the crypto. My assumption is that if you stake crypto and that actually pays you an income that you would declare on your tax return, then the answer is maybe yes - tax deductible.

                Definitely need to speak to an accountant or do more research. Perhaps someone else will know the answer here.

                Why doesn’t everyone with a mortgage do it?

                • Not everyone has extra repayments to withdraw.
                • It’s not without risk. You could end up worse off. Markets have always gone up over time… doesn’t mean they will continue to. There’s value to not having to stressing about this, I guess.
                • With money in your redraw, it’s accessible instantly for whatever reason. What if the market dips 20% and you suddenly need the funds.
                • Smol Cat on 20/01/2025 - 19:31

                  @vorsprung: Yep fair points, not exactly risk-free-free-monies, got it

              • wetsandwich on 22/01/2025 - 13:09
                +2

                @Smol Cat: "why isn't literally everyone who has a mortgage doing this?? Sounds like free money."

                Well even in this thread there are people who don't understand it, just parrot 'debt is bad and this cant work', and then even when you spell out why they're wrong they just still can't seem to wrap their head around it.

                Join actual finance forums to learn more (ausfinance on reddit), not a forum for people who want a 25 cent discount on a plastic kmart bucket.

  • Dollar General on 19/01/2025 - 09:02

    Why borrow such a large amount?

    If you have paid off your mortgage, continue setting aside the same amount each month and put that into a ETFs

    The interest rate you will be paying on borrowed funds isn’t worth it

    • wetsandwich on 19/01/2025 - 17:16
      +3

      Yes it is. The interest is tax deductible and the CGT concession of holding over 1 year comes into play. You also expect to receive dividends/distributions.

      So you barely need any capital gains at all to come out ahead.

      • Dollar General on 19/01/2025 - 21:03

        You’re buying and borrowing at all time highs

        Good luck to you

        • WhyAmICommenting on 20/01/2025 - 13:41

          Past performance… it could still go up more. Who knows?

          • Dollar General on 20/01/2025 - 13:53

            @WhyAmICommenting: Cost of funds plus inflation, you need 10% return to make it worthwhile

            Better of investing your own money you save each month

            • wetsandwich on 20/01/2025 - 14:55
              +1

              @Dollar General: Cost of funds is closer to 4.5% after tax benefits. You'll get around 3.5% just from dividends. So you need about 1% return to break even. Even in a normal year without insane pumps you expect far more than that.

        • wetsandwich on 20/01/2025 - 14:54
          +1

          I actually did that 6 months ago, and look at me now.

  • SlickMick on 19/01/2025 - 17:54
    +2

    All-in is definitely the correct answer to your question. There's no way to know when the price will fall, and if you did wait, there's no way to know when it will recover. Like they say, it's all about "time in" rather than "timing".

    However, those funds are already serving a purpose - saving you ~6% interest. So it isn't a great loss to not be in the market - in fact some would choose not to leverage using PPOR.
    If you're in 2 minds, making a weekly contribution would give you time to reconsider e.g. how much you want to invest.

    Personally, I'm making weekly contributions into BetaShares Direct so I can stop if I decide I have a better use for these funds.
    But my double-mindedness is definitely costing me.

  • spurf on 19/01/2025 - 19:20
    +2

    If you have a long enough time horizon, then the best strategy is to lump sum invest. Going forward you would DCA any funds as they arrive. It's impossible to time the market unless you have some inside information. I did a lump sum investment just before Russia invaded Ukraine and watched my investment lose 20%. I continued DCA and as of today my investment has returned 12% p.a. Much of those gains occurred due to DCA whilst prices were depressed.

    • fredblogs on 19/01/2025 - 21:29
      +1

      What if you had DCA'd from the start?

  • grr1701 on 20/01/2025 - 10:54
    +1

    Never mortgage your house to gamble.

    • wetsandwich on 20/01/2025 - 14:56

      I'm not sure I'd call it gambling.

      Or if it is, why does the government force us to do it anyway with our entire retirement savings?

  • polol on 20/01/2025 - 11:10

    No one wants to provide data?

    https://investor.vanguard.com/investor-resources-education/n…

    Pick one, don't time the market, don't hold cash waiting to invest.

    • gromit on 20/01/2025 - 14:44
      +1

      yep the difference is very marginal, you might get extremely unlucky to go in on the peak of the market, but even then over the long haul the differences will be tiny so no point holding out trying to time the market.

    • CaptainJack on 21/01/2025 - 13:07

      If I'm right they assumed no interest earned on money not invested ("The investment is assumed to be 100% equity, with no interest earned on any uninvested portion").

      Not sure about OP, but in my situation that money would be earning 5.5% in a savings account.

      If I assume the share market returns 10% pa on average, and I would DCA 20% of the capital every month (so 5 months), I expect to come out ~$700 better off with Lump Sum for every $100,000 in the initial sum, or 0.7% (back of the envelope calcs).

      This actually seems pretty marginal, and if it helps one sleep at night, you're probably not missing out on much by DCA. But a longer DCA timeframe would of course be expected to improve the lump sum outcome.

      For me, I've been through enough highs and lows that I'll just dump it in and forget about it, but I thought it's interesting.

      • polol on 21/01/2025 - 15:44

        Yes basically DCA and lump sum are both good outcomes. Waiting and timing the market is the problem which is what people intuitively think they should do

  • cmd411 on 20/01/2025 - 15:32

    Dollar Cost Average - whatever you'd like to put in separate it into 12/ 24/36 chunks. Depends on your age and a lot of factors but this way you will have time to shift your direction if needed.

  • May4th on 20/01/2025 - 15:55
    +2

    someone has done a comparison on the exact question you are asking - the conclusion was if you DCA and then buy extra when the market dips you will get the best performance.

    if you do redraw, make sure you speak to an accountant to set it up correctly so you set up a tax loan for debt recycling so the interest on that 350k loan for investment purpose is deductible

  • titan0r on 20/01/2025 - 16:47
    +2

    OP will definitely come out ahead due to tax implications of debt recycling. To anyone saying global and US stocks are overvalued and a crash is imminent, meet bob: https://www.wealthmorning.com/2023/09/15/648774/meet-bob-the…

    • May4th on 20/01/2025 - 17:15
      +1

      diamond hand bob

    • FezMonkey on 21/01/2025 - 11:00

      As a result — drum roll, please — Bob enjoyed a cumulative return of over 504%.
      From 1972 to 2013 — a 41-year period — he grew a humble sum of $184,000 into $1.1 million.

      I put these figures into an inflation calculator and it says that $184,000 would be the equivalent of $1.7m in 2013. So he hasn't gotten ahead?

      And if he just got 5% a year for 41 years he'd have $1.36m by my count, so better off but still below inflation.

      Not arguing against investing, just pointing out for discussion.

      • May4th on 21/01/2025 - 13:23

        I think the point is don't worry so much about downturns, even in the absolute worst scenario doing the worst thing you can possibly do you are still on par with putting it in savings

        • FezMonkey on 21/01/2025 - 14:15

          Yeah I guess so

  • Mill House on 21/01/2025 - 00:51

    JUST THE TIP

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