I am 31, have $160,000 in shares and a $170,000 mortgage on a property worth $320,000. I recently moved back into the property after almost six years to keep it listed as my main residence. I recently quit my $70,000-a-year job and plan to take a break of six months before returning to the workforce, moving out of the property and renting it again.
I want to take advantage of my lower income for the current financial year, and sell some stocks which have made decent capital gains, as I am now top heavy in certain sectors.
Do you recommend pumping this money back into equities or should I reduce my mortgage and attempt to pay it off as soon as possible?
The name of the game is to maximise your deductible debt, and minimise your non-deductible debt. As you have moved back only temporarily and will be renting the property out again, I would prefer to see you keep the loan on an interest-only basis, while accumulating any spare cash in an offset account.
Paying money off a deductible mortgage will give you an after-tax return of 4 per cent at most, but a good share portfolio should do far better than that over the long term. The market is very strong now. You are the only person who can decide when to start buying.