I've quit my job, now how do I invest?
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.
Frequently Asked Questions about this Article…
Taking advantage of a lower income year can be a strategic move for investors. You might consider selling stocks that have appreciated in value to realize capital gains at a potentially lower tax rate. This can be especially beneficial if you are top-heavy in certain sectors and want to rebalance your portfolio.
Deciding between reinvesting in equities or paying down your mortgage depends on your financial goals. If your mortgage is deductible, keeping it on an interest-only basis while accumulating cash in an offset account might be beneficial. A well-managed share portfolio could potentially yield higher returns over the long term compared to the after-tax return from paying off a mortgage.
Keeping a mortgage on an interest-only basis can help maximize your deductible debt while minimizing non-deductible debt. This strategy allows you to accumulate spare cash in an offset account, which can be more financially advantageous if you plan to rent out your property again.
A well-diversified share portfolio has the potential to outperform the after-tax return of paying off a mortgage, which might be around 4% at most. Over the long term, equities can offer higher returns, especially in a strong market.
When selling stocks with capital gains, consider the tax implications, especially if you are in a lower income year. This can reduce the tax burden on your gains. Additionally, evaluate your portfolio to ensure it is balanced and not overly concentrated in certain sectors.
An offset account can be a valuable tool in your investment strategy by reducing the interest payable on your mortgage. This allows you to keep more cash available for other investment opportunities while still managing your debt effectively.
Balancing a share portfolio is crucial to managing risk and ensuring long-term growth. By diversifying your investments across different sectors, you can protect against market volatility and capitalize on various growth opportunities.
The current market strength can influence your investment decisions by providing opportunities for higher returns in equities. However, it's important to assess your risk tolerance and financial goals before making significant investment moves.
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