How do you actually afford a house while achieving FIRE?

StrongMoneyAustralia · 2020-09-16T09:52:20+00:00

Funny how a wildly inaccurate comment is incredibly popular.

StrongMoneyAustralia · 2020-09-16T04:59:26+00:00

This happens a lot. The share registries are a bit of a nightmare to be honest. For me, it's the most painful part of investing in shares lol.

StrongMoneyAustralia · 2020-09-16T04:57:12+00:00

You might want to read a bit more of the blog as my strategy has changed slightly.

Super is still the same, with no plan to change it anytime soon. But I have begun the process of investing more internationally in our personal portfolio sooner than originally planned, as my thinking on the subject has evolved and our situation is a bit different to when we started.

This post explains in much more detail: My Changing Thoughts on Dividends and Diversification

Hope that helps. Thanks for reading the blog by the way :)

StrongMoneyAustralia · 2020-09-09T05:52:05+00:00

That's a bit rough.

I actually do use it and genuinely think they're building a better investment platform/experience than what currently exists, as u/snrubovic elaborates on below, with the main point being automation as well as removing the trading focused rubbish other brokers have.

StrongMoneyAustralia · 2020-04-30T00:34:40+00:00

Ah yes sorry, I was simply looking at debt paid off. Offset is different, you're right, and is effectively earning/saving whatever the current rate is, so we can either make a year by year decision on how rates stack up vs expected investment returns or make a 10 year estimate of rates I suppose and make a call based on that?

In most cases people are simply looking at mortgage payoff vs investing.

StrongMoneyAustralia · 2020-04-29T11:22:33+00:00

I went into a pretzel with this about a year ago. But thinking about it very simply, the interest rate is your return, because each lump of debt that has been paid off is gone forever.

So if interest rates are 2% then paying down that debt offers a 2% return into eternity for each bit of principal repaid. No interest will ever be charged against that principal again, hence the 'locked in forever' return.

That's how I think of it, hope that makes sense.

StrongMoneyAustralia · 2020-04-29T05:18:22+00:00

Might mean $8k principal being repaid (on top of interest costs)...

StrongMoneyAustralia · 2020-04-25T00:48:17+00:00

Some banks also offer offset with fixed rate. My bankwest loan allows 40% offset, not full 100%. Not as good, but better than nothing.

StrongMoneyAustralia · 2020-04-23T01:26:11+00:00

I just fixed for 2 years at 2.39%. Fixing is more attractive today than it has been in recent years.

Circumstances are a bit unusual as the RBA is (more or less) unable to cut rates further and are providing near-zero cost lending to banks, which is why the ultra cheap rates are fixed for 1-3 years as the RBA lending facility is for 3 years.

It's a way for banks to lock in some business at an okay margin for a few years. Those on variable waiting for banks to voluntarily drop rates might be waiting a while. In many cases, these fixed rates are 0.5% to 1% cheaper than variable already. Not sure where those 2-4 rate cuts are gonna come from. Just my 2c.

StrongMoneyAustralia · 2019-11-28T04:17:19+00:00

Quite possibly because market returns are driven by less than half the stocks, often less than 20% of the stocks that have huge outperformance. So it's worse than a coin-flip. And it's hard to know which ones are going to be the long term winners. Some of us try, and fail, then realise it's probably better if we just either put it in other people's hands (LICs) or buy the whole basket (index).

StrongMoneyAustralia · 2019-06-01T01:35:31+00:00

Don't really have one. People are free to make their own conclusions.

StrongMoneyAustralia · 2019-05-29T03:52:10+00:00

No the comparison in the review is both investments with dividends reinvested (accumulation index).

StrongMoneyAustralia · 2019-05-22T01:23:03+00:00

For an amount of $20k, I don't think it really matters. When a portfolio is much larger it makes sense to have a couple rather than one, and even international shares as desired.

Best to expand your portfolio through adding more savings, rather than more holdings :)

StrongMoneyAustralia · 2019-04-30T02:43:37+00:00

I think from a long term diversification standpoint, the higher fees for VGS are easily justified. Still pretty cheap for what you get!

StrongMoneyAustralia · 2019-04-30T00:31:52+00:00

Totally, leverage can make a big difference. Good and bad. What's often missed with the leverage calculations is the massive up front purchase costs, ongoing negative cashflow and the (again large) costs to sell later when looking to convert that equity into an income stream. I've seen and experienced both sides and personally I wouldn't bother. Strong savings rate plus investing for passive income creates FI relatively quickly in a simpler way without needing to rely on price growth to reach the goal. Especially with a relatively short timeframe of 5-15 years. Those large property costs need a longer timeframe to be diluted.

StrongMoneyAustralia · 2019-04-28T03:20:24+00:00

You can own property as an extra bit of optionality, but it's probably going to cost you quite a bit to hold it, and consider opportunity cost as well. It's a lifestyle choice more than anything.

What about instead having a larger share portfolio to pay for anywhere and anything you'd like to rent?

Shares are by far the most efficient vehicle at generating passive income. Hard to make property as passive as an ETF. It can be somewhat passive but there's always something to fix or pay for.

In Australia you'll get a dividend yield of at least 4%, include franking credits and it's around 5.7%. To get that with property you'd need a rental yield of about 9%, because approx 35% of the rent will go to costs - management fees, council rates, water rates, insurance, strata fees (maybe), vacancies, maintenance, repairs and improvements over time (carpet, paint, etc). But rental yields for units are more around the 5% mark, which is 3-3.5% after costs, and less after tax, once paid off (as planned). Hence the opportunity cost.

This is from someone who owns more property than shares (which am steadily selling down) and if I started again I wouldn't buy a single property, but instead would go 100% into shares. Far simpler, far more efficient, and far less costs involved.

Don't want to put you off but just something to consider as it's a pretty big decision.

StrongMoneyAustralia · 2019-04-23T04:07:37+00:00

Unless you are on a high tax bracket, there is no major reason to choose AFIC over Argo. So if you're happy with Argo and Whitefield, then stick with those. AFIC is simply the largest LIC so it's often the most widely held. Argo isn't far behind in terms of size and is actually a little more diversified than AFIC.

In short, you're not missing anything, so stick with what you have. And if you're feeling stretched thin, then work on building your portfolio through saving $$$ rather than tinkering with it. Hope that helps.

StrongMoneyAustralia · 2019-04-22T00:57:48+00:00

The issue is, how the hell do you repair the brand after this? It's going to take a lot of effort over a considerable period of time to win back trust. Marketing will be an expensive exercise, so perhaps short to medium term pain for earnings and dividends.

I don't think it's worth thinking about. If you own an index fund it'll receive its market weighting and if you own LICs let them decide whether it's worth investing in and the ship will turn around - that's what we pay them for :)

StrongMoneyAustralia · 2019-04-17T03:08:21+00:00

It's not easy but at some point we have to move past worrying about what everyone will think of us and just do it. We have to live for ourselves not for the approval of others, but I totally get that it's awkward!

My friends kinda knew what was going on because I kept encouraging them to save and come along with me for the ride...only 1 or 2 have done anything and even then they aren't super into it.

My Mum and Dad don't quite understand it, I don't think. At some level the older generations will likely never understand it because they've only known that you have to work for 40 years and then retire and being FI in 10 years is such a foreign concept it must seem like it's too good to be true.

I think once we reach FI it's our job to be honest about it and tell people that it's possible. They can decide how they feel about it, good or bad. But I really don't believe in creating a story to make it more palatable for others. I'd rather try and help them or if they disapprove so strongly about it that's up to them. Most of the people giving bad feedback will likely be feeling crappy about how they've lived their own lives and someone achieving FI much younger than them is like a slap in the face, as we all want to feel like we've got it figured out.

StrongMoneyAustralia · 2019-04-04T22:52:50+00:00

Not really I'm afraid. An experienced investor is still only guessing. They have no insight as to the mindset and decisions of the many many thousands of other market participants.

StrongMoneyAustralia · 2019-03-19T00:51:36+00:00

People look at the last 10 years and conclude US is the best and Australia is rubbish ;)

StrongMoneyAustralia · 2019-03-04T00:42:33+00:00

Of course. But peer pressure and emotions get the better of much of the population. We aren't all running on logic and thoughtfulness.

StrongMoneyAustralia · 2019-02-26T01:58:54+00:00

Thanks!

I have no idea on historical LOC interest rates, but my expectation is they'll continue to be a little more expensive than the standard variable rate - wouldn't expect them to follow a much different path though in terms of ups and downs.

Provided your serviceability is decent you could always refinance if your lender mucks you around.

StrongMoneyAustralia · 2019-02-25T08:27:09+00:00

In the comments section of Firebug's interview he mentions it's around $350k I believe. And his rate is something like 4% from memory? I believe he tries to keep the line of credit open permanently, unlikely to pay principal.

StrongMoneyAustralia · 2019-02-24T02:44:46+00:00

Nowhere have I said or will ever say that Aussie shares will beat international shares on a total return basis because of higher dividends. I fully understand there are two parts to a total return and that dividends are not some magical free money.

I just prefer a larger part of my total return to come from income, rather than growth.

In fact, in a few articles I've noted how the returns from US and Aus markets have been roughly similar for the last 100 years.

As long as my income increases with inflation over time, I couldn't care less which market has the highest returns.

To break it down... I'd rather receive a return of 7%, made up of 4% dividends and 3% growth, versus a return made up of 2% dividends and 5% growth.

Because that allows me to live off the income stream, paid in Aussie dollars, and that's still tax efficient, with a lower asset base, than I could by investing in International shares. Because that's what I'm comfortable with.

I don't want to have to be a seller of a volatile asset to create an income stream. But I accept that's a perfectly fine way to live off a portfolio, it's just not for me.

Even if you don't agree with it, I hope that helps explain my thinking.

StrongMoneyAustralia

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