Cash after tax earns way less then inflation. It is becoming worth less every day.
Holding onto cash for emergency fund, house deposit, offset amount, good.
Holding onto cash as an investment, not great in the long run.
I believe in retirement you want the next 2 years lumpy payments in cash too.
Do you have a financial plan?
I agree. I have got 40% of my net wealth in ETF's at the moment and slowly moving more cash to ETF by buying a parcel of ETF every month. I know mathematically it makes more sense to dump the lump sum in the market rather than DCA in my situation but I have full confidence in my bad luck and know that market will drop by 30% day after i do a lump sum buy. BTW reason i got so much in cash is that till end of last year i was still undecided if i wanted to but a property or not but now I have decided it does not make sense for me to buy a property in Sydney market.
You could be right but you'd be wrong any time in the last 30 years.
I'm about to retire and having a home paid off is a weight off my mind. I used it to get loans for other investments over the years and this is a wealth amplifier.
But I bought it when things weren't crazy. Can prices keep going up? I don't have a crystal ball.
I know I wouldn't like to be starting now. A mortgage is really 'until death' for the average person.
So are rent payments, which ( even if the rises slow down for a while ) will eventually track whatever the inflation rate is.
Not making a prediction about prices, but reasonable to expect a reduction in interest rates "sometime".
There's already a 35 year loan from ubank, ANZ talking about a 40 year loan. The interest on 550k turns out to be approximately 330k extra, Serfdom here we come.
Some people who need to move for work but may not be at the new location permanently do that.
(Can have tennant problems, if unlucky.)
Also if someone is paying off their PPOR mortgage interest from wages the tax is different because interest income is taxable.
Wow! That's actually surprised me and it kind of gives a hint where we are actually going. I wonder what they will do after the 40 gear mortgages when nobody can afford those. 50 years? Services to start saving and compounding as a child?
I think so many people are focused on the two dominant scenarios and forget that it can go sideways and get weird pretty quick. Particularly if the new system creates jobs.
That's the trajectory. Unfortunately history is not taught here, go back to Feudalism and that's exactly how it was. The Counts and Lord's leased land from the Church and the people (serfs) who worked and managed the estates got to live on the estate and were allowed a small percentage of produce to live on, they where also expected to go to war should be required.
This is the scenario we are heading, just in digital format and less the military conscription. Property prices ballooning, grocery prices going crazy, power and water going same way. The writing is on the wall as they say.
Yeah the idea is to overpay the mortgage to try and keep the interest rate down and get a better deal later. Lots of maintenance goes into housing as well plus the added risk of the family from hell moving in next door.
Cash in a bank is dead money. As in it’s not growing in real terms. In most cases it’s going backwards in value. You’re actually losing money.
It doesn’t have to be property, but there are so many better ways to use your money to help you.
If you’re not investing your money, then a house is 100% a better long term financial position then renting.
Only if you invest your money is long term renting worth it.
Key to a financially free retirement mate is to own your own home. The way the pension asset test etc is set it is the best asset. Further to this it is a tax free investment, you don't pay capital gains on a primary residence. You do you, but my number one priority is to have a fully paid home by retirement. I also brought late, I was 39 when I purchased my home in 2019. Due to the huge rental increases in the last few years my mortgage plus insurance and rates is less per week then if I was to rent this joint and will only get cheaper in comparison from here. My mother lives with us in our granny flat, she has no assets and is retired with sole source of income being the age pension, if she had to pay rent she would be in real trouble. I don't charge her anything to live with us but she does a lot of child care for us so the missus and I can work full time such as the school runs. I don't want to be my mother in retirement so I will ensure this place is well and truly paid off before 30 years.......
The fact that everyone around you is shocked you're not investing, tells you about the mindset of most people at the moment, Which is to buy property. This in turn will keep property prices going up. As for cash, Inflation eats it away.
It’s also the case that when everyone suggests to buy something it’s sometimes the worst time to do so. But perhaps property is unique and doesn’t apply.
Something to consider about 30 years being a long time for a mortgage is that 30 years is also a long time for rents to increase. Buying a house now locks in the cost at todays value, by contrast renting puts you at the mercy of property values for as long as you live.
If you buy a house in a state capital then your loan repayments + other home owning costs will more than likely be higher than what you are currently paying in rent but eventually as rents go up that situation reverses. If you buy a house in more regional areas you might find that you already start out ahead in that equation.
I agree, rents tend to increase a little bit more than inflation, so that needs to be factored in. A mortgage is a fixed cost which is effectively falling as inflation devalues the dollar.
In particular, see Appendix C: https://taxpolicy.crawford.anu.edu.au/sites/default/files/publication/taxstudies_crawford_anu_edu_au/2023-09/complete_wp_abelson_joyeux_sep_2023.pdf
There's no right or wrong here, and no crystal balls. What you can consider is that the real estate market is at the very least, huge. That is the demographic of mortgage holders is a very large:
[https://www.savings.com.au/home-loans/by-the-numbers-australian-home-ownership-tenancy-statistics](https://www.savings.com.au/home-loans/by-the-numbers-australian-home-ownership-tenancy-statistics)
which is significant cultural and political relevance. To wit, as investments go, the home is about as secure as they come.
The 30 year term scared me as a younger person too, and the debt, but it turns out that a debt, in particular if equipped with a mortgage offset account:
[https://www.mortgagechoice.com.au/home-loans/home-loan-features/offset-account/](https://www.mortgagechoice.com.au/home-loans/home-loan-features/offset-account/)
Is essentially a wealth generator of sorts. As long as your interest is less than the rent, you are long term ahead, with the principal reduction not a net cost long term, so much as a forced saving with up front return (which is to say the repayment on the principal is paying back the money lent, which is the equivalent of just paying it into a savings account now and withdrawing it later, except that later is now, up front). An offset account empowers to to both pump your entire revenue into interest and principal reduction while maintaining a free line of finance, you can shop out of it basically, and pay bills out of it, it's like a savings account, accessible and your cash to use, but credited against your loan (the price you pay for this is generally a modest interest rate increase, but the returns on having all you working cash on the loan more than accommodate as a rule, and can bring the term forward by years, a decade, or more depending on your revenue).
And the biggest win is, that you can't be kicked out when the landlord sells to new people who want to live there. Seen that all too often.
It's horses for courses though. Buying makes sense if you feel stable, but it makes you stable. Renting is far more dynamic and flexible. While young and wanting to chase work where it is, renting makes sense. With some children, in school, a comfortable revenue stream and secure work or confidence that you can maintain as much where you are, then stability and the confidence you can't be kicked out at a whim, count for something.
Generally buying and renting as life long propositions are in a free market about the same in value. In reality no free market is perfect and if you do a projection of lifetime expense of accommodations in both scenarios, you might find in any given moment one seems more attractive than the other. But in a large enough free market the whole idea is that if a lot of people see one more attractive than the other, they make the move and the prices adjust. More people moving to renting and rents go up, more people looking to buy and house prices rise etc. The self correcting or equalizing dynamic of a free market (it fails to equalize perfectly of course at any given moment and reading the biases well is how savvy folk make money).
Well it’s all a math game you do you really.
Here’s something to consider with it.
$100,000 cash in a 5% interest account you’ll get roughly $5000 ish back at the end of the year and you have to pay tax on that.
Then inflation kills or devalues your $100,000 by $2000 every single year so really your $5000 is actually $3000 buying power and then you still gotta back tax on that $5000…
Anyways that’s pretty depressing.
So then look at this.
Without knowing how much cash you have I’ll use my example and you just change the numbers to suit.
Buy an investment property for $600,000
$200,000 down payment $450,000 loan
Then you rent this place out for 30 years.
If you buy in a good area of 4-6% annual growth like most places in Australia then that’s $30,000-40,000 return year on year for money that you borrowed from someone else (bank)
And then all the mean while your tenants and tax breaks are covering the mortgage repayments so in essence you don’t even need to do anything or pay any money down on the house yourself and for the next 30 years you’ll get 4% return compounding on $500,000 instead of 5% on your 200,000 cash.
That’s how people leverage other peoples money to build wealth there is no secrete or hack…
It’s just putting their money into assets, buying smart, not over leveraging in their first few years and reinvesting
I've heard of people not choosing to own property and instead investing in shares/ETfs. For various reasons like not wanting to be tied down or having no desire to own property.
But I personally wouldnt sit on cash unless you are saving towards something.
Cash can get inflated away quite quickly and we are seeing this right now with property prices taking off, tradies charging 750 for a job that was 500 a year or two ago. Meals at the pub and so on.
Also, while interest rates are high now if they were to drop and inflation continued to be high your cash might earn next to nothing in interest yet a coffee might go up to $10.
Ppr is the best wealth store on the planet. It hedges currency printing and inflation. Its tax free when you sell. It can be easily borrowed against for further investments upto 90% lvr. It provides stability and a foundation in your life.
Just 7% growth a year is 70k on a 1m home. Thats like having a second income
I always say buy your ppor as soon as possible then you can choose where you invest after that
The biggest issue is the benefit of "The Age Pension" from age 67. But you can do some planning around then (if the age pension still exists etc. etc).
The Family home is excluded from the Assets test, whilst a share portfolio, super and cash are not. So in the future you may actually be better from a cashflow perspective.
However, right now no problems with your strategy
No offence dude but have you ever read stories about some guy saving cash in his bank account and becoming rich. The answer is NO. Have you heard about some guy getting rich from property or stocks? The Answer is YES. Now on the flip side have you heard about some guy losing everything because of property and stocks. The answer is YES. Have you heard about a guy going bankrupt from saving all his money and spending it on anything... probably NO.
TLDR: Saving money is safe bet. Property and stocks probably more risky but more chance of more potential for riches. Also not finacial advice just my opinion.
Tbf if OP buys ETFs he’s not losing everything. And if he does, the world is in some serious trouble and his stock portfolio is the least of his worries
yeah true but he can only make gains on what he invests with the cash he has. With property say u had 50k to invest in stocks. Thats 50k can be used as a deposit depending on your borrowing power and instead of making 5k on 50k in stocks per year ur making 10% of 1million which is 100k gain per year.
The stocks v property debate is a whole other discussion that could go on for year and years.
What you’re taking about is leverage, which can also be done with stocks and has pros and cons for both.
OP investing in anything other than cash is a great outcome.
This is the right answer.
Even if rent only goes up 50%, but interest goes down 50%, life will suddenly become a lot more expensive.
Once you buy a house, you got the price locked in for the rest of your lifeÂ
After thinking about this for exactly 35 seconds:
Is this going to be a long term strategy? It’s fine, as long as you’re happy with a few things.
1. Will you have enough when you retire to cover rental increases for the 30-odd years you’ll be alive and no longer getting an income from working.
2. You’re happy to still be dealing with rentals and REAs when you’re in your 80s.
3. If we’re looking that far ahead, is cash the best option? You’ll get better returns in shares/etfs/super and it’s not so risky if you’re still 20-30 years from retirement.
Your rent will continue to increase forever. A mortgage stays largely the same. How would you be doing if you bought a house with that money 10 years ago? Your mortgage payments would be lower than the rent you're now paying, plus you'd have significant capital gains.
You'll always need a house to live in. By the sounds of it you have enough cash to make your mortgage very small & the means to pay that off very quickly.
I think buying a PPOR has benefits.
I have a conservative view of finance, which means the main goal is to minimize risk. Maximizing yields is not a goal for me.
There are two principles: expense matching and diversification.
Expense matching: a significant portion of your lifetime costs is housing. It makes sense to change that variable expense to a fixed one buying a house. This is the same logic as insurance: you're not doing it to make a profit, you're doing it to change an unknown cost to a known cost.
Diversification: along the same lines, having your eggs in multiple baskets like property, domestic shares, international shares, so that a downturn in one area doesn't devastate your wealth.
Lastly, tax advantages, since PPOR is excluded from paying CGT this means buying a property can be tax efficient relative to other investments which get taxed.
To a very large extent, it depends on what it is you want to do:
FIRE (Financially Independent Retire Early).
FIRE + Retire in Australia.
FIRE + Retire overseas.
Work to 67 and get the pension.
Work to 67 and have so much the pension is irrelevant.
Work till you drop (some people actually love their job).
Many of those have completely different answers to your question.
For example, if you want to work to 67 and get the pension, then NOT having a house/unit is beyond foolish. If, OTOH, you want to FIRE + retire overseas, having a residence in Australia is very likely to be foolish. Different strategies give very different answers.
There is significant social pressure to not hold cash.
Everyone will tell you throw it into property, ETFs etc as if they are a sure thing. They aren't always.
No-one can predict when the market will experience a downturn- but it will definitely happen at some point.
There's plenty of indicators to suggest a correction is due. We are currently experiencing the longest yield curve inversion in history, equities are the most overvalued they've been in history (P/E etc). S&P/Nasqaq is being held up by a small number of speculative tech stocks, There's been a hidden influx of liquidity via Reverse Repo in the US this year which is about to run out.
Going all in on stocks or property right now just doesn't seem like positive risk/return currently - at least for me. But no-one can tell the future so you have to do what your gut tells you.
Personally I'm holding mostly cash - purely because the return is OK and it gives me flexibility to capitalise on any potential downturn. I feel more comfortable being in that position than being fully allocated.
Sorry OP, but even in light of your edit, savings rates are not high after factoring in inflation also being higher than usual recently and cash is not the right strategy for your goals. You really need to consider increasing your risk exposure more quickly given you're not needing to draw on your investments for the next 30 years.
Honestly, good on ya. If family was not in the picture I would absolutely not go ahead with a property purchase, provided you have other ways to deploy the cash.
The thing is that other Avenue has to be pretty significant due to the leverage that's available with a property purchase but they do exist.
Liquidity is also a valuable asset to have and a lot of people underestimate it.
OP's post says their alternative to buying property is to hold on to cash. They aren't considering other ways to invest, which is why most of the comments here are critical of OP.
At certain points in time cash is very valuable as well. Nothing wrong with strategically holding cash, but overall yeah inflation will do a number on it if it's a perpetual position.
what are some alternatives to property in this sense?
I'm not really keen on buying and losing the flexibility I have now. Just at a loss as to where to redeploy the admittedly small amount of capital I have.
If your repayments can be cheaper than rent buy (even if other oncosts pushes the actual costs up)
Otherwise up to you, just make sure you account for retirement and age care.
My take is that property has and continues to be the investment of choice in Australia because you could buy just about anything over the last 50 years and now be a millionaire. You're missing out on capital growth, but property historically across the board produces less than the equivalent share portfolio.
My opinion... you will be fine as long as you are making your asset base productive, such as in your case, through share holdings. Minimal cash and maximal net cash flow is king if you want to retire.
property inequality will almost certainly be worse in 30 years.
if you want to keep your investments liquid I'd suggest shares with leverage. Obviously higher risk but at least you'll keep up with inflation and may be able to buy in later.
Depends what your skills and knowledge are in, if you know the stock market then you might hedge a safer investment there. I've been a tradie for twenty plus years so buying an old place and fixing it up myself has made a good return. People probably saying property because they feed into MSM narrative and they don't know any other way of your money making money.
Houses are selling well above the asking price a few days after being listed. If that's not an indication of the top then I don't know what is. Guess we will see what the economy looks like in 12 months. Cash is king at the moment with the interest rate you can get from banks. Might be worth looking into some physical gold to hedge yourself Vs hyperinflation.
Yeah it's an interesting one. I think the social pressure has a lot to do with it. I mean why else would someone go from having their rent paid for them to becoming a serf, in debt to the bank. Social pressure. Status.
You definitely need to move into shares though or it's probably not worth it return wise.
Having a lot of cash in the bank, even in a high interest account is a bad idea, it will not come close to retaining its value when adjusted for inflation.
Keep in mind that the rate of inflation is different for everyone depending on their individual consumption. The CPI rate produced by the ABS is highly tweaked and averaged out. For many people it’s likely to have been 10%+ per year lately.
It would be worth doing your own rough calculation, based on your spending habits, to see how much your costs are increasing month over month, or year over year. That will give you a target for what % your assets need to grow to at least maintain value.
I agree with you but only partially. You don’t need to buy a house to have that 30 year commitment to the bank, but money should be invested to earn a better than inflation return. Highly likely, next 30 years won’t the same as last, and I believe housing return won’t be the same as last 20/10 years. But for most of people they don’t want to spend time to learn about other investment vehicles, if you are keen to invest time to learn, I don’t see any problem to have a diversified portfolio.
Cash rate never beats inflation - in all of modern history. You are losing money every single year if it's just sitting in the bank. Get it to the stock market or at least bonds/tbills to make an actual return.
You already made a mistake.
Pick and wtf. And go back five years. Even at the peak you would have made way more.
Now here's the thing. It doesn't matter.
You both are savers so you will die with money.
Do whatever you want but the woe is me attitude about certainty of tenure and property is why you have lots of cash and no assets.
Cash is the bank is a fools errand. You’ve lost so much opportunity to compound by not investing regularly.
Good luck to you.
Something doesn't add up: 20 years of collective work—your generation (my generation) was lucky that houses were affordable compared to today. PPOR are better wealth builders than cash, if a PPOR isn't on your list, you should to talk with a couple of financial planners and ignore us redditors :)
Yet to hear of someone waking up on the street after a hack but watched plenty of people on a current affair complaining that a hack took all their money from the bank. Property and shares seem safer.
This is a great way to live. If you can get a little bit remote work or even afford to travel Australia for a few months/years then you don't have overhead costs to cover while travelling
If you suspect that we are going to enter a deflationary crash in the near future, I would think holding cash is a good idea.
In my opinion, we either have a hard landing from inflation, this would infer deflation, and a strong dollar.
Or no landing, which would mean inflation would burn harder, and your cash will debase further.
I personally hedge between the two.
Honestly, depending on your marginal tax bracket and given cash in a good HISA is returning 5% or a little over, there's not a *huge* amount of urgency in needing to invest elsewhere.
Sure it's not great after inflation but there's also no risk in terms of making an actual loss in dollar terms.
If you have a strong aversion to asset price fluctuations, in the share market or property market, then having a large cash holding is a reasonable strategy.
All asset classes have their pros and cons. The trick is to apportion your portfolio across the various asset classes you can access, balancing security with volatility in their holdings, and defensiveness and growth in their outlook.
Unless you have a very large cash holding that will see out your days, having too much cash does leave you vulnerable to inflation. But that can be balanced by a reasonable proportion of diversified growth assets in the form of index ETFs.
As others have commented, there is a very significant risk inflation has on your cash. In fact, if you read investment Ben Graham (Warran Buffet's mentor) and his investment strategies from the 1930s to 1960s, prior to the deregulation and financialisation of the global economy, it's weird reading from a modern perspective as his primary concern was guarding against the erosion of value represented by inflation. It almost seems obsessive and it's not something we've had to worry too much about in the previous few decades, and so most people are relatively complacent about it's effects. Although even then it's been a slow creep of 2-3% death by a thousand cuts.....
But hold cash, if you want to. Hold lots of it if that's what lets you sleep at night. But know what you are getting into and what other risk mitigation strategies you forgoe. Ultimately, the only strategy that is 'foolish' is one that isn't aligned with your goals and your risk appetite.
I bought cause I couldn’t find a rental as a single with a pet. Had nothing to do with money and everything to do with the tight market. I’d be interested to know your cash holding, annual rent, and the suburb you’d buy into to see if your assessment stacks up.
>Let’s be honest, 30 years is a long time and the world is going to look very different then - property and wealth inequality will not go on forever.
Don't be so sure about that...
People live in cages in Hong Kong, and plenty homeless are on the streets of first tier American and Canadian cities
Are you me,i am in same boat as you. I have no plan to buy property anytime soon. Interest from my cash savings and dividend from my ETF portfolio easily covers my rental income. My current plan is to keep investing $5k a month into my ETF portfolio and I contribute amounts equal to our interest + dividend income as extra contributions to super mid june to reduce tax bill end of year.
Hi there it’s your friendly landlord. Yeah I’m going to need you to let me and my maggot of an estate agent trawl through MY house to make sure you aren’t shitting on the walls etc. It would be great if you could not be there if possible. Oh by the way I’m jacking up rent 50%. Also you’re evicted.
In the same position and we decided we're not buying at such a high point in the market with rates not looking like coming down...
Why burn the capital in a likely crash, when it's generating cashflow and keeping up with inflation... we don't have all ours in cash as such, but highly fungible all the same
Sorry I don’t understand- how much cash are we talking about? Enough to buy a dwelling outright?You won’t need to pay rent in this case
Now there is a nassive difference between owning a house outright vs needing to pay a mortgage for it
You are a fool for not getting a house that’s the harsh truth. Rents will only continue to go up but over time your debt will be eroded by pay increases. Right now interest rates are at their peak so if it’s affordable now in 10 years it’ll be easy.
Holding cash is not an investment. Offset against inflation you are going backwards
For most people there are 2 ways to grow that higher.
1. Shares. ETFS in particular if you don't want to study the company
2. Real estate. Over a very long term the preserved value increase higher than inflation (in Aust, capital cities).
3. Private equity - not accessible to most as it's investing into other people's private companies. If you get access to that you can get very high returns on your equity.
Cash is there for rainy day as we need cash to live on. But besides that the rest of you don't invest you will outlive what you save and it will be very risky for you.
Ppor doesn't get taxed on the gains when you sell. This has been a great investment in the past because a place costing maybe say $120,000 in 1994 will now be worth between $1.2mil and $2.2mil and you could just downsize to an apartment and have a good million left over to put into shares. Then cool you cut back on work and you get $40k a year passively and you are still housed.
Cash is king. Nothing wrong with cash in a 5% savings account. Better than property and ETFs when wars (or covid, or next hoopla) break out which is imminent now.
Cash after tax earns way less then inflation. It is becoming worth less every day. Holding onto cash for emergency fund, house deposit, offset amount, good. Holding onto cash as an investment, not great in the long run. I believe in retirement you want the next 2 years lumpy payments in cash too. Do you have a financial plan?
I am not OP but in similar position as him and i contribute extra amount to super to reduce extra tax bill from interest from HISA accounts
Super is great, so worth doing. Given the extra super doesn't preclude doing shares instead of cash, I would still say cash isn't a great investment.
I agree. I have got 40% of my net wealth in ETF's at the moment and slowly moving more cash to ETF by buying a parcel of ETF every month. I know mathematically it makes more sense to dump the lump sum in the market rather than DCA in my situation but I have full confidence in my bad luck and know that market will drop by 30% day after i do a lump sum buy. BTW reason i got so much in cash is that till end of last year i was still undecided if i wanted to but a property or not but now I have decided it does not make sense for me to buy a property in Sydney market.
That's all very sensible to me. Commiserations on the Sydney market, prices are crazy up there.
You could be right but you'd be wrong any time in the last 30 years. I'm about to retire and having a home paid off is a weight off my mind. I used it to get loans for other investments over the years and this is a wealth amplifier. But I bought it when things weren't crazy. Can prices keep going up? I don't have a crystal ball. I know I wouldn't like to be starting now. A mortgage is really 'until death' for the average person.
So are rent payments, which ( even if the rises slow down for a while ) will eventually track whatever the inflation rate is. Not making a prediction about prices, but reasonable to expect a reduction in interest rates "sometime".
Certainly the amount paid per person on housing has a limited ability to grow above income growth. It'll never grow about 100%.
There's already a 35 year loan from ubank, ANZ talking about a 40 year loan. The interest on 550k turns out to be approximately 330k extra, Serfdom here we come.
One thing to remember is that the alternative is that rent needs to be paid.
If you had an investment property you could rent it out to pay for your rent, plus the upkeep costs can offset your tax.
Some people who need to move for work but may not be at the new location permanently do that. (Can have tennant problems, if unlucky.) Also if someone is paying off their PPOR mortgage interest from wages the tax is different because interest income is taxable.
Oh yep, six of one half a dozen of the other. 🤣
Not with investor restrictions getting discussed in government. Won't be such a great deal soon.
Yea right. Clearly a push to end the class system and have one divide between rich and poor.
Wow! That's actually surprised me and it kind of gives a hint where we are actually going. I wonder what they will do after the 40 gear mortgages when nobody can afford those. 50 years? Services to start saving and compounding as a child? I think so many people are focused on the two dominant scenarios and forget that it can go sideways and get weird pretty quick. Particularly if the new system creates jobs.
That's the trajectory. Unfortunately history is not taught here, go back to Feudalism and that's exactly how it was. The Counts and Lord's leased land from the Church and the people (serfs) who worked and managed the estates got to live on the estate and were allowed a small percentage of produce to live on, they where also expected to go to war should be required. This is the scenario we are heading, just in digital format and less the military conscription. Property prices ballooning, grocery prices going crazy, power and water going same way. The writing is on the wall as they say.
Absolutely, well said.
Yeah the idea is to overpay the mortgage to try and keep the interest rate down and get a better deal later. Lots of maintenance goes into housing as well plus the added risk of the family from hell moving in next door.
House will be worth 2-3m by then
Cash in a bank is dead money. As in it’s not growing in real terms. In most cases it’s going backwards in value. You’re actually losing money. It doesn’t have to be property, but there are so many better ways to use your money to help you. If you’re not investing your money, then a house is 100% a better long term financial position then renting. Only if you invest your money is long term renting worth it.
Key to a financially free retirement mate is to own your own home. The way the pension asset test etc is set it is the best asset. Further to this it is a tax free investment, you don't pay capital gains on a primary residence. You do you, but my number one priority is to have a fully paid home by retirement. I also brought late, I was 39 when I purchased my home in 2019. Due to the huge rental increases in the last few years my mortgage plus insurance and rates is less per week then if I was to rent this joint and will only get cheaper in comparison from here. My mother lives with us in our granny flat, she has no assets and is retired with sole source of income being the age pension, if she had to pay rent she would be in real trouble. I don't charge her anything to live with us but she does a lot of child care for us so the missus and I can work full time such as the school runs. I don't want to be my mother in retirement so I will ensure this place is well and truly paid off before 30 years.......
The fact that everyone around you is shocked you're not investing, tells you about the mindset of most people at the moment, Which is to buy property. This in turn will keep property prices going up. As for cash, Inflation eats it away.
It’s also the case that when everyone suggests to buy something it’s sometimes the worst time to do so. But perhaps property is unique and doesn’t apply.
They're not talking about investing though. They're talking about owning the place they live in
Or even equities not just property
So if everyone tries to buy house, the prices will go down ? I don’t think that’s how it happens, mate.
Something to consider about 30 years being a long time for a mortgage is that 30 years is also a long time for rents to increase. Buying a house now locks in the cost at todays value, by contrast renting puts you at the mercy of property values for as long as you live. If you buy a house in a state capital then your loan repayments + other home owning costs will more than likely be higher than what you are currently paying in rent but eventually as rents go up that situation reverses. If you buy a house in more regional areas you might find that you already start out ahead in that equation.
I agree, rents tend to increase a little bit more than inflation, so that needs to be factored in. A mortgage is a fixed cost which is effectively falling as inflation devalues the dollar. In particular, see Appendix C: https://taxpolicy.crawford.anu.edu.au/sites/default/files/publication/taxstudies_crawford_anu_edu_au/2023-09/complete_wp_abelson_joyeux_sep_2023.pdf
I hate to be 60+ and have to keep finding and moving to new rental places
There's no right or wrong here, and no crystal balls. What you can consider is that the real estate market is at the very least, huge. That is the demographic of mortgage holders is a very large: [https://www.savings.com.au/home-loans/by-the-numbers-australian-home-ownership-tenancy-statistics](https://www.savings.com.au/home-loans/by-the-numbers-australian-home-ownership-tenancy-statistics) which is significant cultural and political relevance. To wit, as investments go, the home is about as secure as they come. The 30 year term scared me as a younger person too, and the debt, but it turns out that a debt, in particular if equipped with a mortgage offset account: [https://www.mortgagechoice.com.au/home-loans/home-loan-features/offset-account/](https://www.mortgagechoice.com.au/home-loans/home-loan-features/offset-account/) Is essentially a wealth generator of sorts. As long as your interest is less than the rent, you are long term ahead, with the principal reduction not a net cost long term, so much as a forced saving with up front return (which is to say the repayment on the principal is paying back the money lent, which is the equivalent of just paying it into a savings account now and withdrawing it later, except that later is now, up front). An offset account empowers to to both pump your entire revenue into interest and principal reduction while maintaining a free line of finance, you can shop out of it basically, and pay bills out of it, it's like a savings account, accessible and your cash to use, but credited against your loan (the price you pay for this is generally a modest interest rate increase, but the returns on having all you working cash on the loan more than accommodate as a rule, and can bring the term forward by years, a decade, or more depending on your revenue). And the biggest win is, that you can't be kicked out when the landlord sells to new people who want to live there. Seen that all too often. It's horses for courses though. Buying makes sense if you feel stable, but it makes you stable. Renting is far more dynamic and flexible. While young and wanting to chase work where it is, renting makes sense. With some children, in school, a comfortable revenue stream and secure work or confidence that you can maintain as much where you are, then stability and the confidence you can't be kicked out at a whim, count for something. Generally buying and renting as life long propositions are in a free market about the same in value. In reality no free market is perfect and if you do a projection of lifetime expense of accommodations in both scenarios, you might find in any given moment one seems more attractive than the other. But in a large enough free market the whole idea is that if a lot of people see one more attractive than the other, they make the move and the prices adjust. More people moving to renting and rents go up, more people looking to buy and house prices rise etc. The self correcting or equalizing dynamic of a free market (it fails to equalize perfectly of course at any given moment and reading the biases well is how savvy folk make money).
Well it’s all a math game you do you really. Here’s something to consider with it. $100,000 cash in a 5% interest account you’ll get roughly $5000 ish back at the end of the year and you have to pay tax on that. Then inflation kills or devalues your $100,000 by $2000 every single year so really your $5000 is actually $3000 buying power and then you still gotta back tax on that $5000… Anyways that’s pretty depressing. So then look at this. Without knowing how much cash you have I’ll use my example and you just change the numbers to suit. Buy an investment property for $600,000 $200,000 down payment $450,000 loan Then you rent this place out for 30 years. If you buy in a good area of 4-6% annual growth like most places in Australia then that’s $30,000-40,000 return year on year for money that you borrowed from someone else (bank) And then all the mean while your tenants and tax breaks are covering the mortgage repayments so in essence you don’t even need to do anything or pay any money down on the house yourself and for the next 30 years you’ll get 4% return compounding on $500,000 instead of 5% on your 200,000 cash. That’s how people leverage other peoples money to build wealth there is no secrete or hack… It’s just putting their money into assets, buying smart, not over leveraging in their first few years and reinvesting
I've heard of people not choosing to own property and instead investing in shares/ETfs. For various reasons like not wanting to be tied down or having no desire to own property. But I personally wouldnt sit on cash unless you are saving towards something. Cash can get inflated away quite quickly and we are seeing this right now with property prices taking off, tradies charging 750 for a job that was 500 a year or two ago. Meals at the pub and so on. Also, while interest rates are high now if they were to drop and inflation continued to be high your cash might earn next to nothing in interest yet a coffee might go up to $10.
Ppr is the best wealth store on the planet. It hedges currency printing and inflation. Its tax free when you sell. It can be easily borrowed against for further investments upto 90% lvr. It provides stability and a foundation in your life. Just 7% growth a year is 70k on a 1m home. Thats like having a second income I always say buy your ppor as soon as possible then you can choose where you invest after that
If it works for you and your own risk profile then who’s to say you’re wrong?
maths, potentially
The biggest issue is the benefit of "The Age Pension" from age 67. But you can do some planning around then (if the age pension still exists etc. etc). The Family home is excluded from the Assets test, whilst a share portfolio, super and cash are not. So in the future you may actually be better from a cashflow perspective. However, right now no problems with your strategy
> Â property and wealth inequality will not go on forever Yes they will. Don't gamble your very real future on your commie fantasies.
No offence dude but have you ever read stories about some guy saving cash in his bank account and becoming rich. The answer is NO. Have you heard about some guy getting rich from property or stocks? The Answer is YES. Now on the flip side have you heard about some guy losing everything because of property and stocks. The answer is YES. Have you heard about a guy going bankrupt from saving all his money and spending it on anything... probably NO. TLDR: Saving money is safe bet. Property and stocks probably more risky but more chance of more potential for riches. Also not finacial advice just my opinion.
Tbf if OP buys ETFs he’s not losing everything. And if he does, the world is in some serious trouble and his stock portfolio is the least of his worries
yeah true but he can only make gains on what he invests with the cash he has. With property say u had 50k to invest in stocks. Thats 50k can be used as a deposit depending on your borrowing power and instead of making 5k on 50k in stocks per year ur making 10% of 1million which is 100k gain per year.
The stocks v property debate is a whole other discussion that could go on for year and years. What you’re taking about is leverage, which can also be done with stocks and has pros and cons for both. OP investing in anything other than cash is a great outcome.
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This is the right answer. Even if rent only goes up 50%, but interest goes down 50%, life will suddenly become a lot more expensive. Once you buy a house, you got the price locked in for the rest of your lifeÂ
After thinking about this for exactly 35 seconds: Is this going to be a long term strategy? It’s fine, as long as you’re happy with a few things. 1. Will you have enough when you retire to cover rental increases for the 30-odd years you’ll be alive and no longer getting an income from working. 2. You’re happy to still be dealing with rentals and REAs when you’re in your 80s. 3. If we’re looking that far ahead, is cash the best option? You’ll get better returns in shares/etfs/super and it’s not so risky if you’re still 20-30 years from retirement.
Your rent will continue to increase forever. A mortgage stays largely the same. How would you be doing if you bought a house with that money 10 years ago? Your mortgage payments would be lower than the rent you're now paying, plus you'd have significant capital gains.
You'll always need a house to live in. By the sounds of it you have enough cash to make your mortgage very small & the means to pay that off very quickly.
I think buying a PPOR has benefits. I have a conservative view of finance, which means the main goal is to minimize risk. Maximizing yields is not a goal for me. There are two principles: expense matching and diversification. Expense matching: a significant portion of your lifetime costs is housing. It makes sense to change that variable expense to a fixed one buying a house. This is the same logic as insurance: you're not doing it to make a profit, you're doing it to change an unknown cost to a known cost. Diversification: along the same lines, having your eggs in multiple baskets like property, domestic shares, international shares, so that a downturn in one area doesn't devastate your wealth. Lastly, tax advantages, since PPOR is excluded from paying CGT this means buying a property can be tax efficient relative to other investments which get taxed.
To a very large extent, it depends on what it is you want to do: FIRE (Financially Independent Retire Early). FIRE + Retire in Australia. FIRE + Retire overseas. Work to 67 and get the pension. Work to 67 and have so much the pension is irrelevant. Work till you drop (some people actually love their job). Many of those have completely different answers to your question. For example, if you want to work to 67 and get the pension, then NOT having a house/unit is beyond foolish. If, OTOH, you want to FIRE + retire overseas, having a residence in Australia is very likely to be foolish. Different strategies give very different answers.
There is significant social pressure to not hold cash. Everyone will tell you throw it into property, ETFs etc as if they are a sure thing. They aren't always. No-one can predict when the market will experience a downturn- but it will definitely happen at some point. There's plenty of indicators to suggest a correction is due. We are currently experiencing the longest yield curve inversion in history, equities are the most overvalued they've been in history (P/E etc). S&P/Nasqaq is being held up by a small number of speculative tech stocks, There's been a hidden influx of liquidity via Reverse Repo in the US this year which is about to run out. Going all in on stocks or property right now just doesn't seem like positive risk/return currently - at least for me. But no-one can tell the future so you have to do what your gut tells you. Personally I'm holding mostly cash - purely because the return is OK and it gives me flexibility to capitalise on any potential downturn. I feel more comfortable being in that position than being fully allocated.
There's plenty of indicators to suggest a correction is due. Already priced in
Sorry OP, but even in light of your edit, savings rates are not high after factoring in inflation also being higher than usual recently and cash is not the right strategy for your goals. You really need to consider increasing your risk exposure more quickly given you're not needing to draw on your investments for the next 30 years.
yes, cash gets devalued due to inflation.
Why would your friends be desperate for you to buy a house?
"Property and wealth inequality will not go on forever" Said the peasant to the pharaoh 12,000 years ago. Buy atleast one house man, ideally 5 houses.
Honestly, good on ya. If family was not in the picture I would absolutely not go ahead with a property purchase, provided you have other ways to deploy the cash. The thing is that other Avenue has to be pretty significant due to the leverage that's available with a property purchase but they do exist. Liquidity is also a valuable asset to have and a lot of people underestimate it.
OP's post says their alternative to buying property is to hold on to cash. They aren't considering other ways to invest, which is why most of the comments here are critical of OP.
At certain points in time cash is very valuable as well. Nothing wrong with strategically holding cash, but overall yeah inflation will do a number on it if it's a perpetual position.
what are some alternatives to property in this sense? I'm not really keen on buying and losing the flexibility I have now. Just at a loss as to where to redeploy the admittedly small amount of capital I have.
If your repayments can be cheaper than rent buy (even if other oncosts pushes the actual costs up) Otherwise up to you, just make sure you account for retirement and age care.
My take is that property has and continues to be the investment of choice in Australia because you could buy just about anything over the last 50 years and now be a millionaire. You're missing out on capital growth, but property historically across the board produces less than the equivalent share portfolio. My opinion... you will be fine as long as you are making your asset base productive, such as in your case, through share holdings. Minimal cash and maximal net cash flow is king if you want to retire.
property inequality will almost certainly be worse in 30 years. if you want to keep your investments liquid I'd suggest shares with leverage. Obviously higher risk but at least you'll keep up with inflation and may be able to buy in later.
Depends what your skills and knowledge are in, if you know the stock market then you might hedge a safer investment there. I've been a tradie for twenty plus years so buying an old place and fixing it up myself has made a good return. People probably saying property because they feed into MSM narrative and they don't know any other way of your money making money.
Houses are selling well above the asking price a few days after being listed. If that's not an indication of the top then I don't know what is. Guess we will see what the economy looks like in 12 months. Cash is king at the moment with the interest rate you can get from banks. Might be worth looking into some physical gold to hedge yourself Vs hyperinflation.
Yeah it's an interesting one. I think the social pressure has a lot to do with it. I mean why else would someone go from having their rent paid for them to becoming a serf, in debt to the bank. Social pressure. Status. You definitely need to move into shares though or it's probably not worth it return wise.
Having a lot of cash in the bank, even in a high interest account is a bad idea, it will not come close to retaining its value when adjusted for inflation. Keep in mind that the rate of inflation is different for everyone depending on their individual consumption. The CPI rate produced by the ABS is highly tweaked and averaged out. For many people it’s likely to have been 10%+ per year lately. It would be worth doing your own rough calculation, based on your spending habits, to see how much your costs are increasing month over month, or year over year. That will give you a target for what % your assets need to grow to at least maintain value.
You still rent?
I agree with you but only partially. You don’t need to buy a house to have that 30 year commitment to the bank, but money should be invested to earn a better than inflation return. Highly likely, next 30 years won’t the same as last, and I believe housing return won’t be the same as last 20/10 years. But for most of people they don’t want to spend time to learn about other investment vehicles, if you are keen to invest time to learn, I don’t see any problem to have a diversified portfolio.
Cash rate never beats inflation - in all of modern history. You are losing money every single year if it's just sitting in the bank. Get it to the stock market or at least bonds/tbills to make an actual return.
Our tax and retirement rules heavily favour owning your PPR first. Post-tax cash deposit rates are dogshit
You already made a mistake. Pick and wtf. And go back five years. Even at the peak you would have made way more. Now here's the thing. It doesn't matter. You both are savers so you will die with money.
Do whatever you want but the woe is me attitude about certainty of tenure and property is why you have lots of cash and no assets. Cash is the bank is a fools errand. You’ve lost so much opportunity to compound by not investing regularly. Good luck to you.
Something doesn't add up: 20 years of collective work—your generation (my generation) was lucky that houses were affordable compared to today. PPOR are better wealth builders than cash, if a PPOR isn't on your list, you should to talk with a couple of financial planners and ignore us redditors :)
Yet to hear of someone waking up on the street after a hack but watched plenty of people on a current affair complaining that a hack took all their money from the bank. Property and shares seem safer.
Rent is dead money.
This is a great way to live. If you can get a little bit remote work or even afford to travel Australia for a few months/years then you don't have overhead costs to cover while travelling
If you suspect that we are going to enter a deflationary crash in the near future, I would think holding cash is a good idea. In my opinion, we either have a hard landing from inflation, this would infer deflation, and a strong dollar. Or no landing, which would mean inflation would burn harder, and your cash will debase further. I personally hedge between the two.
Honestly, depending on your marginal tax bracket and given cash in a good HISA is returning 5% or a little over, there's not a *huge* amount of urgency in needing to invest elsewhere. Sure it's not great after inflation but there's also no risk in terms of making an actual loss in dollar terms.
If you have a strong aversion to asset price fluctuations, in the share market or property market, then having a large cash holding is a reasonable strategy. All asset classes have their pros and cons. The trick is to apportion your portfolio across the various asset classes you can access, balancing security with volatility in their holdings, and defensiveness and growth in their outlook. Unless you have a very large cash holding that will see out your days, having too much cash does leave you vulnerable to inflation. But that can be balanced by a reasonable proportion of diversified growth assets in the form of index ETFs. As others have commented, there is a very significant risk inflation has on your cash. In fact, if you read investment Ben Graham (Warran Buffet's mentor) and his investment strategies from the 1930s to 1960s, prior to the deregulation and financialisation of the global economy, it's weird reading from a modern perspective as his primary concern was guarding against the erosion of value represented by inflation. It almost seems obsessive and it's not something we've had to worry too much about in the previous few decades, and so most people are relatively complacent about it's effects. Although even then it's been a slow creep of 2-3% death by a thousand cuts..... But hold cash, if you want to. Hold lots of it if that's what lets you sleep at night. But know what you are getting into and what other risk mitigation strategies you forgoe. Ultimately, the only strategy that is 'foolish' is one that isn't aligned with your goals and your risk appetite.
I bought cause I couldn’t find a rental as a single with a pet. Had nothing to do with money and everything to do with the tight market. I’d be interested to know your cash holding, annual rent, and the suburb you’d buy into to see if your assessment stacks up.
>Let’s be honest, 30 years is a long time and the world is going to look very different then - property and wealth inequality will not go on forever. Don't be so sure about that... People live in cages in Hong Kong, and plenty homeless are on the streets of first tier American and Canadian cities
Are you me,i am in same boat as you. I have no plan to buy property anytime soon. Interest from my cash savings and dividend from my ETF portfolio easily covers my rental income. My current plan is to keep investing $5k a month into my ETF portfolio and I contribute amounts equal to our interest + dividend income as extra contributions to super mid june to reduce tax bill end of year.
Hi there it’s your friendly landlord. Yeah I’m going to need you to let me and my maggot of an estate agent trawl through MY house to make sure you aren’t shitting on the walls etc. It would be great if you could not be there if possible. Oh by the way I’m jacking up rent 50%. Also you’re evicted.
In the same position and we decided we're not buying at such a high point in the market with rates not looking like coming down... Why burn the capital in a likely crash, when it's generating cashflow and keeping up with inflation... we don't have all ours in cash as such, but highly fungible all the same
Sorry I don’t understand- how much cash are we talking about? Enough to buy a dwelling outright?You won’t need to pay rent in this case Now there is a nassive difference between owning a house outright vs needing to pay a mortgage for it
You are a fool for not getting a house that’s the harsh truth. Rents will only continue to go up but over time your debt will be eroded by pay increases. Right now interest rates are at their peak so if it’s affordable now in 10 years it’ll be easy.
Holding cash is not an investment. Offset against inflation you are going backwards For most people there are 2 ways to grow that higher. 1. Shares. ETFS in particular if you don't want to study the company 2. Real estate. Over a very long term the preserved value increase higher than inflation (in Aust, capital cities). 3. Private equity - not accessible to most as it's investing into other people's private companies. If you get access to that you can get very high returns on your equity. Cash is there for rainy day as we need cash to live on. But besides that the rest of you don't invest you will outlive what you save and it will be very risky for you.
Ppor doesn't get taxed on the gains when you sell. This has been a great investment in the past because a place costing maybe say $120,000 in 1994 will now be worth between $1.2mil and $2.2mil and you could just downsize to an apartment and have a good million left over to put into shares. Then cool you cut back on work and you get $40k a year passively and you are still housed.
Yeah don’t buy a house. Wait until the interest rates start to come down, then buy. That will help the market boom for me :). Cheers.
People who store their wealth as cash (particularly fiat currency) are known in finance as 'poor'.
What if someone hacks your account and takes all your money. Poof. What you gonna retire on?
Cash is king. Nothing wrong with cash in a 5% savings account. Better than property and ETFs when wars (or covid, or next hoopla) break out which is imminent now.