Acknowledgment by Investor
If you currently have Outstanding Credit Card Debt, Outstanding Personal Loans, Negative Annual Savings or a Mortgage on your Principal Place of Residence then it is my professional opinion that it may not be in your best interest to invest with Collins House Online Investment Services or any other investment platform before paying off your outstanding non-deductible debt. This is because it is not tax effective to maintain borrowings where the interest charged cannot be offset against other taxable income such as salary, wages or other investment income.
If you “invest in” or reduce your non-deductible debt such as a home loan, with any surplus cash that you have , you will receive a higher “risk free” rate of return than if you invested the surplus funds in a similar “risk free” product in the marketplace.
For example let’s say you owe $100,000 on a Home Loan and the current borrowing rate is 5%pa You would need to pay $5,000 just in interest to the bank for the year on the $100,000 that you owe. If you decided not to reduce your “Non Deductible” Debt of $100,000 with any surplus funds that you have and invest the cash elsewhere, you would need to earn $7,575.76 in income from the investment, less tax of say $2,575.76 (assuming a 32.5% Marginal Tax Rate plus Medicare Levy) in order to pay the Bank $5,000 you owe in interest.
This represents a rate of return after fees but before tax of 7.6%. If we compared apples with apples as there is no risk in paying down your home loan, a comparable investment to look at would be the “risk free” rate of return available through a Government Bond or Term Deposit. At present the current yield on a low risk 2 year Government Bond is approximately 2.04% pa before tax, which is not even close to the return you will need to achieve of 7.6% as illustrated above. The numbers are even more pronounced if you are looking at paying off your Credit Card debt/Personal Loans which often have interest rates ranging from 15% to 20% or more. This means you would need to earn 22.7% to 33.3% in order to break even.
We recommend that you read the attached Financial Services Guide for more information on the services we provide.
By clicking on the button below, I confirm that I have read and understood the information contained in the warning above but still wish to invest in the Collins House Online portfolios even though it may not be in my best interests.
Dominic Alafaci B.Ec., B.Bus(Ac), CPA FPS, SSA, CFP, Life member FPA
Financial Advisor, Director Collins House Online Investment Services Pty Ltd., (Collins House Online)
Collins House Online is a Corporate Authorized Representative
of Collins House Private Wealth Pty Ltd AFSL 449146
Level 13/ 90 Collins Street, Melbourne Vic 3000