Australia - Is it time for me to start investing?

For investors outside the US. Personal investments, personal finance, investing news and theory.
Sister forums: Canada, Spain (en español)
---------------
Post Reply
Topic Author
san_holo2
Posts: 4
Joined: Thu Jun 10, 2021 9:20 pm

Australia - Is it time for me to start investing?

Post by san_holo2 »

Hey guys,

After lurking on this board and a few others related to finances, I was meaning to ask for some personalised answers/opinions.

A little about me: I'm 21yo, recently graduated (last year) and 7 months into working in my first career-oriented job that earns me around 82k (not incl. super with is the standard 9.5%). No debt except for HECS. Since I've started earning a decent income, I've grown interest in budgeting and investing.

I picked up Barefoot Investor and followed through with some of Scott Pape's advice on creating buckets and automating the flow of my income. It's working out great so far. I've got 5 months worth of my income in my emergency fund and continuing to add more to save up a down payment alongside.

I noticed that in his book he suggests investing after purchasing your first home but I feel like I'm a long way away from that and I could be throwing in some money into long term investments in ETFs since interest rates in HISAs are horrible right now.

I've come up with three strategies:

Strategy 1:
I've noticed that 60% of my income goes into daily expenses but I could easily cut that down to 50% and then have the 10% per month to invest long term. That gives me about $500/month and I'm thinking of putting in a lump sum of 3k at the beginning. Using a dollar cost average (DCA) calculator I noticed investing that money every 3 months would be the optimal frequency using a $9.50 brokerage fee on SelfWealth and assuming at least 7% return.

Strategy 2:
I've researched the first home super saver scheme (FHSSS) put in place by the government. Applying for this scheme would allow me to sacrifice 5% of salary (pre-tax) into my super for a max of 15k per year and 30k in total, saving me a good chunk of tax upon withdrawal (paying around 3% tax on that accumulation due to the 30% tax offset from the scheme). After this sacrifice each month I'd still have about 5% leftover (instead of 10% in Strat. 1) that I could put into investing. Doing DAC calculations and using the same rates as above, that means I would be investing around $933 every 4 months.

Strategy 3:
Probably the simplest one which is: find the highest HISA I can and put my savings each month in there after sacrificing the 5% of income for the FHSSS, guaranteeing savings on tax of some degree when I withdraw to buy a house.

Do you guys think I'm getting ahead of myself? What would be the best strategy for me so far?
mhalley
Posts: 8982
Joined: Tue Nov 20, 2007 6:02 am

Re: Australia - Is it time for me to start investing?

Post by mhalley »

Thinking about this at such a young age puts you way ahead of most people.Sarting to 8nvest at your age really gives that compounding a boost. I don’t know how retirement savings works down under, (it looks like you have retirement accounts like we do)but I would say put 15% into retirement and save for a house down payment after that.
https://www.fool.com.au/retirement-guide/
Firstly, don’t just rely on your employer’s required 9.5% super guarantee. If you can afford it, salary sacrificing your pre-tax income into your super fund offers substantial tax benefits, with amounts taxed at 15 percent – far lower than the tax on employment income.
Paravox3
Posts: 5
Joined: Fri May 29, 2020 12:52 pm

Re: Australia - Is it time for me to start investing?

Post by Paravox3 »

Is it time for you to start investing - well, yes.

If you're not in debt (and with some types of debt, like a mortgage, I'd personally still invest), you should definitely be investing if you can afford to do so. Any of the three strategies you've suggested are better than waiting around to get into the habit. I'd say think about what fits your goals and lifestyle, put a date into your calendar to just work on getting your investments set up, and just get started. The habit is the key more than what specific investment you go for, especially early on. Once you're habitually investing, you'll find yourself refining your practice and strategy to get a 'good' one going. You're doing great just starting way earlier than most. :)
andrew99999
Posts: 839
Joined: Fri Jul 13, 2018 8:14 pm

Re: Australia - Is it time for me to start investing?

Post by andrew99999 »

Welcome.

What a great start at 21. You'll be crushing it.

BFI is geared towards people who basically see their income come in and think the goal is to get it to zero by the time the next paycheck comes in, so you don't need to assume it applies to you in every case. The 60% for daily expenses is just a number for people who have gotten used to spending their whole paycheck. If you can make it 50% (or even lower) and have more to invest, your future self will thank you in a big way.

I can't remember off the top of my head, but what happens if you use the FHSSS and don't actually buy a property within 2 years?
[Edit: just looked and don't see a time limit.]

Anyway, if you are not buying a house within 5 years (which is quite normal for someone of your age), there's no problem with beginning your investing and saving up for a house later.

(Excluding FHSSS because I can't remember if there is a time limit:)
A. if you save it outside super, you will need to realise capital gains to pay for the house deposit, but paying capital gains just means you made money, so not such a bad thing;
B. if you save it inside super and can not access that, you will need to re-save up for the deposit. if there are 2 of you when that happens, it will be saved up faster. also, not to be a downer, but half of all marriages end, and what you had beforehand, I believe you keep, so putting it into super will help in that potentiality, and then you could save up together for a house when you are married and ready to buy a house together.

With (B), you will have an enormous amount of compounding considering:
- massive tax breaks on income going into super equivalent to about 4-5 years worth of average market gains
- you will have even more compounding due to lower tax until you can access it
- even more still because you start so early
- and even more because when you meet a condition of release (i.e. retirement at retirement age), earnings are free for the rest of your life.
Topic Author
san_holo2
Posts: 4
Joined: Thu Jun 10, 2021 9:20 pm

Re: Australia - Is it time for me to start investing?

Post by san_holo2 »

andrew99999 wrote: Fri Jun 11, 2021 3:04 am
I can't remember off the top of my head, but what happens if you use the FHSSS and don't actually buy a property within 2 years?
[Edit: just looked and don't see a time limit.]
Thanks a lot for your advice!

From my research, I don't see a time limit on the FHSSS savings accumulation. I could salary sacrifice the 5% pre-tax and save a fair bit on tax when I withdraw it (within 12 months of buying a house) whenever, the maximum I can save seems to be 30K. The only downside I see to FHSSS is that any gains I make on this 30K from my super performance will be kept within my super until retirement (which again is not a bad thing for my future self). So ultimately, this scheme is saving me whatever I save on tax upon withdrawal.

If I try this strategy, even though I end up with a slightly smaller income, I should be able to save a bit each month to invest. And even if I don't have funds to do a lump sum investment, something compounding in the market is better than nothing right?
andrew99999 wrote: Fri Jun 11, 2021 3:04 am
B. if you save it inside super and can not access that, you will need to re-save up for the deposit.
I don't quite understand what you mean by this?

If I was to save it up inside super, I could take it out when it's my time to buy and I could add it to the additional money I'm already putting aside (20% of my paycheck each month - refer to BFI) in a HISA. Adding up those down payment savings with this 30K would give me a pretty decent boost. Not to mention potentially being applicable for a first home buyer's grant (Additional 10K from gov.).
Topic Author
san_holo2
Posts: 4
Joined: Thu Jun 10, 2021 9:20 pm

Re: Australia - Is it time for me to start investing?

Post by san_holo2 »

Paravox3 wrote: Fri Jun 11, 2021 12:58 am
If you're not in debt (and with some types of debt, like a mortgage, I'd personally still invest), you should definitely be investing if you can afford to do so. Any of the three strategies you've suggested are better than waiting around to get into the habit.
Thanks for that! I'm definitely edging more towards Strategy 2 since it gives me my FHSSS savings to fall back on!
andrew99999
Posts: 839
Joined: Fri Jul 13, 2018 8:14 pm

Re: Australia - Is it time for me to start investing?

Post by andrew99999 »

san_holo2 wrote: Fri Jun 11, 2021 6:17 am From my research, I don't see a time limit on the FHSSS savings accumulation. I could salary sacrifice the 5% pre-tax and save a fair bit on tax when I withdraw it (within 12 months of buying a house) whenever, the maximum I can save seems to be 30K. The only downside I see to FHSSS is that any gains I make on this 30K from my super performance will be kept within my super until retirement (which again is not a bad thing for my future self). So ultimately, this scheme is saving me whatever I save on tax upon withdrawal.

If I try this strategy, even though I end up with a slightly smaller income, I should be able to save a bit each month to invest. And even if I don't have funds to do a lump sum investment, something compounding in the market is better than nothing right?
Yes with no time limit to access, it's fantastic. If you do the figures, it comes out to about 5k of free money.
san_holo2 wrote: Fri Jun 11, 2021 6:17 am
andrew99999 wrote: Fri Jun 11, 2021 3:04 am B. if you save it inside super and can not access that, you will need to re-save up for the deposit.
I don't quite understand what you mean by this?

If I was to save it up inside super, I could take it out when it's my time to buy and I could add it to the additional money I'm already putting aside (20% of my paycheck each month - refer to BFI) in a HISA. Adding up those down payment savings with this 30K would give me a pretty decent boost. Not to mention potentially being applicable for a first home buyer's grant (Additional 10K from gov.).
Sorry, I prefaced that with
> (Excluding FHSSS because I can't remember if there is a time limit:)

So I meant if you somehow could not access it, then you will just have to re-save anything that you can not access.

Yes with FHOG (is there also a stamp duty exemption in your state?), it's a great plan.
Topic Author
san_holo2
Posts: 4
Joined: Thu Jun 10, 2021 9:20 pm

Re: Australia - Is it time for me to start investing?

Post by san_holo2 »

andrew99999 wrote: Fri Jun 11, 2021 7:29 am
Yes with FHOG (is there also a stamp duty exemption in your state?), it's a great plan.
I believe there is in NSW but not sure about QLD or other states. I'll be sure to do some research on this.
Post Reply