Ask Paul: We have $100k in offset, should we buy property or shares?


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I'm 28 and my partner is 27. We have a one-year-old child.

I work full time and my partner part time. Our combined income is about $180,000pa; the mortgage on our house is $320,000 with $100,000 of savings in an offset account. I have $130,000 in super and my partner has next to no super. 

At this point we are unsure about whether we should take the money from the offset to purchase an investment property or invest in shares. Or possibly something else? - Nick

paul clitheroe

The right answer here, Nick, depends on your and your partner's attitude to risk. First up, in the middle of a pandemic there's the issue of job security. If you are both securely employed, we can tick that box and move to investment options. If your work is not secure, I'd be hanging onto your cash.

One of the very few benefits of a crisis is weaker values on assets such as shares and property.

Your $100,000 of savings should be earning you the rate of interest on your mortgage - I'd guess two and a bit per cent. So if you invest that in property or shares, will you do better than that rate?

History says that over the long term you should do quite a lot better in either property or shares. But both are riskier than cash and property in particular is an illiquid asset if things get worse.

You need to put all of this into a conversation with your partner. If your conclusion is that your jobs are secure and you can take a long-term view (I reckon this should be seven-plus years), then the odds of you earning a decent return buying shares or property at today's prices over the long term are very sound.

About the only time you can buy decent assets more cheaply is in a crisis. This one may get worse, so I would be in no hurry. Depending on JobKeeper and JobSeeker after September, the pressure on homeowners and hence property prices could well get pretty nasty.

In the long run, though, I believe the economy will recover.

So if you buy decent assets like well-located property or shares at a good price, history indicates that over time you will benefit from that. You would, however, have to be prepared for a potentially bumpy ride.

One advantage of shares is the ability to "dollar cost average", meaning you could gradually build your portfolio over time.

But the choice between property and shares is a personal one.

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Click here to ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. Please view our disclaimer here.
Jason Weeks
September 2, 2020 11.00am

Just thought I would stop by to say I think that, although it might not have given the questioner the warm and fuzzy feeling of having someone else choose for them, this is a good answer. It's always difficult to answer the either or question! It's also hard to know what's going to happen at the moment because the events being experienced are not purely financial in nature. What is interesting to think about is that pricing in shares and property moves fast/slow, and pricing in shares is typically homogeneous. Anyway, just my 2c.

Wayne smitty
September 2, 2020 6.48pm

I believe you can also claim the interest rate on your offset loan (on your tax return) on any dividend income when purchasing shares using your offset account, so finding shares with decent dividends also helps. Paul may be able to clarify.

September 7, 2020 1.22am

On the basis this is the only property, the real return (accounted for tax) on the offset account is basically after tax. Any return on shares would be subject to income tax. Whereas the interest "earned" in the off-set account is not subject to tax.

Andrew Manley
May 23, 2021 4.05am

Is an investment property in Queensland through Belouis Investment Group also based in Queensland a good idea or risky??

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