galway_blow_in
Registered User
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In my opinion, income investing is an illogical preference and is typically very inefficient from a tax perspective. But each to their own.
As opposed to investing for capital growth.As opposed to what?
As opposed to investing for capital growth.
Why would you prefer income over capital growth? The tax treatment of income is generally inferior so it seems illogical to me.
As opposed to investing for capital growth.
Why would you prefer income over capital growth? The tax treatment of income is generally inferior so it seems illogical to me.
As opposed to investing for capital growth.
Why would you prefer income over capital growth? The tax treatment of income is generally inferior so it seems illogical to me.
Not really.do you see my point ?
the alternative to an investment like this is to simply put the money in a dividend paying fund , in this case i would probably see a 10% total return per annum but dividend income would unlikely reach above 6 k on a sum of 225 k
my job is only average and i want to build up a wealth generating asset portfolio
Not really.
With an accumulating fund you can always redeem units to pay for your living expenses.
Money is money. Why would you prefer a dividend over redeeming capital?
There is nothing magical about dividends/rent. If a share portfolio/house falls in value, well, it falls in value. Drawing value from the portfolio/house as rent or dividends (as opposed to redeeming capital) won't change this fact.
I do appreciate that people have a psychological aversion to spending capital (as opposed to the income generated by that capital) but I've never understood the logic behind this preference.
When you consider the differing tax treatments of income and realising capital gains/losses it just seems odd to me.
Just my 2 cent - I appreciate this is not a conventional viewpoint.
Do you own your own home outright? That is, have you repaid your mortgage in full?
If not, that should be your first priority.
What does "only average" mean? If you are paying tax at the top rate, you can get a much better return by investing in a pension fund.
Brendan
I do genuinely understand that perspective but, if you think about it, really what's the difference?i know you could sell off some of your equity portfolio but if you enter a bear market for several years , its hardly wise to do that , with the house or property , you rental income should remain the same even the overall value of the property dips
Is this correct?
You have a 50k mortgage on a property worth €120k.
You have a mortgage-free farm paying you €6k tax-free a year
You have €200k in cash
You have your family home
I assume you are single.
You want to borrow €150k to buy a property for €370k
It's very likely that borrowing €150k to buy a property for €370k will work out fine. Your three tenants will continue to pay rent. Property prices will probably rise over the long-term. You will be able to meet your repayments and you will reach retirement owning some valuable income producing properties.
But it could all go wrong. You lose your job. Your tenants stop paying. Interest rates rise. Property prices go into a long-term decline.
It seems much less risky for you to pay off the €50k mortgage (assuming it's not a cheap tracker). You have some taxable income, so contribute enough to stop paying tax at 40%.
Invest the balance in equities.
If the world goes bad or mad, you will be in a very good position owing nothing to anyone.
Brendan
I do genuinely understand that perspective but, if you think about it, really what's the difference?
Why would you be happy to use dividend payments on an equity portfolio that is falling in value to fund your lifestyle expenses but balk at realising a capital loss?
Why wouldn't you reinvest your dividends into your equity portfolio if you are concerned about maintaining its (income producing) value?
The same principle applies to real estate.
I would also note that companies can and do cut dividends. And rents do fall. Income on growth assets is never a "sure thing".
im not married but myself and my partner have a young child
Well, if the value of your stock portfolio falls in half and the dividend yield per share remains constant your income also halves.
I don't think we're ever going to see eye-to-eye on this one but I hope you can at least partially see my point that there is nothing particularly "magical" about dividends (or any other source of income) to contrast it with capital gains.
Leaving the theory to one side for a moment, what interest rate are you paying on the €50k loan? Paying that off may well be the best use of your capital on a risk-adjusted basis.
As a suggestion, it might be worth aiming to divide your investable capital in three (very roughly) equal "pots" allocated to real estate, equities and cash/State Savings products. With zero debt, that should allow you to sleep well at night without worrying unduly about inevitable market gyrations.
It sounds as though you are already in decent financial shape and there's really no need to needlessly "stretch for yield". Protecting your accrued wealth is an equally important consideration.
All of this argues for minimising your risk and maximising your liquidity.
If you need cash suddenly, you won't be able to sell a bit of one of your buildings.
You should pay down your mortgage, and invest the balance in equities. If you need cash, you can then sell some of your equities.
Brendan
im not someone who is paying tax at the higher rate on too much of my income
if i were able to gain as much tax reduction through a pension as i am on the interest deduction on my mortgage
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