As posted previously, when I reach 'Age Pension age' (67) I plan on making use of the Home Equity Access Scheme (HEAS) to obtain a loan of 150% of the Age Pension rate each fortnight (about $840 per fortnight), and dollar cost average into a 50:50 mix of VGAD (the Vanguard MSCI Index International Shares (Hedged) ETF) and the new ALFA (the VanEck Long-Short Complex ETF). The interest on a HEAS loan is capitalized and the interest rate is currently 3.95%. So if the investment returns more than this, it should add to my NW during my retirement. I don't want to make the investment too cumbersome to manage or track, and need to be able to add a fortnightly amount via a regular savings plan. Investing in Australian based ETFs should make the annual tax reporting quick and simple, with a single AMMA (Attribution Managed investment trust Member Annual) statement for each ETF provided for us in tax return preparation. You can also request an annual statement from Services Australia outlining the HEAS balance, transactions and interest accrued for the year (which should be tax deductible if the HEAS funds are used to make an income producing investment).
VGAD has historic returns of 10.54% pa (5-yr avg) and 10,.27% (10-yr avg) and while there is no historic performance data for the new ALFA fund, it is intended to outperform the S&P/ASX 200 Accumulation Index over the medium to long term. The historic performance of the ASX 200 Accumulation Index is about 8.36% over the past 10 years. So, a 50:50 allocation to VGAD and ALFA could be expected to provide an average return somewhere around 9.4% pa over 20-30 years (maybe).
To get a 'feel' for how such an investment might perform I decided to make a small ($1,000) initial investment in this asset allocation using my superhero app. There is only a $2 brokerage fee for each trade. I bought 24 units of ALFA for $496.88 and 4 units of VGAD for $433.68. I have this setup in yahoo finance as a 'portfolio' so I can easily see how the investment is doing over the next few years.
If/when I commence the HEAS I will have the loan payments made directly into a credit union subaccount I setup for this purpose, and have an automatic transfer to a suitable (preferably $0 brokerage) trading account. I will probably make each fortnightly trade manually, as I can adjust the ratio of VGAD:ALFA purchased each time to keep the overall asset allocation close to 50:50 (ie. effectively do fortnightly 'rebalancing' for no increase in trading cost).
I might also look into automating the fortnightly purchase calculation (rebalancing) and trade execution, as some platforms are starting to include some tools to allow this (I haven't played around with that much so far).
One final benefit of using the HEAS loan scheme to invest (aside from the low interest rate) is that the outstanding loan balance is secured only against the property (or properties) used to take out the HEAS loan. They will stop making additional loan payments once you hit a specified age-based formula (around 50% of the property value), but in the event of a property market crash, the HEAS loan is only repayable upon your death, and only up to the value of the property used to secure the loan. In the unlikely event that the property was worth less than the outstanding loan balance, it is 'written off' (so won't impact other assets in your estate).
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