Aussie Firebug

Financial Independence Retire Early

Nothing written below is financial advice. The below questions and answers are for general information only and should not be taken as constituting professional advice. You should always do your own research when making any financial decisions.

Question (01:25)


FB & Mrs FB,

Loving the blog you have created and reading about your journey. Just to keep it short, I was wondering if you’ve come across any literature about tax minimisation to get to FIRE? As in (and I’m no expert), is it possible to set up a shell company to buy/own the share portfolio so that all income is taxed at company rate (30%)? That’s a lot lower than the upper limit of personal tax (45%).

And I hope you are loving Europe, it was the single best personal development experience I’ve done for myself. I just wish I didn’t piss up the wall my contract rates as an IT professional. I probably would have hit FIRE by 35yo if I had saved it, and now just starting my journey at 44yo with 2 kids makes it just that little bit more challenging.

Damien

Firebug’s Answer


Hi Damien,

First off, apologies for taking forever to get back to you mate.

I’m glad you’re enjoying the blog/podcast mate 🙂

Ahhh tax minimisation, a very interesting topic for sure. In all the research I’ve done, SS into Super is one of the best ways to lower your tax bill and it allows your assets to compound in a low tax environment. The only reason I don’t do it is that we plan to reach FIRE before our preservation age and don’t want to use the drawn down strategy.

But for someone at your age, it’s one to seriously consider.

I have seen the whole bucket company taxed at 30% strategy but honestly, complicating your investments like this is usually more of a headache than it’s worth. There are so many hidden costs associated with all that and simplicity is worth its weight in gold IMO.

I totally agree with you about the personal development part. London was the best thing we’ve ever done. Grew more in two years than I did in the previous 7 lol.

All the best in your journey mate

-AFB

Question (10:17)


*This question was asked back in 2019*

Hi AFB,

With the interest rates being cut to 0.75% to boost the economy and the prediction of a recession occurring very soon. I was wondering if it is wise to invest into ETFs now or wait for the recession to hit then buy. I understand that it is impossible to predict if a financial crisis will occur but I’m tempted to wait and buy after. Just wondering what your thoughts are

Thank you, Nam

Firebug’s Answer


Hi Nam,

A lot of people ask this question and I always give the same answer.

It’s almost impossible to time the market so I’d rather not think about it and automate my investments as much as possible. If you set rules for yourself such as, I’m going to invest $X amount each month rain hail or shine, you remove the temptation of trying to time the market. And you’ll probably sleep better at night too. Because the last thing you want is to wait it out and watch the market continue to soar up, up and up! If that happens, it’s really hard to dush yourself off and buy back in at the record height.

Some people have had success with timing, but from the research, I’ve done, on aggregate it’s a loser’s game.

Cheers,

AFB

Question (21:14)


Hi Firebug,

Love ya work, it’s been really inspiring.

We are currently paying off a mortgage on our own place, and we will continue to focus on paying that down for the next couple of years. We are currently deciding where will start investing after that and unsure if we will buy an investment property or LICs and ETFs.

I’ve loved your various comparisons of the pros and cons of property and shares. shares definitely feel like a better fit for us from a lifestyle perspective. The thing that keeps pulling me back to the idea of property is the power of leverage and as we are still in the initial wealth-building phase I can’t help but feel that it seems like a more powerful way to get ahead. I’ve heard you dismiss the use of leverage in the share market as too risky to consider, noting a couple of your podcast guest have recommended it in certain ways. I’m sure you’ve looked into some of the various options for leveraging into shares. I’d love to hear your thoughts in more detail on the various options and why you have ruled it out entirely.

Keep up the great work!!!

Firebug’s Answer


Hi Chris,
I’m glad you’ve found some inspiration from my ramblings 😁

Sometimes I might come across as being anti-property and leverage in some of my articles/podcasts but I’m actually a fan of using these tools for the right investor. The issue is, IMO, most ‘mum and dad’ investors are not well-suited to be in an active investment class like property.

Having said that, the availability of cheap credit without margin calls is an attractive value proposition for property that shares can’t compete with on a like for like basis.

However, there are some great alternatives if you’re looking to use the power of leverage with the passive nature of index investing.

  1. NAB equity builder. A low(ish) interest rate loan to buy ETFs/LICs through doesn’t have margin calls 😮. Sounds too good to be true right? Well, from what I’ve read, there’s a little bit more to this product but it’s definitely one to look at. I found this review by Carpe Dividendum to be very helpful.
  2. Paying down your PPOR and then withdrawing the equity to pump into ETFs… aka debt recycling.This is the P. Thornhill special and something I actually plan to do this year now we’re finally in the market for a PPOR. In a nutshell, you take non-tax-deductible debt (a PPOR loan) and pay it off. You then pull the money back out to invest in shares. This means more $$$ to invest with and it turns your non-deductible loan into a deductible one so you can claim the interest repayments (for the investment part of the loan) in your tax return.I plan to fully document this process when we do it this year so make sure you’re on the mailing list if you’re interested 🙂

I think debt recycling is probably the safest option but it’s not for everyone (you need a PPOR to start with). There’s also the psychological benefits of being debt-free that you’d need to consider (everyone’s different).

Hope that helps mate.

-AFB

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