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My wife and I have one investment property in our SMSF and one outside in our own names. My wife is concerned that we are not paying down our loans quick enough, and I think if we bought quality shares it would be a better option. The interest rate for our SMSF loan is 5.19% P&I, and outside is 4.99%. Interest only. Should we use our spare money to pay down our loans quicker, or buy shares?
A: This is a question that only you and your wife can really answer.
I can make a financial case – that investment in shares paying fully franked dividends of 5% will give you an effective income return of 6.07% in accumulation or 7.14% in pension – which is higher than the interest cost of 5.19%. So, from an income point of view, you would be better off in shares than paying down the loan. However, if your partner is uncomfortable with the risk in owning shares (potential capital loss), or will feel much more comfortable if the loan is extinguished – then follow that path.
I like exposure across multiple asset classes – you also need to take this into account. How much of your portfolio is already invested in the share market?
