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When the Australian Dollar falls below US60¢, should I convert part of my superannuation investment in international shares into Australian shares and reverse back when it rises back above US70¢?
Great question and very topical at the moment. Certainly, if you could get this right timing-wise it would be a profitable strategy. But just as it’s challenging to time the ups and downs of share markets, getting the timing right on exchange rate movements is also tough.
Trying to time your investments with the fall of the Australian dollar could be profitable, but challenging to pull off.Credit: Bloomberg
The other challenge here is that the Aussie dollar’s fall is reflective of a weaker outlook for the Australian economy, due primarily to a poor outlook for China, the biggest customer for our exports.
In switching your investments from international shares to Australian shares, you are exiting markets with a stronger economic outlook, and putting your money into an economy with a weaker outlook. On the surface that wouldn’t seem to make a lot of sense.
Note also that if you adopted your proposed strategy there would likely be some capital gains tax consequences in making this move within your super fund. Super funds pay 10 per cent CGT on assets held for more than a year.
Perhaps an alternative would be to direct new flows into Australian shares while the Aussie dollar is so low, and then if it rises again in the future, do the opposite so that in time you have appropriate diversification within your fund.
Does it make sense to put surplus cash in an offset account for an investment property? I own my home and have no debt.
To answer this one, you need to reflect on what the objective is for this investment property. If for instance, your hope is that later in life it will produce a positive cash flow to help meet your living expenses, then parking surplus cash in the offset account makes sense because it serves to reduce your debt (assuming you leave repayments the same). The sooner you are debt-free on the property, the sooner you have the cash flow from the rent available to use for your living expenses.
It could be however that your goal is to build up as many assets as possible and your planned end game with the property is simply to sell it off at some point in the future. If that’s the case it might be better to invest your surplus cash and maximise the negative gearing elements of the investment property. This would be especially the case if you’re on a high marginal tax rate.
Should I pay off my HECS? I have enough in my re-draw to get rid of it. I’ve never worried about it before, but it jumped up quite a lot this year.
There is no interest charged on HECS debts. However, the balance does get adjusted each year for inflation. For a very long time, inflation was low, however, it has spiked following the COVID-19 reopening. As a result, the indexation applied this year was unusually high at 7.1 per cent.
The Reserve Bank is working hard to get inflation back within its target of 2-3 per cent. They still have some way to go, but it’s trending in the right direction. As such it’s highly unlikely that we’ll see another indexation applied that is as high as what occurred this year.
If your HECS debt is small, perhaps below $10,000, and you want to get rid of it just from a housekeeping perspective, then go for it. But financially it’s likely to continue to be a very low-cost loan, so my inclination would be to keep the money sitting in your mortgage.
Paul Benson is a Certified Financial Planner, and host of the Financial Autonomy podcast. Send your questions to: [email protected]
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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