Use savings to rebuild the share portfolio

QMy wife and I are both 38. I work full time on $87,000 and my wife is part time on $23,000. We own our own home valued at $400,000 and purchased a two-bedroom unit, valued at $520,000, in inner Melbourne. Our living expenses are just under $38,000. We have two mischievous imps, aged 3 and 6.

Despite all these family pressures we decided to stretch ourselves, buying a four-bedroom 1950s house in Adelaide. The combined good debt of the two properties is $930,000. After tax deductions, depreciation and rental income, I have calculated the holding costs of the two properties at around $15,000. As a safety net, we have plenty of income and life insurance and a $20,000 rainy day account which helps my wife sleep at night.

I think the time is ripe to rebuild the share portfolio we sold to buy the investment property. I feel that the dividends alone would earn more than 4.6% we are paying in interest on the debt. However, the pesky wife would rather pay down that juicy tax-deductible debt. If you could give your thoughts on this matter I am sure it will help resolve our impasse!

Ha, ha, good luck with this one David. You will not get a technical argument against rebuilding your share portfolio from me. I agree that deductible debt is, after tax, probably costing you about 3%pa. Buying shares with this money is historically highly likely to earn you a better return.

But you do have a fair bit of debt. I would be rebuilding that share portfolio with your savings, not more debt. I think a logical argument for your wife is the very quick liquidity in shares if required. I really should say, though, after being married for 34 years, your wife is actually being family conscious – she knows family and your relationship are far more valuable than money.

She just wants the family to be safe. And there is nothing better than cash and debt reduction for that. Remember, happy wife, happy life!