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Debt recycling and reinvesting dividends
Homes and Mortgages
Hello, I am new to investing, and haven't taken the leap yet as I am trying to work out the best option for me. I am currently thinking I will debt recycle and buy my first shares this way (100k). I understand the concept/risks/etc. Now, before I discovered DR, I had worked out what I wanted to invest in, and I wanted to reinvest monthly into these ETFs that were performing below target weight using Pearler. This is where my confusion lies. From what I have read, its not a good idea to reinvest my earnings/dividends to buy more shares because I purchased these through Debt Recycling initially. As understand it, its best these dividends go to my offset account of my non-deductible portion of loan to slowly pay that off. So my question is, how do I restructure my portfolio/invest more into these ETFs so that it wasnt a waste completing the DR exercise in the first place.
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RENEE
Asked on 27 May 2025
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Hi Renee.
For a written guide, I explain the sequence/structure with numbers in the following article which might help: https://strongmoneyaustralia.com/debt-recycli...
And if you want more, you might like the two podcasts we made about debt recycling:
Aussie FIRE Episode 19: https://open.spotify.com/episode/3ohJcato6F0p...
Aussie FIRE Episode 20: https://open.spotify.com/episode/2kAMVFUPetBA...
I’m not exactly sure what you mean by it being a waste? It sounds like you want to reinvest the money immediately and keep building your portfolio rather than pay down your mortgage?
Which makes me think this $100k might be home equity you’ve borrowed, not actually savings/cash you’ve accumulated. If so, making your loan bigger is not quite the same as debt recycling.
In practice, ideally you want to direct all surplus savings and investment income to paying down your non-deductible loan. And each time say $20k or so has been paid off, you can then re-borrow/reinvest this into your share portfolio and that portion of the loan becomes deductible. The tax benefits from that then leave you with more after-tax investment income than you would’ve had otherwise.
So there is a delay since you kind of have to do it in chunks, which may be where the frustration/confusion is coming from.
Hopefully I’ve understood you correctly.
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