ETF 20K to spend in uncertain times

Discussion in 'Shares & Funds' started by Bonnie, 2nd Apr, 2008.

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  1. Rod_WA

    Rod_WA Well-Known Member

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    Tropo, the ASX is up 10% from its recent lows. How high does it need to climb before it's time to get back in (and therefore how much recovery do you forgo)?

    Do you wait until 6000? Or is it a matter of time rather than index points?

    Didn't you say to me recently that if you wait to hear it in the newspapers, then it's far too late, so what should Bonnie be looking out for to know it's safe to head back into the water?

    These is a serious question, directed at the forum's most experienced trader, and I would really appreciate a reply that doesn't involve a picture of a cliff, since I'm talking about the ASX200 index here, not a single stock or sector.
     
  2. Tropo

    Tropo Well-Known Member

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    "...........directed at the forum's most experienced trader ....."


    I like your sense of humour!!!
    As far as my experience goes, I just have passed an exam from kindergarten to primary school.:D
    Do you think that this 'step up' makes me more experienced?? :confused:

    O.K.
    Last December, 30 weeks EMA (exponential moving average) gave an exit signal on XJO around 6300 level.
    The same indicator (30 weeks EMA) may give you an entry signal as well.

    I would engage the market (as an investor) when XJO breaks up 6135 (50% brakes are false).
    When YOU enter the market is up to you !! ;)


    Didn't you say to me recently that if you wait to hear it in the newspapers, then it's far too late, so what should Bonnie be looking out for to know it's safe to head back into the water?


    No...It wasn’t me.
    I would not pay any attention to what newspapers/TV/ taxi drivers/neighbours etc are talking about market.

    PS – Can I go to the pub now? :p;):D
     
  3. dkmc

    dkmc Well-Known Member

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    Im only saying not borrowing to invest should be an option to consider

    Vanguard and ETFs are a great way to invest
    What you invest in and borrowing are 2 separate issues.

    Bonnie is looking to invest 20k from borrowed funds - ie 100% borrowed.

    There comes a point when interest rates and borrowing costs are too high

    You need to determine where that is.

    9% now,
    say its 15% -- would you feel as comfortable to borrow 100% to invest, for the possibility of x% gain.

    Something to think about
    whether its 20k or 200k borrowed the principles are the same.
     
  4. Redwing

    Redwing Well-Known Member

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    Not before posting some pretty pictures (charts) ;)

    Enjoying the banter guys....it's informative
     
  5. Rod_WA

    Rod_WA Well-Known Member

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    Yep, the same could be said about any negative gearing, eg property.
    Do you have to pass over investing in property because the rental yield is "only 5%"? What about the 3% yields on offer in WA? Sell! Sell! Sell! (Of course I'm only joking here, I'm holding my Perth IP for my daughter to live in 15 years from now).

    The whole point of negative gearing is to get into the market, ride the long term growth, and pick up a little tax relief as a bonus.

    The exciting thing about borrowing to invest is that one day, hopefully sooner rather than later, the investment becomes positively geared... then the liability doesn't hurt a bit; on the contrary, there is not much more financially fulfilling than knowing your investment is positive cashflow and growing with the long term trend, particularly if you couldn't've had it without borrowings.

    I'm not talking here about share or property prices - I don't really care what the price of an investment does on a monthly or yearly view, keeping my growth focus long term (20 years). I'm talking about making the investment work in terms of cashflow. Right now, ASX yields are boosted by the fall in prices, and many blue chip shares are paying fully franked yields above 5%.

    Sure, earnings are under pressure; latest estimates for banks, for example, are earnings per share growth of 6%, rather than the 10% enjoyed in the last few years. But let's look at an example:
    CBA 5.8% FF, so 8.3% grossed up. At LOC rate of 9% and 6% growth, that will be self-funding - ie postively geared - in 18 months - regardless what the share price does.

    Should everyone with borrowings be freaked out about interest rates? If this is the biggest concern, then Bonnie should be more worried about her PPOR debt, which is non-deductible, and significantly larger burden at $130k than $10k or $20k in shares. Residential property values are very also sensitive to interest rates, albeit with a lag.

    Even the RBA is suggesting, though, that the current interest rate tightening is coming to an end. Current forecasts are flat rates (small chance of one last rise in May) and maybe some easing around the end of the year.

    So I reckon a rate of 9% is not a freak out. Sure, the rest of the market is yielding less than 5.8% (eg BHP closer to 2% FF), but you can get the ASX50 on about 4.2% 85% franked right now (about 6% grossed-up). 3% growth over 12 months and you are in front.

    I've said enough in this thread.
    Cheers, enjoy your drink Tropo.
     
  6. samaka

    samaka Well-Known Member

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    Another way you can look at it is to compare it on a weekly basis.

    Let's say you have $100 after all your expenses every week to invest. If you saved that over the course of a year you would have added $5200 to your portfolio.

    Now if you goal is to buy as many assets as you can as early as possible then you might be better of splitting that $100. Assuming the interest rate is 10%, you borrow $26,000. This gives you a weekly interest payment of $50.

    You then use the other $50 as a capital contribution (either increasing your portfolio to reduce LVR or paying down the loan).

    After the year you've increased your capital by $2600 and held $26,000 worth of assets.

    Depending on the after tax benefits, the dividends/rent/distributions and capital growth you could be better off.

    Personally this is the approach I'm taking. I split my investable money into capital (66%) and loan payments (33%).
     
  7. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    So I should consider your feelings every time I post now? It's not the first time I've sung Tropo's praises on here. But you're the first person to get in a tizzy about it.

    Mark
     
  8. Redwing

    Redwing Well-Known Member

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    Heres some 6 month charts of the AXJO and DJIA

    Not sure where the roller coaster is going, but I've picked some additional direct shares at different points as well as some Navra at 0.9438 to lower my LVR and buy in average buy in cost

    All points of views appreciated here......because there's wisdom within you just have to search for it ;)
     

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  9. Rod_WA

    Rod_WA Well-Known Member

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    Don't worry, I'm not in a 'tizzy'. One more post, sorry.

    So when do you think is the right time to enter the market?

    Is the market on sale at 5600 or do we wait for the price to rise to 6135 as Tropo says, and pay an extra 10%, ie get $18k worth of stock for $20k?

    Wouldn't another 10% rise eat into our margin of safety? Perhaps we should all sell now, in fear of what might happen? (by the way, you, like WB, should be licking your lips at the fear and capitulation, but maybe you're hoping that the market falls to 1000?)

    I know that as a FP you cannot give advice without an SoA, taking into account an individual's goals and appetite for risk. But I'm not asking for advice in that regard, I'm simply after your personal opinion (you're big on those) on whether people in general should be investing in the sharemarket now or not.

    Isn't the answer to that question simply what Bonnie is after?

    (My personal opinion? What better time to buy the index than when everyone else has been force-sold, and blood is in the streets? Why let the vultures get the most juicy bits of the carcass?)
    __________________

    'Success is not about brilliance. Success is about perseverance. Hanging in there is of far more importance than any other single factor.' - Kristine

    How can Bonnie 'hang in there' if she's doesn't 'get in there'?
     
  10. AsxBroker

    AsxBroker Well-Known Member

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    Hi Rod,

    My colleague and I say to everyone "Time in the Market, Not Timing the Market".

    Some days in February have been like Xmas sales down at Myer and David Jones, 20% OFF EVERYTHING!!! Some even more.

    People are still buying the same company or shirt they liked before the sales and they are getting the same thing they would have paid more for earlier.

    Albiet with the benefit of hindsight who wouldn't have wanted to invest in December 1987 (After the October crash???). Look at where the market is 20 years on.

    It's just the little wiggles of the index inbetween that make people greedy and fearful.

    Cheers,

    Dan

    PS The Wiggles are great, love those bright coloured skivvies.

    PSS Before making an investment decision speak to your FPA registered Financial Planner.
     
  11. Bonnie

    Bonnie Member

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    Hi Everyone

    Thankyou again for all your comments - every insight is appreciated.

    We have decided to go for it - our interest only repayments will be a sneeze and help us with tax against an increasingly positively geared IP - so it's a nice easy dip into the pond. Might feel differently about a huge margin loan at a higher interest rate, but it's all good and at an acceptable level of both risk and affordability for us.

    A bit excited now!

    Thank you again - your posts have been very helpful.

    Bonnie
     
  12. samaka

    samaka Well-Known Member

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    What fund / ETF / shares did you decide on in the end?