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$5000 to invest - seeking best investment option

Discussion in 'Investing Strategies' started by Cherry Pro, 20th May, 2008.

  1. Cherry Pro

    Cherry Pro Active Member

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    Hi ..with $5000 to invest (long term) what would I be better off doing :

    1. Invest in Navra; or
    2. Hold in Bankwest Telesaver (approx 8.25% pa) till the market settles; or
    3. Invest in ETF (STW or SFY)

    Appreciate your thoughts.

    Thanks.
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Navra likes volatility, so now is as good a time as any to get in if you are planning on holding long term.

    However, you need to think about what you are trying to achieve.

    Are you looking for income or growth ?

    Are you in a high tax bracket ?

    The Navra funds are income funds - so they pay out a lot of income, which you will pay tax on in the year you earned it. An ETF will typically only pay out income from dividends recieved - the majority of the returns are from unrealised capital growth, which you won't pay tax on until you sell - which is a more tax effective position.

    If you have investment losses from negatively geared property, then Navra is a good choice for helping to offset those holding costs (and tax becomes less of an issue).

    The ETFs will track the market very closely (they are designed to do so), where the Navra fund aims to outperform it. If you believe that the Navra fund can do so consistently over a long period, and if tax is not a problem for you, then Navra may be the better long term investment.

    Just some thoughts.
     
  3. Cherry Pro

    Cherry Pro Active Member

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    Thanks Sim.

    I was inclined towards that way too. The income from Navra would help with cost of holding IPs. Also, with Navra ... with drip feeding in on a monthly basis ..there's no brokerage involved as compared to purchasing STW or SFY thru Commsec/Etrade ?

    Regards
     
  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    That's a good point - for relatively small investments the brokerage does add up.

    Don't forget that you do effectively pay a fee when you invest in a managed fund - via the buy/sell spread. This is charged by the fund manager to cover costs of buying and selling shares in their portfolio as people buy or redeem units and is reflected in the unit price (ie the buy unit price is higher than the sell unit price - so if you were to buy units and then sell them on the same day for the same unit price, you would actually lose money - 0.3% across both transactions for NavraInvest (0.15% buy and 0.15% sell).

    The question is - will 0.15% of your additional investment in a managed fund cost less than the brokerage for the same investment in an ETF ? You'd have to do the sums based on how much you would be investing and how much brokerage costs you.
     
  5. DaveA

    DaveA Well-Known Member

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    Sim, at brokerage of $20, you would have to invest more than $13,333 to have brokerage less that the bid fee your paying on a fund. This is a fact that im sure many people dont actually think about when they trade small parcels of shares (ie under $10k)

    However you do have to factor in that most brokers have a sliding rate, for MQ prime its 0.12%. So if you were investing $100k, the difference between brokerage & the bid cost is $30....
     
  6. Cherry Pro

    Cherry Pro Active Member

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    Sim, I will consider the cost differential.

    Also, with timing - is now a good time to get into Navra or will mid-July (end of quarter) be more opportune - given that dividends will have been paid out by then and the unit price will have fallen.

    Thanks
     
  7. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    The unit price falls on day 1 of the quarter (even though distributions aren't paid out until later).

    If you invest towards the end of the quarter, you will receive part of your investment back as income at the beginning of the next quarter (and pay tax on it).

    This actually happens progressively throughout the quarter, since the unit price is updated daily to reflect realised gains (although they may be lost if the trading activities lead to realised losses within the fund - so it's not an exact measure!) - the later you invest, the more you will receive back as income (in theory!)

    We are only just past half way through the quarter, so it's still in that large grey area right now - and in the short term you may find that capital gains to be made in this recovering market (???) will more than outweigh any difference made by timing the entry.

    If you are going to get in, I'd just get in now - or perhaps do half now and half again at the beginning of the next quarter ?

    I wouldn't worry too much either way.
     
  8. Cherry Pro

    Cherry Pro Active Member

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    Thanks Sim...really appreciate that.

    Regards.
     
  9. Young Gun

    Young Gun Guest

    If i had $5,000 to invest, i'd put it into a managed Australian share fund and leverage it up with a small margin loan, then dripfeed it with contributions and leverage those too. Instalment gearing would be the way to go.

    cheapest and easiest way to go would be to check out an offering with CFS, just make sure you use a discount broker to avoid the default entry fees.
     
  10. Cherry Pro

    Cherry Pro Active Member

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    Thanks YG - haven't really dabbled in margin loans for shares ...pretty easy to get, are they ?

    Also, we have some holding in CFS (thru Investsmart, so no entry fees)- global resources and geared share - but have not had any stellar performances from these over the last 6 months.

    In the current clime, would it make sense to add to these existing funds and
    seek a margin loan ?

    Options always merit consideration.

    Cheers.
     
  11. Young Gun

    Young Gun Guest

    CFS will give you a margin loan with a 50% LVR no problems.