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Advice needed - not sure what's best

Discussion in 'General Investing Discussion' started by mustgroove, 16th Dec, 2009.

  1. mustgroove

    mustgroove Member

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    Hey everyone, just discovered this forum and it looks like exactly the kind of thing I've been looking for for a while :)

    I'm looking for some general advice about my situation:

    - I'm single and debt-free

    - basically I have about $100,000 in savings, the entirety of which currently resides in a Ubank account (earning 5.61%)

    - currently live at home but will be moving out (renting) in January... which will impact my ability to keep saving a bit, but I will be saving every cent I possibly can (and I'll still be earning enough over & above the cost of rent etc. to allow me to keep saving quite a lot)

    - self-employed, and the general outlook in terms of income is quite good for the next few years at least... no major capital expenditures will be necessary on the horizon, and I'm scrupulously keeping records of tax deductions to minimise tax as much as possible (including home office stuff for working from home when I move out)

    So that's my situation... my question is, I'm scratching my head as to the best thing to do with my money & plan my next few years in a financial sense... the options seem to be:

    - buy a house - I'm not really ready to do this right now, but in 1 or 2 years I probably will be...

    - managed fund - I've been wary of this given the volatility of the market recently but it seems to be less volatile atm... but from what I can gather, this isn't a worthwhile investment unless you're willing to tie your money up for 5 or so years (or more), which I'm not really too keen on, considering that buying a house in 1-2 years is kind of on my mind

    - something else I'm not aware of?

    I have an accountant, which does some in-house financial planning, and their opinion was it's probably wise to keep the money in Ubank rather than tie it up in a fund, seeing as I'm thinking I might want to buy a house in 1 or 2 years' time, otherwise a fund would be the best option...

    What do you guys think? Am I silly for keeping it in Ubank when I could be putting it into a managed fund? I'm not really willing to go for anything too high-risk - I'm certainly more afraid of losing it than I am keen to get a massive return... but I ultimately, I spose my question is, is there something better/smarter I could be doing with my money than what I currently am?
     
  2. Intellikev

    Intellikev Active Member

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    Advice needed

    Hi Mustgroove, you have great habits. Basically if you are unsure if you are going to purchase a property or not then keep your cash liquid.

    However before you purchase a property or invest in managed funds I would suggest you obtain appropriate advice as to how best structure the investment. You are self employed therefore you will need to consider some form of asset protection in the event something unforseen occurs and you become bankrupt. You may be better off establishing a family trust or self managed super fund to place your investments in. You will need to talk to a solicitor, your accountant and a financial planner to determine the best fit for you.

    Then before you invest think about the investment. If property how much you wish to purchase it for? Will it be for investment or principal place of residence? Have you set yourself a timeline, will you definitely make a decision in two years?

    If you are unsure then hedge your bets. Open a managed fund and contribute on a monthly basis. Using jargon dollar cost average your investment. You have stated you will have good cash flow over the short term, then this is an option. You can enter the market now while there is opportunity.

    This is probably not what you werer looking for but I hope it will assist you in making a decision.
     
  3. mustgroove

    mustgroove Member

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    Thanks for your reply :)

    - The house would certainly be as a place of residence... 2 years is pretty much an arbitrary timeframe - by that time I figure I'll be in a good enough position (in terms of savings, and professionally) - I'm only just moving out of home now, and with $100,000 already in the bank, I figure I'll be in a position to put down a sizable deposit (i.e. minimise the amount I'm borrowing as much as possible) in about 2 years or so.

    - Asset-protection is definitely a thing to consider, but it seems to me that it's a moot point until I have assets to protect... at the moment (and even when I'll be renting), asset protection doesn't seem necessary.

    - Family trust/self-managed super - are these investment structures recommended because of the returns they offer, or because they have other benefits (e.g. tax benefits)? Forgive me but I have a very limited understanding of financial structures like these - I have a law degree but my memory of Trusts is fleeting at best, and in any event I'm only familiar with the general law in this area, not financial best practice & the nitty gritty of setting up & maintaining one.
     
  4. Johny_come_lately

    Johny_come_lately Well-Known Member

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    Hi mustgroove

    At the moment, you are trying to decide whether to buy a house or invest in managed funds. When you have made a decision, you will be better able to plan some goals.

    Be aware that all investments contain an element of risk.

    Managed funds: Having a lump sum gives you options. You can invest all at once, or buy in fractions over a time period.

    Property: A 100K makes a nice deposit.



    Cheers, Johny.
     
  5. Jacque

    Jacque Team InvestEd

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    Hi Mustgroove

    Buying a first PPOR is often the first step towards building wealth for those of us here that have done it before. The lack of cgt makes the humble home a terrific place to both invest in and reside, providing more than just tax breaks- however you may not be yet ready for this, as your posts indicate. When you are, though, ensure you buy well and try to purchase something that has that "value-add" factor for added leverage down the track.

    I can't comment on SMSF's but do know that trusts can work, depending on your circumstances. For us, the overriding decision to use trusts was for asset protection rather than tax reasons, given the industries that both myself and my husband work in. If you're likely to be sued in your chosen field, then you may wish to add that layer of protection by holding assets in trust structures. Naturally, speak to your accountant about this to clarify what's best for you.
     
  6. Magpie

    Magpie Active Member

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    Hi Mustgroove,

    Congratulations on your progress so far. Here’s my 2c worth:

    Your current strategy suggests that you are probably fairly conservative, so I’d pay attention to that. If chasing allegedly bigger profits causes you stress and worry, then it probably isn’t worth it. My two rules of thumb are:
    a) Don’t invest in anything I don’t fully understand yet and
    b) Only invest in things that I’m completely comfortable with - which might include risk levels, ethical considerations, time constraints, ease and costs of disposal, etc.

    Your goal of keeping saving and then buying a house sounds great, but you could safely do better than your current rate. You might like to consider splitting your $100,000 into parcels of ten or twenty thousand and ‘laddering’ them into term deposits. Basically, this involves shopping around for the best ‘specials’ on offer and then spreading your capital across the calendar so that it doesn’t all come up for renewal at the same time. Generally speaking, the longer the term the better the rate, but you can still get surprisingly good deals for quite short terms whenever a bank needs to attract more money for that period. So a mix of long and short seems like a reasonable way to start.

    If you put money away now, for periods ranging from 1 to 3 years (or even up to 5) you would never be too far from having at least some of it becoming available again. The rest could be used to pay down a mortgage when the term matured or, if the numbers added up, you may even be able to break some of the terms and pay the penalty cost.

    Bear in mind that if you can get 7% p.a. with the interest paid monthly and compounding, then your capital will actually double every 10 years. Coincidentally, the very rough rule of thumb for residential real estate is also doubling every decade, so you shouldn’t be losing touch with that market. If real estate stays flat or falls then that will of course be in your favour too. Have a look through the term deposits on special rates at the moment. I recently got as high as 6.8% for a one year term, and one of the big 4 banks is currently offering 8% for 5 years.

    Check the terms carefully as they will vary. Some will allow the interest to remain in the deposit and compound, whereas others will require that it’s paid into another account. Some will pay the interest monthly or quarterly, others only annually. The monthly rate is always a bit lower, but if you reinvest the interest it should match the annual rate. For 1 year terms it may also suit your tax to be getting the income spread over a couple of tax years (by getting it paid monthly) rather than paid in a lump in one year.

    If, for instance, you got the interest paid monthly into your existing saver and then added it to your current weekly saving it wouldn’t take too long to put together another $10,000, and then another, and so on. Most banks will give you the same rate on $5,000 or $10,000 as on hundreds of thousands, so how small you make your parcels will probably be a balance between how many you feel gives you a decent spread across time versus how often you want to do the re-investing research and decision making.

    I hope this all makes sense. It works well for me anyway.

    Good luck,

    Chris
     
  7. ashwright

    ashwright Well-Known Member

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    I agree that term deposits are worth considering. Rates seem to be around 6% for 12 months, and 7% for 3 years. Basically risk free.

    Although 6% does not really seem worth it, when you can get 5.5% from ubank and interest rates are probably going to rise over 2010. 7% sounds nice though.
     
  8. Johny_come_lately

    Johny_come_lately Well-Known Member

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    I've used term deposits in the past. It gets very frustrating to be stuck at a certain rate, as the bank rate keeps climbing. A cash management fund might be an option. You can take your money out in 3-7 days. Watch out for Mr Inflation and Mr Tax for both Term deposits and CM funds.


    Johny.
     
  9. Magpie

    Magpie Active Member

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    Good points from Ashwright and Johny-come-lately about term deposits.

    Most of the predictions that I’m seeing seem to suggest a steady but modest growth in the near future and that rates in general might climb by about 1.5% during 2010. Of course they might even fall again if there’s another crash as some gloomier pundits are seeing in their crystal balls. So are the current term rates worth having? I’d say that they are, because the longer you keep your money at a lower at call rate then the higher the rate you need to get later to make up for the returns you’re missing right now.

    I was happy to leave my money in an at-call account when I was getting 7% on it, and still trying to decide whether to go for something like an investment property, but when that plummeted I was jolted into more considered action. The first response was to ask the bank for the additional “Introductory offer” of an extra 1.55% on new accounts. After all you can close an account and open another just like it. Not only did they agree, but they also renewed it without a problem when the original 4 month offer ran out. Over a 4 month period that represented an extra $1200 I wouldn’t have had otherwise. A good return on a phone call. But it still wasn’t much of an overall return. So I’ve turned to term deposits.

    In the long term, any frustration at seeing bank rates climb will be offset by a feeling of comfort when they’re falling, which happens too. It’s also a part of the reason for laddering the deposits rather than keeping it all in one chunk. At any given time I’ll have something coming up for renewal and the opportunity to pick the best rate going at the time. This should not only give me the feeling that I’m at least getting part of the current action, but it will over time smooth out the ups and downs to give an overall average figure that should be close to target. I also figure that over time I’ll get better at picking the best value in going for longer or shorter terms depending on which way rates are headed. A bit like picking share trends, and using strategies like dollar cost averaging to even things out, but less worrying than shares. To an old fellow like me it may be potentially less profitable, but I can still have some of the fun with less of the risk. ;)

    Cheers,

    Chris
     
  10. GregR

    GregR Reid Consultants

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    Mustgroove,
    Money in a bank is a relatively safe option but you ultimately lose purchasing power due to inflation and even if you reinvest the interest, it is taxable.
    Creating wealth is about acquiring capital growth assets using other peoples money.
    Without knowing your personal detail and goals, I would consider purchasing an investment property where depending on your tax rate and choice of property, the tenant may pay 60% of your costs, the tax man another 20 to 30% and you the remainder. Many people think it is worth doing and if you are uncertain where you eventually want to live, it is something to do now rather then wait and the property market increase around you faster than your savings.

    The use of trusts is normally driven by asset protection needs and if you are self employed, you need to consider the risk of being sued personally. If there is a risk, consider a trust. The type will depend on your needs. The other reasons for a trust include income distribution, a separate legal entity and estate planning. Some investors use a trust as they have maximised their tax effectiveness with negative geared properties purchased in their own names and the use of a trust gives a separate legal entity which may assist in state based land tax issues and provide a longer term vehicle for income distribution. There are the more specific trusts like unit or hybrid trusts that may allow negative gearing benefits to pass down to the investor but there are lender choice restrictions to these types as not all lenders will lend to these types.

    If you wanted to be more creative, establish a trust, purchase the IP in the trust, then use your business (if appropriate) to rent it. You get to live in it, pay market rental (could be top rent), business incurs a deductible debt (for that part that is business related), you pay the private portion of rent, trust could be profit neutral. Alternatively you just privately rent it from the trust, still claiming business office costs.
    This is just an example of what can be done.

    You sound young so I would not normally look down the SMSF path yet, it is restrictive.

    If you go down the IP route, look to maximise your borrowings and then use an offset account to park surplus funds. Purchased wisely, in 2 years the property may have increased 10% to 20% (depending on market). For perhaps $70k of your own funds, the capital growth may be $40k to $80k. Return on Own Assets is significant up to 40% pa. Even if you discount this by half, a 20% return of own assets is a better return than you are currently achieving and this is after tax (based on a $400k IP, 89% LVR, rent yield 5%, MTR 38%).

    I agree with the other posts, understand the numbers and the risks then make a decision and do it.
    Good luck
    Greg
     
  11. Magpie

    Magpie Active Member

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    Hi Greg,

    Why do you say that with such certainty?

    It's an opinion that I've often heard quoted as if it's some sort of rule of thumb, but I don't see why that's necessarily so. The raw gain figure on all forms of investment will be eroded by inflation. So, surely, the real issue is whether your investment is pulling ahead, stagnating or losing ground compare to inflation?

    As far as I can see (which admittedly may not be far enough... ;) ) if you park your cash in an 'average' on-call account, or take the first term deposit rate that you see, then the likely outcome is that the real value will probably either stagnate or may even slowly erode. However, with a relative small amount of research I believe that you should be able to outperform inflation without too much trouble.


    With any investment, the gross percentage figure is only the start of the story. Apart from inflation, you may have to deal with tax (either income or capital gains or both) stamp duty, buying and selling costs and fees, maintenance costs, rates and insurances, rent defaults or time without a tenant, falls in value of your stock or property, changes in legislation, changes in personal income, health or ability to administer your strategy, etc. Returns of term deposit may look more modest but they are both real and predictable, whereas returns on some other forms of investment may be largely notional (“paper profits”) until you actually sell them, which is not necessarily always easy or free of cost. Your paper profit can also disappear if your timing and judgement is out. Also, many of the graphs showing comparisons and raw figures seem to come from organisations whose business is to attract your money, so they may need be taken with a suitable degree of scepticism. I think there's room for a mix of approaches.


    There's no doubt that the IP strategy can work extremely well. But the emphasis there is on CAN. However, it can also dig you a very large hole that you may have trouble getting out of. It can also restrict your ability to change direction quickly as your attitudes or life circumstances change. For some younger people that can make the proposition unattractive.


    Example:

    I know two couples who set out to build wealth through IPs. One succeeded and the other didn't. Couple A worked 7 days a week in their own business and ploughed every spare cent into their IPs. They researched thoroughly, built carefully in manner that suited their tax position and cash flow. There was certainly a cost to their private lives (they barely had one) and they had ongoing hassles with tenants, that persist to this day. However, they were able to achieve their goal of retiring early (very early in fact) and are now slowly rebalancing their investments by selling IPs, at a time that suits them.

    Couple B didn't buy any more IPs than couple A, but they didn't get the balance (or the timing) as right. A relatively modest downturn put them in a position where they couldn't sell a property for enough money to bail them out or rebalance. They had to move out of their home and live with parents again (somewhat undignified at 50+) and their life seems to have been one long series of high stress crises.

    On paper they both used reasonably similar strategies but, as a far as I can see, the difference between the two was mostly a matter of relatively small percentages either working for or against them. Couple A seemed to pick the price and location of their IPs just that little bit better, their business tax position suited the strategy a little better, and their cash flow was strong enough to cope with any blips. They also had no children, so were able to put all their energy and resources into keeping it all on track. Importantly, their time frame also coincided with a good period of growth both for housing and their business. Both areas sagged considerably after they had achieved their goals and sold the business, but by then they were safely home and hosed.

    By comparison Couple B seemed a few points behind each time. They had a family, with the usual erratic demands on finances that can bring, their margins for error got tighter and the planned for growth didn’t quite pan out. The maintenance costs and tenant difficulties were worse than they thought. Then they were hit with a downturn at a time when they were least able to ride through it. The financial and emotional cost has been terrible and they are close to losing the lot.



    In my opinion, Mustgroove’s plan of waiting a couple of years sounds good. The time can be well spent researching the cost of housing, the best areas for buying IPs, and getting a clearer fix on the likely performance and predictability of his own ongoing income/tax positions.

    My thoughts are that he’d do well to explore better ways of growing his capital for a couple of years, and then look very hard at the IP strategy, as you suggest. I'd be careful about rushing into any long term action that locked me into anything that I wasn’t fully informed about, and comfortable with.

    Cheers,

    Chris
     
    Last edited by a moderator: 10th Jan, 2010
  12. GregR

    GregR Reid Consultants

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    Chris,
    There are economists out there who can discuss inflation effects better than I can but essentially I agree with you, inflation erodes all forms of investments in relation to purchasing power.
    The use of 'cash' means that while you may earn interest, the capital portion remains the same, there is no capital growth inherent in that investment class.

    To create wealth, rather than try and keep your head above water using a cash allocation strategy, it is using other peoples money to purchase capital growth assets, where the overall return is greater than the costs incurred and inflation. The return is often a mix of income and capital growth and the proportion is determined by individual circumstances.

    There are costs involved in IP including tenant issues, maintenance costs etc but you can minimise these by insurance, due diligence and property selection and location. Your view of paper profits is not correct, many investors base their buy and hold strategy using a revaluation and refinance technique to extract equity to purchase again. You do not need to sell.

    I do not spend any time on my properties, a good property manager looks after them for me, pays all the bills, looks after tenants and repairs etc. I set the finances up so they are automated. I review every 6 months.

    People can get into trouble with any form of investment if they do not understand how they should be structured, how they need to be financed and what safety nets they should have in place. Look at all the margin call issues of the last couple of years, a disaster for many. I did not have any clients who did not easily ride out the GFC. It is about knowledge and anyone relying on using personal income to fund an investment strategy using debt, be IP's or share trading, needs to reconsider what they do and the risks they run. Your two examples speak that they both relied on personal income streams to fund their IP's and that inherently creates pressures. They may also have purchased in the 'wrong' areas or the 'wrong' type of properties for their circumstances.

    Before I gained the knowledge I did and was still working as a finance director, I had purchased 2 IP's and only knew to fund the shortfall by using personal income. Even though I was on a very good income, it was tight at times and I could not understand how others on average incomes could afford to purchase more than 1 IP. The ABS census shows something like 77% of property investors only hold one IP. They are the ones who do not know the options of using debt to fund debt. Before the 'debt is bad ' brigade comes in, you need to understand and know the numbers and risks.

    Ultimately it is about your long term goals and how to reach them. Depending on the goal and time frame, some need to be more proactive and take on more risk than just parking funds in a cash account and reinvesting the interest.

    Most successful investors I know suggest that the time to invest is when you can afford to and time in the market is more important than trying to time the market. All I was trying to do was put an option to Mustgroove to consider and the use of trusts.
    Greg
     
  13. Magpie

    Magpie Active Member

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    Hi Greg,

    Thanks for a great reply. I’m intrigued by the IP strategy that has clearly worked well for you and, as somebody who enjoys maths, I’ve alway found the way such structures work to be interesting. It’s just that it doesn’t suit what you might call my temperament or personal style. I’m certainly not going to knock property as a good thing to be in, as the most spectacular gains that I’ve made in value terms have been in that area. I used a pretty traditional strategy to improve my position - buy a cheap run down house in a good location, renovate and sell, rinse and repeat. I did that twice and it took me from a position of $0 cash and 0% equity (I borrowed every dollar, either from family or the bank) to being able to pay cash for a block of land and pay for some of the materials to built a house. Now, 23 years later, the land I paid $32,500 for is worth around $450,000 - a handsome growth in most people’s book. :)

    But the value to me isn’t in either its sale price or the leverage I could use it for - it’s simply that it’s a magic place to live that I couldn’t wish to improve on if I had any amount of money to spend. To own it unencumbered and to be able to live in a place that I shaped and created was (and still is) my goal. For some that would probably seem crazy - but for us it’s game over, goal achieved.

    I understand what you mean there and, again, that’s a standard way of describing it. I guess I see it a little differently though. It’s probably just the way people use the terminology, but I see my current cash as my ‘Capital’. To my way of thinking, if I reinvest the interest I am quite literally growing the capital. I only see it as ‘Income’ if I choose to treat it as such by spending some of it. My capital has steadily increased over the past few years. During the events of recent years it simply grew slightly slower for a few months as returns dipped (prompting me to change the structure a bit to return to similar figures). It has grown steadily, but satisfactorily, both in raw figures and real value when adjusted for inflation. It’s undramatic and conservative, but it has worked.

    Conventional wisdom (or perhaps it’s just usage?) describes shares and property as having potential for both income and capital growth and cash as only income. But I see them all as being able to deliver both, depending on how you treat the returns. For me, the real difference lies in how they can each be used to balance returns against risk, and how that meshes with each individual's personal styles, comfort levels and goals.

    I take your point, and it’s a good one. But I didn’t say that investors have to sell. What I say was that profits “may largely be notional” rather than “are”. Many people have seen their gains ebb and flow with the tide, and have mistimed their exit strategies either through necessity or bad judgment. It’s common enough. I’m sure that you can use a number of strategies to both protect and realise gains. But to my way of thinking this works best once you have established what you might call some sort of critical mass of value or equity.

    Not everybody has your level of knowledge and skill in these matters. For the brand new punter building a chain of debt, even a fairly sophisticated one, could still initially leave them very vulnerable to downturns in the property market. In my (admittedly limited) experience, those who were able to build their base during times of steady growth in the sector are now in the strongest position to expand with much less risk. For new players it’s anybody’s guess whether 2010 will prove to be a good or difficult time to be kicking off. But uncertainty about the future is probably the only certainty that a new investor ever has ever had!

    Ain’t that the truth.:) I'm in my early 60s so my current style of investing is often recommended for older people who have different goals and requirements. My advice to new players would be to begin conservatively while you learn a) how the various strategies work and b) what your own performance is actually like, both from a financial and an emotional perspective. I'd suggest both starting and ending conservatively, but getting bolder and more prepared to take risk in the middle. :cool:


    What interests me at the moment is what people actually see as their goals. What does ‘wealth’ actually mean to each of us, and have we constructed our strategy to match? To some it seems to just mean ‘lots of money’ without any ceiling or clear target. They often seem to be the ones who crash and burn through lack of direction and clarity. To others it might mean status, a high flying way of life, or perhaps even power, while to others it might mean things like family security or freedom of choice. Maybe even something as nebulous as happiness or respect.

    Do you have a defined target, or perhaps a point that says “That’s enough - I’ve reached my goal”? And when you have all the IPs you want is the plan to live off rent, sell some and put money into something else, or....??

    I might start another thread and see if anybody might feel like spelling out their real goals and how they’re progressing with them.

    Cheers,

    Chris
     
  14. GregR

    GregR Reid Consultants

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    Chris,
    We have moved off the thread a little but I was interested to see how you started, borrowed to the hilt, worked hard and reinvested, then perhaps got more conservative.
    I agree it is about goals and balancing these with lifestyle of the present and the future.

    Part of the work I do is with seniors, who did what their parents said to do and peers did, buy a house, pay it off, never get into debt and they are now retired, often with no super (SGC did not happen until mid 90's). 10 or 20 years later, living off a pension and little ability to live the lifestyle they should be able to and deserve after working for 40 years, paying taxes, bringing up a family, it is especially difficult for singles. They did not use their assets to build on so they could retire with some financial comfort.

    One quote I came across I use when I present to seniors is:
    "It is not wealth one asks for, but just enough to preserve one’s dignity, to work unhampered, to be generous, frank and independent."

    W. Somerset Maugham (1874-1965)

    The other part of my business is to work with multiple property investors, to design strategies around finance and how to use it safely and securely so they don't need to survive on a pension when they retire.

    My personal financial goal is to have an net asset income producing base of $1.6m, which will generate a retirement lifestyle of approximately $80k pa. People need to understand their goals so they can design the appropriate investment and risk strategy.

    As I mentioned before, wealth is about assets less liabilities so as you move through your investing life (read getting older and hopefully wiser), your strategies change accordingly and often your goals change as your knowledge and understanding increases. The earlier you start and quicker you can build a base, the easier and lower risk strategies can be adopted after that. Again, many smart investors say it is about time in the market and you do it when you can afford to do it.

    Let me know if you start another thread on wealth, goals and progression.
    Your own goal of owning a magical place unencumbered is a great goal but you also need to live off more than the beauty of the place.
    Thanks for the reply.
    Greg
     
  15. Magpie

    Magpie Active Member

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    Hi again Greg,

    Thanks for another interesting post, and for being good enough to quote some figures for your own goals.



    What a great quote. That nails it for me, for sure. :)


    Our wealth goals turn out to be not so different to yours. We also aim to be self funded retirees.

    I probably didn’t really look very closely at the details until relatively recently - perhaps five years ago - but we'd had a pattern of debt clearing and saving for some years before. We had started paying into a State government backed super scheme since the mid to late 80s but hadn’t paid close attention to it, apart from raising our contribution rate until we had dragged it up to the maximum allowed level of 5%. As I got closer to 60 I also started managing our other savings in a way that was more directly aimed at building additional retirement funds. I chose to go for growth using conservative cash based strategies because:

    a) It was easier to understand while I tried to gain broader knowledge
    b) At my age there’s very little opportunity to rebuild if you screw up, and
    c) I didn’t want to leave my wife and son with anything too hard to unravel if I kicked the bucket in the meantime. :(


    When things got a little sticky over the last couple of years that looked like a pretty good choice. As (or if) things continue to pick up again it will probably look a little cautious again....

    Fortunately for us we will have been paying into super for close to 30 years when we come to cash it in. We also have the advantage that the fund we’re in is based on a mathematical formula, not on how well a fund manager performed. They don’t give them out any more, which isn’t surprising. But we are owed a set amount, based on contribution rate, years in the fund etc. Together with our savings, it should be enough.

    As you say, many older people don’t seem to have made good provision for themselves, which often means they didn’t start any sort of retirement strategy early enough. I’m amazed at how many of our friends have very poor reserves, and indeed how many will have to use some (if not all) of their modest super to pay off remaining debt still secured against their homes. Not 'good' investment debt, but just money spent on holidays, cars, extensions or whatever.


    Our requirement is less than yours - $50k p.a. (less in todays' money, but allowing for inflation) because we can (and do) already live comfortably on the equivalent. Neither of us plan to stop cold at 65 either. We’d prefer to keep doing some of what we currently do - not because we have to but because we enjoy it and want to.


    When I started looking at retirement, figures like $1million or more sounded somewhat ridiculous, and apparently well out of reach. So it was somewhat surprising to add up our various assets (with not even a credit card to put in the Liabilities column) and find we’d already gone past it some years earlier, largely thanks to the increase in value of our home. However, the savings and super are also jogging comfortably along and should go past the million mark in their own right in less than 5 years from now, still a couple of years before my wife reaches 65.

    Interestingly if I enter your figures ($1.6mil and 80k) and ours ($1mil and $50k) into this online calculator, using their default figures, it shows both of us running out of funds at exactly the same age - 98 - so we’re obviously thinking along similar lines somewhere. :D

    Pension Calculator


    So my answer to Mustgroove's original question is still pretty much this - start cautiously while you learn, ramp up the risk when you know what you're up to, and then go conservative again in your old age. It seems to have worked OK for us anyway. :)

    Cheers,

    Chris
     
  16. jason626

    jason626 Member

    Joined:
    16th Jan, 2009
    Posts:
    21
    Location:
    moe(melbourne),vic
    im surprised no one has mentioned the use of business to create an income producing option with great tax benifets. obviously you are currently self employed and if you started a business you would have to stop your current work and do that business instead, however there are managed business you can buy ( business under management) where you own the business but don't work in it in the day to day running of it just provied an watchful eye over it and manage it in its growth and direction and for 100k can buy a good business (possible two)that can compliment your current employment possilbely matching your current income with no extra work requirements, which if you added to your savings plan should have your 100k back in about 2 or 3 years. so you now have a business which is run by other people earning you an passive income have 100k again you can use as a deposit for a propperty and you could also buy a couple of ip now with the extra income from your new business and could meet any shortfall from the running cost of your propertys with the business income. I think the best stratergy is to build up many business that provide a passive income that provide good tax benifets and cash flow that can enable aggresive ip purchases later on. Just make sure you research each business very carefully (as well as your accountant) look at future trends and if the business your looking at will still be viable in 5 to 10 years if it has a ready market and proven returns and detailed book work with the business you intend on buying. And above all dont just buy a business for yourself to work in make sure it is under good managent that does not need you involvment and you can keep doing your current work. using other peoples time and money is the key to long term wealth.
     
  17. Johny_come_lately

    Johny_come_lately Well-Known Member

    Joined:
    1st Jul, 2009
    Posts:
    703
    Location:
    SE Queensland
    @ Chris

    I did some research on 'laddering' fixed interest. It recommends choosing different maturities, high credit ratings (AAA-A), high yeilds and short to long terms, staggering the buying date.

    How many deposits do you have at one time and what was your net rate for 2009?



    Johny.
     
  18. Magpie

    Magpie Active Member

    Joined:
    4th Jan, 2010
    Posts:
    33
    Location:
    Perth Hills
    That sounds terrific, but what business can you buy for $50k - 100k that would provide such a splendid outcome? I'm obviously looking in the wrong places, because I've never seen anything remotely like a good self-sustaining business "under management" that could be bought so cheaply. If a business was capable of basically ticking over by itself, and showing a profit, why would anybody sell it so cheaply? And if it's possible, why buy one - why not just set it up yourself? Please tell us more. What exactly are these businesses doing, and more importantly have you had any experience of buying any of them?

    Cheers,

    Chris
     
  19. Johny_come_lately

    Johny_come_lately Well-Known Member

    Joined:
    1st Jul, 2009
    Posts:
    703
    Location:
    SE Queensland
    perhaps its a small franchise. Like Jim's Cleaning. bout 50k to buy in. Not much experience needed.



    Johny.
     
  20. Magpie

    Magpie Active Member

    Joined:
    4th Jan, 2010
    Posts:
    33
    Location:
    Perth Hills
    Hi Johny,


    That sounds about right. Unfortunately I'm a rank newbie at it, so my track record didn't cover the full year.

    My guess is that some of my units/parcels (or whatever they'd be called) were too big. So I only ended up with about half a dozen of them. I'm making it up as I go along, rather than working to a blueprint, but my current thinking is that the right size would be such that I could build an additional new one from interest received and savings in around six months or so. If I split the larger ones up as they come up for renewal later this year I'd end up with about 14 or 15. That sounds like a manageable amount, and not so many that I'd be doing it every week.

    Over the past month or two I've been seeing rates of up to 6.8% for a one year term and up to 8% for 5 years. Of course, they may not hang around for long, the best 'special rates' are pretty volatile, but something close to 7% looks achievable. I'm not quite there yet, because I made a rather ragged start, but am not so far off. My only aim while I'm learning the ropes is to stay ahead of the predicted short to medium term inflation figures, and continue to grow my capital a bit more. Those rates sound pretty modest when you think that only a couple of years ago you could get that on call, but these are 'interesting times' as they say - so I'm just happy to have preserved it all and be continuing to steadily grow it.

    Fine tuning the best average length of time, and how to best mix long and short, will be interesting to play around with. Sorry I can't give you anything more accurate than that. :eek:

    Cheers,

    Chris