Advice needed - not sure what's best

But does it come with a Jim to do the work for you?

Chris

(Oops... rolled over onto a new page. I posted a response to your laddering query on the page before.)

 

I have a Bond index fund that basically does that.




Johny.

 

As far as I can see, there are all manner of ways of layering your investments over time and spreading your risk. You can either do it yourself or take a piece some kind of fund that does it for you.

The upside of buying into any kind of managed fund is that you should be getting the benefit of the knowledge of people who work in the field full time. The down-side (for some) can be the amounts they rake off in fees and charges and the fact that they don't always prove to get the returns you hoped for. It's whatever each of us is comfortable with, I guess. If you like doing your own work - whether it's picking the mix of stocks, property, bonds, term deposits or whatever - then you don't need to pay as much in fees, but you might not do a very good job.

Depending on how things go, investors may tell you that the charges were well worth it for the returns they got, or they can be howling with frustration because the manager still got paid their fees while the investor wore the cost of the crummy performance. I know several people whose faces rapidly turn an interesting range of colours at the mere mentioned of the word "Managed"...

I currently like term deposits because I get the guaranteed benefit of the banks' expertise (it's up to them how they make the interest for me) without the fluctuations or uncertainty about the return. They're also simple enough to understand while I learn more about other investing areas. I'm currently getting the performance that I'm looking for, and I enjoy fiddling around with the maths. Being very much a DIY type I enjoy the business of trying to figure out how things are done, and improving my own skills as I go. But I'm on notice - if I underperform I might sack myself later!

Chris

 

In regards to businesses under management they are not easy to find for under 50k but between 50k and 100k there are a few oppotunites around, maybe not in capital areas in central melbourne, but in outer suburbs there are cafes, fish & chips, video shops etc which can be run under managment that can be brought for this price. Why would they sell? sometimes peoples circumstances change they want to move location or sell the business to buy a property that may show a better return, other times it can be just run by the current owners and its making really good returns you could buy it then put staff in place to have the staff run it for you. My personal circumstances i unfortunely started with buying property first, two units then a house and then two shop free holds. But i find the holding costs to be very high in keeping the propertys and it puts a strain on my main income source, i should have first built up a large business operation then have the income from that pay for my propertys, currently i have a chocolate shop that is run under management and for my day job i do contracting work, i have currently got my house and two units on the market and when i sell them i will look for a business under management to invest in and then re- buy some more propertys at a later date. I belive that if you own an ip and its negatively geared its really just a liabilty that drains your cash flow that could be invested else where. so i would perfer to invest enough cash into a property that it is positivly geared. i realise that it has less leverage using other peoples money and you have to pay some extra tax, then again any profits can be re - invested to pay out loans much more rapidly and pay out loans years earlier and save thousands over the term of the loan.

 

Thanks very much for such a detailed reply.

I guess that I've just not looked hard enough, or the situation is different in my locality. The prices for all the businesses that I've seen in our area have all been well above those figures. For instance a computer shop (asking price half a million). The video shop seems to be more or less looking for a buyer much of the time, but not at an attractive asking price either.

A business that needs you to put in only a few hours a week sounds like an ideal option, especially if you can keep it going after retiring from the main work. However, I think that I'm probably too much of a hands-on person now to be comfortable with buying in and keeping my distance. I would probably more suited to tapering down my involvement in something that I'd set up in the first place. I'll keep checking though.

I hope it works well for you. A chocolate shop sounds like it would be popular.

Cheers,

Chris

 

Wow, I had no idea this thread would blossom the way it has Thanks to everyone for their input, especially Magpie for the laddering term deposits idea, and GregR for the trusts/IP idea... It's this kind of knowledge I was hoping to get from this thread.

I've had a lot of time to think about my priorities when it comes to money... I'm certainly conservative (in the sense that high-risk high-return options don't appeal to me). I'm still young, and having ~$100,000 (now up to $116,000) earning interest may not be the very best use of that money, but I'd rather leave it there and focus my time & energy on being young now, rather than on "growing wealth" for retirement. I don't quite have the wherewithal to micromanage investments in order to squeeze out every cent of profit. Laddering term deposits is something I might investigate though, doesn't seem to be that time consuming or intricate really.

This knowledge will come in handy one day, but not right now. I think for the moment I'm happy just accumulating my savings. The monthly interest I get from Ubank equates to over half my monthly rent anyway - and I know the interest is taxable, but still, it's nice to have my rent effectively offset in this way. And I'm still saving thousands a month. Certainly not a bad position to be in.

I'd rather be young while I'm young, and just let the money pile up for a while

 

The decision to purchase an IP and build a property portfolio is a sound concept and there are many people who have done this successfully. There are more people who have experiences like yours and not balanced their property selection with their own circumstances. Purchasing the traditional inner suburb for good capital growth is the base premise and most investment seminar 'educators' will push this view but it only works if you can service the normal cash shortfall either through income, savings or debt. If you have not structured your finances correctly, the cash drain can be a killer.

My view is that it is a finance decision, using others peoples money to purchase capital growth income producing assets. It requires both components and the mix of the two will be determined by individual circumstances and goals at the time. It sounds as if you went too much growth without the income stream balance or debt structure in place.

Your view of using your own money and be positively geared argument often ignores the opportunity cost of money factor. If you have a 45% deposit and borrow say 60% (5% being stamp duty and costs) and 'equate' rental income against only the 60% borrowed, you are not factoring the 45% opportunity cost. It is an incomplete equation and misleading. Unless the income stream is greater than the costs to fund and maintain, including your own money, then it is still negatively geared.

I certainly agree building a business is a great idea but most are not suited to do that, preferring the security and lifestyle of a wage.

Greg