Advice on strategy

Hi

About Us:
Married couple based in Sydney. Both 29 years old with our first child of 2 months. Wife not currently working but I am.

Assets:
500k PPOR (Wifes name)
160k Managed funds (Wifes name also) - split amongst 9 funds
320k cash (sitting in offset against PPOR)

Liabilities:
392k mortgage on PPOR at variable %
45k margin loan

Household Income:
When wife is working: 210k gross. When only me: 100k. (Wife returns to work July 08)

Household expenditure:
Including rent, bills, car, groceries etc: $53k pa. Expected to grow 5-10% per year for next seven years.

Our 500k PPOR is in South-West Sydney and we lived there for six months to get the first home owners grant but now rent very close to the city for lifestyle and commuting purposes.

With about 500k in equity, over the last six months we have been looking at houses in Five Dock at around the 1mil mark. We decided 500k was a manageable loan and figure we could pay it off over 7-8 yrs if my wife only takes off 6 months for our next child.

We weren't very impressed with what 1 million gives you these days, and we didn't find much that we liked. So we have decided to take a different approach. We have decided on a seven year investment plan.

Caveat:
We have decided that our PPOR is our fallback. It is a modest family home on a big block that is acceptable by our standards. We have both acknowledged that if we lose all of our investment money we will be happy moving into this place. Therefore we are happy with an aggressive approach.

Strategy:
Rip out the cash from our offset. Sell down all managed funds in my wife's name as we don't believe it is performing overly well. (Currently managed by a financial planner charging 1% pa with a Symetry wrap account also at about 1%). With this 400k, we plan to lend it to a family trust that will then invest the money.

Goal:
Turn 500k into 2m in 7-8 years to have the option of either buying a 2m PPOR at that point in time or using it to LOE.

The reason we picked 2mil is because we saw one place that we did like at 1.1mil (which would mean a $600k+ mortgage which is too much at this point in time) and we figured that at the Five Dock long term median growth rate of 9% it will be worth about 2mil in 7 years time.

Our main question:
We don't have a lot of time to actively pick up IPs and direct stocks so we were wondering if it is possible to have a full spread portfolio (shares and property) simply using managed funds?

Ie. If property is set to boom again, can having money invested in a listed property fund ensure that we can benefit from this?

A few other questions:
- If we gear to 50% LVR can we effectively invest 800k in managed funds and would that be wise?
- Would a portfolio of 800k warrant a wrap account?
- If we planned to get into direct IPs, should we hold back some of our cash or invest it in managed funds with the idea to withdraw funds when needed?

Any help would be much appreciated.

Cheers

 

Did you take into account tax if you sold those managed funds? You never mentioned your super, so hopefully that is healthy and going up.

Think about this. Split your assets up.

Safe low risk, term account. say 30% allocation.
Medium risk, imputation funds, say 40% allocation.
High risk, BRICS, IPO funds, future leaders funds etc etc. say 30%

OR you could just pump it all into Vanguard Index funds for Shares and Property. Very low fees. Good for Tax because the fund isn't buying and selling shares. Don't need a financial planner for this approach.

Good time to start getting into Property Trusts me thinks LOL.

Bottom line, so long as you don't chuck it all into high risk/high fee funds you will be OK. And keep adding to your net worth every month.

There are a million possibilities. What I used to do is write out as many as I could and talk to my accountant about asset protection (trusts) and tax effectiveness.

Have you read "Money Secrets of the Rich" by John Burley and Bruce Whiting? That is a very good book. It has advice in it you will never get from a financial planner.

 

OR you could also purchase some ETF's like STW, SFY and SLF.

 

Educate me please. What are they made up of. Do they have options as well?

I like ETFs. I am buying them in the US. They are relatively new to the Aussie market aren't they? Or just becoming more aware of in the investing community??

 

Indexed ETFs currently available on ASX

 

Thanks.

 

Interested to know what type of advice you're referring to that you learned from this book. 'Rarely' may be more appropriate than 'never'.

 

opposites

we actually went in totally the opposite direction... we are pooling our resources and buying a PPOR freehold. then we'll use the equity in that to build a property portfolio.

i'm glad we didn't get into managed funds when i posted that a few months back as we would be 10% down from the offset (i know its a long term strategy, but it still would have been painful).

it took us a few months of looking into each and every path but that process is important for people to do every now and then. question your motives behind investing to see when and if you will hit your goals.

 

I agree - that book was a gem -especially the first half

Advice you would rarely never get from an advisor include
a neat way of reducing debt and how to prioritise it
buying and selling cars, buying cars at auction
automated investing - using vanguard

It was the first time I truely saw the benefits of using vanguard
they made the point that most MF dont outperform and that you should consider vanguard
This was 6yrs ago when very little of this info was available to australians

Lots of other more advanced property deals

 

What's the hot advice?

 

What dkmc said plus advice on life insurance, term insurance, TPD etc

The Reducing debt bit was very, very good. We used it and hammered the crap out of the debt we had.

Regards my "never" comment. I am happy to be 100% wrong. I hope plenty of Financial Planners give out this sort of basic "every day" advice that makes a real difference to a bottom line for the clients.

When I am a Financial Planner, I will. To those that will listen anyway

 

a few questions for the original poster
have you considered the implications of lending to your trust
vs gifting to your trust - discuss with your lawyer - implications in terms of tax
and asset protection

The most efficient way is to leverage up on direct property
then use equity for shares
However you may have to look outside of sydney

I do not believe just shares, and funds is enough diversification
Id suggest some more direct property and shares / funds

LPTs and direct property not the same - eg, this year, my direct property portfolio up 25%, whereas LPTS down 25% in 3 months

Still investing in LPT's now looks good - If I wasnt in the market - that would be one of the first places Id be looking esp with borrowed funds as the dividend yields are >9%. The easy way is just to buy SLF on the stock exchange.

Im not clear why you have a 45k margin loan either - It doesnt add that much, and increases risk / volatility. Margin loan interest rates are close to 10%