Best GARUNTEED investment strategy ever..?

Discussion in 'Share Investing Strategies, Theories & Education' started by Sk3tChY, 13th Sep, 2007.

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  1. DaveA__

    DaveA__ Well-Known Member

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    sorry guys, if you actually want to make this debate worthwhile, dont use simple examples, there no point and only lead to false acqusations and hope...

    Issue one with Mark - you havent seem to care about the interest costs, alternatively you havent cared about the rent you recieve either, taxation benefits you have also not counted, additionally the 8% return for super isnt a fair comparision, this % return is most likely the balanced option and not the australian share option...

    crc - you havent dealt with dividend yield, the compounding effect of new dividends purchased, you are also using averages on property which has just come of the back of 3 30% returns which now scews the average, your assumption also includes the promise of 10 more years of the co contribution (pretty big assumption if labor gets a crack), its also the assumption that the individual will remain under the wage limit of 30k to gain the co contribution (this is probably even a larger assumption than before)

    One final thing, Mark uses gearing in property (increases risk), for a fair ball park, why doesnt crc use an australian geared fund to keep in the same risk profile.

    I believe with both of you have good points to consider and i know if would take time to construct both detailed arguements. I dont expect you to, however i have well noted you cant use simple examples to determine the best approach...

    Finally, it may be good if you the discounted your gains from inflation back to todays dollars (3% would be about right). 770k in 30 years sounds fantastic, its actually only 300k worth today, good but not as impressive...

    **seems like my reply took longer than i thought it did and crc beat me to some of my points**
     
    Last edited by a moderator: 17th Sep, 2007
  2. crc_error

    crc_error The Rule of 72

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    Hi Dave,

    I have counted dividend yield. When I say 15% return, thats total return, growth and dividends reinvested. So its a compound return over the term. Yes the last few years will raise the longer term average.

    I didn't want to count a geared share fund return, as those figures could be 20% PA return, and thats a very high return to enter into a example. So I took the conservative 15% PA return..

    If you want to count inflation, well lets hope the added benefit of gearing will eat that out! But even so, $300k ADDITIONAL MONEY in todays terms is very nice in super! Since the government says the average person needs $350,000 in super to survive in their retirement.. we have already achieved this through early small contributions.. anything above that is a bonus..

    We don't need to nick pick on my suggestion.. but all I'm trying to say is someone in their 20's, SHOULD consider making a small contribution into their super.. as the result in 30-40 years time is quite significant. Its a simple, easy, quick thing to implement and anyone can do it.

    And while the government has the co-con scheme, lets make the most of it! until Kevin07 comes in and scraps the scheme!
     
  3. DaveA__

    DaveA__ Well-Known Member

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    I was just thinking about this and did a re calc...

    At a 500 contribution and 750 co contribution for 30 years @ 15% i only get 625k not 773k... Have i missed something in my calcs?
     
  4. crc_error

    crc_error The Rule of 72

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    I used this calculator ING DIRECT - Term Deposit calculator

    and it comes up with $735,000

    If I have a initial deposit of $500 followed by $104 per month its $773,000. Maybe your not compounding?

    Maybe cause its calculating a monthly contribution whereas your counting annually?
     
  5. DaveA__

    DaveA__ Well-Known Member

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    Yep im taking it annually (with in theory is how the co contribution should be applied).

    It has lead to some interesting questions and when i have time i think im going to try and work this out in further detail. Ill be sure to post it if i do.
     
  6. crc_error

    crc_error The Rule of 72

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    Shares don't go up in a straight line like fixed interest, so I guess the end result would be somewhere in-between my and your figure!
     
  7. Sk3tChY

    Sk3tChY Well-Known Member

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    Information overload. So hard to try and understand all of this... lol

    Hypothetically if I were on say $55,000 salary, inclusive of super. What co-contirbutions could I get..?
     
  8. crc_error

    crc_error The Rule of 72

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    at $58,000 u dont get anything.. at $55,000 you wont get much, probably like $200..
     
  9. Sk3tChY

    Sk3tChY Well-Known Member

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    Ahh k, guess it wouldn't really be of much benefit to me then.

    I'm a little interested in these gearing funds, what are they like...? How do they work...?

    Similar to margin loans Im guessing?
     
  10. crc_error

    crc_error The Rule of 72

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    yes they are.. basically they manage a margin loan for you internally.
     
  11. Sk3tChY

    Sk3tChY Well-Known Member

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    And how are margin calls determined? Well the equivalent to margin calls, i'm not sure what they're be called in this circumstance.

    If your fund drops below a certain point to they just force you to make extra contributions?
     
  12. crc_error

    crc_error The Rule of 72

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    No, you just put your money in, and thats it. The end investor doesn't get margin calls.

    The fund manager would get the margin call.. however they usually gear at 50% LVR, so its unlikely they would get a margin call.
     
  13. Sk3tChY

    Sk3tChY Well-Known Member

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    I see, so whats the risk involved then..?

    If the fund manager is making the margin calls, essentially dosent that mean there is no greater risk than in your typical super fund..?
     
  14. Rod_WA

    Rod_WA Well-Known Member

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    $55k inclusive of 9% employer super, so your gross income is $50,459 (55k/1.09). On this salary you'd get $426 for 2007-2008, according to the ATO calculator
    ATO.GOV.AU - Calculators

    So you'd need to contribute $426/1.5 = $284 of after-tax dollars to receive this amount.

    For the last financial year, you'd get $377 on a contribution of $252.

    For me it's a no-brainer. You put in $284, and your super fund gets boosted by $284 + $426 = $710, which will compound over the years.

    Of course, sketchy, you may also be working to reduce your taxable income, eg by negative gearing your portfolio, so you'll get an even juicier co-contribution!

    Personally, I don't qualify for the co-contribution, but my wife does, but since we don't accurately know our income for the year until we do our tax, I make an estimate (which is usually good to within 5%) in the middle of June, and work out the payment to my wife's super fund, with about 10% over to be sure we get every possible cent of the co-contribution. We BPay this in June.

    Also, there was a 'Super-Dooper' Co-Contribution recently:
    Treasurer Peter Costello has announced the Federal Government will pay a one-off additional co-contribution into the superannuation accounts of people who made eligible contributions in the 2005-06 income year.
    Announced in today's budget speech, the payment will double the co-contribution paid in respect of that year ...


    So, for 2005-06 and 2006-07, we made personal contributions into my wife's super fund totalling $1900, and the guv'ment put in $3813. Thanks John, that's $5713 locked into the fund, for our investment of $1900. We put another $900 in this June, which will generate another co-contribution in a few months.

    Now that's sweet.
     
  15. Rod_WA

    Rod_WA Well-Known Member

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    A quick lesson in 'Risk vs Return':
    If the fund is internally geared, the performance on the upside is boosted, but performance in a falling market is also cranked - unfortunately downward.
    There is always risk of any fund not-performing as hoped, and with geared funds, the results will be significantly worse in a falling market than an ungeared fund.

    A margin call is not the only risk in investing!!!
     
  16. Sk3tChY

    Sk3tChY Well-Known Member

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    I thought the point of a margin call was to make the difference...

    If the fund manager was paying for the margin calls, I don't see how you would ever lose money, because everytime you did, he'd be making capital injections to boost the LVR back up again...

    I'm a little confused here, im sure i'm missing something.
     
  17. Simon Hampel

    Simon Hampel Founder Staff Member

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    Internally geared funds don't work the quite same way as margin loans do (although the principals are the same) - margin calls are a device used by retail lenders to manage the risk involved in lending against shares/funds to the general public.

    That being said, there will be internal limits on what they can allow their LVR to reach - so they will effectively invoke a margin call on themselves if the value drops too much. This is one of the reasons geared funds are so volatile - they need to maintain very careful control over their LVRs and will sell down shares as required to maintain the loan limits.
     
  18. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    Hi Sketchy,

    Whatever you decide to do, note that there is no 'right' or 'wrong' here. crc and I may disagree on using the strategy itself but as long as whatever you choose to do helps you to achieve your goals, that's the most important thing.

    Good luck

    Mark
     
  19. crc_error

    crc_error The Rule of 72

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    Hi Mark, I'm not disagreeing with your stratergie.. I'm just point out things in your stratergie and visa versa. Sketchy can then understand the benefits and disadvantages of each scheme and make his own decision on which way to go.

    As you pointed out, there is no right or wrong here. Both stratergies work over the long term in the right conditions.

    Tom.
     
  20. Damoz89

    Damoz89 Member

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    I don't give a crap about superannuation. It has failed so many and in my opinion will continue to fail. I'm only 21, so by the time I want to retire I will have amassed so much wealth that my superannuation will be mere church change to me.

    Perhaps down the track the Government will make more stupid 'reforms/changes' to the system and it may favour me, if so I will milk the cow. But I don't intend to count on it. There will also be no pensions available by the time I'm ready to retire, either. The rich get richer, the poor get poorer, too bad how sad. I know which side of the fence I'll be on!