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Broad investment plan - call for advice

Discussion in 'Investing Strategies' started by Alpha, 7th Mar, 2007.

  1. Alpha

    Alpha New Member

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    Hi,

    I’ve been considering my options and started studying investing on the internet for a couple of weeks now. This forum seems full of friendly and knowledgeable people so I thought I would ask for some verification/sanity check of my current investment thoughts.

    What Happened?
    A few years ago, I quit my full time job and for a few years and on and off alternated between tourism and contracting (always working in Australia). I ended up selling my house and leaving the money in a high interest bank account. Not the best investment decision, but I guess I was having an early mid-life crisis and wasn’t sure of my long term goals. On the side I was trying some ideas to make money on my own, but so far these haven’t made me any money of note.

    Current Situation
    I am currently single and 30, so a long way off retiring. I still want to travel, work contracts and tinker with my money making ideas. I may even consider other types of work as I seem to be lacking some enthusiasm in my current field. I also want to get some kind of investment plan happening within my lifestyle choices. I have about 110k in the bank. I have leant money to a friend for a car and get monthly payments at personal loan rates, but they can refinance this if I want the money.

    I have most toys and things I want and don’t have an overly expensive lifestyle, so my monthly outlay is not that high.

    Investment Ideas
    My current thinking is that I don’t really want to be stuck with a house and mortgage given my current attitude to work and possibly wanting to relocate for a change of lifestyle. With the housing market climbing fast the last few years I figure I should be diversifying in other areas of investment. I could possibly invest in housing with family though.

    Getting interest in the bank is not very tax effective and not very good long term with inflation and all.

    Shares sound tax effective and a good idea over the long term. I am considering that instead of buying property, I can get my exposure to property through funds, as well as other sectors. Owning property does seem nice for equity reasons though.

    Initially I figure I should stay away from gearing and start investing money into funds either through a fee for service financial advisor or investsmart.com.au and their Trailcap. Perhaps staggering up to 100k, leaving me with around 10k in a high interest account for emergencies/spending depending on my work/travel commitments at the time.

    From my reading, it seems that indexed funds are a good option. They have low fees and often outperform actively managed funds (although I read this is not so much the case in Australia). I plan to spread my money across different sectors of indexed funds or other funds if they seem a better investment.

    I would try for a wide spread, but higher percentages in lower performing sectors initially seems to be a good idea from my reading, as you get more units and hopefully in the longer term these will start having their higher return cycle. Further investments would then be favoured towards sectors that appear near the end of their downtrend, but still maintaining a diverse portfolio.

    Indexed funds seem to have the advantage that there is also no high stock knowledge or monitoring required on my part.

    Given my somewhat unstable lifestyle path, does this investment path seem sensible, or can anyone suggest other options I should also be considering/studying? Thanks for any help.
     
    Last edited by a moderator: 7th Mar, 2007
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Managed funds are generally a good choice if you want flexibility and don't want the responsibility of owning property.

    I would still encourage you to consider property - since the leverage it offers can really make a huge difference to your wealth creation ... but there is work involved in maintaining property (you don't have to do it yourself - but you have to manage the property manager who does it for you).

    Personally, I wouldn't look to invest in lower performing sectors just because they are lower performing. You need to understand the reasons - is that sector of the market at a point in it's cycle where it's down, but about to swing up ? If not - you can waste a lot of time with your money sitting there doing nothing. Some sectors just aren't performing at all - and are in a long term down cycle ... with a few more years required before you see any real growth.

    I prefer to invest in things that are going well now - but aren't yet at the top of their cycle.

    ... but there are lots of ways to do it ... you just need to pick a strategy that works for you, and be prepared to adjust if it doesn't.
     
  3. D&K

    D&K Well-Known Member

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    Alpha,

    Welcome to the forum. I think at the end of the day your investments will end up being what you are comfortable with. You can't do everything and sometimes you just need to take one step at a time before going into different areas or higher leverage. If you don't want to put all you're cash into one area, don't. Start small with maybe one or two things (difficult with direct property I know), get comfortable, work from there.

    The main questions is: what do you want out of it? It doesn't sound like you're chasing cash flow, so a capital growth oriented investment may be better. At the end of the day you can get either cash or capital through property or shares/funds. Perhaps it is the need to "do something", which is still a good start. Best of luck finding something you're happy with.

    BTW, you're not eligible for a mid-life crisis until 35 :( ... I've got a year to plan for my second (40) :D

    Dave
     
  4. shake-the-disease

    shake-the-disease Well-Known Member

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    Here's my financial plan. "Control as much in gross value as I can of quality, appreciating assets, as early as I can, and keep adding as I can afford to. Oh, and take out insurance and keep a buffer for lifes emergencies."
     
  5. Nigel Ward

    Nigel Ward Team InvestEd

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    Pure gold!
     
  6. Alpha

    Alpha New Member

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    Thanks for the comments.

    I guess, "to do something" is the motivation. The goal is longer term returns whilst living off funds from working and the money I keep at hand. Hopefully I won't need to remove the investments, but the option is there if I change my thinking/needs.

    I'll take the appreciating assets idea on board as I continue my investigating.

    Hrmmm, I wonder what I will do after 35? People already think I am a bit crazy ;) .
     
  7. bundy1964

    bundy1964 Well-Known Member

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    Apreciating assets with leverage is the general way to freedom if you can afford the holding costs.

    35 was no drama for me just putting things in motion back then. 40 was no biggie either, 42 is seeing some big changes though including ramping up my investments to new highs, reaching a long term goal and waking up to the fact that someone I had been friendly with for over 4 years is the right person to be with high holding costs included.

    CFD's are my next project starting tomorrow.
     
  8. Glebe

    Glebe Well-Known Member

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    What's the useful life of the asset? You might be able to claim some deductions, or at least perform a renovation in a few years :p
     
  9. Jacque

    Jacque Team InvestEd

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    It's a shame that merely collecting assets can become a tad boring at times :D Oh, for some more action sometimes....!!!

    But, in the end, like others here have already mentioned, it's the key to building long term wealth, whatever asset class it may be. It also needs to be a GROWING asset, that you can afford to both maintain (cashflow) and leverage against for further investment. Property is traditionally viewed as the safest by the lenders for a very good reason- it's generally forgiving over time and is seen as a growing class of investment.

    Whatever way you go, don't forget that you're still young and have lots of years to allow the beauty of compound interest and growth to take effect :)
     
  10. bundy1964

    bundy1964 Well-Known Member

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    I would think at least 14 years :D I think she has the skills to extend my trading for that long too.
     
  11. petros

    petros Member

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    Just a word of caution with respect to timing the market and the bottom of the cycle that has actually been articulated directly or indirectly by other responses here. If you are going to try and time the cycle make sure you use forecasts from established specialized companies in the industry you are thinking of investing. The time paths of stocks or groups or stocks never follow a regular cyclical path and the riskiest investment strategy is investing based on hunches and superficial forecasts made by semi- or non-experts.

    Petros
    Property Investing
     
  12. Insight

    Insight Brisbane Buyers Agent

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    It's really difficult to beat property in this country for a first step.

    With research you can minimize your risk with a good purchase price, add some value with sweat equity and the banks regard property very highly, so you can push yourself into the second asset at a decent pace.

    But if you wanted a set and forget investment then it would indeed be hard to beat an index fund I think. Not sure why Australia would be any different regarding fund managers beating an index?
     
  13. Simon

    Simon Well-Known Member

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    Don't bother trying to time the market.

    Buy an income producing asset.

    As soon as you can, buy another.

    Property, shares, managed funds. All beat the average persons wealth plan which is super or lotto.

    Keep doing that.

    You will be rich one day.

    It doesn't have to be any harder than that.
     
  14. Redwing

    Redwing Well-Known Member

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    Let us know how you go with that, CFD's sound interesting (and complex).
     
  15. crc_error

    crc_error The Rule of 72

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    Its not TIMING the market, but rather TIME IN THE MARKET.

    And if your serious about your wealth creation, gearing is essential. If you want to be cautious, gear at 40-50%.

    Also don't dump all your money into the market at once, spread your buys over 3 months to cost average your way in.

    Personally I believe in been in all the major sectors at once, rather than trying to 'pick' out performers. I have my money in Australian and International Property funds, and Australian and International Share Funds. 2 years ago I didn't see anyone predicting Australian LPT's to be the outperformers, who knows what will do well tomorrow.

    For cash flow I use covered calls.

    I'm 31 and just about to hit 100k equity. I have over 300k invested in the markets via margin loans and 100% finance products on hedge fund investments. So your doing ok!

    I screwed up with 3 properties, to much negative gearing which almost killed me for 5 years! When rents didn't raise, but interest rates did. Now I have no property, and only managed funds, less hastles, better cash flow, and great growth! My LPT's have returned 30% PA for the last 2 years running..
     
  16. crc_error

    crc_error The Rule of 72

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    One other thing, call up freeman Fox, in Brisbane, and ask for their free welcome to wealth DVD. Its a good eye opener for new people to investing.
     
  17. bundy1964

    bundy1964 Well-Known Member

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    I wouldn't buy an investment that is trending down though! Still would agree that time in the market corrects many mistakes people make, sometimes you do need to say I got it wrong, exit and try elsewhere.