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Comments on a newbie's strategy

Discussion in 'Investing Strategies' started by rsmyth, 23rd Oct, 2007.

  1. rsmyth

    rsmyth Member

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    Hi Everyone,

    Occasional reader of the forums but only recently took the plunge to register and post a comment. I’ve just recently given serious thought to investing my money properly and have been fumbling with a few strategies of my own.

    I have a bit of a different situation in that I’m an Australian citizen but originally from the UK and I will be returning there to live in approx 18 months. What I’d really appreciate is some comments on my strategies and/or suggestions on alternative strategies.

    So here goes with the vital statistics:
    - Married with 1 child and one on the way.
    - I earn 100k p/a and my wife about half that.
    - We currently have approx. $25,000 in savings
    - Disposable income of $500-1000 p/m to invest, with this likely to drop to the lower level in 6 months.

    Our overall goal is to deliver as high a return as possible in 18 months on our investments (whose isn’t!) whilst managing the risk to ensure we still return to the UK with some money. For now we’re avoiding property as an investment given the short timeframe we have to maneuver in, although this will likely be our main investment choice on our return to the UK. I’m planning on putting pretty much everything in my wife’s name to offset the tax. At the moment we haven’t really given consideration to how we would liquidate the assets prior to our return or whether we could re-invest them overseas.

    From my brief research this it what I’ve sketched out as a possible investment portfolio:

    • Perpetual WFI Perpetual's Ethical SRI $10,000 initial with $300 monthly
    • Perpetual WFS Perpetual's Geared Australian $5,000 initial with $200 monthly
    • Challenger China Share Fund $5,000 initial investment only
    • Direct Shares (with industry spread) $3,000 speculative


    So what are you’re comments on the portfolio I’ve proposed? Does it seem sensible given the timeframe? Any comments gratefully appreciated and I’m very mindful that these are suggestions only.

    Thanks in advance,
    Rob
     
  2. rsmyth

    rsmyth Member

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    18 month investment strategy options

    Sorry folks, a bit of mouthful to chew on for a first post :)

    Making it a bit simpler, if you had an 18 month investment window and around $30,000 to invest, what are some of the options you would consider.

    Cheers,
    Rob


    p.s Mods you might want to move this thread into the General Investing or Investing Strategies sections, ta.
     
  3. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    The most important question to answer is - how important is it to preserve your capital ?

    In other words ... how much return above $30,000 do you need to justify the risk of potentially ending the 18 months with LESS than $30,000 ?
     
  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Put another way - you have only 6 quarters to make as much money as possible.

    I did a quick search on my [aff=PCFUCL1]new site[/aff], and of the 396 funds listed, every one of them had at least one negative quarter in the past 5 years, and the worst negative quarter (Challenger Asian Share) was -22% :eek:
     
  5. rsmyth

    rsmyth Member

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    Very good question Sim, something I should have commented on in my original post. In an ideal world I would on worst case scenario reach the end of the 18 month window even at worst.

    Realistically though I am willing to take on a higher risk with the international share fund and the speculative shares in the hope that the domestic managed funds can balance the risk and offset any potential losses.


    So my proposed investment strategy would be:

    Managed Funds (Total 90%) comprising:
    50% Domestic Shares/Property (e.g. BT Imputation Fund, Perpetual WFI Perpetual's Ethical SRI)
    20% Small Companies (e.g. Macquarie - Small Companies Growth Trust)
    20& International Shares (e.g. Challenger China Share Fund)​

    Speculative Direct Shares (Total 10%)

    Any thoughts/comments appreciated.

    Rob
     
  6. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Actually, I don't class a China fund as "International", it is a region-specific share (and potentially more risky as a result).

    Questions you need to ask yourself about the funds and this strategy are:

    1. are we at the top of the Australian market ? Will we see much more growth over the next 18 months ?
    2. if we see a downturn locally, will small companies funds be hit harder than blue chip funds ?
    3. is China's stockmarket "bubble" going to burst ? Can the Chinese govt control inflation and sharemarket speculation without destroying confidence and leading to panic on their markets ? Is there much growth left in their markets ?
    4. are there any international funds that are expected to actually show decent returns in AUD terms over the next 18 months, or will weak international markets continue and a stengthening AUD wipe out any gains made anyway ?

    I'm not saying that these questions mean your strategy won't work ... I'm just saying you need to consider these things carefully ... unfortunately my crystal ball is broken so I can't tell you what will happen.

    My key point is that your strategy has a pretty good (ie much greater than zero) chance of ending up negative after 18 months !!

    I'm generally bullish on the sharemarkets - especially locally and in Asia ... but only because my timeframes are somewhat longer than 18 months and I can afford to ride out any short term volatility.

    If I was working on a timeframe of anything less than 3 years, and capital preservation was very important to me, I'd be more inclined to go ultra-conservative, either just park it all in a high interest savings account, or else perhaps put $20K in savings, and then put something like $5K in a geared Aussie fund and $5K in an Asia or China fund to see if I can increase my upside.

    But these are just my thoughts - I'd be interested to hear comments from other people.
     
  7. Billv

    Billv Getting there

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    Rob mate

    We live in dangerous times and IMHO this is not the best time to start investing.
    If it was me I would wait for 6 months or so for the storm clouds to go away.

    Good luck.
    Bill
     
  8. rsmyth

    rsmyth Member

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    Thanks Sim, that was a very well considered response. The 4 questions you raised are very important items to consider and I had been giving the 1st three some thought already

    i.e.
    • Am I a bit late to be entering the game on these markets?
    • Have they reached or are they near their peak before a natural correction?
    • Would cash be the safer bet given the short timeframe?

    Although I am new to the investment game, I would really like to begin earning my stripes before we return to the UK. Share trading and investing in general is an area that I want to develop skills in, so I am prepared to lose some money while I cut my teeth. In saying that though, although I've a relatively short window I won't be rushing in without doing some homework.

    Bearing that in mind perhaps the wisest approach is to leave a portion (say 30-50%) in cash (e.g. ING) and to invest the rest in a balanced portfolio as you said to try an increase the upside. Definitely some food for thought and good advice to take into consideration.

    Would love to hear other people's thoughts on this also.

    Cheers,
    Rob
     
  9. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Funnily enough, I actually think that you need to go one extreme or the other (or both!!)

    I prefer to look for consistent high performers, as even with the occasionaly negative year, they will generally (assuming nothing changes with their strategy or management), over the longer term still outperform other more conservative (or less skilled) funds.

    If you look at balanced or diversified funds, they have a high cash component to try and minimise the chance of negative overall returns - while their equities investments are typically still fairly conservative.

    I think you can probably do better yourself (assuming you are prepared to risk at least part of your portfolio), by doing exactly like you are thinking ... keep a portion in cash (how much is up to you), and invest the rest in a range of funds that you think will generate high returns over the next 18 months.

    Then at worst, you will be left with your cash plus interest - while in reality, you will probably do much better than this.

    The trick is deciding how much capital you really can't live without at the end of the 18 month period - and keeping that as cash (or aiming for that amount after interest from your cash investment). Don't forget to take tax into account though!
     
  10. MichaelWhyte

    MichaelWhyte Well-Known Member

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    Here's a link that has one opinion on those two questions that I thought was quite interesting...

    http://www.amp.com.au/display/file/...e=Asia+and+global+reflation+-+OI+#35+2007.pdf

    Cheers,
    Michael.
     
  11. rsmyth

    rsmyth Member

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    That's an interesting article indeed Michael. It seems to imply there is still growth there locally and in Asia for the medium term which would suit my timeframe. It shares the same opinion with an article I read today on AFR.

    Still I think I've a lot more research to do before I decide what to do.

    Cheers,
    Rob