Getting Into the market

BigCharts - Interactive Chart for Japan NIKKEI AVERAGE INDEX(225)


Nice one !!

 

Ok - I stand corrected - Nikkei has been a basketcase.

If you really believe we are facing a Nikkei-like future, why would you be investing in a capital protected product - why not a term deposit?

Vovo - I included the installment warrant as it seemed you were using the capital protected product as a way of obtaining gearing/financing with minimal up front $. Installment warrants and other derivatives are a way of doing this. Also worth a look might be something like the Amro's Mini's.

 

Thanks mate, i am certainly looking at derivatives now, i am not super confident which was why i stayed away, however will definately look into them. Is there a good explanation somewhere, also is there a good simulation platform somewhere, where i could trade make believe to try understand the nuances.

Looking into amro minis now.

Thanks guys

 

Question: are all margin loans created equal?

are some lenders better than others, more conservative with LVR or more generous, offer more stocks etc. If so which lenders are good.

I suppose a more pertinent question would be: who provides your margin loan?

~v

 

Margin Loans - RateCity.com.au

I'm not saying the we will be seeing no growth for the next two decades or anything, but that said I'm definitely not writing off the possibility that the world is in for a VERY slow recovery (ie 5+ years) and that capital growth (in both property and shares) over the coming year will be minimal.

As for why I'm investing (well I'm not really) I'm about to settle on an IP I bought 4 months ago, but other than that all my funds are currently sitting in a high interest accounts. Though I'm definitely keeping an eye on things waiting until I feel the signs are right to enter the market, though I'm definitely not in a rush to get in like I was a few weeks ago.

Though with that said I think that being in the market at this period of rapid asset price deflation, whether it be shares or property, is not a complete tragedy as long as your purchases were made based on the fact that the asset was generating a healthy income and was not just purchased on the premise that you'd make your money when it went up in price.

So in that sense I feel that for the foreseeable future "Cashflow will be the true King" more so than just "Cash" especially as investors begin to reassess the asset portfolios and which assets are actually pulling their weight. Plus cash isn't a great king with inflation at 5% and a devaluing dollar.

The real king three to four months ago was the best sort of cash - gold! It may well still be good buying depending on where you think things are going...

 

Hi Vovo

While I understand your want to enter a market that seemingly is undervalued, it may be prudent to note that your timeframe is short, especially if it’s more like 3 years. Possibly too short to enter into shares where I would normally recommend at least 5 years (and sometimes that is even a push).

If you are wanting to purchase a home, you need to work out the amount you are wanting to spend on that house (in future dollars) and therefore the deposit required depending on how much you are wanting to borrow - obviously affordability becomes an issue when you have borrowings up to your eyeballs. Once you have this figure, you work out what amount you need to save each month and what its potential earnings are (for example a CMT right now would get you around 6.5% to 7.5%) and determine whether you will have enough funds to purchase using ‘safer’ options such as cash or fixed interest.

If the answer is yes, why bother investing in the market that could see you deplete your much needed capital. Markets do tend to bounce back after major drops – but there's no written rule that says they must.



The comments above are of a general nature and does not constitute advice. You should consult with a professional financial planner who has taken your individual considerations into account before making any financial decisions.

 

while your advice does seem prudent.
Lets try answer some questions
-how much do you want to spend on a house (in future dollars)? I am not even sure i want to live in australia, i did not grow up here so no attachment to the place i have friends and family all over the world. When the opportunity arises, i want to stop renting, that could be next week or in the next decade. The house affordability, will mainly be made on earnings and less on assets. The decision to move capital from existing assets to the property will be made if i think that is best value for money.

I believe the market is undervalued, therefore i believe that i am getting far better than 50/50 odds on my money, very little in life is risk free. I feel i am young enough to handle the risk. if i was nearing retirement and needed my money to buy a place in a retirement village i would have my money in cash.

I feel a lot of the value of shares is due to market sentiment rather than company performance, it seems speculation seldom sits on the fence.

I am mainly investing in blue chip companies i feel are strong and undervalued as well as a few dark horses (fallen angels if you will) quite prepared to lose them but stand to do well too, these are however only a small portion. like putting $2 on viewed to win the melbourne cup.

I am quite willing to leaves shares in the market for the rest of my life but will assess this as life passes by.

Cheers guys
~v

 

V

Your comments make a lot of sense.

No one can say for sure that the market is undervalued at the moment, and as you say there is risk in any course of action.

Many will tell you that the market may not have bottomed yet and there could be more pain ahead.

But one thing is certain, it is certainly a better time to invest now than it was 12 months ago.

Undoubtably lower risk. Yet so many people who were gearing to the hilt 12 months ago (using a LOC as "equity" for a margin loan) are now waiting on the sidelines because of concern the market is still too "risky"

As you have pointed out, serious capitulation/market bottoms have always been followed by spectacular returns for the 12mths or so afterwards. Or as Buffett says "If you wait for the robins, Spring will be over"