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Hello - New and a few questions

Discussion in 'Introductions' started by _Sharon_, 27th Jan, 2007.

  1. _Sharon_

    _Sharon_ Active Member

    Joined:
    27th Jan, 2007
    Posts:
    29
    Location:
    Qld
    Hi,

    My name is Sharon and I am a widow of 8 months with two very small girls to raise. My husband loved to invest and now I have a number of decisions to make with continued investing to create an income and I'd also like some growth too. I have some questions if someone is able to help.

    First question: What asset class are the OMIP investments (Man Investments)? I am trying to allocate my funds in line with my risk profile but I'm not sure what these fall under (these are current investments that my husband bought and will mature in 2015, I am happy to leave them for now, although I am not sure the return has been good so far but the rising guarantee is higher than if I sold them now).

    Second question: For my cash/fixed interest asset allocation, are managed funds in this class any good or is a bank term deposit better? Having a look the rates on terms are better than some returns on managed funds that have MER's. Am I missing something? Are there fees on term deposits?

    Third question: Do you get extra risk benefits by investing across fund managers as well as asset classes. I understand diversifying across assets but I also wondered if using different asset classes under different managers would help too? More for the possiblity that one of them had big trouble.


    That's all I can think of for now.

    Thank you
    Sharon
     
  2. handyandy

    handyandy Well-Known Member

    Joined:
    6th Jun, 2006
    Posts:
    312
    Location:
    Sydney Nsw
    Hi Sharon

    Firstly my deepest sympathies with your recent loss.

    In reard to your questions.

    There are a whole range of omip series available so you would need to find out which series you are involved with. You can do a search on Google and this will give you a range of info regarding these investments. They seem to be long term investments with a target return of 15% although I seem to gleam that they do not distribute any income.

    The following are some of the features for the current series as per this site
    OMIP 15seven
    Features
    [​IMG] Target returns of 15% per annum​
    [​IMG] Strong manager track record​
    [​IMG] Maturity Term is 7 years, however investors can exit early​
    [​IMG] A rising capital guarantee is offered by National Australia Bank​
    [​IMG] Invest through us for a 3.0% fee rebate*​
    [​IMG] Minimum Investment $5,000​
    [​IMG] Offer closes on the 17th September​
    [​IMG] Total fund raising of $200 million​

    It would appear that it is designd to 'lock' in an investment which seems to be in line with your comment re the 'rising guarantee'

    I did find some references to 100% loans available for this investment. This may give you some options for reinvesting without terminating the investing. (assumption that at this stage it is self funded). If the case was that you could refund this investment then you could use the redrawn funds to invest in an income generating fund.

    With prevailing interest rates these rarely beat the inflation/tax factors. Say the rate you can get is 6%. After inflation of 3% and some portion (30%) taxed you are left with maybe a 1% real return on your money.

    If the same money is invested with an income fund that returns 12-15% then the figures look much better. Say with a 12% return 4% goes to tax, inflation is still 3% leaving you 5% return on your money. A better return with a bigger risk.

    If you were to then margin lend to increase your returns then the returns from the MF need to be much higher. Say you margin lend up to 50% of the invested funds. On the portion loaned there is a cost of 8%, inflation is still 3% (although because this is a loan this becomes an advantage) tax is going to be at the prevaling marginal rates, say 30%.

    So at a 12% return less the 8% cost of funds you make 4% less tax at 1.2%. This is an even higher risk as you are now potentially loosing money that is borrowed.

    But doing all this with a $100K available your can have an investment of $200k which would give a gross return of $16K (12k on your money and 4k on the loaned monies)

    Of the return on cash the tax is 4k and the loss in purchasing power on the 100k is 3k. The tax on the 4k is 1.3k so the total tax is 5.3k leaving you income of 11.7k and an depreciating asset (cash) that cost you 3k.

    Thus overall your real return on the original $100k is 11.7 - 3 = 8.7k or 8.7%, which is much better than the 1% real return on money on deposit.


    The concept of using various fund manager is mitigating risk as you have mentioned the problem is that a lot of fund manager invest in the same investments so you really aren't achieving much. To aleviate this problem you will need to understand each fund that you elect to use and ensure that you really are diversifying. You also need to watch the MER's as well as 'bonus' payments when they succeed in actually generating income with your funds:rolleyes: a MAC (amongst others) favorite.

    All up if you dig around on this site you will find a wealth of info re Managed funds and the variuos pitfalls.

    Cheers
     
  3. _Sharon_

    _Sharon_ Active Member

    Joined:
    27th Jan, 2007
    Posts:
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    Location:
    Qld
    Thanks for you response handyandy.

    The OMIP funds I have are OMIP 220 Limited Series 8 - 10K and OMIP 130 Plus - 200K. The 130 is sitting at 1.34 rising guarantee (1.15 if sold now), so this is approx 10.5%pa over 3 years? (or 5% for selling now - not good). Have I calculated that right? No GCT though if I remember correctly what I was told when I rang up about them as they are overseas listed shares.

    I'm not really wanting to borrow anything as I don't want to have any debt. This goes against what my husband believed which was you have to borrow money to make money. I sold a large portion of his share portfolio to cover the ML loan he had... I didn't want the debt plus as it was in his name they wanted proof I could pay it and I'd have to apply etc etc. In hind sight I could have done things diffrently and paid out the loan without selling anything but...?...I didn't.

    So my current situation is (and I have my husband to thank for all this):
    210K OMIP funds (intial investment cost) valued more if sold now and even more at maturity with rising guarantee
    515K Cash management account (5.75%....I know...not good!)
    40K BHP shares
    60K WOW shares
    Own PPOR (paid for from proceeds of our business I had to sell after he passed as I couldn't manage it myself with two little ones)
    Debt: CGT to come for 06/07 return, payable early 08, don't know how much
    Debt: 05/06 income tax, also don't know how much yet
    Debt: everyday cost of living

    Any thoughts on how to proceed with the 515K?

    I will probably use Investsmart as they are listed as brokers for the OMIP funds and I am already paying their capped tailing commissons amount so any other trailing commissions will come back to me. Plus 100% entry fee rebate makes them very attractive (especially after seeing a financial advisor and finding out the ongoing and upfront fees!).

    It's just actually deciding which fund to go with that is hard and how much in each asset class. Like because I have the 100K in BHP and WOW do I not invest in any Australian shares managed funds? I'm thinking to put most in a balanced fund and property securities and I was thinking of some in a term deposit but not now as I am thinking I can always draw on the OMIP funds if absolutely necessary.

    I've been looking at CFS (lower MER for wholesale...I like that), Macquarie (is this MAC that you mentioned before?), Suncorp, ING, Vanguard, Perpetual. And just today I was cleaning out my emails and found a couple my husband had with Prive Value Asset Management and I'm looking at them now too. Argggh! There are so many! I have read and printed out so much I need to buy some more A4 paper!

    For me there is an emotion attached to all this as my husband worked so hard to achieve this, he left us fiancially secure and I don't want to blow it. I think maybe this is why I am over thinking everything. I keep reminding myself that he always used to say that historically the share market will perform well over the long term. I know I am in this for the long term as I am not quite 34 yet but at the same time I have an almost 4yo and a 1 yo to raise....risk is scary! But it always comes back, it always comes back, that is what he believed.

    Oh boy,

    Any thoughts for the 515K would be appreciated.

    Thanks in advance
    _S_
     
    Last edited by a moderator: 28th Jan, 2007
  4. handyandy

    handyandy Well-Known Member

    Joined:
    6th Jun, 2006
    Posts:
    312
    Location:
    Sydney Nsw
    Hi Sharon

    I would suggest that you need to know how much Tax you are liable for. This could be substantial and needs to be allowed for in any future planning. There is no point investing the money that is owed to the ATO in a longer term managed fund as you would be paying entry/exit for nothing.

    You should also quantify your living expenses so that any investiments need to ensure that this target is achieved and exceeded.

    As far as MF, you seem to need a fund that gives income on a regular basis and has some growth for the inflationary creep. Personally I use Navra Welcome to NavraInvest Limited - Funds Management
    to achieve this same aim but having said this am currently looking at alternate funds to diversify.

    If you look through the the managed fund posts you will find some discussions on the merits of different funds.

    Cheers
     
  5. _Sharon_

    _Sharon_ Active Member

    Joined:
    27th Jan, 2007
    Posts:
    29
    Location:
    Qld
    Thanks again for you response handyandy.

    I will check out the link, thanks. I have noticed that NarvaInvest is mentioned alot here.

    I was thinking of leaving maybe $50K for my bills but the CGT won't be due for over a year so maybe I'll just put some of it in a term deposit to at least get a higher return than just my bank account. Hopefully it won't be too large but I know my husband purchased WOW when they floated...so that was about $2 I think and I sold some of them for close to $22. Lost on Telstra so that will offset some gains though. But I have no idea on the rest of them. But it is rather complicate to work out isn't it. With oldest shares deemed to be sold first and with some of them he was reinvesting the dividends. I have no idea how it is worked out....must be done through the Share Registry....I think? They would have full details I assume.


    Thanks for your help. I will continue to check out the MF threads.


    Thanks
    Sharon
     
  6. handyandy

    handyandy Well-Known Member

    Joined:
    6th Jun, 2006
    Posts:
    312
    Location:
    Sydney Nsw
    Hi Sharon

    The main reason that Navra is mentioned a lot is that most participants on this forum have some association with Navra and in fact in the initial phase of this forum clients were given free membership of this forum. Also I belief Steve Navra is a share holder in this forum!!!! (heresay????)

    There should be paper work for every share transaction. What you will need to do is spread sheet each purchase by date recording the purchase prices.

    In fact Investsmart has tools on their site that would help you record each purchase and the cost base, remember the cost base also includes and brokerage paid. I haven't used their system to record sales as yet but they may even help with the calc of CGT.

    As far as recording the cost for any shares sold for tax purposes that is solely up to you, you nominate which cost base you use.

    Say you wanted to sell half your BHP and they were bought over a 4 year period in 2 tranches. The first tranch cost $15 the second tranch cost $18 you then sell 1/2 for $22. You can either nominate that the first 1/2 was sold with the cost base of $15 so that you gained $7 or you can nominate that you sold the 2nd 1/2 whihc would have resulted a gain of $4. In this way you can postpone the CGT on the $3 until you sell the 2nd tranch.

    Just some thoughts regarding generating income. I know that you indicated a reluctance for debt but....

    With $500k and a 50% margin loan (another $500k) you could generate about $58k based on my previous figures. A way of ensure that you have some buffer is to then have a LOC on your PPOR which would only be use d for emergencies and to even out the lumpy income. The LOC would be payed down to zero with each distribution.

    There are some discussions re margin loans and the risks at different levels which you should find and read.

    Cheers
     
  7. coopranos

    coopranos Well-Known Member

    Joined:
    11th Oct, 2006
    Posts:
    498
    Location:
    Perth
    Hi
    Sorry to hear about your loss, but it is good that your husband had forsight to give you options for your future.
    It is also great that you are educating yourself about how to best manage your assets now, a lot of people would make emotional decisions and end up regretting it.

    First thing I would suggest is to get to an accountant and go through the last couple of years tax returns and check out what tax you are up for. I take it you sold a big chunk of shares, so it may be a bit (though hopefully a lot of them were purchased before 1985, but you will also get the 50% discount on a lot of them I would think). The other thing you should do before you sell anything else is get some good tax planning advice from an accountant.

    Next, I know you are not doing this anyway, but I would suggest avoiding making any rash decisions. It sounds like your husband knew what he was doing on the investing front, those investments are generally pretty sound and secure investments so there seems to be no urgency in making your decisions about what to do.

    Also do what you can to continue educating yourself. Again there is no hurry to make big decisions for you. Get some general investing books, go through those and try and work out which investing path appeals to you (property, shares, business, or some combo of the above). You should be able to beat that interest rate you are getting by at least 1%, so have a look around at some different term deposit options. ING offer one around 6.5% for instance.
    I would also think opening a separate bank account for putting some money aside for tax each year, as nothing is being withheld the last thing you want is for tax to eat away at your capital. I do not know your personal circumstances, but I would have thought that with no mortgage with your bank interest and dividends alone you could probably have enough income to support your family adequately. Again have a chat to your accountant about this.

    I am not suggesting or insinuating anything negative, but from the sounds of it your husband took the reigns of the finances. This can be a big learning curve to all of a sudden have the task thrust upon you. If this is the case, I would suggest reading some basic books on the principles behind money as well (The Richest Man In Babylon by George Clayson is a good start).

    Just take it a step at a time and dont rush into anything no matter how good it may seem. I imagine there is plenty to deal with for you at the moment without having to make bold financial decisions that will effect the rest of your life!

    All the best
     
  8. Nigel Ward

    Nigel Ward Team InvestEd

    Joined:
    10th Jun, 2005
    Posts:
    1,172
    Hi Sharon and welcome

    Deepest sympathies for your loss.

    The key thing at this stage is not to rush into anything. Take your time to carefully consider your financial plan and then implement it in a measured fashion.

    Sure cash in the bank isn't earning you much after inflation and tax BUT it's safe for the time being whilst you really think through your next steps. These are big decisions and you need now, more than ever, to get them right. If it takes you a few months to plan and then a few months more to implement that's okay! (With 2 little ones spare time is no doubt a precious commodity for you anyway!)

    I'll respond in more detail later on, but in the interim take it slow and don't let the information overload stress you. You can't become a financial expert overnight.

    The starting point is (as you've started to do) to figure out what you've got by way of assets and income and then figure out what income you need now and into the future to provide the lifestyle you want for yourself and the kids. Only once you have that clear do you progress to the next step of how to achieve that income and only then should you be thinking about asset classes, specific funds/shares etc.

    Cheers
    N.
     
  9. _Sharon_

    _Sharon_ Active Member

    Joined:
    27th Jan, 2007
    Posts:
    29
    Location:
    Qld
    Thanks everyone for your replies,

    There is so very good advice there, thankyou.

    Definitely I need to do this in steps as suggested, first work out my debt and work out my living expenses and income needed.

    I’ve started the process of sorting out my CGT. I found some spreadsheets this arvo that my husband had been doing to keep track of some of his shares. Some work to do and I’ve been in contact with one of the share registries…..some help there for free but some that can really cost so I’ll be digging about trying to find what I need first. That’s interesting what you said handyandy about choosing which shares to sell, I may be able to utilize that. Coopranas, unfortunately none before 1985, my husband was only 15 then.

    I need to sit down and see where I am spending money. Right now I think I am breaking even with the interest received covering bills and my FTB will cover any tax. Although a better rate would be nice, before Christmas I was getting less than 5! I know it can be better even without being locked in. Might be changing banks soon.

    I’ve realized that this is going to take some time. Initially I thought I’d have everything in place by now but it hasn’t worked out that way and I think for the best. Among others things, our accountant we had passed a couple of months after my husband did, so there have been delays there. My new accountant has given me some good advice regarding my family trust that I can use tax effectively. I did see a financial planner early on but then I found that my husband was a member of InvestSmart and I learned about discount brokers. I’m glad I didn’t rush into that plan, it wasn’t a bad one but I am thinking a bit differently now. I think I learn something new most days.

    I’m sure I’ll be posting some questions in the MF section soon.

    Thanks again for the advice, I appreciate the time taken to respond and will be looking into some of the suggestions….oh but not the debt one, thanks handyandy…just can’t go there.....maybe later when I don’t have kids to raise….30 probably before they are out of home….ummm maybe not….I will officially retire!


    Sharon
     
  10. TakeStock

    TakeStock Well-Known Member

    Joined:
    14th Aug, 2005
    Posts:
    140
    Location:
    Sydney
    Hi Sharon, and once again my sympathies.

    Some excellent general advice has been given above; slow and steady, no need to rush into anything.

    I can completely understand your need for certainty and low risk at this stage. The sleep at night factor (SANF) is so important and you need to be able to concentrate on the little ones, however, as time passes and you feel more comfortable with your investment decisions, (good) debt may play a part in your future.
     
  11. _Sharon_

    _Sharon_ Active Member

    Joined:
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    Posts:
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    Location:
    Qld
    I agree TakeStock as I certainy understand the benefits of good debt and it's quite possible I will do that one day.....it certainly helped my husband build his assets.


    Thanks
    Sharon