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Hey - Would love to hear some feedback on my current investments

Discussion in 'Introductions' started by Crusher, 11th Jul, 2008.

  1. Crusher

    Crusher Well-Known Member

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    Hey there,

    I'm glad i've came across this website as i've been looking for something like this for quite some time! I'll try not to waste to much time here on my first post, but i have made a bunch of investment decisions over the past 2 years since i began investing and would like to know what some more experienced people have to say, considering my limited knowledge i'm just curios if you think my financial advisor has is steering me in the right direction, i feel comfortable but just want to pay it on the table.

    As mentioned, i have 3 main investments, including:

    My own personal portfolio (4 company / shares + 1 CFS managaed fund) valued at around $20,000

    Macquarie Bank Fusion Fund loan = $140,000 (4 years left)

    Macquarie Bank GP100 loan = $150,000 (5 years remaining)

    between the 2 investment loans, my interest is around $30,000 p.a excluding dividends from the GP100, since the fusion is reinvested (the fusion fund is 3 managed funds including the asian market, global property + australian shares) so overall it will come to around $25,000 at a guess.

    Now, in saying all of that.. I'm only 21 and have a stable income of over $100,000 so these demands can be met, but id like to know if there are some other investment strategies you think i should be looking at, at my age? any advice you would recommend me to read into..

    My ultimate goal is to start an investment business ranging from all sorts of products, but i guess everyone has to start somewhere.

    Thanks for your time! :)
     
  2. Young Gun

    Young Gun Guest

    to begin with....21 and a stable income of over $100,000 well done mate, don't know what you do but I should be doing it!

    Really there are only 2 strategies in Australia that efficently build wealth:

    1) borrowing to invest
    2) contributing to super via salary sacrifice

    your doing the first one and given your age the second wouldn't be high priority for you I'm sure.

    looking at what you've got I'll make the assumption that you either don't own your own home or have very little equity built up in your exising one. Which is why you have invested in the Macquarie funds as they offer 100% investment loans.

    I generally don't like these Macquarie funds and similar products as they generally have higher fees and often poor returns. However as there would be no other way for you to borrow to invest your limited to these type of products which generally offer a 100% capital guarrantee.

    so your advisor has done the right thing by you, borrowing to invest is a good strategy, but given your lack of equity to borrow against he has advised the next best product. Ideally you would borrow against your house or have a margin loan against a portfolio of shares.

    so what could you be doing better?

    1) build up your portfolio of shares and managed funds through regular contributions. why? this will build up your equity over time and enable you take out a margin loan at some stage. a margin loan will give you more flexibility over what you invest in and is often a much lower cost option to these protected 100% investment loans. just as a guide they with generally lend against blue chip shares up to a LVR of 70% so on a portfolio worth $50K they would lend you up to ~$115,000.

    2) contributing funds to super. why not contribute a small amount each year? say $5,000 via salary sacrifice? After tax it would probably only cost you $3,500 and the compounding effect over time would be considerable.

    I like to tell my clients who fit in the 18 - 25 bracket the following as a rough guide:

    $1,000 pa contributed to super via salary sacrifice for 40 years, will give you a future benefit of ~$100K (in todays dollars) and after tax it will have only cost you ~$28K.

    to get the same benefit over 20 years you would have contribute $4,000 pa (in todays dollars) at an after tax cost of ~$56K

    & finally to get the same benefit over 10 years you would have to contribute $10,000 pa (in todays dollars) at an after tax cost of ~$70K

    so do you want to pay $13.50 pw now or $135 pw when your 50?

    to achieve your ultimate goal you need to be a financial planner, as that's what they do. but you'll have to take a big pay cut initially to get into the business.
     
  3. Crusher

    Crusher Well-Known Member

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    Hey,

    Thanks alot for your input! That makes alot of sense of everything you have mentioned there! I know my age and income doesnt really match up, but would you believe it, i work in the mines! But love my job and am currently studying to ensure a secure career within the industry for the medium term, finance is something i wish to branch out into in the coming years.

    I did salary sacrifice $80 a week into super, and as my dad has always mentioned, money you dont see, you dont miss. But since my accountant has advised me to lower that to $50, not much of a difference and as you noted, it will make the world of difference at the other end of the timescale.

    You really hit the pinpoint with my limited equity to borrow against, i do not own a home as of yet which is why this 100% capital protected loan was the best option given my situation, and both the Macquarie loans are protected at maturity which does have its benefits, but of course you pay for the privilege.

    I'm familiar with margin loans and will look more into them as time continues and my current portfolio is worthwhile to get a decent loan amount as there are several companies i wish to invest further in, but just dont have $50,000 lying around :( haha.

    I bought into the T3 option which im sure your aware of have rolled over into Telstra shares, but they are my only blue chip shares, the other companies being CEntennial Coal (my company, which have returned over 100% for me) Queensland Gas Company (also 100%+) and a new one i came across Rivercity Motorway group, doing the cross city tunnels in Brisbane, of course all being a long term hold.

    I did make the mistake of taking a punt on Rams Home loans too! Some grand plan that was! But i've cut my losses and moved on, thankfully it was only $1100 i lost, couldve been alot worse!

    In your opinion now, what do you think my best option is? Investing into more shares, i wouldnt consider myself a day trader as i plan to hold onto these investments for quite some time, or do you think property should be my next investment?

    Thanks for your time, i really appreciate it! :)
     
  4. Young Gun

    Young Gun Guest

    with a name like crusher I should have known you were in the mines.

    Your dad is a smart man and should be listened to :) your first mistake was taking financial advice from an accountant.

    when your weighing up who you should take advice from, think of it like this....If a Financial planner & an accountant were in a car, the accountant would be looking at the rearvision mirror and the advisor would be looking out the windscreen. so who do you want driving your car? :)

    use an accountant to do your tax return, thats pretty much all there good for :p (I'm not going to popular after saying that lol)

    Shares or property hmmm well considering the sharemarket has had it's worst performance in 20 odd years and property is slowing down considerably but yet to collapse, I'd go with shares as they represent the best buying opportunity for long term investors.

    The 4 major banks represent good buying opportunities, but don't expect a good capital gain anytime soon. but with a fully franked dividend of ~7% they would be positively geared at the moment if you borrowed to invest into them. and after all money in your pocket is worth more than a paper gain.
     
  5. Billv

    Billv Getting there

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    Young gun

    I can sense some bias there...:)
    I'd say it depends but it could also be that the accountant is looking through the windscreen and the financial adviser is looking at his commision...

    Cheers
     
  6. Crusher

    Crusher Well-Known Member

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    Of course the first thing people said to me when i mentioned a financial adviser was "they will only tell you to invest in this because of their commisions" but i have come to know that my advisor has my best interests and goals 100% priority.

    My accountant also has, as ive asked alot from him and learnt alot, and it helps with the 2 companies working together, so i can arrange meetings with both to discuss where i am up to etc.
     
  7. AsxBroker

    AsxBroker Well-Known Member

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    Hi Crusher,

    This is a common misconception that advisers are here to flog you something.
    This probably stems from the tv advertising of industry funds who don't have many advisers recommending their product (yes, their advertising is flogging product and not advice).

    If you have the time, inclination and education you won't need an adviser (same as a lawyer, accountant and doctor).

    Cheers,

    Dan
     
  8. Jacque

    Jacque Team InvestEd

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    Well done Crusher!!

    May I say firstly up that your dad sounds like a smart cookie:D
    I'm sure that you know that already.

    You're already diversified but why no direct property investment?
     
  9. Crusher

    Crusher Well-Known Member

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    Hey Jacque,

    Yeah dads not to bad.. He did make a few mad investment decisions, putting over $100k in the market around Oct-Nov last year, lol so he's not to happy about that! But life goes on.

    Anyway, thanks for your comment. I asked my Financial Adviser that question "at my age, and income etc.. should i be in shares, or buy into property?" he strongly recommended the market for me, but thats not to say im not interested in property. My next 'big' investment will be property, but i know very little about it all, any tips?

    Thanks mate
     
  10. Jacque

    Jacque Team InvestEd

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    Hi Crusher

    The reason most FP's won't recommend direct property (as opposed to listed trusts etc) is pretty simple- they don't obtain a commission from it. They're more likely to advise managed funds as this is where they make their money. Simple but true. Ask your FP and you'll soon see what I mean.


    As far as property goes, it's really up to a few things:

    1. Your budget- to ascertain this, speak to a good independent broker or your preferred lender

    2. The type of property- residential (house or unit) commercial or industrial

    3. Your cashflow- after tax is the most important, as there's many on paper tax deductions that can make a big difference to your bottom line.
    Also allow a buffer of at least 1% interest rate rise as you just never know what the future's going to bring. Be conservative with your figures.

    4. SANF- In other words, if you're not comfortable and your investment decisions keep you up at night, then reconsider. We all have differing risk levels and you need to decide what's right for you at this point in time.

    Hope this helps.
     
  11. Young Gun

    Young Gun Guest

    and why would a real estate agent recommend property? cough* commission * cough :)

    No, the reason you'll find FP's don't recommend direct property is that their dealer group simply won't allow it. We are not property experts and should never pass ourselves off as one. Thats what real estate agents are for.

    In fact I'd stear well clear of any advisor who does recommend property, they are generally the dodgy ones getting under the table payments from developers.

    The other reason most FPs won't recommend "direct" property is that similar investment returns can be achieved through a diversified portfolio of managed funds and shares for lower risk and a lower cost, thats it. nothing sinister.

    Most advisors are fee for service these days so they'll charge for what their times worth. If some of that cost can be met by commissions so be it, I know most clients would prefer their product pays for it rather than their pocket.

    were heading for a 1 in 100 year property collapse I wouldn't be jumping onto a sinking ship now.
     
  12. Crusher

    Crusher Well-Known Member

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    Thanks for the advice.

    I understand where your coming from, of course everyting comes for a price, but i know with my 2 contract loans, the commissions come out at a % of my profit in the long run, which i was comfortable with.

    As for the real estate, i figured a FA would have knowledge on all types of investments, lol.. I guess i never really thought about it, but of course it makes sense that advisers are specialists to a degree.

    I was also wondering what was going on with property, 1 in 100 year collapse you think? That does sound nasty.. All i ever hear is 'its a buyers market now, you have to get in now' but then again, what a guy at a pub or someone at work says, is often different to the real case isnt it! haha.. Surely the property market cant go down much further, could it? I mean, some places falling over 20-30% within 12-18 months, could they go further.. to -50%?

    I know i'd be pretty shattered if i bought an investment property for say $300,000 12months ago to only have it be worth $200,000 now.. ouch.
     
  13. Jacque

    Jacque Team InvestEd

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    Curious as to why you think this, YG? I'd agree that we're definitely in the bottom section of the current cycle but where did you get the 1 in 100 year collapse from?
     
  14. Young Gun

    Young Gun Guest

    why do I think a one in 1 in 100 year collapse will occur? well consider this:

    The sharemarket rise's and fall's pretty much in line with corporate profits. When the share market gets ahead of it's self, 1 of either 2 things happen, either a) it stays static and eventually corporate profits catch up or B) the market comes crashing back to earth. This happened in 1987 and it has happened in the last 12 months.

    The property market historically has risen inline with a real increase in income. And has been that way for many years. However since the late 80's this linear growth has become disjointed and property price's have risen at a far greater rate than the growth in income. This is why there is a such an affordability crisis now. some will spout the old supply & demand BS but thats just incorrect, we don't have a shortage of land in Australia, infact we have plenty of land. Just not 1/4 arce blocks 5 minutes from the CBD....

    so the same story goes with property as it is with shares, either 1 of 2 things can happen property prices stay static or there is a big collapse. I'm just betting on a big collapse. If Australian Property shares can fall on average 30 - 40% in the last 12 months why can't residential property?

    why is Australia immune from the property collapse's that have occured in the US, Japan and the UK? how can anyone claim that growth of the last 20 years will continue? I've been to numerous meetings over the last 2 & 1/2 with fund managers saying that the growth in the australian share market, US property market and Australian property market couldn't contiune. They have been right with 2 out of 3 so far...

    [​IMG]
     
  15. Billv

    Billv Getting there

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    Young Gun

    Since you've presented the chart perhaps we should refer to the other points raised in the AMP article.

    Reasons not to get too gloomy
    There are two favourable differences between Australia and
    the US. First, while America has an oversupply of housing,
    Australia has a huge shortage. Housing construction is currently
    running around 30,000 dwellings per annum below annual
    underlying demand, which is driven by immigration and natural
    population growth. This is more than evident to anyone seeking
    rental accommodation – capital city vacancy rates are very low
    and rents are rising.

    Concluding comments
    A shortage of housing, a huge boost to national income from
    commodity prices and higher lending standards suggest that
    a US-style collapse in Australian house prices is unlikely. However,
    rising mortgage rates (leading to record mortgage stress at a time
    of massive over-valuation), poor housing affordability and very
    high debt levels suggest that average Australian house prices
    are more likely to fall than rise over the next year. On balance,
    national house prices are likely to fall by 5% or so over the
    next year but, as always, this will mask a huge variation
    across locations.

    By Dr Shane Oliver
    Head of Investment Strategy and Chief Economist
    AMP Capital Investors

    More Here
    http://www.amp.com.au/display/file/...00.pdf?filename=olivers_insights_08052008.pdf
     
  16. crc_error

    crc_error The Rule of 72

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    now why would a buyers agent be recommending property? lol

    A financial planner can recommend you buy a house, and they can charge you for their advise in a different way.. trailing comissions from funds cover the cost of providing a service, just like you charge a fee to your client to find a house.. or prehaps you split the comission with the agent?
     
  17. AsxBroker

    AsxBroker Well-Known Member

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    Hi Young Gun,

    All this article is really saying is that no one really knows what it going to happen "Some are still talking about big gains on the back of the housing shortage, while others are suggesting up to 30% declines in house prices as overvaluation and excessive debt levels unwind and the economy deteriorates." That's a pretty big range to be talking about.

    Olly only very briefly discussed the difference between the US and Australia, more than 80% of Aussies live on the east coast of Australia. In the US they are spread out much more nicely. When Americans come here and look a name of a place up on a map they think it's a town (because it would be in the US), when you tell them that it's just a name and no one lives there they think you are pulling their leg. The idea of massive desert that no one lives in has them beat as it's so different from their own country.

    It sounds like Olly is taking an each way bet and covering himself to turn around in 12 months time and say "I told you so" for whichever scenario pans out. This is probably the best thing for an economist to say at the moment.

    Trailing commissions are supposed to pay for ongoing service, whether this happens or not is another story, if a financial planner isn't giving you ongoing service feel free to go to an FPA registered financial planner who will give you ongoing service.

    Cheers,

    Dan
     
    Last edited by a moderator: 20th Jul, 2008
  18. yo yo ma

    yo yo ma Member

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    I want to drive it myself... they can both sit in the co-drivers seat!
     
  19. Jacque

    Jacque Team InvestEd

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    Hey crc

    Perhaps you're not familiar with my history- I've been an advocate of PI for some time now- many years well before I became a BA. You could say I have a slight passion for it :D
    As for recommending it, I'd like to think that my comments on here are well balanced and you'll find many of my past posts both here on other forums that support this. What you won't find is much in the shares section as I admit to being somewhat Uninterested and Unknowledgeable here :D

    As for splitting commissions, I'm an independent and exclusive BA- read my site for more details on fees. The only person who pays me is the buyer.
    Hope this clears things up for you.
     
  20. crc_error

    crc_error The Rule of 72

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    Thanks for clearing that up Jacque. I don't condone your passion for property, however I did think that suggesting that financial advisers someone recommend a product over another proudect because they get a kick back is unfair.

    They expect to be paid for their service just like you do. They get it via trailing fees, whereas you get it as a fee charged seperatly. Either way both of you get the fee for service. I'm sure both of you will offer quality advise in your field, and both will expect to get paid for it.