Join our investing community

how do cash bonds work?

Discussion in 'General Investing Discussion' started by voigtstr, 12th Oct, 2008.

  1. voigtstr

    voigtstr Well-Known Member

    Joined:
    24th Jan, 2007
    Posts:
    679
    Location:
    Hobart
    On the Navra forums (to which I only have read access) Steve mentions that "Cash flow will be a huge issue:
    Yes this is going to be a big problem for most people.

    Solution: We will address this on an individual basis at the planning meetings. Many different solutions are available . . . the Cashbond being one of them."

    If I wanted to invest in the navra growth fund at 100% financed, how does a cashbond work to provide more cashflow?
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,623
    Location:
    Sydney, Australia
    A cashbond is a servicability solution based on an annuity purchased using existing capital which then provides an income stream over a number of years.

    It is essentially "buying" cashflow - and there are costs involved.

    Overall the strategy loses money, but the idea being that if it gives you an opportunity to buy a growth asset you otherwise wouldn't have been able to hold, then your returns overall should more than make up for the loss you make on the cashbond.

    It is typically used as a last-resort option to get you finance when other cheaper products like lo-doc / no-doc products aren't available or suitable.

    I wouldn't generally consider a cashbond/annuity unless you have exhausted all other options - and even then, it really is something you need good advice on.
     
  3. voigtstr

    voigtstr Well-Known Member

    Joined:
    24th Jan, 2007
    Posts:
    679
    Location:
    Hobart
    We don't have capitol to turn into that cashflow... I think we'll have to plod along, get our two savings goals out of the way, and then some time down the track we'll have full day child care to consider. I cant see how I'm going to invest in the short or medium term because of cash flow, except for perhaps dollar cost averaging in with savings plans (already have one for cfs geared). Perhaps its time to do one for Navra Retail as well (well perhaps in a month or two, to see if the market will settle a bit)
     
  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,623
    Location:
    Sydney, Australia
    Just because it bugs me ... capitol is a building occupied by a state legislature, and typically is used to refer to a specific building in Washington DC.

    Capital is the correct spelling in this context.

    If you don't have capital, you need to save your money. There's nothing wrong with accumulating spare cash in a high interest savings account until you have enough available to invest (and a suitable market to invest it in!).
     
  5. voigtstr

    voigtstr Well-Known Member

    Joined:
    24th Jan, 2007
    Posts:
    679
    Location:
    Hobart
    Noted re capital vs capitol.

    Re the 7% or 8% with online savings account, versus investing now with really low unit prices, I guess its a matter of wondering months till we hit the bottom of the market? Did we hit the bottom friday? Will falls slow down but the bottom is still 6 months away? Is dollar cost averaging now, going to be more rewarding in the medium to long term?

    Regarding the savings goals (through to mid next year), a high interest online bank account is definitely the right approach for that, and is what we will be using.
     
  6. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,623
    Location:
    Sydney, Australia
    Hey, if I knew the answers to all those questions, I wouldn't be here - I'd be retired :rolleyes:

    Even if we did hit the bottom on Friday (I suspect not), I doubt we will see a strong gain from the market for a while ... even if it bounces on Monday, I think it will drift down again until the good/bad news ratio starts to improve. I suspect sideways will be largely the direction for some time yet.

    If you are investing money you won't need for 10+ years, then DCA into the market now is a pretty good strategy I think - the market is pretty cheap now, even if it does get a little cheaper in the short term.

    7% risk free is hard to beat at the moment ... but if rates come down much more, those returns will drop off too - I'd start to pay close attention to the property market again!