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investing now?? advice

Discussion in 'General Investing Discussion' started by rosewaterwrx, 25th May, 2008.

  1. rosewaterwrx

    rosewaterwrx Member

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    Recently I had my first meeting with a Financial adisor.
    What he advised me is that I can use the equity in my investment house (I have one house I live in and one investment house with equity of about $140,000) to purchase shares via a managed fund.

    Just wondering what the opinion of anyone in here who plays the market is?

    Is it a good time to jump in??....Is getting a loan based on the equity in my investment house to buy shares via a managed fund a good idea??

    My personal worry is that the worlds oil supply is limited...yet the demand for it can only grow....so oil prices skyrocket, meaning cost of living skyrockets, meaning most company profits dimish, meaning the stockmarket possibly crashes. Am I wrong on this??
    Then again after the mini crash we've had the market seems to be on the way back, so maybe jumping in now and holding for 5-10 yrs is a good thing.

    Considering interest rates on a loan, management fees etc is using equity for a loan at the moment a good idea to get into a managed fund. Im a newbie at this so as much advice as possible is greatly appreciated.
    Cheers
     
  2. Billv

    Billv Getting there

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    Rosewaterwrx

    Anything is possible.
    Stockmarkets can crash, and or housing markets can fall.

    The encouranging news is that we have shortage of housing
    and we have low unemployment so as long as we have a job
    we should be ok.

    I wouldn't touch the equity because I don't believe that now
    is the right time to take risks.

    World financial markets are not well and oil and food prices are rising.
    These are very worrying factors.

    IMHO it's best to concentrate on paying down our loans
    because more difficult days could be coming.

    Here is some reading.

    http://www.invested.com.au/96/can-asian-money-contribute-inflation-world-34752/
     
  3. AsxBroker

    AsxBroker Well-Known Member

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    Hi RoseWaterWRX,

    If this is what you believe, you could potentially buy oil stocks, if you wanted.
    From October last year, the market came down about 20% or so (I'm sure someone on the forum knows exactly how much) and it is already up about 12% or 13%.

    Cheers,

    Dan

    PS This is general information, speak to your FPA registered Financial Planner before making an investment decision.
     
  4. rosewaterwrx

    rosewaterwrx Member

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    Very interesting thanks for the advice.

    My basic idea was to use perhaps 60% of the equity to buy into a scheme called GP100.

    This is basically a managed investment scheme that purchases the top 200 australian companies. This scheme lasts for 5 years and within this agreement Credit Suisse has a guarantee at the end of the 5 yrs to provide $1 for every $1 invested....a protection against a falling market if need be.

    Im aware that $1 in 5 yrs doesnt equate to $1 now, but then again the dividends in the meantime should help compensate if for whatever reason the market in 5 yrs is devalued.

    Im very new to investing but personally sounds like a good deal to me???
     
  5. JustB

    JustB Well-Known Member

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    If your time frame truly is 5-10 years, and you can manage the cash flow (i.e. you can afford the interest repayments on the borrowed equity over that time), then borrowing against your IP to invest in shares (directly or via managed funds) is a perfectly valid strategy. And history suggests you should reasonably expect returns above and beyond the interest costs over that sort of time frame.

    I used IP equity to invest in a selection of managed funds (mostly Australian, but some China and US exposure) in February this year, and over the last 3 months, have already seen > 9% growth. I've also dabbled in direct shares over this same time period, and have realised > 30% gains.

    There are always going to be "what if's" to use as a personal excuse not to invest at a particular point in time, just as there are always going to be risks with investing of any kind. However, there are also ways to manage those risks, and a sound strategy can still generate good results in seemingly difficult times.

    I, personally, am in a much better position today, having invested recently, than I would have been if I had sat on the sidelines the past quarter. But even if I was worse off today, I know that I can manage my cash flow to hold on to my investments for the long term, where I am more likely than not to be better off.

    JustB
     
  6. Liverpool St

    Liverpool St Well-Known Member

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    borrowing against PPOR

    I would be interested in knowing if anyone on the forum has borrowed against their PPOR to invest in managed funds. Personally, I don't have a PPOR but will probably shift into a IP next year. I will place funds into the offset account against the property. Having an unencumbered property with all that equity might be too much of a temptation for me. All that equity and no where to go. Navra is looking good.

    LS
     
  7. Billv

    Billv Getting there

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    LS
    Tempting isn't?
    My conservative side says I should take it easy
    while my other half is telling me to invest it in oil and resource stocks
    but the truth is, I am too scared to touch it...:)
     
  8. Liverpool St

    Liverpool St Well-Known Member

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    Accessing all that equity

    Yeah, I am a bit hesitant too. My accountant doesn't like it either. It's a good way to lower the LVR on the ML. I don't think I will be able to help myself. Are you out there Steve? I think I know the answer

    LS
     
  9. rosewaterwrx

    rosewaterwrx Member

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    sorry for the stupid question...PPOR does that mean property for purpose of renting?? in which case im in the same boat.

    What do I utilise the equity for?
    Seems a shame to just have it sitting there rather than use it.
    Im only beginning investment wise but the more time you have available funds sitting around rather than compounding and accumulating the less you can achieve......then again, dont want to make any silly mistakes at a bad time.
     
  10. Simon Hampel

    Simon Hampel Co-founder Staff Member

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  11. rosewaterwrx

    rosewaterwrx Member

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  12. Billv

    Billv Getting there

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    It is a shame but you need to decide if you want to take the risk.
    Will you be investing in a fund or direct shares?
    The markets today are unpredictable.
    Will you be able to sleep at night?

    Cheers
     
  13. rosewaterwrx

    rosewaterwrx Member

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    Thats why i was considering the managed investment scheme i mentioned earlier with the $1 for $1 protection strategy.

    Investment with a safety net if all goes pear shaped.
     
  14. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Just make sure you understand the nature of the protection and how it works - especially if the market suffers a sharp fall.

    These strategies typically only guarantee you capital back at the end of the protection period (usually something like 7 years) - typically by progressively selling down your holdings and converting them to bonds or some other cash based investment such that it should grow to reach your originally invested value by the end of the protection period. This means you lose all potential future growth.

    These protected investment schemes aren't magic - there are very real downsides to them which you need to be aware of.

    I should write an article about how they work.
     
  15. rosewaterwrx

    rosewaterwrx Member

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    Ok thanks for the advice.

    I would be extremely interested in that article.

    I have only downloaded the PDS a little earlier today and very briefly skimmed through. I felt that I wasnt confidant enough to invest in a standard managed fund and that this may be a better option.

    To be honest Im a little confused now.
     
  16. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    For now, here are some comments from Choice that you should consider:

    CHOICE - Capital-protected investments

     
  17. Young Gun

    Young Gun Guest

    Hi rosewater

    I posted this on another thread about that GP100 fund your advisor has recommended. the investment itself seems sound but their may be a cheaper way of buying it...

    *******************************
    I noticed that they intend to list this on the ASX, the code will be CSJ.

    If you have access to borrowings through your house or other means you could most likely pick it up much cheaper than 1.00 per unit when it lists. LICs have a very good history of trading at a discount to their NTA (net tangible assets). buying it on the ASX will also prevent you paying an advisor fee.

    I would not rush in and buy straight away, most LICs trade very thinly after a few months and thats the best time to buy(but not "at market", set a price!). After 90 days Credit Suisse is no longer required to be a market maker and this may be the best time to pick it up. A market maker has to purchase the shares at a reasonable price, which prevents the LIC falling too much in value. But once that support is gone the bottom can fall out of the investment.

    I remember we put clients into a LIC run by HFA called HFA accelerator plus it listed at $1.00 but after the initial interest died down its pretty much traded below $1.00 ever since. even though its NTA is now $1.32 (it currently trades at $0.95)

    **********************
     
  18. eifers

    eifers New Member

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    Whatever your decision makes sure you know all the facts!

    To make the best decision, you need to know all the what if scenario's as well as all the facts regarding the different types of lending.

    To borrow against the equity in your IP means that you are utilising either the capital growth or what you have repaid into the property. Makes sure that regardless, you get a second or split loan for taxation purposes. Makes both your life and your accountant's easier.

    Using the equity will also give you more flexible loan features such as a longer interest only term, or principal and interest repayments at both a lower rate and lower repayment than many of the margin lending loan products on the market. Moreso, you could actually get a better deal on your existing loan for the IP (provided you have one):)

    The catch in all of this is that you need to make sure that no matter what happens with the shares, that you will be able to repay the loan. One option is to borrow slightly more money as a slush fund and put it into an offset account (which means you will pay no interest on the extra borrowed because technically whilst it's in the offset account you havent used it) and then it's available to assist you if times get a little tough. Be cautious with the however, those that aren't disciplined enough may want to spend, and well it's equity so there goes your toilet, or your child's bedroom!

    I'm a Mortgage PLanner so i can assist you with these types of questions...but i can't give you financial advice- you'll need to speak to your advisor :rolleyes:
     
  19. million9

    million9 Member

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    property development

    hi

    building & selling affordable homes

    with a small amount of money i have found small property syndications

    are good showing high return with moderate risk

    20 k invested should bring 8-10 k over 6 months X 2 times pa

    20 k can turn into 38 k in the first 12 months pre tax

    by compounding your returns you can go along way with this method
     
  20. crc_error

    crc_error The Rule of 72

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    higher the return, the bigger the risk..

    property developments can make money, and can also loose lots of money if things are delayed, approvals not granted, material costs up, expected selling price not reached due to falling market etc etc,