Discussion in 'Investing Strategies' started by Simon Hampel, 18th Oct, 2005.
Living on Equity
Use this thread to discuss the article: Living on Equity - part 1
Uh . . . my fav topic
I'm available to answer ALL questions
lets start with a little discussion :O)
"It doesnt work, and you can do it" is a standard answer youd get from most people, incidentally even those with enough fuel (equity) and common sense to make it work.
So why is that ? Why are people's perceptions on issues with such obviously similar possible outcomes out of the similar scenarios so very very very very different.
I have found thats its simply mind set or paradigm, You can either feel something will work for you or you dont, and in both cases you are 100 % right.
Two of the core mis-understandings that many "negative" people fall into are old success principles.
1. You get what you go out looking for.
2. Model and ask people that have been successful at what you are trying to do.
Essentially, dont ask someone who makes 70 k a year in a PAYG job how to make 500 a year in business/investing.
Maybe I have a strange combination of enjoyable reading matter ....
Sitting out under a tree next to a fountain at lunchtime one day with the Da Vinci Code........another reading a rollicking good Investment Article such as the above.
While I always expected the content to be good, the layout, linkages to other articles etc. have even made it more professional.
Well done guys!
Looking forward to the remaining articles in this series........
Hmmm........I wonder whether the hero will get the equity in the end??
I'm an advocate of LOE, and the thing that bugs me the most with the nay-sayers is their inability to grasp the following concept that Steve states:
For me, I consider this the most critical component to LOE. I consider LOE an effective means to minimise your tax provided you are willing to draw in arrears of the growth. Once sufficient "surplus buffer" has built up, it is possible to draw more than a years growth if you choose to provided you are not consuming more than the net surplus growth since you started LOE and provided its not more than your initial net asset position indexed to inflation.
I say "tax effective" since if your structure is neutral with income assets funding the holding cost of growth assets, then you're tax bill is zero on the structure. If you draw equity to spend then your tax is effectively the prevailing interest rate on your LOC.
Anyway, I'll let Steve spell it all out in instalments 2, 3 and onwards...
Enough for Living
Great article Steve!
The Viking and I have an ongoing debate as to what level of equity is enough.
I prefer to think of it in terms of maintaining an adequate supply of Pinot Noir, but others may have differing proclivities.
Are there any guidelines on what level of income is considered enough as far as the average frugal liver is concerned.
1. Interesting article.
2. I will be looking out on how and what you define as, 'safely invest", "safety buffer for investment" and "sustainable .... as in how to safely invest and operate LOE safely in a sustainable and long term basis".
3. I agree with you that the basic thinking that "we live within our means" is one of the keys to living LOE successfully...
4. ...However, I have have some problems agreeing with your thinking and assumption that "IF Growth does not happen the previous years as expected" and since this "IF" is a big one, capable of putting all our properties at risks of losing them entirely as a possibility, it will need further elaboration and closer examination for your concept of your LOE. I hope that you can address this concern more specifically and in greater details, either as a reply in this forum discussion or in your subsequent follow up article write up on the Living Off The Equity.
4. For your kind feedback and copnsiderations, please.
5. I look forward to hearing and further learning from you please.
6. Thank you.
That's not a Freudian slip there is it. I too would be concerned with my frugal liver if supply of Pinot Noir was my primary concern in self-funded retirement...
Enjoyed reading Steve's LOE article and look forward to remaining sections. Am ok with the concept paticularly how to compound growth fairly quickly but security keeps popping up with me. Obviously the focal point is the engine that generates the returns such as a MF (e.g. Navra Retail fund). It seems that if this doesn't perform to quite a high level with returns in excess of 12% minimum (loan service fees plus return on investment) there is a danger of the whole investment collapsing in on itself.
Be interested on comments from others particularly anyone who is actually following the LOE strategy put out by Steve.
Hi pudsa, Kenneth and everyone else,
All of the questions so far are covered in the future episodes of the LOE article ... so I might wait a bit before giving further commentry.
I will keep an eye out for ideas that are not covered in the article, but it is extensive and should cover 99% of what is being asked.
I will add some extended notes on using MF income streams in conjunction with LOE at the end.
Please discuss part 2 of the article in this thread: http://www.invested.com.au/forums/showthread.php?t=443
Separate names with a comma.