Join our investing community

My investment plan, incl MF and IPs. Comments pls!

Discussion in 'Investing Strategies' started by bonkerrs, 31st Jul, 2007.

  1. bonkerrs

    bonkerrs Active Member

    Joined:
    26th Jul, 2007
    Posts:
    25
    Location:
    Sydney NSW
    I am 33 and am looking into our future financial position. Might have to… but I really don’t want to work until I’m 65, only to have a meagre existence after retirement. Currently I earn 82,000 (gross) and my wife is on about 50,000 (gross), I have a young daughter (16 months) and my wife will be stopping work soon (if all goes to plan I guess in about 2 years) to have a 2nd child. I’ve been reading online investment forums and books/magazines for a few months now, I think I’ve come up with a plan to supplement my wife’s income when she stops work while (hopefully) not having to trim down on the lifestyle we’re used to. I’m going to lay it all out here, please advise/comment/remark on my plan. It definitely needs refining and I’m hoping to get help refining it.

    Our home loan (HL) = 305,000
    Offset account has 70,000
    Shares/savings account = 35,000

    I am thinking of using half of the offset funds to buy into a managed fund (MF) and use margin lending (ML) to increase my exposure.

    Current Home loan rate: 7.47%
    ML rate: 9.15%

    If I use 35,000 from my offset account I will be paying 7.47% on it… right? This is because it is no longer in the offset acct to reduce the total HL amount.

    The HL interest rate together with the ML interest repayments means the managed fund that I buy into will have to perform better then 16.62% (7.47% + 9.15%) to make it worth while… right? Anyone know of an online calculator to work out the amounts? Or if you’re good with excel and can create a spreadsheet… hint hint!! :D

    EG: If a bank is willing to lend 75% for a particular MF. Is this correct:
    35,000 plus 75% = 61,250 total MF
    35,000 x 7.47% = 2,614.50 p.a. (interest repayment)
    26,250 x 9.15% = 2,401.88 p.a. (interest repayment)
    Total repayment = 5,016.38 p.a.
    For the total of 61,250, it has to return above 5,016.38 p.a. to make it worthwhile… right?

    The MF has to produce an income because it’s main (only) reason/use is to help service IPs (none acquired yet, planning stage).

    Once that is setup, I will look into buying the first IP shortly after and continue to buy IPs when equity builds up enough. Serviceability. This is the greatest concern, we could probably afford to service a couple of IPs but it would mean not being able to provide a decent life/school for the kids and a huge change to the current lifestyle. Yep, I want my cake and eat it too :p . How can I afford to service more IPs? Ideas please?!

    That’s it. That’s a plan to work on. Rough isn’t it?! Hopefully with the ideas/comments from here I’ll be able to get a firmer understanding and refine it.
     
  2. bundy1964

    bundy1964 Well-Known Member

    Joined:
    22nd Dec, 2006
    Posts:
    351
    Location:
    Adelaide, SA
    Seems about right to me, a LOC may be better option.

    You have doubled up on costs there but you would like at least 10% return to make it pay.

    By my maths at 75% thats 140,000.00 total.

    Anything above that is profit and remember profit can include capital gains as well as income.

    Untill you do buy IP's on your income tax will eat into profits. Not that there is anything wrong with making a profit with an income fund especialy if your going to offset that income later.

    Most common negative gearing fixer is by using an income fund. There is also capitalising interest and LOE that can be used as well.
     
  3. bonkerrs

    bonkerrs Active Member

    Joined:
    26th Jul, 2007
    Posts:
    25
    Location:
    Sydney NSW
    I included paying 7.47% for the 35,000 removed from the offset, that will becomes a cost.


    Showing my newnest to this. It obviously isn't worked out like this: 35,000 + 26,250 (35,000x75%)... well that was embarrassing!:rolleyes:

    'Income Fund' as in income producing managed funds?
     
  4. bundy1964

    bundy1964 Well-Known Member

    Joined:
    22nd Dec, 2006
    Posts:
    351
    Location:
    Adelaide, SA
    140K asumes you reinvest in 75% lvr investments. Sim would say go no more than 70K to start with, I am more aggressive than he is though.

    Navra, AMP and Vangaurd all have income funds as would some other managers, those three I am more familiar with though.
     
  5. Simon

    Simon Well-Known Member

    Joined:
    17th Sep, 2005
    Posts:
    520
    Location:
    Newcastle
    Don't use the offset - the opportunity cost you mentioned is not deductible.

    Borrow 100% of your investment funds until you have no personal debt left.

    Will save a lot in the long run.

    Cheers,
     
  6. crc_error

    crc_error The Rule of 72

    Joined:
    1st May, 2007
    Posts:
    1,367
    Location:
    Melbourne, VIC
    Best to try to pay down non-deductable debt as much as you can, then draw down the equity. Then this non-deductable debt becomes tax dedectable! I think they call it debt recycling.

    Once you draw this down, invest it into quality managed funds. I recommend choosing growth funds, as you don't pay tax on them until you sell. Income funds you pay tax on the income each year which reduces your investment amount.

    Then gear at 50%, not 75% as if your geared to the hill, the market drops like it did recently, then you will be margin called, meaning you either cough up cash, or they sell down your funds - at the worst time!.

    Keep putting your wage into your home loan, and redrawing the equity and investing into new funds.. As your house increases in value, get your loan redone to access these new funds, which you dump into managed funds again.. this will grow and grow until you can retire! The bigger commitment you put into it, the quicker you will reach your retirement goal!

    You should expect this plan to take 10 years to achieve.

    When choosing your funds, choose say 5-6 funds in different asset classes to spread your risk.. Although Sim will say to pick the current winners, I personally think no-one has a crystal ball and can't say what will happen tomorrow.. so best to be safe, spread your risk, and view it as a long term plan, so don't worry about the roller coaster ride along the way!
     
  7. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    ... actually I don't say that - my fund selection strategy is a bit more complex - I strongly suggest you do NOT select a fund just because it has performed well recently. However, just because is HAS performed well recently is NOT (in my opinion) a reason to dismiss it as some other people might suggest !!
     
  8. crc_error

    crc_error The Rule of 72

    Joined:
    1st May, 2007
    Posts:
    1,367
    Location:
    Melbourne, VIC
    fair enough, I personally think you should be in a basket of quality asset classes.. and over the long term, they will all complement each other.

    I was on the assumption you look at investments which are "performing today"..
     
  9. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    Yes, that's a better description, and quite a bit different to "current winners", which implies they have to be the best.

    I actually prefer consistency - performance with less volatility, rather than looking for just the highest performance.

    However, I'm quite prepared to move out of an asset class completely if it shows signs of a change in sentiment (eg listed property at the moment), rather than holding long term regardless of what the market does. I'm not saying there's anything wrong with holding long term - I'm just explaining my personal strategy. It's about ensuring my money is working for me and not just sitting idly waiting for a market to recover.
     
  10. crc_error

    crc_error The Rule of 72

    Joined:
    1st May, 2007
    Posts:
    1,367
    Location:
    Melbourne, VIC
    You mention LPT's.. so did you manage to get out of them when they were booming and there was great sentiment? or did you get out in the last few days once the big falls had taken place?
     
  11. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    I was holding LPTs via the CFS W/S Property Securities fund and I sold out progressively when the sentiment changed back in February and March.

    My average sell price over a couple of months was approx: $2.11, and the current unit price is $1.92 ... which is around 9% down from what I sold at - so it turned out to be the right call.

    This fund is still on my short list, and I will most likely buy back in when I see a return to consistent growth.

    I also held CFS W/S Colliers Global Property Securities for a short period - and again, I sold out of these progressively back in May - which also turned out to be the right call. My average sell price was (also !!) $2.11, and the current price is $1.66, 21% down from what I sold at.

    I don't try and time my entry and exit to funds - it's too difficult to do with any accuracy given the time delays between the data we get and when any transactions actually take place.
     

    Attached Files:

  12. bundy1964

    bundy1964 Well-Known Member

    Joined:
    22nd Dec, 2006
    Posts:
    351
    Location:
    Adelaide, SA
    You realy are a day trader in denial Sim :p
     
  13. Tropo

    Tropo Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    3,394
    Location:
    NSW
    Maybe not a daytrader, but Sim reacted as a trader/active investor = Good news!:D :D
     
  14. crc_error

    crc_error The Rule of 72

    Joined:
    1st May, 2007
    Posts:
    1,367
    Location:
    Melbourne, VIC
    Sim, I have to give you credit on that one! well timed!

    What fund do you hold for Australian Shares exposure?
     
    Last edited by a moderator: 31st Jul, 2007
  15. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    Certainly not a daytrader - my system is too "macro" focussed to be considered such. It's virtually impossible to accurately trade funds on a micro-scale, so I don't even try. My system currently includes a large "grey" area where a judgement call is required because there's not enough timely data to give a solid signal within that area - so my system currently gives "buy", "sell" and "query" (ie. think very carefully about it) signals.

    Perhaps with further analysis I can develop something that gives more clearly defined signals - but it would likely need to be tweaked for each individual fund :rolleyes:
     
  16. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    - Navra W/S Australian & CFS W/S Geared Share for blue chips (these play off each other, one has low volatility with high income, the other is high growth and high volatility with low income)

    - CFS W/S Small Companies Core for smaller companies (no longer open to new investors)
     
  17. Tropo

    Tropo Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    3,394
    Location:
    NSW
    I fully understand that.
    You can not trade funds like individual shares (pity).
    Take your time !!!. One day you'll find the way !!.

    GOOD exit on the right side chart above !!:D
     
  18. crc_error

    crc_error The Rule of 72

    Joined:
    1st May, 2007
    Posts:
    1,367
    Location:
    Melbourne, VIC
    ok, cool, I thought you gear the funds yourself? How come then you didn't invest into the colliers geared fund?

    You only have a couple funds selected.. do you only stick to the colonial suite? plus Navra?
     
  19. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    The CFS W/S Colliers Geared Global Property Securities fund has only been operating since the 16th of April this year !! I won't invest in something without a track record (good move too - unit price is currently down to 0.7758 :eek: ) I will certainly be looking at this fund in a couple of years time, once I've had a chance to see how it reacts to market movements and to assess the volatility.

    My current fund managers are CFS, NavraInvest and Platinum, although I also have other exposure via a structured investment product.

    I like the CFS W/S investment options - if you can get $100K together (that's only $40K cash required @ 60% LVR !!!) you can then access any of their wholesale funds, with no entry fees and lower ongoing fees. You can swap between funds quickly and easily, and they offer a wide range of investment options and styles, including many funds from other managers (eg you can invest in Platinum funds via the CFS "platform") ... although it's slightly more expensive to do so, sometimes margin lenders will actually offer a higher LVR on Colonial's version of the fund than they will on the fund manager themselves !!!

    I only hold Platinum's Asia fund at the moment, although I also have Platinum European and Platinum International Brands on my short list, and have recently added Platinum Unhedged Fund to my watch list for future consideration. I have removed Platinum Japan from my shortlist, although I continue to watch it out of some sense of morbid curiosity !! (the same reason some people are drawn to watch shows like Air Crash Investigation I guess !!!)
     
  20. Rod_WA

    Rod_WA Well-Known Member

    Joined:
    18th May, 2007
    Posts:
    324
    Location:
    Inglewood, WA

    I reiterate this because it's the most important piece of info you need to get resolved... which fund you pick is way down the list!