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New to investment, unsure where to start

Discussion in 'General Investing Discussion' started by Clinta, 3rd Sep, 2012.

  1. Clinta

    Clinta New Member

    3rd Sep, 2012
    Adelaide SA
    Hi everyone

    would love some insight into what my best point of call is when it comes to investment. I have a significant large lump sum of savings however I'm only in my very early 20s with limited experience in regards to investing, so for me this seems like a big deal.

    I generally just hold my savings in 4 different bank accounts. One is for my daily expenses and weekly income and outgoing expenses.

    The other two are general saving accounts with an average return interest of 4.7% p.a and the fourth is a 5 month long term deposit account with an interest rate of 3.5%.

    I tried meeting with financial planners however I found they usually just try to make you buy into a specific company they are allied with but I was actually seeking an unbiased advisor who was there to independently advise in MY best interest.

    So my question to you is what is the best way of making an informed decision about what investment options there are out there?? are there any websites, materials, etc that are independent and could help me to make this decision?

    q1) Am I better off leaving my savings where they are currently? safely deposited into general savings accounts

    q2) If I invest in property, it will be ALL of my savings + a small loan from the bank which I could pay off within 10 years... However I would not in a position to actually put extra money into renovations. etc. Should I still buy into the market?

    q3) What are peoples thoughts on investing in shares, and such? where can I look? how do I assess the risks?

    q4) can anyone recommend financial planners or how to find independent financial advisors that are not from particular investment options advertised. ?

    In general I am looking for an option that has reliable income growth over a period of time and marginal "risk" factor attached. I do not mind small risks.

    I think I'm paranoid about having all my savings in 1 basket... this is why currently I have my savings split into four accounts, is this wise or foolish?

    I am keen to buy a property to live in, however I was hoping I could invest and grow in the next five years and then I could buy a small property outright with no loan, rather than taking on a small mortgage? i

    However I often hear that "NOW" is the best time to buy and it's the lowest it's ever been, so I am tempted to take on a small mortgage and pay it off as I go?

    Thoughts anyone?

    Regards, Clint
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    9th Jun, 2005
    Sydney, Australia
    Wouldn't we all? :rolleyes:

    Unfortuantely, what is best for you is not necessarily best for anyone else, which is what make financial advice so difficult (even for financial advisors!).

    Read a lot (books, websites, discussion forums), ask a lot of questions, familiarise yourself with how various investment vehicles work. In particular, pay attention to what happens when things go wrong. There's a lot of material out there telling you how you can make big money when things go well - but there's not a lot which teach risk management and exit strategies.

    Savings accounts are a good place for accumulating money to start with, but over the medium to long term, you won't achieve much by only investing in cash.

    Indeed, much of the time you will possibly end up going backwards due to inflation. That means the purchasing power of your savings will decline over time if the returns you get don't keep up with the rate of inflation.

    Which market? There are lots.

    Where would you look to buy? What type of property - to live in or for investment? How long would you want to hold it for?

    What is your budget (ie how much would you be willing to spend on a property?).

    There's a lot of material out there on shares.

    The first decision to make is - do you want to be an active investor (trading shares - buying in and selling out over a period, somewhere between day-trading and long term trading). Or do you want to be completely passive and just sit back and collect your dividends, hoping your shares will go up in value over time.

    You also need to educate yourself about the risks and understand the various mechanisms you can use for buying shares (direct shares, ETFs, managed funds, etc).

    Read a lot.


    My "advice" is to educate yourself first before you see an advisor. You need to be able to judge the quality of their advice by understanding the products they think you should invest in. Understand the risks of strategies they suggest and be able to make a judgement about whether they are right for you (don't just take the advisor's word for it!).

    Unfortunately, I know too many people in recent years who were "advised" to invest in certain strategies which have seen their entire life savings disappear. All because they blindly followed the advice of their advisor and weren't financially educated enough to understand the risks.

    The number one question I think you need to answer for yourself is - what do you intend to do with the money?

    If you are saving for a particular purpose, then the timeframes and amount of money you need will largely determine what is the best strategy for you.

    For example, if you want to buy a house to live in within 3 years, that is a very different strategy to investing for retirement in 40+ years time.

    Depends on how much you trust the banks you have your money in. As the GFC has taught us, the banks are not too big to fail, although it also taught us that the governments will go to great length to avoid them failing if possible.

    There is an argument that our "big four" banks are indeed too big to fail here in Australia - the devastation left by one of them going under would be too large for the government to not act if they were in trouble.

    Let's not get into sovereign risk - that's another level altogether, and one would hope something that we're not needing to worry about too much in Australia right now.

    For the paranoid, spreading your money around multiple banks is a good idea, but you still have all your eggs in one basket - it's called "cash".

    Your cash investments are all going to be affected by interest rates at largely the same time. As rates trend downwards, your returns will deteriorate across the board (although you can offset some of this risk by using fixed interest, but at the cost of flexibility ... and it's difficult to get good long term fixed interest right now anyway).

    Again, depending on the reasons behind your investments - you may need to seek higher returns than cash alone.

    Buying property outright is a nice idea - but unless you are investing in hovels in one-horse-towns, you're going to need several hundred thousand dollars, which is not easy to achieve - especially not over a relatively short period of time. Don't forget that for the time you keep trying to increase your savings, the property market may be increasing too - possibly at a rate faster than you can save.

    That line is trotted out by most people in the real estate industry who rely on "transactions" more than performance of the market. They rely on people buying and selling to make their money and don't necessarily have an understanding of whether it is the "lowest it's ever been" or whether it is indeed a good time to buy.

    That being said, I do think that as a young person thinking of buying to live in, you would do pretty well to save up a good deposit, buy a modest property within your means and then work to pay down the mortgage. This is a form of forced savings and over the long term should give good "returns" from asset growth.

    Then down the track if you want to gear to invest, you could take out an equity loan against the increased value of your property at relatively cheap residential rates and use that for your investments.

    I've not really given you any "advice" (not allowed to anyway), and since we don't know much about you, your situation or your goals, we can't really give you much more than vague ideas anyway.

    Either way, my number one suggestion is to educate yourself - stick around here and ask lot of questions.
  3. Ada

    Ada New Member

    21st Sep, 2012
    Re: exit strategies - I thought the best one was to ride it out (providing that fits with your planning)?

    I'm new too, relatively. I like bogle heads philosophies so when you say "exit strategies" do you mean market timing? Is there such things as exit strategies in buy and hold approaches?

    As I'm new I can only share my limited experience but I've buried my head in books and forums and the like which has been really helpful but nothing teaches like practical experience. Just put a small sum into the stock market and follow it. Just something you'd be happy to have tank or stagnate. Could be $5 even.

    But I don't know much tho.
  4. Pete Ramoza

    Pete Ramoza Active Member

    29th Jul, 2012
    Brisbane, Qld
    My experience is that you just have to keep on educating yourself... it's never easy and it's horses for courses - one size definitely does not fit all! :)
  5. Andrew Newman

    Andrew Newman Well-Known Member

    5th Nov, 2008
    Hi Clint

    Sim has provided lots of practical comments, in particular learning more about investing.

    It's true that many financial advisers have a conflict of interest when providing advice (I am not in this category).

    So why not ask the financial adviser if they have any interests, associations or relationships that could influence them. Also ask how they get paid, including any commissions. And ask what value they can provide to your financial situation.

    Kind Regards