Options or entry level managed funds

Discussion in 'Share Investing Strategies, Theories & Education' started by Tronc, 10th Jan, 2008.

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  1. Tronc

    Tronc Member

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    I have been investigating options for my younger brother in relation to starting points for getting into Managed Funds. I am after a structure that has low initial deposit requirements and also caters for only small regular purchases.

    I have looked at RaboPlus which has a $250 initial deposit and a minimum of $250 buying options. Is this the best type of structure available at the moment, or can anyone recommend something else.

    As a 17 yr old, he only has limited cash flow at the moment, but I see this as a great opportunity for him to start learning about Financial structure, investing etc... (me too no doubt).

    Thanks in advance.

    Tronc
     
  2. samaka

    samaka Well-Known Member

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    RaboPlus charges 0.75% on top of the funds normal MER. What type of initial deposit and regular contribution are you looking at?

    I'd say STW all the way - minimum purchase is $500. If the long term strategy is index funds at the core then this would be a good start - especially seeing as how the price recently dropped. He can dollar cost average his way in.
     
  3. Simon Hampel

    Simon Hampel Founder Staff Member

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    For low cost entry and fees an ETF (like STW that samaka mention) is a good option I think. Can always diversify later.
     
  4. Tronc

    Tronc Member

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    Thanks to both SIM and Samaka for their replies. I have done some reading up on your suggestions on the ASX web site, and the ETFs do sound interesting as an alternative to Managed Funds. More details of my requirements are:

    An initial deposit (or buy) of $100 to $500, with regular monthly or quarterly purchases of $100-$500. High growth would be the priority, with a timeframe of 3-5 years. Not looking to actively sell/trade shares - more to regularly invest in growth asset so that brother can have sum of funds in 5 years. Low fees are an appealing aspect of the ETFs.

    Are these ETFs appropriate for the 'set and forget' type of investing - or do they need to more closely managed?

    To clarify, are these funds able to be purchased through an on-line trading system such as CommSec or do I need to go through a broker/financial planner person.

    The Product Disclosure Statement for these funds says on page 21 that Transaction Fees of $1250 apply to each application and redemption of the SPDR 50 Fund. How does this apply to me? Seems a bit excessive, but I assume I just don't understand where this fits in.

    Thanks again. Tronc.
     
  5. Bantam Roosta

    Bantam Roosta Well-Known Member

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    Tronc,

    Due to brokerage fees ($20-30), you would want to buy in $500 lots at an absolute minimum (I think this is the minimum amount for a parcel of shares anyway). I would recommending no less than $1000 at a time. $20 brokerage on $500 is 4%, quite a chunk in my opinion.

    ETF's are generally set and forget investments as they track an entire index. You only have to worry about whole market movements and then you generally wouldn't worry too much about that because you will be regularly investing, getting the dips and peaks as you go.

    Yes, these funds can be bought and sold through an on-line broker (I use CommSec). They are bought and sold just like any other share on the ASX.

    Regards,

    BR
     
  6. Tronc

    Tronc Member

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    Hey Bantam Rooster - thanks for reply. After reading some other relevant posts on this site, it seems the brokerage fee on $500 is most people's concern - quite valid as well.

    Any other suggestions on how to structure an investment plan for a teenage kid with only small cash flow?

    How about this. Setting up an online account with high interest, saving money until it gets to $1000, then buying something like an ETF with low fees.

    Or is just buying directly into Blue Chip shares going to be more interesting and fun, so he can walk around Woolies and think 'I own a bit of this..."

    any thoughts welcome.
     
  7. samaka

    samaka Well-Known Member

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    If the figure is only $500 or so a month then I'd suggest you just plonk it in the RaboBank high interest account -> 6.9% and it's guaranteed.

    When the figure gets to say $5000 then buy an ETF. You'll be paying sub < 1% for brokerage this way.
     
  8. DaveA__

    DaveA__ Well-Known Member

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    but for the 10 months you are saving u miss out on any potential upside (or downside) of the markets...

    If i took this approach at 17, i wouldnt care if my investments lost 20%... It would mean id still have 80% as opposed to being young and just blowing it on booze... if he has it in a term deposit there is still the potential you can get your hands on it and spend it...

    maybe presivation is more important than returns for this style age group...
     
  9. Tronc

    Tronc Member

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    Thanks DaveA. Bathing in tubs of $100 notes is probably not the primary goal of this step for him. It's about getting him involved at a young age to realise how to manage money, that there are more options than just uni, job, credit card, rent and then a 30 year mortgage.

    A great outcome in 5 years would be a diversified group of shares or ETCs valued at $10,000 from which he has seen the impacts of market fluctuations, dividends, capital growth, tax etc... he will probably spend all that on a trip to Ibiza when he graduates, but might have learnt something along the way.

    As an adult (nearly 18) he will be able to do what he wants anyway, I'm just trying to impart some knowledge I wish I had at 17, rather than 27. I just want to provide the opportunity, interest and enthusiasm for him to get started - ultimately it will be up to him.

    Will continue to research and consider options. Now that I read my own comments above, I guess the brokerage fees aren't that prohibitive if my goal is as much education and exposure as money making. Maybe $500 lots will be OK? Thanks for all the feedback.
     
  10. Simon Hampel

    Simon Hampel Founder Staff Member

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    I think there is merit in the suggestion of saving for a goal of $X first, and then investing it.

    This teaches discipline and goal setting - and is a useful exercise.

    The steps to becoming wealthy are:

    0. set goals
    1. control your spending
    2. save your money
    3. invest cautiously
    4. manage your risks

    ... you might want to start by educating them about steps 0, 1 and 2 first ... if they can't achieve this, then they aren't likely to achieve anything else either.

    Just a suggestion!
     
  11. Tronc

    Tronc Member

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    Great point SIM.

    Will go through the budget process first, see what he can commit to on a fortnightly or monthly basis, then set some goals. If we can get that far, it will be a great start.

    Once we have reached $X, then we can decide on how to invest.

    Thanks
     
  12. DaveA__

    DaveA__ Well-Known Member

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    "Ryan, try and save $1000 and then well have a look where to invest when you get there"

    "Ryan, have you read the news paper about the stock market potentially being under price, i think it could be a great time to get in, maybe you should make it a priority to cut your spending and try and save $1000 which we can invest in XYZ for you"

    Which will work better mentally? The second option gives him the time to paper trade the security and if its going up will most probably give him more motivation to save up.
     

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