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Planning for Investment Success

Discussion in 'Investing Strategies' started by Steve Navra, 29th Sep, 2005.

  1. Steve Navra

    Steve Navra Well-Known Member

    7th Aug, 2005
    I have so many people visit me and ask the most beautifully innocent question: “How do we go about planning for investment success?”

    I usually, after offering some motivational words, suggest they attend a weekend workshop and consider their options after taking on some education.

    This has prompted me to write this article about how to go about such planning "in a step by step way."

    At the start I must mention that I have no idea how long this article will end up . . . just that post by post and chapter by chapter, I will continue to submit sections up until I think the ‘message’ has been covered. (Perhaps this might be a weekend workshop – expressed in words :eek: )

    Please feel free after each submission by me, to post replies / questions. As usual, it will be more interesting if we do this on an interactive basis.

    CHAPTER 1 - Getting Started.

    The correct mindset – the initial focusing event.

    Ultimately I think it all starts with a certain mindset . . . a decision basically that you want to do something about your life and circumstances. Usually there has been an event or trigger that gets you thinking that you ought to do ‘something.’

    I was fortunate to be exposed to the financial world at a young age (16 years) but even so I think the main trigger event for me was on hearing that my wife was pregnant with our first child. Suddenly a new sense of responsibility towards something other than our frivolous lifestyle set in and I decided that I better start focusing on things aside from the next party we might be attending. I remember coming home and saying to my wife: “I’m tired of being poor.” Our naïve intuition decided that we had to buy a home by the time this baby was born . . . which is how we got started. (Our first real asset.)

    My first question then is: What was your trigger event that made you start planning for investment?

    Assessing your situation:

    The most basic position is when you start with zero, or very close to nothing. . . and it gets a bit more complicated thereafter.

    For most people who start with very little an ‘idea’ of what might achieve a result is a good start. Back to my initial start, both myself and wife were on reasonable incomes, the problem was that the money ‘just went’ - on lifestyle . . . socializing, cars, clothing and holidays! (Well you are only young once :) ) We worked out that if we saved most everything over the next 7 months, we would scrape up enough for the deposit on a first home. (Yes, homes were not insanely expensive back then!) Also the tax system was different to here in Oz, and I was able to defer most tax in that year and put it all into the growing deposit required.)

    However, this might not be possible for everyone so the initial thoughts might be about saving money until you have enough to acquire some assets. (After all, it is the assets that will make you wealthy.)

    Some questions:
    How to save?
    Where to save?
    What asset/s to buy?

    Hmmmmmmm, I see that this article might overlap with some of the existing posts . . . I will leave it to Sim’s discretion how he incorporates the ‘bigger picture.’

    How to save:
    I read in an earlier post that a great method is by way of a salary deduction directly to another account / avenue. Imagine you received a 10% (or more!) decrease in wages :mad: . . . and had to adjust to a new way of living. Sounds terrible I know (choosing what to do without), but the dream of the ultimate goal usually more than makes up for this.

    In any event, whatever method one chooses . . . zero savings compounded will always equal zero, so the mental commitment of a savings figure (whatever can be afforded) is a great start.

    Where to save?
    Assuming you have no other assets, then the choice might be to save as a cash vehicle (bank or building society / bonds etc) and then depending on your risk profile and time horizon you might consider shares, options and so on.

    Everyone will have their own idea of what might present the best medium in which to save. Hopefully there will be many responses to this question: “Where to save” that other forum members will share with us.

    For someone starting out I usually recommend shares with leverage. (Margin loan.)

    I will continue this article with some justification (pros and cons) on using leveraged shares . . . next time.

    In the interim it will be interesting if others might contribute their thoughts about what has been covered so far . . . and we can build from there.



    PS: Is is good to be back and contributing :)
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    9th Jun, 2005
    Sydney, Australia
    Great to have you back with us Steve - looking forward to more posts in this series on planning.
  3. Mark Laszczuk

    Mark Laszczuk Well-Known Member

    16th Aug, 2005
    Just wondering.... why isn't this in the articles section? Is it because of Steve's preference for open dialogue? Are they going to be added to the articles section once completed? Just wondering, so I don't waste my time cutting and pasting into a word doc.

    Anyway, great post (as usual) Steve. I must say that my personal preference for saving is also to put money into shares and margin that amount.

    As far as how to save... well, read an article by Brian Tracy a little while back, which was (surprisingly) pretty lite on. However, did get one bit of info from it that was defintiely worth it. It was aimed at people that want to save but feel they 'can't' for whatever reason.

    What Brian suggested was for people who find it difficult to save to put aside 1% of their pay each week/fortnight/month/whenever. Once they became comfortable with that, they put away 2%, then 4% then 6% up to (he suggested) 10%. Seems to be a good way to do it I reckon.

    At the same time however, I think the discipline of saving is what really separates those who 'dream' of doing something from those who actually do something. Doesn't guarantee success of course, but like Steve said, 'zero savings compounded will always equal zero'.

  4. Bob

    Bob Well-Known Member

    16th Aug, 2005
    Thanks Steve for that post. I'm looking forward to what assets to buy. What comes first the chicken or the egg (property or shares).. I appreciate you are busy with the end of sept distribution and the extension of the Navra fund until the 21st October, however, it would be great to have an update on living on equity and rental reality. Hey, it's all good fun :D

  5. Nigel Ward

    Nigel Ward Team InvestEd

    10th Jun, 2005
    Looking at the 1st 2 questions:

    1) how to save? Self-discipline has to be the key.

    The maths is simple: Income must exceed Expenditure, it's the psychology that people find hard...particularly when the savings seem so small to start off with and it would be so much more fun to ... buy that car, take that holiday...(insert consumer spending item here).

    So what's the key to getting the right mindset? I'm no shrink, but I suspect you must develop a deep and powerful motive for saving. For might REALLY hate your day job. Whilst it's perhaps not too constructive to be driven by hate that could be the fuel for you saving and then investing to be able to change jobs.

    Alternatively you could be driven by FEAR, namely fear of retiring on the pension, fear of not being able to provide for your family, fear of being poor.

    Hopefully some people will find their motivation in the positive things which they WILL have in the FUTURE...more time with family and friends, the ability to buy the things they want, have the freedom to choose their activities etc...

    I guess ultimately what I'm saying is this. Whilst emotion generally has no place in the investment decision making process, a deeply emotional motivation is probably necessary to be able to lay down a deeply ingrained habit of saving and investing for the future if one doesn't have that habit already.

    On the 2nd question, "where to save?", I think it happens in stages.

    Once you establish a pattern of saving into a bank account and have some cash savings in a transaction bank account, people tend to then establish an online "high" :rolleyes: ahem, interest rate account eg INGDirect, BankWest etc and move money into that.

    Once the balance starts to build up a bit into the multiples of thousands comes the crunch time. Speaking to a many work colleagues about this they then tend to go one of two ways. Either they crack under the pressure of having more money than they've ever had in the bank and blow it on a holiday or a car or 3 designer dresses and matching shoes and handbags etc etc OR they start to question whether things like shares or managed funds could be for them...

    Ultimately keeping your money in a managed fund or shares will probably provide far superior returns than keeping it in the bank due to the fact you have growth potential as well as income generation...but the critical factor is TIMEFRAME. When will you need to access that money? If you have a definite requirement for most or all of that money within a short period then shares may NOT be the right medium due to their volatility. That higher return comes with added risk, ie the risk of losing capital value...which you don't have with a bank account. If you don't need the money anytime soon, and it's not a trifling amount then shares/good managed funds obviously are the way to go...due to their inherent liquidity.

    ps. with performance for the quarter for NavraInvest at over 9% so definitely seems like dollar cost traded shares are the best place to save!!! :p
  6. Jacque

    Jacque Team InvestEd

    16th Jun, 2005
    I believe that the correct mindset and motivation are the most important factors when it comes to investing.
    When hubby and I were childless many eons ago (well it seems that way at times!) we decided to go overseas and do the big European trip for 6 weeks.
    We spent the equivalent of a deposit on a house at the time, but have never regretted it for a single minute :)
    Funnily enough, once we made the decision to go, without much in the bank, it only took us 8 mths to save up the cash. Motivators really are needed to reach that goal.
    For me, investing is all about the possibilities of enjoying both the jobless future and also the here and now, hence the need to invest in both long term assets and income producing investments.

    Nigel, you're so right about the self-discipline, as it's easy to fall into the trap of spending more than you earn, or increasing the spending when your income increases.
    Sim's articles on saving also have some great tips for the starters and those less motivated when it comes to investing.
    I also consider it crucial to help your own children from a very young age, by stressing that "putting away" is a necessary part of earning money. My three all receive pocket money, and we have recently negotiated that they have to bank at least a third. Sometimes they bank more, depending on their mood at the time :)
  7. Steve Navra

    Steve Navra Well-Known Member

    7th Aug, 2005
    Actually it is at 10.67% net (29/09/05) :cool:
  8. Alan

    Alan Well-Known Member

    15th Aug, 2005
    Welcome back Steve....

    Your trigger was finding out your firstborn was arriving soon? Yep......I can partially relate to that.........and the pressure doesn't seem to reduce any as they get older(and more expensive!) :D :D

    I don't know if my 'trigger' was really an isolated incident though but rather a gradual realisation that life is short and that finances can play a useful part in allowing you certain choices. Having a large bank balance is certainly not my number one priority in life as there are many more important things.......however......I think it would be remiss and maybe a bit lazy of me if I didn't learn more about a tool that could provide certain opportunities for me and my family.

    How to save? Where to save? What asset/s to buy?

    I guess this changes as time goes by. Right now my priorties are paying off non-deductible debt and increasing my asset base. Many nice things can happen when these two things progress. :)

    Besides my individual saving, I'm getting a huge buzz out of trying to teach my eldest daughter a few 'savings' tips and it's amazing how well thet respond at such a young age. When she saved $1000(which she did over about 2 years) she was allowed to buy some Units in a Managed Fund.
    Tonight we were just going through a beautiful example where we compared what she gets from her Bank Interest(2.61% pa including 'Bonus' :confused: Interest :rolleyes: ) and we compared this to her current share investments(9.81% net this quarter so far :) ). Even at her could see the little light bulb appear over her head when she saw the differences....... :D

  9. Tzaki

    Tzaki Well-Known Member

    20th Sep, 2005
    Our Trigger was the discovery of my wife's degenerative eye condition, combined with the fact that we had paid off our PPOR and the pair of cars we bought after we paid off the house...

    Savings - we never got into the habit of spending all our income, so I guess paying the 18% interest rates (80's and early 90's) was a good thing in that respect. We always had automatic savings systems in place (deductions to a savings account, Xmas club accounts etc.)

    Mindset - we actually started investing after attending a seminar (telemarketers - "silver suit brigade") on why to invest in 2000, but I don't think our mindset was fully developed until 2003 - after some education seminars (free) by Wise Investments (yep- they sell you properties later, TNSTAFL!) and going off on my 2nd bout of RSI in 10 years gave me time to get bored and pick up Rich Dad Poor Dad. That REALY started a reading frenzy - mostly mind set stuff including Kiyosaki, Napoleon Hill and John Burley then branching out into Peter Spann, Waxman, Sugaes etc. (hmmm must do post for booklist! - 2nd Hmmm must do booklist for self!! :D )

    Although we bag the "silver suit brigade" for telemarketing us and pressure sales, they did us one service - changing our fear factor from fear of investing (and loosing money) to fear of NOT investing (and being broke in our old age!!), our mindset has developed a long way since then and the wealth of opportunities has multiplied expodentially - we now see them everywhere, wheras before we could not see them for the fear!
  10. Steve Navra

    Steve Navra Well-Known Member

    7th Aug, 2005
    CHAPTER 1 - Getting Started. CONTINUED

    I had previously mentioned utilizing the MF with a margin loan as a medium in which to save and promised some justification.

    First up let me say that post the ‘trigger event’ that gets you started, it doesn’t matter where you save as long as you make a start!

    Now savings plans can be at the very conservative end of the risk scale . . . in a bank or building society. I am covering old ground here, but these are IMHO too conservative.
    Reason being that the return at say 5.0% p.a. less tax barely matches inflation. (In which case you are not really getting ahead.)

    The scenario I am portraying is a first time investor trying their best to accrue a first deposit for a property. I suggest an aggressive savings program so as to achieve the result ASAP.

    It is all about creating the maximum efficiency with the use of each dollar.

    Imagine $1-00 invested:

    Well $1-00 returning 5% p.a. will equal $1-05 at the end of the first year.
    Now there are no guarantees that a managed fund will produce better or worse than the 5% result, however if we look at the historical return of say the S&P 200 index you will see a return of approx 12% p.a. over the medium to longer time period.

    The assumption one might make then is that over the medium to longer term, one might hope to then achieve the market average = 12% p.a.

    In which case:
    $1-00 returning 12% p.a. will equal $1-12 at the end of the first year.

    Power of compounding:
    $1-00 growing at 5% compounding = $1-63 at the end of 10 years.
    $1-00 growing at 12% compounding = $3-11 at the end of 10 years. (Nearly double)

    Okay so the principle is that yes the MF might be at a higher risk profile, but the reward is much greater. The other way to look at it is in terms of time. The question is how much quicker would the MF achieve the same result as the bank?

    Bank = 10 years
    MF = 4 years and 4 months.

    And what will the price of a property be in 4 years and 4 months compared to the price of the same property in 10 years?

    Now if this principle is starting to make sense, then why not push the boundaries even further. (Within an acceptable risk profile.)

    Saving with a Margin Loan: At 50%

    So instead of having $1-00 working for you at 12%, you could have $2-00 working for you at 12%, with the cost of $1-00 at 8%

    Result over 10 years:
    $2-00 growing at 12% less $1-00 at 8% compounding = $4-41at the end of 10 years.
    Or in years: It will take only 3 years and 3 months to achieve the same result!!

    I rest my case on the fact that the extra risk is worth the time value savings achieved when buying the same property in approx 3 years as opposed to waiting 10 years!

    Scenario looks something like this:
    Property Price: $400,000 (TODAY)

    Assuming property growth at 7% p.a. average.

    3 years time:
    Property Price = $490,000 (Deposit required at 10% plus costs of 5% = $73,500)

    10 years time:
    Property Price = $786,860 (Deposit required at 10% plus costs of 5% = $118,029)

    Not only would the property require an extra savings of $44,529, but if you had rather been able to acquire it at the 3 year mark . . . instead of having to save the extra $44K you would have made the extra equity growth of $296,860!! (Which incidentally is enough for another 2 deposits!)

    This is why I suggest saving with a MF and a margin loan.

    What asset/s to buy?
    It is all about where one might achieve the best growth potential including leverage.

    I generally suggest leverage at 80% for property and 50% for shares.
    Of course you can get loans at 90% on property (and more!) but you will pay LMI and on shares you can get margin loans up to 70% (80% including the 10% buffer) but I generally advice the lower risk profile.

    A first time investor might go to 90% on property just to get a ‘foot in the door’ and then slowly attempt to get the leverage down to a more comfortable level.

    Property at 7% average growth with 80% leverage is > Shares at 12% growth with 50% leverage.

    Property: $1-80 at 7% = $1-93
    Shares: $1-50 at 12% = $1-68

    So in general I recommend that investors start with property and 'value add' with shares. (I will of course discuss value adding with shares in a later chapter.)

    Initially until you have accrued enough for the deposit and costs you might then save in the MF + margin and then buy the property as soon as you can.

    If you have the deposit and costs then you would buy the property straight up. (Within Rental Reality etc, etc. . . . another chapter for later :) )

    . . . Chapter 2 (Assessing the efficiency of your current portfolio.)
  11. MichaelWhyte

    MichaelWhyte Well-Known Member

    5th Oct, 2005
    Sydney, NSW
    Thanks Steve,

    I've finally got some actions in play. I've got the MF with leverage forms into Michelle and expect it in place by middle of next week. I'm shortly going to jump on a plane and head off to Brisbane to buy that IP with the assistance of Roger Fusca. Probably just one at this stage but have some cash buffer spare for deposit on IP2 whenever we want.

    Looking forward to Chapter 2 of this thread to understand just how efficient my structure is. I think we're pretty solid given the work that Mark and the team have done on preparing the plan.

    Times are great, and thanks SO MUCH to your awesome team for all the support and assistance they've given Kay and I (and Aden vicariously!). PS. "Aden" was my trigger...

    Last edited by a moderator: 6th Oct, 2005
  12. TryHard

    TryHard Well-Known Member

    17th Aug, 2005

    What a great thread :) I hope this isn't hijacking it, as it is kind of related to the topic ...

    I went to see Bill Zheng speak on the weekend for the second time. Like Steve, his presentations are real eye-openers. Bill probably concentrates a bit more on the unconscious, mind over matter style of thing, versus Steve's very calculated and sensible strategy, yet both have components of the other's approach. They're kind of like Angelina Jolie and Jennifer Aniston - both very good, but different :p

    Bill's approach is accumulate as many properties as possible, as quickly as possible, as long as they meet 'investment' criteria (must have significant historical records of growth around the average 10% - whereas 'business' decision might be buying in a new satellite community with no historical figures). Use every spare cent of capital to try to accumulate more property. Even to the extent of buying the less attractive (eg. busy road) properties, if it means you can secure vendor finance and free up capital for other projects. Sacrificing all other types of investment, including shares, capitalise interest, using debt to pay debt (eg. use a LOC to pay the deposit, fees and annual shortfall on a rental property, 'knowing' the LOC property and the IP will "on average" grow enough to refinance it all in 7-10 years). Each time available equity grows enough to find deposit, costs and rental shortfall for another IP, do it again.

    Maybe after writing that down, the strategies are not really all that different, except I've never heard Steve suggest capitalising interest. Is that a significantly more risky strategy that the accepted "Navra way" Steve ?

    I echo people's thanks for the great help and support getting us of our ar*e and into the action Steve. Ella Ruby was our trigger, even though we had kind of danced around the edges of a strategy prior to her arrival. It seems to make more sense when you know you're leaving someone else behind better off :) Maybe that was my previous 'unconscious barrier' - no beneficiaries ! :)

  13. Steve Navra

    Steve Navra Well-Known Member

    7th Aug, 2005
    Geez thanks . . . wait until you see my new hairdo.

    Lotsa love,
    Jen :p

    (I will address this post in a more serious way on Wednesday - Steve)
  14. TryHard

    TryHard Well-Known Member

    17th Aug, 2005
    Steve vs Jen

    Well between Steve Navra and Jennifer Aniston, I would like to plan my financial future using the advice of one, and have the other as a live-in french maid. Guess which one's which :D
  15. Simon

    Simon Well-Known Member

    17th Sep, 2005
    Jennifer v Angelina - No contest. Jen wins hands down!
  16. coastal

    coastal Member

    18th Aug, 2005
    Getting back to that trigger- for me it was having that first baby and living on one income- not to hard I thought, just had to tighten the purse strings a lot! but then time at home with a baby can be a great opportunity to learn more - Jan Somers first book was a great influence, I too had been a Maths teacher and everything just made sense- I look back now and starting is definitely the hardest part but even though our journey has been slow & steady it still continues!
  17. johnnyb

    johnnyb Well-Known Member

    16th Aug, 2005
    My initial trigger was an absolute mind numbing boredom with work. I went from a PhD where I could think about connections between stuff and how stuff works, to having to deal with tedious pointless detail and petty workplace politics (yes, I'm having a bad day today as well :eek: ). So basically I want (need!) the freedom to not have to do this. Having to go to work gives me a daily reminder of why I started investing.

    Since then I have had babies (or at least I helped my wife have babies), and I would love to spend most of my time with my growing family, so this is a continual motivation for me as well.

    I feel really selfish now I've said all that.... :confused:
  18. Tropo

    Tropo Well-Known Member

    17th Aug, 2005
    " having to deal with tedious pointless detail and petty workplace politics .......
    So basically I want (need!) the freedom to not have to do this. Having to go to work gives me a daily reminder of why I started investing "

    You are NOT the only one ...
    Welcome to the club !!.
  19. Dave

    Dave Well-Known Member

    17th Aug, 2005

    Seems like most people's triggers are their kids! Maybe if I ever kids I can be "re-triggered" :p

    For me it was a time 3-4 years ago when I was 19-20, unemployed, didnt qualify for anything from centrelink, didnt get any handouts from my parents and managed to last a few months with $100 in the bank. Rent was free living with my parents, and luckily fuel wasnt quite as expensive then. Obviously I couldn't do any of the things I really wanted to do, (and with the massive amount of spare time I had), thought there must be a better way. So I went to the library and stumbled accross some Kiyosaki books, then looked for the others in the series, then stumbled accross numerous other authors such as Jan Somers, which then pointed me to the Forum, and the rest is history :)

    So now I've got a house near the beach in WA, which has gone up 35% in 18 months, and am shopping again now for another :)

    Cheers :)
  20. kennethkohsg

    kennethkohsg Well-Known Member

    18th Aug, 2005
    Dear Nigel,

    1. As a matter and principle of the Abundance Mentality and effective Self-Psychology for the Rich and Wealthy, " Why save on your income when you can create new/ far more wealth" or/and "can afford to employ others"? Why restrict and allow ourselves to live on employment income, as a " paid employee" when one is capable of being an "employer" himself/herself and help to provide work and employment for the other peoples, to earn their living while we are earning our own living at the same time?

    2. We can also always increase new additional income/wealth first by always learning how to "pay ourselves first" for our own work and time given or/and learning to leverage through the other people through their time, expertise, and other resources, so as to help jointly create new wealth and income for them and for ourselves through constantly finding ways to create new/add value to their as well as our own work and time as well as to help satisfy a market needs and niches.

    3. Strictly speaking, by only having this "Saving" Mentality per se, we will be restrictin ourselves and eventually fail to create new thinking/products to create/add value to other peoples' lives and create new monies and wealth for this world and for ourselves, if we continue to only allow ourselves to operate at this level of thinking indefinitely

    4. However, if we are truly not "ready" (and not "REALLY" as I personally beleive we all can if we want to) capable of creating new ideas/products which will create new values/wealth to the world, for other people and for ourselves, at this point in time, then at least, we should practise the values of "Economy" and "Prudency" and minimise all the unnneccesary expenditures to fund our own (simple and frugal) life-styles cost-effectively.
    Yes, in this sense, I can agree with your principle of "self-discipline" to save (and to live within our own means.)

    5. Having said all these, I am NOT therefore saying that being an employee or/and in employment, is something we odd to shun away at all times. For some, they can be highly paid as a CEO and yet fully enjoy their fulltime work as much as those who are presently self-employed or in business...

    6. Rather, my underlying thinking is:-
    we must all learn to enjoy doing what we are presently doing and doing what we really want and enjoy doing most in life and following our own respective personal calling in life and destiny/life path. That is one of the basic principles in wealth creation.

    7. Ultimately, it is this kind of godly "self-contentment" that we have lived a truly RICH and meaningful life, willingly an selflessly (i.e un-selfishly) serving others and society in general, with our own TIME and efforts, whether we are a highly paid CEO or a small little employee at the frontline as seen by others or/and whether we are employing others or/and being employed by them accordingly, or/and whether we having much or less financially/materially speaking.

    8. This is what actually will really help to keep our ManKind and Human Society perpetuate itself indefinitely and evermore into the future TIME dimension.

    9. For your kind update, please.

    10. Thank you.

    Kenneth KOH
    Last edited by a moderator: 30th Oct, 2005