Startegies for young professional couples

My wife and I are both young(ish) professionals together earning ~$150k/yr. I am wondering what the best strategy for wealth creation would be for us. We are renting at the moment and would only ever think about buying if the market became reasonablly priced. We don't have children but we are thinking about having them in ~2yrs. We have ~$20k in stocks - it used to be more , and ~$100K in savings in high interest saving accounts. I earn 9% super while my wife gets 17%.

I am thinking of contributing a few more % to my super and then investing all my spare money (after living expences) into the market (slowly over the coming months/years) and then using a margin loan I have to borrow more up to an LVR of 50%. We would invest all my wife's salary into high interest savings.

I am also thinking of buying into property CFD when they are released on the ASX to diversify and gain exposure to the property sector (I could also buy into a managed fund with high property exposure).

My main goal at the moment would be to build wealth and not worry too much about dividends, though it may be nice to have some coming in.

Any investment tips for/from people in our shoes would be greatly appreciated.

 

Title should have read "Strategies", though startegies is also apt

 

The best strategy for wealth creation is this.

1) Have a goal. Have it written down. Read it every day. Focus on working towards that goal each and every day.
2) Make as much money as you can.
3) Spend as little as possible.
4) Invest the difference.
5) Reinvest the returns.

The most important part of that strategy is number 1 IMO.

If you want to financially free before 55, outside of super is where you will focus your investments. That's what I did.

It took me and my wife 10 years with that strategy before we could retire and call ourselves financially free.

That help you? Or is it too general and simplistic?

 

I guess the plan would be to own our home and build a decent enough investment to receive an income off sometime in our early 40's. I am just not sure what is the best way to grow wealth at the moment. I see the best way to grow an investment would be to take a home loan and buy a house, though we don't want to live in areas where we can (currently) afford to buy a house (too far out of the city), so we rent. This leaves us the sharemarket, but then we can't take very large loans to invest in shares so we can't swing with a very big bat.

I am somewhat confused about the best path to take....

 

The hardest part is to get started.

Quick recap. You have 2 big goals.
1)buy a house
2)have an investment portfolio large enough to replace your income.

The good news is everything is going down... property, shares, interest rates.

You have $150,000 a year income. That's a great starting point.
How much you got saved up?
When do you want to buy the house?
When do you want to have a passive income of $10,000 (that's a starting point small enough to aim for)

Do you have an automatic investment plan set up yet?

That's enough questions to start with I think. Answer them and I can help you a bit more.

 

On a slightly different tangent ... try to get yourselves into a position where you can have an equity share in the businesses that you work for, or your own business.

Without knowing your professions it is hard to give more detailed advice but, this is genuinely advice that I wish someone had given me when I was a young (I'm 35 now does that make me middle aged?)

Of course, you have to be sure you are working for people that are trustworthy and that you are happy with the direction that the business is going in. But assuming that this is the case, then I think you will find that any employee who is able to think about the work they do from the perspective of the business owner is worth their weight in gold these days. Many employers these days are very frustrated with Generation Y's perceived lack of motivation and ability to do this.

The most successful professionals around are the ones that own their own business - so my recommendation would be to make this goal a priority (more important in my view than investing in the sharemarket)

 

1. ~$100K
2. ~ 5yrs
3. Late 30's? (= 12 yrs from now)
4. All money after living expenses currently moved to high savings account

 

You are at a good starting point. Credit to you both.

Well, you have about 3 options to invest in. Shares, Property & Cash.

Which one feels the safest to you and your wife? Which one do you think will give you the greatest freedom, flexibility, safety, tax advantages etc etc?

Buying a property will involve debt. Do you want debt going into a global recession? High entry and exit cost. Good bargains out there at the moment.

Shares. Good returns to be found out there but it's volatile and in a bear market. Will that suite your risk profile? Low entry and exit cost. Australians love Franking Credits. You can margin as little or as much as you are allowed. The ASX200 as a whole is currently paying 10% (yes returns can go up and down)

Cash (term deposit). Safe, but with inflation at 5%, that's your break even point. Interest rates are in a downward trend. Worst class for taxation.

Point 3. With 100K in the bank and 20k in shares, you are more than half way to a $10,000 passive income.

The plan you mentioned in your first post sounds OK. I'd think about keeping the same sort of ratios you have now with cash to shares to be on the safe side till this mess blows over.

Important disclaimer....None of this is personal advice. Just ideas.

Have you seen a financial adviser yet to help you construct a plan?

 

Thanks for the info 1300 GET A PLAN.

The high entry/exit costs are what has stopped me seriously considering property as this would have to be viewed as a long term investment, and we may move OS in a few years for work.

I am more leaning towards shares, due to tax reasons. I feel once the market turns around (I will be looking for support in all ords at 3000 or 2700 to see when this turn around may occur) it will be a good time to invest utilising may margin loan to leverage into the market higher (bigger bat etc). At that stage I feel I may deviate from the 20/100 split shares to cash, simply to try and build more equity.

Cash, as you say, not much real return but quite safe. May stick with it for s while (with an eye on the market).

I guess the ultimate goal is to own our home by our 40's. It may seem like a stupid question, but is the best way to own your home by that age really to buy a home and pay it off? Or can you borrow and invest on share market and end up in the same place, or even better off by taking the various tax advantages along the way?

 

To help you answer your own question, I'll tell you what I did over the last 15 years or so.

I bought a house first. To me, having my own roof over my head was most important.

My job was to make much money as I could, spend as little as possible and put the balance on my mortgage. When I found another investment that was cash flow positive, I jumped on it. I don't believe in negative gearing.

Re waiting for the stock market to bottom. What do you have or do that will tell you when the stock market has bottomed?

The problem with trying to pick bottoms is this. You never know when you have picked the bottom.

Picking a great investment with a great return is SO MUCH EASIER!!

So, take from that what you want. That's my philosophy and the plan I used to become financially free and debt free by 35.

NONE of that was advice. It was just my opinion and what I did. Please seek professional advice from someone you trust before acting on anything you read on the internet, in a book or hear at a seminar.

Cheers
Mike

 

The above is a good discussion on goals and investing.

However, an important issue not addressed is personal insurance.

This must be considered an integral part of your wealth creation plans.

Do you each have income protection insurance?

Personal insurance can help to ensure that your partner would not be financially disadvantaged in the event of your death, a medical crisis or your disablement, or vice versa.

Most people purchase house, car, and health insurance without giving it much thought, but it is a well known fact that most people are either underinsured or uninsured for events such as death, trauma or disablement.

The main types of personal insurance are life insurance, income protection, trauma insurance and total and permanent disablement insurance.

Please do not ignore this important issue to have adequate personal insurance.

 

I agree, and is especially important when you start to amass debt in both names!

 

Yes, asset protection has it's place.

For someone starting with nothing, I like to keep it simple for them. Just 5 steps. That forms the fundamentals of any plan, as a client's assets grow from $0 to millions.

If someone walks in with many thousands to invest, it gets more complicated. Trusts, Wealth Protection (insurance), Margin lending, shares, franking, international markets , managed funds, structured products, risk profiles, options, warrants, SMSF, super laws, tax laws and the list goes on and on.

That's my opinion anyway

Cheers,
Mike

 

Hi Mike

It does not matter if the client has anything to invest.

Personal insurance should be the first step of any wealth creation plan.

The most important asset anyone has is their ability to earn an income.

Without an income, wealth creation and financial freedom are fantasy.

 

I disagree.

I don't need to defend my beliefs, so I'll stop writing anymore on the subject.

Mike

 

Hi Mike

I am not asking for you to defend your beliefs.

However, it may be helpful for other readers of this forum to explain your position why you disagree.

I thought that is what a forum is all about - constructive discussions.

 

Yeah, no worries. I'd be happy to explain since I now know we wont argue

OK. If a client comes to a Financial Planner with no residual income to invest (just a small lump sum or to set up a super policy for example), then how are they going to afford personal insurance? They can't. So that is the reason why I disagree with your first point.

Next point. The first step to any Financial Plan should be to listen to the client. Find out what they want to do. Look at their current situation. Find out their goals. I think it's silly to think that everyone needs insurance. Sure, a lot of people do, but not everyone.

I like to keep an open mind when I see a client. I don't need to ram insurance down their throat like some people in the industry do. That gives the industry a bad image I think.

Next point. A clients ability to earn an income is important. True. But remember, a client can have passive income that is enough to support them if they stop work for what ever reason. And also, there are so many ways to make money. Not everyone has to pack a lunch box and go to work to make money.

Can't argue with your last point.

Cheers,
Mike

 

Hi Mike

Agree with the above and it is important that an adviser knows the clients situation to be able to provide appropriate advice.

With regard to the rest, lets say we disagree and have different views.

My thought is "not if a client can afford personal insurance" but "can a client afford not to have personal insurance".

A client either accepts personal risk or insures against it.