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Discussion in 'Investing Strategies' started by toeyazz, 20th Mar, 2008.

  1. toeyazz

    toeyazz New Member

    Joined:
    5th Feb, 2008
    Posts:
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    Location:
    Melbourne
    Hello All,

    I am studying financial planning by correspondence and this site has come in very useful so far. This time I have a specific scenario and I am looking for some direction on the best strategies for this scenario:

    Fred 42 y/o income $120,000; married; Mary 37 y/o $140,000
    * Just inherited $380k
    * Looking to accumulate wealth in preparation for retirement & help their 2 teenage children with education cost, weddings, and first house deposits (we should all be so lucky)
    *Super balances are fine and are not in the scope of this plan
    *Happy to stay in there $650,000 home with $125,000 still owing
    *$6000 in Credit Card debt, $2000 in store card debt
    *investment property worth $280,000 with $150,000 outstanding (do not want to sell)
    *They do not understand gearing and are time poor
    *Goal is to maximize after tax returns
    *They have considered another investment property or maybe REX, RIO and BHP shares.
    *Risk Profile - Moderate???

    I know thats a lot of info and the reason I am chasing my tail on how to turn this into an effective strategy to meet there goals.

    ANY HELP WOULD BE GREATLY APPRECIATED!!!!!!!!!!

    Thanks :)
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Location:
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    I'm not a financial planner - and have not studied any theory on financial planning ... so this is just a personal view on the subject.

    1. get rid of store card debt and avoid using store cards in future
    2. get rid of credit card debt and arrange direct debit to pay off credit card in full each month
    3. if possible - get an offset account against PPOR loan and park $125K in there to minimise non-deductible debt while also providing a cash buffer for emergencies and for future one-off expenses.

    ... that's just for starters, I haven't looked at additional investments or portfolio construction - I'll leave that for someone else.
     
  3. DaveA

    DaveA Well-Known Member

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    Location:
    Sydney, NSW
    if there moderate should the be investing in direct shares? Should they be investing in shares at all???

    Im thinking though. Maximise after tax returns means growth assets and not income funds. Could also mean property as it would be negative geared which is good as there 40% + bracket, however captial gains tax would push them into the highest bracket when sold...

    if there saving for expenses it means they cant risk loosing part of the capital (probably 100k each child) so could just use an offset account or a balanced fund... Alternatively you could look at a 5 or 7 year capital guarenteed investment (Mac Bank or something)...

    Salary Sacrifice super if your allowed (part of scope)... but id say a key thing is try and reduce their taxable income.... Theres no point in putting them in a cash fund as any thing they earn will be taxed at 40% and at todays rate (7.5%) that would be cover any increase in inflation....

    just my thoughts
     
  4. Rob G.

    Rob G. Well-Known Member

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    Melbourne, VIC
    Realised or unrealised returns ?

    Is tax really an important driver ?

    Timeframe ?

    Regular withdrawals for consumption, or "lumps" e.g. for specific events (mentioned house, wedding etc.) ?

    Willing to lock up longer term, maybe borrowing shorter term as needed to preserve "locked in" funds ?

    Which concept of risk ? The only risk is that the money is there at the time you need it. Does short-medium term reduction in market values of investments worry them, or do they understand the concept of yields ?

    Is mother likely to drop out of the workforce before father ?

    Are there any employers willing to be flexible with salary packaging ?

    Income/job prospects of children, & timeframe (many more years at college) ?

    Estate planning ?

    Risky occupations - likely to be sued (some of above alluding to trusts) ?

    Don't know about a "lot of information", I think we are at the start of an extended intial interview.

    Cheers,

    Rob
     
  5. AsxBroker

    AsxBroker Well-Known Member

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    Hi Toeyazz,

    It would be helpful if you told us which subject you are up to.

    Cheers,

    Dan
     
    Last edited by a moderator: 20th Mar, 2008
  6. samaka

    samaka Well-Known Member

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    Location:
    Sydney
    What does time poor mean?

    Not a long time frame to invest for?
    Doesn't understand the concept of compounding?
    Doesn't have free time to research investing?
     
  7. Rob G.

    Rob G. Well-Known Member

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    Hey Dan,

    I was hoping you would let it hang there instead of giving the answer to the 'Big Mack or the Cheeseburger' FPA teaching approach to solving people's financial plans !!!

    Cheers,

    Rob
     
  8. AsxBroker

    AsxBroker Well-Known Member

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    Location:
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    Hi Rob,

    I love the already has an investment property.
    I had a similar client who only wanted cash investments but then was thinking of buying an investment property, who knows why as she was retired and would have been negatively geared, not sure how she was going to pay for it...

    I agree with you saying that it's an extended initial meeting as there seems to be alot of unanswered questions, though educational assessments always like to leave many stones unturned...

    Cheers,

    Dan
     
  9. Nigel Ward

    Nigel Ward Team InvestEd

    Joined:
    10th Jun, 2005
    Posts:
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    Hi Toeyazz

    That looks suspiciously familiar...you're being a bit naughty by asking us to help you with your Kaplan/Finsia IP1 assignment don't you think ;):p:D

    BUT to kick you off..how about starting with clearing the card debt...and getting rid of non-deductible home loan debt?

     
  10. BSB

    BSB Well-Known Member

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    Posts:
    54
    ...and perhaps pick up a dictionary and learn how to spell "strategy".

    (yeah...I know.. not overly helpful but gee there are some shocking spellers about these days...and too lazy to even hit the spell-check button)
     
  11. crc_error

    crc_error The Rule of 72

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    Location:
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    First Pay off store and credit cards.
    Pay off PPOR

    This leaves $220,000.

    At this point it depends what their goals are. Do they want to continue to work hard? Or regain their 'time poor status'?

    Their IP should be cash flow neutral or even positive with the LVR you listed.

    I would diversify them into commercial property, so I would put $100,000 into a unlisted property securities fund yielding 8.5% PA.

    I would invest another $100,000 into Australian Shares, and the remaining $20,000 into a cash fund.

    You would also need to consider when they plan to pay weddings etc.. if its in the near term, then reduce how many australian shares they buy. But with their income, they should be able to save quickly new deposits and wedding costs so best to have the money working for them first up.

    This plan would allocate some money into residential property, commercial property, shares and cash.. with their home paid off..
     
  12. toeyazz

    toeyazz New Member

    Joined:
    5th Feb, 2008
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    Location:
    Melbourne
    Thank You

    I have not posted for a while as I have been busy completing my studies but I would just like to say thank you to all. I appreciated your time in replying to my post and the information allowed me to complete my assignment successfully.

    In response to Nigel's tongue and check response, I thought using a forum such as this for research and information sharing would be encouraged. It shows further research outside the typical text book response to every question. It also helps people like myself who study by distance learning as they don't have the time/money to sit facilitated courses.

    Anyway thank you again :D