What are peoples comments on the following? This is a long term investment so hopefully I could ride out problems like the recent drops by holding a considerable cash buffer - and buying more units if a margin call occurs. You could probably swap out SFY for STW as performance is relatively similar. Capital $50,000 Loan $100,000 @ 9.5% LVR 66% Weighting SFY 75% -> $112,500 SLF 25% -> $37,500 Dividend Yield (last year from Commsec) SFY 5.7% -> $6412 -> DRP SLF 7.9% -> $2962 -> Take as cash Growth PA (from 3rd Jan 02 to 2rd Jan 08) SFY 17.9% -> $20163 SLF 5.2% -> $1958 Investment Value is $178,534 Minus Interest of $9,500 Plus Cash of $2962 Final Value of $171,997 14.6% return not including $6537 of remaining tax deductible interest payments or franking credits. Each year (or some other suitable period) I draw down on the ML to keep it at 66%.
Well that's a high LVR but you've got cash on the sidelines eh.. you'll be getting margin calls from the banks pretty often I'd imagine. Hope you don't mind getting calls when you're on holidays..
re Growth PA (from 3rd Jan 02 to 2rd Jan 08) You are looking at averages during one of the greatest booms weve seen Long term growth is probably realistically closer to 10% You are borrowing 100k at 9.5% Is it worth it ? for that 0.5% Id say no If you could borrow for 6.47% like a few years ago then yes its worth it I reakon you should just go the 50k and leverage when it all hits the fan! when the next recession comes - when the news and everyone is selling when there is the biggest stock market plunge in recent history Thats when you invest ur 100k Sure one cant really time the market but Id see this as a safer strategy than investing 100k borrowed at 9.5% now or you could also invest 25k every 3-6 months and dollar cost average in until you have invested the 100k It just shields you a bit more from mistiming the 100k investment Id go for STW over SFY - SFY is too concentrated in large caps
Yeah I wouldn't be implementing this till midway through this year at the earliest - so hopefully after the end of the subprime crisis. I would be saving $1000 to $2000 a month and then buying more units every quarter (probably right before the dividend dates). The reason I originally picked SFY was because I want this to be as blue chip as you can get. I would still have a bit of money in a more speculative fund or two - and a bit extra for play trading through out the day. That said, I suppose the diversity of STW would be worth it.
how about adding some emerging markets exposure and international exposure A good way would be ishares and or vanguard If you bought slf and stw 3 months ago you would be down a lot at the moment They are not necessarily negatively correlated enough and to diversify a bit more may be good
I like the idea. I'd dollar cost average into them 50/50 each fund each month though. I would definitely start now and not and try and time the bottom of each market. Hopefully in time these funds get options and you can protect the investment. I would do the STW because it has much higher liquidity (and more chance of getting options) and also gives you a better balance in your concept of indexing. This way you have 200 stock companies and 200 listed properties. If you want to get funky for protection you could investigate the idea of protecting the portfolios with CFDs. Not for beginners though. 10/10 for the homework. You taught me a bit more about what I can do in the Aussie market with my SMSF. Cheers The Stig
Not yet, the monthly contribution happens on the last pay day of the month (this Thursday)... so hopefully I won't be buying in at the peak of the bounce back.
Fair enough. I have my money allotted for the month and then try and pick the bottom for the month. More of a challenge and fun than anything else. I think I picked it this month. Didn't do so well in December though. Ended up buying on the last day waiting for a decent pull back LOL!!
