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Time for action!

Discussion in 'General Investing Discussion' started by Compleks, 8th Jul, 2007.

  1. Compleks

    Compleks Well-Known Member

    Joined:
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    Enough procrastinating. It's now time for action.

    I'm setting myself a deadline of August 1st to start investing.
    (Feel free to ban me if I haven't made any progress by then)

    I'm still confused, and really have little idea of what I'm doing, but I really think this will be the best way for me to learn.

    Poor analogy time.
    I guess investing is alot like fighting. You can drill your techniques on a bag and practice all day, but untill you step into the ring, everything is just theory. Then when you do finally enter the ring, that's when the real learning begins.


    Personal Information:
    For those who don't know, here's a little background info.
    I'm 21 years old and work as a personal trainer / gym instructor. My income is very volatile (I just went from about $500pw down to $180 last week, for various reasons).
    I have $15,000 in savings (currently in the bank earning 7%pa), and no current debts. I still live at home, and don't drink, smoke, or have much of a social life. So my living expenses are minimal.

    Thoughts:
    At this stage I'm thinking I should look at managed funds. As they seem to be the easiest way to get my foot in the door.
    But... I'm not sure how or what to look for in a fund. I am registered at invest-smart, but can't really make sense of anything. I don't know how to pick one fund over another.

    At the moment, I would like something that is going to be low risk, but income producing.


    So... if you were in my position, what would you do?



    This will be my last thread until August 1st, when I will either hang my head in shame and leave or take action.

    I have already received a ridiculous amount of support from people on this forum, and I don't want to let you guys (or myself) down. Nor do I wish to waste your time.
    I will keep any further questions I have restricted to this thread.

    Many thanks.

    Compleks.
     
  2. bundy1964

    bundy1964 Well-Known Member

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    Monthly income funds.

    Fund Profile

    Fund Profile

    Quaterly income fund.

    Fund Profile

    Top performers

    Fund Profile

    Fund Profile

    Fund Profile

    I would split between Vangaurd, Navra and Colonial First State. Vangaurd does miss a few months but it outperforms AMP which always pays out.

    Your milage may vary though.
     
  3. Compleks

    Compleks Well-Known Member

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    Alright. Thank you Bundy.

    What do you mean when you say my mileage may vary?

    A few questions.

    Do you think it would be wise to split my money? How many funds would you recommend entering with only $15,000?
    Are some funds aimed more at growth than yield? Should I perhaps look at a growth fund aswell as an income producing fund?

    What about margin loans? Would this be a good idea?

    Does the rate at which a fund pays have any reflection on it's performance? Why would some funds pay out monthly, while others only pay out annually / bi annually?

    Do you think investing into a newer fund (vanguard) is riskier? Because there is no history of long term performance?

    Where is says "Minimum Additional Investments". Can I assume that is a monthly payment if it doesn't say otherwise?

    Is the 'Minimum Redemption' just the minimum amount I can draw out of the fund at any one time?

    How am I supposed to measure the various risk profiles of each fund? How can I tell which may be the safer / riskier option?


    Okay. Question overload!
     
  4. bundy1964

    bundy1964 Well-Known Member

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    The risk/reward profile of the funds may not suit you.

    I think wise as a learner to split into say 3x5k.

    Most funds you will find are aimed at growth due to the way they invest and the way the tax system works. Growth funds are great for long term wealth building.

    I think they are a great idea, easy to get into and they increase your profits. On the down side they arn't the cheapest loan around and if you lose you lose harder with a loan.

    MER may be slightly higher for more frequent payouts but performance is more down to how well they make their investments. I do have 3 investments made that pay out quarterly and they each pay out on a differant month so effectivly a monthly income for me. It suits me it may be differant for you.

    To use Vangaurd as an example it's a new fund managed by a proven company. You need to look into what they invest in to work out if the risk is too high for you.

    That is an add anytime minimum rather than a monthly savings plan.

    Yes.

    First stop is read the PDS.
    Without writing a book from low to high risk you have -

    Cash, fixed interest, bonds, property, blue chip shares and shares. There is also a risk of which country they are investing in, more stability = less risk and with overseas markets you have an exchange rate that alters that some funds will hedge and others you just have to wear what happens.

    For returns from low to high you have -

    Cash, fixed interest, bonds, property, blue chip shares and shares. With risk comes rewards you just have to be tollerant enough to ride the rollercoaster for higher returns.

    There are some funds that will invest in other areas and as a novice run right away if they advise you to invest in them. ACR was a run away from as fast as you can company and there are others still out there too.
     
  5. Compleks

    Compleks Well-Known Member

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    Thanks for all the help Bundy, I appreciate it.

    I don't think I fully understand how a margin loan works.
    Say I had $5,000 invested in any fund. With a margin loan, I could pretty easily get loaned another $5,000, right?
    I assume that $5,000 would have to go into the same fund I used to apply for the loan?
    Who grants me the loan? Do I just go to any big bank, or is it organized through the fund?

    How do the repayment on that loan work? What sort of interest rates are we looking at?

    Let's say I was regularly contributing $100 per week into a fund. Instead of that, I could apply for a margin loan, and then put that $100 towards the loan repayments. This way I guess I would be earning more money instantly from the fund/loan, provided it's doing well?

    Cheers.
     
  6. Simon

    Simon Well-Known Member

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  7. Compleks

    Compleks Well-Known Member

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    Thanks Simon.

    When do all the loans get re payed in those examples?

    Is there any monthly/yearly payout, or does it all just accumulate like a bank account?

    In the example below, it seems that over the 5 year period Paul earned about $19,000. Is that right?
    Is that fairly common from a managed fund?
    Am I missing something, or is that a fairly low percentage?



    Cheers.
     
  8. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Returns from managed funds vary enormously depending on what the fund invests in and how it manages that investment.

    Australian shares have averaged more than 20% returns per annum over the past 3+ years ... but that is not "normal", just evidence of a boom. It is possible to see negative returns in some years for some funds.

    I think with a good set of blue chip shares in a fund, you should be able to average a minimum of 10% pa over 5+ years ... so 19% total over 5 years is pretty conservative - again, it depends on what you invest in and at what point in the market cycle.
     
  9. Bantam Roosta

    Bantam Roosta Well-Known Member

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    Yes, very easy to get a loan, but generally minimum loan amount is $20k. No, you wouldn't have to put the borrowed money into the same fund but you could if you wanted to. You are using the funds you own as security for the loan. From there you do what you want, within LVR requirements as per your lender.
    Plenty of different lenders. One as Simon mentioned. All the big banks have them. I use Commsec. Generally has nothing to do with the fund itself.
    Depends. You can prepay your loan 12 months in advance or capitalise it. By capitalising it, assuming the growth is above the increase in interest you never have to pay any off, but you can pay off as much as you want at anytime you want if you so desire. I'm currently paying 8.75%. The going rate is about 8 - 9.5%.
    Generally you have it matched. Eg. You put in $500 a month, lender puts in $500 a month, so your fund increases by $1000 a month ($500 yours, $500 borrowed).

    Hope this helps,

    BR
     
  10. Compleks

    Compleks Well-Known Member

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    Alot. Thankyou.

    Simon.
    In regards to that link you provided earlier. Is that just a company which I can use to setup and manage my funds with?
    So if I choose to invest in three different funds, I could then use the services from that site to automate regular contributions, and distribute them however I like between my funds?
    And if I choose, I can gear those contributions using their loan features?

    Are there any fees or charges I didn't notice? What is the advantage of investing through this site? Is it just for convenience?


    Thanks.
     
  11. Simon

    Simon Well-Known Member

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    Leveraged Equities is a margin lending company like many others. I have been using them for ages and have never used another so I cannot compare but I am happy. My account manager is always a call or email away and are responsive to my needs.

    I like the look of the wealthbuilder product although I never needed it myself. it wasn't there when I started out. I will show it to my kids when they start working.

    You open an account with LE and deposit your funds into it.

    You then get a prospectus for your chosen fund/s from Managed funds and superannuation with 100% rebate of entry fees and complete it then send it to your account manager asking them to draw a cheque and forward it to the fund manager. You then add savings to the managed fund each month which LE doubles and invests in the chosen funds.

    You then have a loan with LE. They add interest to the loan which you can pay or allow to accumulate.

    Other than interest I am not aware of any other fees off the top of my head.

    I am sure other lenders offer something similar and you can check them out. They are all quite similar as it is a competitive industry.

    Cheers,
     
  12. Simon

    Simon Well-Known Member

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    I haven't paid out mine in 10+years. As long as the total loan stays under 70% (roughly) of the portfolio value they wont ask you for any repayments. The interest will keep building up though but I reinvest my dividends and distributions which offsets that as my overall value rises along with capital growth.

    That example is very conservative and most years should be better if you choose the right funds. Some years will be worse so make sure you don't panic and sell if you have a bad year because the following years performance is often a good one! This is a medium to long term investment so set it up and don't watch it every day. BUT NO WAY IN THE WORLD WILL YOU BE ABLE TO RESIST THAT :) :)
     
  13. Compleks

    Compleks Well-Known Member

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    Haha, thanks Simon. Your explanations are always easy to understand, even for me.

    It sounds like an excellent option (the wealth builder). I was just looking at some of the application forms, which look like alot of fun :confused: .

    I guess I will have to print out the forms and mail them in, right?
     
  14. Compleks

    Compleks Well-Known Member

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    Oh, a few more things.

    When you setup an account with LE, is it like a separate bank account? Can I simply make deposits and with drawls from the account like normal?

    When your funds payout, do you specify where the money is deposited?

    Also, what would be the advantage/disadvantage of letting margin loan interest accumulate?
    Would you do this just so that all dividends are going straight back into the fund, as opposed to paying off the interest or loan?
    If the fund is performing well, then the interest earned should offset the repayments anyway, right?

    What about an exit strategy? When you do eventually want to take your money out, is this when most people pay off the loan and interest?

    Lastly, when you research a fund, where does it say how often it pays? I was looking on investsmart and couldn't find anything. Is it in the PDS?


    My head is about to explode from information overdose. Or maybe it's lack of information...

    Either way you guys have all been great.
     
  15. bundy1964

    bundy1964 Well-Known Member

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    Right and today would be a good day to do it!
     
  16. crc_error

    crc_error The Rule of 72

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    Compleks, I'll give you a simple solution.

    I personally have my money invested in 6 different categories:

    Shares ASX200 - Australian, and international
    Property - Australian, and international
    Shares - small companies - Australian and international.

    You can simplify this, but those are the sectors or categories I have chosen.

    Invest via someone like colonial, that way its easy to manage all your funds with one statement. And use a discount broker to apply for them, like investsmart. (download the PDS from investsmart and you will notice their code is in the adviser section, then they rebate the entry/exit fees and give you some of their ongoing commission they get)

    For shares ASX200 I like Colonial first state geared Australian share (this fund is already geared), and the 452 Australian share fund. For international I like Platinum International Share.

    For property I like colonial first stare property securities fund, and international colliers international property is good.

    small companies I like the cololonial future leaders and colonial small companies fund. for international small companies I think colonial only has one there to choose from cant remember what its called.

    Its up to you how you allocate your money.. but personally I have put roughly equal amounts in each fund.

    using colonial platform, you can deposit money into all those funds just like depositing money into a bank account.. hence you average in your entry price over the year which is also good..

    This is the best for you, so I expect to see this implemented by Aug1st! :)

    Its really not that complex, you could just simply put all your money into the colonial first state geared share fund and not even worry about diversification and margin loans, as your not really investing much to start with, but you may as well choose some other sectors and get your mix right from the start and implement gearing.

    With comsec margin loan, you can setup a automatic gearing/investing where they debit your account say $1000 each month and invest $2000 on your behalf.
     
  17. Compleks

    Compleks Well-Known Member

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    Thanks crc.

    Is colonial just an alternative provider to what Simon posted earlier? Are there any big differences in the services either of these organisations offer?

    What is the difference between colonial and leveraged equities? or are they essentially the same?
    How do these services differ to investsmart or other discount brokers? What exactly does a discount broker do and what is the relationship between all these services?

    With your post, you mean that you invest in these categories directly, or through a manged fund?


    Sorry for all the questions, but I feel like I'm narrowing things down.
     
  18. bundy1964

    bundy1964 Well-Known Member

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    Colonial would offer both the loan and the funds management side while with Leveraged Equities you get the loan only and will need to use a broker for managed funds. I went BankSA, Direct Shares and Investsmart mostly for the fact BankSA is better for a higher margin call on shares.

    A discount broker doesn't give advice so they can afford to drop the usual 4%entry fee and just pocket the trailing commission which investsmart will cap once you reach around 100k in funds.
     
  19. Compleks

    Compleks Well-Known Member

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    So colonial would probably be the easiest to manage right? Do they still offer access to all the available fund, or is it just the funds they manage or recommend?

    What do you think my best option would be?
     
  20. crc_error

    crc_error The Rule of 72

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    Colonial is like a umbrella which allows you to invest in many different brand of funds. Saves you opening a new account with 5 different fund managers. Colonial also has their own funds as well.

    I invest in managed funds, although I don't use the ones I suggested as I personally go directly to the fund managers and had a wider selection of funds. Reason I didn't suggest you to go direct, because you need say $20,000 min investment in some of the funds i'm in. Why did I suggest those? Well I have my parents money in those funds via colonial and think they are pritty good.

    You will use invest smart to get the rebate on the entry fee to get into those colonial funds. If you go direct to colonial, they will charge you 4% entry.

    I'll try to make it simple :)

    Investsmart - download the colonial first state PDS from them - they are your 'adviser'. Since they didn't give you advise, they will rebate you the 4% entry.

    Colonial - They have managed funds to invest in. They manage your money. They also allow you to invest into other fund managers through the one shop. For example. Safeway sell their own bread, but they also sell other brands of bread.

    Comsec lend you the money, they are the bank, so you will fill out the application forms in the funds you want to invest in, send it to them and ask them to pay for it! Colonial also have margin lending so you might as well use their margin loan, just keep it easier, and all from the one shop. (Commonwealth Bank ownes Comsec and Colonial so essentially they are the same bank anyway!)