Time for action!

So, because colonial offer loans and fund management, are there going to be more fees to pay?


Lastly (for now anyway). What sort of returns could be 'expected' pa.? As a percentage, what would be a reasonably conservative number? What about a reasonably well performing fund?
Because when I look on investsmart, there seem to be funds all returning 30 - 70 % over 1 year. This can't be right can it?

 

Just use colonial for everything. For the Margin Loan and the funds.

Use investsmart to download the colonial PDS (application form) so you don't have to pay the 4% entry fee.

Those funds I listed to you earlier are all available via the colonial shop. But I don't want to tell you what to invest in, you need to read the PDS and make your own decision. The funds I suggested are all reasonable risk funds, I don't suggest you invest in high risk stuff.

If you think this is to hard, go to a commonwealth bank, and see one of their financial planners. They sell the colonial product, and will be able to setup the margin loan and recommend some funds based on your risk level. Better to get a good plan, and be comfortable with what your doing. You need to understand the risk, so if the market drops in the short term, you don't do something silly and sell up!

 

Thanks crc and Sim. You both make alot of sense.

 

Yes colonial do charge a slightly higher MER or management fee ontop of the fund your investing in, this is why when you have lots of money to invest, it may pay to go direct. but as I said, some funds need min $10-40,000 to get in. But for you they offer everything in the one shop, and you will get one statement, which makes things easy for tax. Because you use invest smart to get in, they rebate your 4% entry fee.

Those fees are charged internally in the fund, so you wont be forking out anything extra from your pocket.

If you go to the commonwealth bank, they may charge you the 4% entry fee to cover the cost of the planner doing the plan for you. This may be money well spent since you aren't experanced to do it yourself. But negotiate with them. Someone I know, they charged a entry fee on the initial amount, but any future contributions they don't charge the 4%.

I think it might be a good idea to speak to the comm bank to get started, and as you learn more, you can start doing more yourself. But the key is to get started today!

Ignore the 70% one hit wonders. You should expect 14% each year, this is the average return of shares and listed property over the long term.

Just because one year there is a 'boom' doesn't mean the next year can be sustained.

 

by the way, I look at the long term performance of funds, not just the last 12 months, so 5-7 year returns. I look for consistency. And if a fund returns 70% in one year, I get a bit nervous! as its way above the normal 14% This doesn't mean you will get EACH year 14%, one year you might lose 5% and the next year you may get 20%. but the AVERAGE over 5-7 years should be 14%

Remember with gearing (margin loan) you can double your return (or loss).

Thats why the geared funds you see, usually have higher returns as they borrow money internally on your behalf.

 

have a read of this http://www.bt.com.au/downloads/flyers/Investment_Truths_Booklet.pdf

it will give you some good pointers when getting started.

 

I got to do that for you as well???

 

answers in red

 

Haha. Thanks crc and Sim.

An extra special thanks to Simon

 

Update.

This is what I'm thinking at the moment.

Apply for an account with colonial.
Invest in 3 separate managed funds.
1) A high growth fund. Something low risk that deals in property and/or blue chip shares, perhaps? Recommendations?
2&3) Income producing funds, which pay out monthly. I'm not sure how regularly Navra pays out, but it seems to be a popular choice around here.

(Or should I look at opening a super fund instead of a third managed fund?)

Anyway. I would start small, probably $3,000 to $5,000 in each fund, maybe with an equal margin loan in each account.
I would try to make regular contributions evenly throughout the funds, and reinvest any dividends back into the fund they came from.
Can I set up a similar system as the wealthbuilder product at colonial, so that all contributions are geared (probably just 50% gearing. Does that mean that if I invest $500, they match it with another $500?)?


Can someone briefly explain what a margin call is?
Does this happen if a fund drops in value past a predetermined amount, at which point I have to then top up the fund to the minimum balance?


Any comments, questions, criticism all welcome. Please let me know what you think.

Cheers.

 

This is a great start, you should start with one blue chip shares fund, and prehaps a australian property fund. As a 3rd, I think you should find a international fund you like. Prehaps something with ASIA exposure?

Most funds wont pay monthly, only a select direct commercial property funds like cromwell pay monthly.

One thing to note, as a general rule of thumb, unless you need the income, its better to invest in growth assets. As on growth you wont pay tax until you sell, where as income your taxed that year, losing say 30% of your income to tax, when it could sit there for many years untaxed if its growth. (I believe you never should sell unless there is a very good reason to do so)

Navra seems to be a good income fund. Its popular here due to this website been linked to the owners of Navra. So the 'popular' part may be diluting your impression. Just because something is 'popular' doesn't mean its better. In saying that, the fund is a good low risk fund, with regular income, so it should have a place in a portfolio. Read the PDS, and make up your own mind, and if you like it, go for it!

 

as for your question about super. Its always good to start early with your super. I think you mentioned your a personal trainer, I assume you work for yourself? In that case you SHOULD be paying 9% of your annual income into super. Remember Super for self employed is tax deductible.

Remember anything you put in NOW when your YOUNG has 30-40 years to grow, so small amounts today, will be worth allot more in 30 years time. The power of compounding!

Don't neglect your super, otherwise when you grow closer to retirement, you might find yourself having to make lots of extra contributions to 'catch up' on where you should be. But then, you wont have the time to let them grow.

If you work for someone, remember that for every dollar you put in extra, the government will give you up to $1.50. So you put in $1000, government will give you up to $1500 = $2500 contribution. So you should consider putting in $500 -> $1000 a year extra into your super.

 

Thanks guys.

I'm looking through some funds, just trying to get a feel for things. Is there anything in particular I should be looking for?

How do you go about researching a fund? What selection criteria do you have?

How useful are the ratings (morningstar - S&P) on investsmart?
So many of the funds appear to be really good. Good rating, good performance history etc...
I'm not sure how to narrow it down.

These PDS's are killing me. Do you guys read the entire thing when you are considering a fund?

 

This is probably bad advice so feel free to ignore me, but if I were you I would just throw a dart at the funds page of one of the investment magazines and go put $5k in it (maybe not quite like that, but just pick an Autralian equities fund with a decent 3 + 5yr return). Then you can worry about advancing your structure from there. Just do something! Put some hard earned on the line and you'll soon realise how fast you learn. Don't try and perfect your strategy and structure initially. It won't work and you'll understand what strategies you want a lot more when you are in the game and have got your head around everything.

BR

 

Hey guys.

Been pretty busy the last few days, but it has helped to clear my head a little.

I'm going to register with colonial and dump $5,000 into a growth fund to get things started. I will probably get a margin loan for another $5,000 to put into the same fund (is that a reasonable amount?).
I don't quite understand how the LVR works, so I'm not sure if $5,000 would be the right amount. I wouldn't be putting myself in a bad position as far as margin calls are concerned?

I'd like this first fund to be relatively safe, then perhaps I will look at some more aggressive funds to invest in next.

I've been researching funds on investsmart.com, but it's mostly still gibberish to me.

I know you guys can't give specific financial advice, but could you possibly name a few funds that fit my criteria, that I could look into further.

Thankyou.

 

Your plan is a 50% LVR meaning you are borrowing 50% of the total investment. That is a reasonable amount which compromises well the principles of gearing whilst not going too far overboard. I invest at this LVR myself. Of course this is not advice.

Use investsmart to search for top performing funds. Go for the longest timeframe to ensure you look at funds with a 5 year track record and not just one hit wonders that did well last year but never before that and poss never again!!