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To work or not to work

Discussion in 'Investing Strategies' started by -T-, 26th May, 2006.

  1. -T-

    -T- Well-Known Member

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    This is somewhat off the cuff, but has anyone considered the affects to a portfolio if you worked vs. if you didn't work?

    I guess the real debate is the extra benefit of income from a job vs. the extra knowledge gained from working on your portfolio 40 hours per week.

    If you have a substantial portfolio now, say $2M+, I wonder what the outcome would be if you drew down $150k, used it to live on for three years and spent that time working your portfolio.

    As I've previously deduced, a higher return will eventually overtake extra leverage or extra capital. So one would think that being down $150k would be worth increasing your returns even 5%. But then again, who's to say spending 40 hours per week for a year or two would even increase return? It could lead to analysis paralysis and hamper growth.

    Just curious...
     
  2. Glebe

    Glebe Well-Known Member

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    It's something that's been in my mind a while. Conceivably, my household could survive on my wife's income. But that would mean we're down $4500 a month after tax in spending money, money that I could otherwise give to Platinum to manage. So what makes me think I could do better than them coming from a lower base?

    On the other hand, I tell myself "If I make 100 lowball offers per year on an IP at $75k under market value, and get 1 offer acceptance" then that beats working for a year.

    It's a tough one, but I'm finding it hard to convince myself I'd be better off without the J-O-B.
     
  3. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I was given some advice by several highly successful investors several years ago ... they insisted that if you wanted to build serious wealth - you need to be doing it full time.

    These people are real estate investors who specialise in buying good value real estate and adding value.

    If you work at it part time, you should expect part time results.

    However, especially when starting out, and even more so if you have a well paying "secure" job - there is something to be said for the ease of finance that such a situation provides. Banks tend to throw money at high income, full time employees. Of course, there's plenty of other flexible finance options available these days, so it's less of an issue than it was a few years ago.

    The question is ... would you be able to truely add value to your portfolio by working on it "full time" - that is, value beyond what the market adds itself ?

    You'd need to make sure you have enough capital available to actually do something useful with your time, rather than sitting back and waiting for the market to create the capital for you.

    You may also enjoy your work too - there's something to be said for a satisfying and rewarding job !
     
  4. -T-

    -T- Well-Known Member

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    One reason you may be able to do better than Platinum, is that you are responsible for less money. The strategy you mentioned (low offers on property) would be much less successful if you were responsible for $100M+. You could try it with commercial buildings, but they probably have a better idea of the market.

    So what are the pros of each scenario?

    Managed fund $100M+
    - lower interest rates
    - access to investments with high minimum investment
    - managed by the top investors (edit: top analysts)

    Personal portfolio
    - access to smaller investments with possibly better returns
    - no additional fees (maybe higher transaction fees though)
    - no principle/agency problems (you have your best interests in mind)
    - better understanding of what your money is doing, maybe leading to better decisions

    There are probably many more for both scenarios.


    You mentioned a good point Sim', I agree that it all comes down to you adding more value than the market alone (plus your salary).

    But then there's the question that even if working in another job would be slightly more beneficial, how much does not working mean to you. For me, it depends on the day. :D I want our business to grow and be successful, but I'd also like to travel the world, living off the proceeds of my investments. Maybe even supplement it with some night time trading (assuming the ASX is open at night wherever I am).

    It's like going grocery shopping when you're hungry; talking about leaving your job on Friday afternoon. :D
     
  5. KevinH

    KevinH Well-Known Member

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    Well if you can invest to generate income to replace your JOB income, then why would you consider having to spend 40 hrs pw at your investing ?

    For me, its about the TIME.
    Replace the JOB income, and you get your time back.
    The spend 20 to 35 hrs of that time pw on the investing.
    More free time to dream up other investing strategies.
    Not to mention the lowered stress levels from not spending so much of your time converting it into income.

    If you just aim to trade 40 hrs of JOB time into investing time, then you're just changing jobs.
    That being the case, your present job probably has more benefits.... ( paid annual leave, etc )

    Kevin
     
  6. -T-

    -T- Well-Known Member

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    Good points Kevin.

    I don't know about this paid annual leave business! hehe. The only thing I get paid is hate from the other directors! :)

    It's hard to put a value on your time isn't it. I know it's worth a lot though. For me to be able to do what I want, travel more, get down to the snow a lot more, do some funky things at uni, etc would be priceless. All while spending more time on my investments. I actually have an interest in finance and investing so even if I was to do it 40 hours a week, it would be a step up (and 20 hours a week less).

    I remember you saying on another thread that you plan on making the move next year. Do you mind me asking what's in place to get this going?
     
  7. KevinH

    KevinH Well-Known Member

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    No problems, ask away !
    Currently have a lot of property 'under construction', hence a lot of paper profits.

    Most of this is what I would call trading stock, hence will be sold on completion.
    In the process some the sales proceeds will be reinvested in a more balanced way into equities and the like to generate income.
    This then forms the passive income ( in theory!) to replace my current income.

    I will continue doing the property development because its a hobby/interest/semi passion and so does not feel like 'work'.
    I figure this will also supplement the income, but more in big chunks of capital profits as projects are completed.

    I have also just started doing some projects via private syndicates and this also generates project management fees. Early days, but looks like having good potential.

    The other thing I will have in place is a big fat 'buffer' of cash equiv to approx 3 yrs current salary, so the family are not required to sacrifice too much lifestyle while I get all of the above in place.
    We don't have a lavish lifestyle so its not a real issue anyway.

    Worse case scenario, I will go back to my trade and do some contract work for cashflow, if things are not working out.

    For me, its time to stop dreaming about it and time to give it a go.

    Kevin
     
  8. TakeStock

    TakeStock Well-Known Member

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    The issue of job/investing doesn't have to be a one for one swap of course. Depending on your situation, you may be able to ease into a transition, particularly if you are self-employed. I currently work a 3 to 3.5 day week, with the other days spent relaxing, time with the family, investing etc. So it may be worth considering the prospect of 'semi-retirement'. This also allows you to maintain a definite income which is important for borrowing. It also allows you to test the waters and see if it suitable for you.

    Cheers
     
  9. Alan

    Alan Well-Known Member

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    Excellent idea. :)

    While I was able to achieve a better 'balance' there for a while, the combination of work and other issues has seen me sliding back to my bad old ways of late. ie. not spending as much time on the investment and life balance sides as I would like. :eek: I need to do something about that sooner rather than later!

    Do I think my investments(and me), would do better if I wasn't as fully preoccupied with the day JOB? Yes!!

    In the last month alone I can think of a number of books, articles, PDS's, investments, seminars etc I would like to learn more about but I'm invariably short of time to cover half of them. Crikey........getting to the Saturday/Sunday paper is often a challenge! :rolleyes:

    I know......I know........time management, prioritise, delegate etc.
     
  10. -T-

    -T- Well-Known Member

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    Sounds like you have a good plan in place. Three years worth of salary is pretty impressive as well! I bet you're going to be counting down the days as it gets closer. :) What city do you develop in? Townhouses, units?

    My plan at this stage is to get into that position for this time next year. I'm going to use a combination of commercial property (+'ve cash flow), managed funds and trading. The property is in place doing it's thing, the managed funds are in the mail and the trading is the next step. Similarly, I don't need much to live on (at first :)), but I'm going to test the water while I have a job. If I can sustain about $4k net a month, then I'll go for it in June 07.

    My ideal situation would be to do well this year so I can spend three months living at one of the ski resorts in 07. I figure it will only cost about $15k and that's nothing compared to the fun it would be! :D

    Wishful thinking? :cool:
     
  11. -T-

    -T- Well-Known Member

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    I'm self-employed but I'm not sure how I'd do it. At the moment I couldn't because I'm working on a 10 month project, but even after that, if I did less work I'd be contributing less to the business. For example, I bring in x dollars to the company and get about x/3 in wages. By doing less work I not only reduce my salary, but my contribution to the business.

    I'll have to give it some more thought and figure out a way to put it to the directors.
     
  12. pudsa

    pudsa Well-Known Member

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    Job or not!

    Interesting discussion. One aspect which I haven't noticed is the psychological aspect. For many people work (i.e. the job) provides a structure and discipline. Without this aspect many of us simply do not use our time effectively. It can come back to the old saying "if you want something done give it to a busy perason", however if we have time to spare many of us will simply drift and achieve very littl. Without the urgency of time constraints life can lose its urgency and with it can go our drive and motivation. "It won't happen to me" well check out some of the early retirees, dynamic energetic people then upon retirement some seem to lose some of the old 'snap, cracke and pop'.

    A further issue is that the job for many of us is part of our identity (sad to say) and also plays a big part in our social scene. Once it isn't there it can leave a big hole. It was suggested earlier that people considering going down the path of not working at a job but on their investment portfolio should consider a transition phase such as part time work. A good suggestion and certainly worth considering.

    Cheers
    Pudsa
     
  13. gazza

    gazza Well-Known Member

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    -T-

    Intersting idea. Certainly something I have been thinking about for a while now. I have the managed funds set up for income (will do a bit more shortly with some of the Macquarie products discussed in another thread). I have 3 residential IPS (very negatively geared so no help at the moment). Trading is something I am looking at. Do a bit within my SMSF using Alan Hull's(Actvest) strategy. Keen to learn more about options. Some questions:

    1. your age (I am 43)? if you are still young might be worth keeping the job going for a while longer (has it's benefits)
    2. any dependents ( I have an 8yo daughter)? If not, down the track there might be - defintely a dent in your cashflow :D
    3. commercial property - do you own directly or through property trusts. If through a trust, which ones do you recommend for income? I know Peter Spann is pushing another Macquarie one. Steve Navra has expressed some concern with property trusts - rent are at an all time high given the economy and when that starts to slow property trusts will not be the cashflow vehicle they are currently.
    3. Medium term -what sort of net income do you think you will need to support the lifestyle you want? worth thinking longer term , might have to keep the job going part time while you are becoming a more experienced trader. I am also self employed (IT consultant), I am thinking about doinng 3-4 days a week and working on the investing side for the other days.

    cheers
    Gazza
     
  14. -T-

    -T- Well-Known Member

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    pudsa: good points, the last thing I'd want to happen is leave work and become a couch potato. I couldn't picture that but I can definitely see where you're coming from and how it could happen.

    gazza: my commercial property is direct property. Two in Sydney at the moment that net about $15k pa profit. Not enough to pay for my PPOR, but it's a start. I've traded options before with capital of around $10k and could sustain about $1k a month. I plan to get back into it, but this time with much more thought. My earlier profits were probably 50% market boom, 30% luck and 20% skill. So lots of work needed.

    Don't get me wrong, I don't want to leave work just for the sake of becoming a lazy bum. :D I'll probably be working until I'm 80 years old! I guess I'm really looking for a career change just as much as a way not to work. I figure if my career can be managing my own portfolio, then great.
     
  15. TakeStock

    TakeStock Well-Known Member

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    And this of course is usually the crux of the matter. I find that there are two main reasons for people wanting to invest; 1) To secure their future and to be able to afford a better lifestyle or 2) A desire to leave their current employment (in other words, they hate their current job and want to tell the boss where to stick it!), although sometimes they are simply bored.

    Those who fall into category (1) are generally your long term investors who aim for a combination of growth and income. They are happy to have negatively geared investments which they can fund from either their employment or income producing investments.

    Those in category (2) are in a hurry to produce income from their investments to replace the income from their jobs. I think a lot of the courses advertised by 'gurus' are designed to appeal to people in this situation.

    There are very few things that can increase your happiness more than feeling a sense of accomplishment and achievement, and therefore, as Sim alluded to earlier, a job/occupation that you enjoy and challenges you, may be more important to you than the financial returns (assuming you earn enough to live comfortably - however you want to define that!).

    Cheers
     
  16. -T-

    -T- Well-Known Member

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    TakeStock: that was a really good summation of the mindsets.

    I think the concept of work/job/profession has many meanings, which I didn't really consider before. I'll be working forever, but it won't be 9 to 5, it won't be for someone else (excluding customers), and it probably won't be doing the same thing forever.

    Sure there's a stigma attached to 'not wanting to work', but I'd rather defy stereotypes and be happy than conform. I figure if I can create a self-fulfilling portfolio, change my profession and be able to spend most of my time doing what I want (whether that is working in a business or not), than I'll be eternally content.

    Is there a category (c) for that one? :D

    -T-
     
  17. TakeStock

    TakeStock Well-Known Member

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    You've summarised it nicely - contentment and happiness are the ultimate aims; financial independence allows this by providing choice. You choose what occupies your time; you choose whether or not to face peak hour traffic in the morning; you choose whether you'll be home in the afternoon so you can kick a ball around with your children - choice is the ultimate luxury!

    Cheers
     
  18. -T-

    -T- Well-Known Member

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    TakeStock: were you a philosopher in a previous life? You're giving us pearls here!

    "...choice is the ultimate luxury" (TakeStock 2006) hehe

    The mention of peak hour traffic really strikes a chord. When I lived in Syd I'd spend almost 1.5 hours each way to work. Now, I live about 300 meters from work and I can't fathom how I ever did it. This somewhat correlates to what Spann talked about in his cash flow seminar. He said he'd give anything to have more time, even if it meant a lot less money. I'm about as far from a Peter Spann groupie as there is, but I thought that was a very good point.
     
  19. Jane

    Jane Active Member

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    Hi Guys,

    Wow, what a lot of fantastic comments and angles. I love it. I thougt I'd put my comments in, too.

    I finished "salaried" employment a few years ago for two reasons. One, and the most exciting, to spend time with my new bub, and second, to continue spending time with my bub, to work my investment portfolio to ensure that I could replace my income and never need to be an employee again, unless I chose to.

    And it's worked beautifully. It's five years down the track and I have more than replaced my income (substantially), access greater tax and many other benefits along the way. The most valuable benefit, of course, is that I work for me, when I want to and how I want to. My fetish is property development of kinds where I add value and market them for sale or hold. I consider this my "job" and I'm quite strict with myself working.

    I love it. Of course, it helps that this area is my passion and I find it really easy and lots of fun. I'm available for my family and friends and can take time off when I need to. It's the flexibility that I love so much. It means I can do what is most important to me - time with family, and earn a great income.

    Everyone's different and needs to adopt their own strategy, according to their own perspective. And, of course, be prepared to adapt and make changes along the way. Always evolving, and never staying still.

    Cheers everyone,
    Jane
     
  20. Nigel Ward

    Nigel Ward Team InvestEd

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    What a great outcome Jane. Does "Mr Jane" still work?

    Has servicability been a problem for you or has the sweat equity you've developed with the value add and developments made low/no docs easy?

    Interested to hear more.

    Cheers
    N.