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Where to invest 700,000 to obtain guaranteed passive income?

Discussion in 'Exchange Traded Funds (ETF)' started by Mon, 4th Jun, 2008.

  1. Mon

    Mon Member

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    My situation is husband and I are coming back to Australia this year after being ex-pats for many years. We won't be making much money initially when we get back to Oz so would like to invest 700,000USD to get a guaranteed 10%+ return passive income. Want to keep money in USD as want to wait for the usd to strengthen before we transfer to aud (willing to wait awhile:). Apart from high interest savings accounts what else could I look into?

    To sum up:
    *700,000usd to invest in a usd currency fund
    * Want to achieve 10%+ p.a.
    * Want to be paid quarterly or semi-annually
    * Capital must be guaranteed
    * Can tie-up funds for 5 years

    Have some Investment Properties to give some growth to our portfolio so was wanting to use this money for income.

    Thanks to anyone who can lead me in the right direction of where to start researching?
     
  2. Waimate01

    Waimate01 Well-Known Member

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    It's a great set of objectives, but I can't see it happening, unfortunately.

    You can put your US$ in a US$ deposit account with an Australian bank, but even with large sums you'll be earning the sort of interest you'd earn in the US (which makes sense when you think about it).

    If you really want to stay in US dollars, then you'll probably have more options if you make your investment in the US.

    Also worth considering whether you really do want to stay in US$. Sure, the rate is unattractive at the moment, but I think the larger consideration is whether you'll be returning to the US or staying in Oz permanently. It's a question of what currency you'll be using to fund your lifestyle going forward. If your destiny lies in Oz, then by remaining in US$ what you're really doing is currency speculation. Woud you take your $700k and do some pure currency play, speculating on some odd currency from some odd country - I'm thinking probably not - yet this is, in part, what you do if you stay in a currency just because you think the rate "should" move back at some point in the future. Yes, it should move. But there's absolutely no guarantee it'll move in the direction you want. If you really think you've got an accurately crystal ball, then use your $700 to borrow another $700 and indulge in some pure currency speculation. But of course one wouldn't do that for real. The factors that would advise against that course of action also apply to the notion of just staying in US$.

    I do *a lot* of US$->A$ transactions as part of my work, and nobody really knows what the currency is going to do. Everybody has a view, but nobody knows for sure. If they did, they'd be acting on it.

    One option might be to do one third a year for three years so you get a range of rates. In my view, the best you can hope for with currency transfers is to be "consistently wrong". Trying to be "singly perfect" is a big ask.
     
  3. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    The question is how long are you willing to wait?

    There are still many predictions about AUD/USD parity within the next 12 months or so - and some pundits are even suggesting the AUD could get as high as US$1.20. I don't see it myself - but as Waimate01 suggested, when trying to predict currency movements - you are more likely to lose no matter which way you go :rolleyes:

    However, given you mentioned having funds tied up for 5 years - I'm assuming you may not be looking to do the conversion until after that time? In which case, I'd say all bets are off anyway (currency movement depends on too many different factors).

    Sorry - I don't have any suggestions for guaranteed income. Remember that guarantees are only as good as the company offering them - as we found out with debentures in recent years here in Australia.

    I think perhaps you may be better off with a conservative income fund (eg Navra), and if you want capital protection, use some form of option (not my area of expertise).
     
  4. Mon

    Mon Member

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    Thanks for your replies - valuable input!

    My rationale for leaving money in USD is that the usd has dropped tremendously and has never been this low (to my knowledge) and due to current circumstances with economy may stay low for some time. However once economy picks up, sub-prime market corrects itself, new president etc etc the currency will bounce back to it's 'normal' rate. I know you'll say this is speculation (and I agree it is) but do you really think the usd falling is a permanent trend or just a short -term drop?

    I was thinking we could invest our money in usd and live off interest for a few years until it bounces back and then transfer back to aud.

    We bought a house over here in usd using aud last year. We are now selling house (renovated it and should make 20% return) but if change money back to aud then return drops to less than 2%! That's just too depressing:(

    I guess I'll need to look at investing money over here - I was hoping something like Navra would do funds in usd.
     
  5. Waimate01

    Waimate01 Well-Known Member

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    All things are permanent *or* short-term, depending over what interval you choose to measure them. Sounds trite, but I think it's actually a really important principle.

    But to answer the question, I think it's a short-term drop. But I'm not willing to put *any* money on it, because I know my opinion is worthless :D
     
  6. crc_error

    crc_error The Rule of 72

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    The way I see it, is you can leave it in the US, and get a very low interest rate, or move it into AU, and get 8.5% PA

    even if you get the conversion wrong your getting a higher rate on AU.

    If you have a 5 year plus view, why not just invest it into shares? Make a few entry points to average your way in, maybe leave $100k in fixed interest.

    Also with such large money, prehaps you should get financial advice.
     
  7. Tropo

    Tropo Well-Known Member

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    “....but as Waimate01 suggested, when trying to predict currency movements - you are more likely to lose no matter which way you go”.

    Yep...
    Predictions are recipes for disaster (mainly in currency movements).
    If you do not predict but react to certain situation (assuming that you know what you are doing), you’ll be able to make it (both ways).
    :cool:
     
  8. Mon

    Mon Member

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    If I decide to invest these funds overseas (in an offshore account for example) what would be some options for an income producing fund in today's economic climate? eg:a managed diversified fund, property trusts (probably not a good idea right now)?
     
  9. Waimate01

    Waimate01 Well-Known Member

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    One of your requirements was that the capital must be guaranteed, and that would largely preclude any sort of managed fund or property trust. One does see funds that claim to be capital guaranteed, but such guarantees come at a cost in other ways, or are illusory. Even the "good" ones are not 100% catastrophe-resistant.

    Some things claimed to be capital guaranteed are back by mortgages. Safe as Houses, everyone thought until the sub-prime thingo hit the headlines.
     
  10. Tropo

    Tropo Well-Known Member

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  11. eddyl

    eddyl Well-Known Member

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    The US financial system is in a pit. The current account balance is at record highs. In simple economic terms it is not possible to sustain such a CAB for so long without a massive slow down in the economy.

    In laymens terms if you have debt, at some point you must pay that debt off. This means less money for discretionary spending(investment). The worrying thing is that Im not sure when the US can do this, it is heavily involved internationally in wars, and war has traditionally been an extremely expensive exercise.
    Good luck with our speculation, I hope you are ready to hold for a long long time