# Newbie strategies + Where to start?



## Y.T. (30 April 2009)

Greetings everyone!

I am very new to the investing world and am studying to be a financial planner and maybe even a CFP one day. 

I am 23 years of age (I wish I started earlier), am married and live in a home I have a mortgage on. Now I bought this home about 3 years ago when property markets were really good so I got it a really good price. My current loan is $417,000 with around $35,000 in the offset (the home is probably worth well over $650,000)

I guess what I need is a little advice (and I understand that it is general in nature and all that) on where to actually start. I will start with what I have had experience with in regards to investing.

My father has done some developments (biggest being a group of 9 Soho style townhouses comprising of residential and commercial) and some other minor house and land sort of developments. I have helped him with these in meetings with councils, builders, etc and I know the processes involved in doing these kinds of investments.

I have never done anything with equities or anything even related. My family is more into property and I have always been taught to buy what you can see which I know is not the BEST way to become an ULTRA billionaire!

I have done a budget as stated in the “Newbie Lessons” thread and I have read all the material throughout these forums. I class myself as “High Risk”, I’m only 23 years old and I have my whole life ahead of me, mistakes are going to happen but at least I have time to recuperate!

My budget pretty much tells me that my outgoings are around $5,331/month (including my mortgage and every bill) and my income (combined with my wife) is around $7,000/month so I have around $1,700/month to spare and I could maybe sacrifice a bit more to increase this amount.

Now onto the investment options I was looking at:

Personally I was looking into platforms and investing through them (managed funds, etc) and getting them to manage them for me. One I was looking at was the Mentor Portfolio Service with Oasis Asset which has fairly low fees and they have a huge investment range. The investments I was thinking of choosing were:

Macquarie Master Australian Enhanced Equities Fund 	20.00%
Walter Scott Global Equity Fund 	15.00%
Platinum Asia Fund 	10.00%
BlackRock Wholesale Australian Share Fund 	15.00%
Vanguard International Shares Index Fund 	15.00%
Vanguard Property Securities Index Fund 	10.00%
All Star IAM Australian Share Fund 	15.00%

Total	100.00%

What does everyone think of these funds? Now I am not asking whether these funds are right for me, but generally, what do you think of the funds above?

I will be putting my initial investment amount of $1,000 and be investing $600/month regularly.

Another option might be to invest in real estate directly (residential) and build from there however you need more of a deposit or “initial investment” to be able to get into this field and I’m not sure on returns for either. The experience that I have had has shown me that property is a really good investment and that equities are much more risky but once I started reading on both they seem to have risks either way so I am a little confused as to where I should maybe start.

I guess my real question is... PROPERTY (residential) vs. EQUITIES (through managed funds or direct) as to where one should start.

If there are any questions anyone would like to ask feel free, I’m here to learn! =)

Thanking everyone in advance and excellent work on the forum, GREAT PLACE TO LEARN!


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## beamstas (30 April 2009)

Why give your money to someone who doesn't care about it?
All managed funds want is fees from you.. they don't care about your money
Over the last year most funds have lost 40%

You class yourself as high risk, but could you explain to the wife and kids how the next family holiday will be cancelled because you just blew 50grand on the sharemarket.

I don't know much about property
But managed funds are the last place i'd put my money

Just my


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## investorpaul (30 April 2009)

I agree with Beamstas managed funds are only interested in getting fees.

You could probably spend 3 to 6 months reading up and understanding the mechanics of the market and then invest in high quality blue chip stocks if you want to develop a long term portfolio.

You also have to consider your time frame, ifi t is 5, 10+ yrs then you can afford to ride out the ups and downs of the market

If you are looking to chop and change regularly (ie buy and sell) then you need to consider how you will make those decisions and how much time you can devote to managing your trades.


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## Y.T. (30 April 2009)

Quick reply, really good!

In regards to managed funds I was in the mindset that I don’t know what I am doing at the moment so I thought I would leave it to the "professionals" but I could be wrong in that respect given by your statement.

In regards to the high risk statement I have spoken to my wife and she agrees with our risk profile and we don’t have any kids yet, which is one of the reason I put myself in this bracket also. I also have a reserve and enough money to cover living expenses for a short while should something drastically go wrong but with the remainder I am not really that fussed as to where I invest it as long as I know what I am doing in the process.


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## investorpaul (30 April 2009)

Y.T. said:


> Quick reply, really good!
> 
> In regards to managed funds I was in the mindset that I don’t know what I am doing at the moment so I thought I would leave it to the *"professionals"* but I could be wrong in that respect given by your statement.
> 
> In regards to the high risk statement I have spoken to my wife and she agrees with our risk profile and we don’t have any kids yet, which is one of the reason I put myself in this bracket also. I also have a reserve and enough money to cover living expenses for a short while should something drastically go wrong but with the remainder I am not really that fussed as to where I invest it as long as I know what I am doing in the process.




If you spend a a few months learning about the market you would be in a better position to judge whether the "professionals" will better manage your money.

The problem with managed funds is they want you to keep the money invested so in my view they cannot possibly act in your best interest all of them time.


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## Mr J (30 April 2009)

Y.T. said:


> Greetings everyone!
> 
> I am very new to the investing world and am studying to be a financial planner and maybe even a CFP one day.
> 
> ...




A few comments:

1. Financial planners are mostly salesmen. This may or may not matter to you.

2. Your home may not be worth as much as you think. Homes have increased in value at an incredible rate over the last decade, and the question is whether those prices can be sustained. I would guess no, despite knowing nothing about the housing market, as corrections naturally follow periods of heightened speculation (which are naturally unsustainable).

3. Were property markets really good? Time will tell, but you may have bought late and held past the peak of the market.

4. While you have your whole life to recover, your view on this will likely change as you get older. For the majority of people, it's better for state of mind to build over time, rather than be prepared to bust out occassionally early on. If you reach 30-35 and have to "rebuild", you may regret your decision. Also remember that life can throw curve balls at you.

5. I don't think much of funds. As others have suggested, learn to do it yourself if you can.

6. Property is expensive and has far greater risk than most people realise. However, unless you're willing to be an active participant, the markets are not likely to bring you much of a reward.


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## Temjin (30 April 2009)

Y.T. said:


> Greetings everyone!
> 
> I am very new to the investing world and am studying to be a financial planner and maybe even a CFP one day.




Just wondering which industry are you working in right now? I too have previously studied to become a financial planner and have received my RG146 a few months back. But I got more and more disillusioned at the industry and the amount of "sacrifice" needed to become the type of FP I wanted to be in Australia. (due to ultra heavy regulations unlike in other countries where there are far more freedom)



> I am 23 years of age (I wish I started earlier), am married and live in a home I have a mortgage on. Now I bought this home about 3 years ago when property markets were really good so I got it a really good price. My current loan is $417,000 with around $35,000 in the offset (the home is probably worth well over $650,000)




As Mr J has said, the "value" in your home is worth nothing until you have sold it. It is unlikely you will anyway in the short term. And the true value of your home is only realised until someone has PAID for it. So any valuations from a "profession" means nothing.

Your house is then regarded as a liability due to the ongoing interest repayment expenses and other obvious ones. 



> My father has done some developments (biggest being a group of 9 Soho style townhouses comprising of residential and commercial) and some other minor house and land sort of developments. I have helped him with these in meetings with councils, builders, etc and I know the processes involved in doing these kinds of investments.
> 
> I have never done anything with equities or anything even related. My family is more into property and I have always been taught to buy what you can see which I know is not the BEST way to become an ULTRA billionaire!




The property market has been so hot for the last decade or two that the average aussie has now prefer this particular asset class over anything else. They rarely, if ever, see an opportunity outside of this asset class. Fueled by the credit boom created from "all sort of reasons" in the last 2-3 decades, the property market is certainly in a bubble status in which several of them has busted in other countries. (as well as the higher end market in Australia) 

Property is certainly not "THE ONLY" way to become an ultra billionaire. 



> I have done a budget as stated in the “Newbie Lessons” thread and I have read all the material throughout these forums. I class myself as “High Risk”, I’m only 23 years old and I have my whole life ahead of me, mistakes are going to happen but at least I have time to recuperate!




That's a good start to have a clear budget and knows what is eating your income. 

Remember though, some mistakes may have much larger consequences than you once believed to be. Property has a huge risk in the sense that it is usually highly leveraged and most average middle class family risk a huge portion of their income (and future income) into property alone. Trying to sell a negative equity property when both are out of job is one big risk and has happened many times before. 



> My budget pretty much tells me that my outgoings are around $5,331/month (including my mortgage and every bill) and my income (combined with my wife) is around $7,000/month so I have around $1,700/month to spare and I could maybe sacrifice a bit more to increase this amount.




You are at risk because if either you and your wife lose the job, then your family budget would be in grave danger. Try to reduce your spending as much as possible. 



> Now onto the investment options I was looking at:




We are not supposed to give any financial advises here. So it's hard for us to recommend/not recommend anything below. 

If I were you, I would focus on repaying any credit card / car loan debt you may have. Then I would reduce my expenses to as low as possible and start building up a saving buffer (if not already done so) so that it would last at least 6-9 months in the event both of you lost the job. i.e. yes, that's $32,000+ of saving



> Personally I was looking into platforms and investing through them (managed funds, etc) and getting them to manage them for me. One I was looking at was the Mentor Portfolio Service with Oasis Asset which has fairly low fees and they have a huge investment range. The investments I was thinking of choosing were:
> 
> Macquarie Master Australian Enhanced Equities Fund     20.00%
> Walter Scott Global Equity Fund     15.00%
> ...




One word. In a global credit crisis, every "traditional" assets become correlated. Standard diversification strategies through equity / property / bond no longer work in such markets. 

You are basically invested in 100% equity with little or no diversifications. Check their funds (including listed property security fund) and see how "correlated" they were for the past 5 years. You would be surprised. 




> Another option might be to invest in real estate directly (residential) and build from there however you need more of a deposit or “initial investment” to be able to get into this field and I’m not sure on returns for either. *The experience that I have had has shown me that property is a really good investment* and that equities are much more risky but once I started reading on both they seem to have risks either way so I am a little confused as to where I should maybe start.




Because your experience has been biased for property. The good times your father has experienced in the past had made you the impression that "Past performance *IS AN INDICATION* of future performance". You may not be fully aware of the reasons why property was such a great investment back in the last 10-20 years, and/or fully appreciate the reasons why it may not continue to do so in the future. 

Successfully investing requires a big picture thinking mindset and the ability to act against the crowd. Be a smart contrarian, but not a blind one. 



> I guess my real question is... PROPERTY (residential) vs. EQUITIES (through managed funds or direct) as to where one should start.




Why property vs equity only? What are the other asset classes that may outperform them based on the current trend of the global economic crisis? 



> Thanking everyone in advance and excellent work on the forum, GREAT PLACE TO LEARN!




Definitely.


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## Y.T. (30 April 2009)

Thanks a lot for all of the replies, everyone has been helpful! Now to answer some questions...



> Just wondering which industry are you working in right now? I too have previously studied to become a financial planner and have received my RG146 a few months back. But I got more and more disillusioned at the industry and the amount of "sacrifice" needed to become the type of FP I wanted to be in Australia. (due to ultra heavy regulations unlike in other countries where there are far more freedom)




Currently i am in the accounting profession (father is an accountant and I work for his firm) and have prevously been in the mortgage broking profession. I know there are a mass of regulations in the FP space but the way i see it lots of FP's i know within my dealer group are on a very healthy income so why can't I? =)

Also being an FP to me is much more fun than being an accountant in my personal opinion (not saying one is better than the other).



> As Mr J has said, the "value" in your home is worth nothing until you have sold it. It is unlikely you will anyway in the short term. And the true value of your home is only realised until someone has PAID for it. So any valuations from a "profession" means nothing.
> 
> Your house is then regarded as a liability due to the ongoing interest repayment expenses and other obvious ones.




I understand all that, I was just going by prices in my area. I bought the block for $133,000 (499sqm) and now blocks of around 150sqm are around $160,000+...

But yes the house isnt worth anything until sold, fully understand where you are coming from.



> The property market has been so hot for the last decade or two that the average aussie has now prefer this particular asset class over anything else. They rarely, if ever, see an opportunity outside of this asset class. Fueled by the credit boom created from "all sort of reasons" in the last 2-3 decades, the property market is certainly in a bubble status in which several of them has busted in other countries. (as well as the higher end market in Australia)
> 
> Property is certainly not "THE ONLY" way to become an ultra billionaire.




I actually went to a proprety investors seminar around a month ago and the person that was presenting was pretty much saying "equities = bad... property = good" and was saying that consistently over the past 90 or so years property has gone up on average 7% - 10% without a fall. not sure on the substance of his findings but it was pretty interesting to hear this.

I actually dont want to go into one asset class i would much rather diversify, however i think i need to read up a lot more on other asset classes to find myself somewhere to start.



> That's a good start to have a clear budget and knows what is eating your income.
> 
> Remember though, some mistakes may have much larger consequences than you once believed to be. Property has a huge risk in the sense that it is usually highly leveraged and most average middle class family risk a huge portion of their income (and future income) into property alone. Trying to sell a negative equity property when both are out of job is one big risk and has happened many times before.






> You are at risk because if either you and your wife lose the job, then your family budget would be in grave danger. Try to reduce your spending as much as possible.




I had done the budget a month ago and it does need to be revised but a lot of the payments cant really be changed for example mortgage, insurances (including home, life, car, etc) but i am sure i can tweak some things.

I am sticking to the 10% pay yourself first rule so i will definately be placing $x away for investing, the real question is WHERE!

All this is very interesting to me and i know this is the "aussie stock forum" but everyone on here amazes me by the amount of diversified information and depth they go into to explain things that are not even stock related and it is great to bounce ideas of everyone. As Temjin said i am biased towards property due to my previous experiences and i need to try other assets which is what i will definately do in the very near future.

Are there any books one would recommend to read in relation to what i need to know? Markets, asset classes/diversification, etc.

Thanks again!


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## investorpaul (30 April 2009)

for free basic information on the stock market and shares go to www.asx.com.au and then click the education tab.

They have a heap of stuff there on getting started and understanding the basics.


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## Julia (30 April 2009)

investorpaul said:


> for free basic information on the stock market and shares go to www.asx.com.au and then click the education tab.
> 
> They have a heap of stuff there on getting started and understanding the basics.



I really second that advice, Paul.   The info is clear and easy to understand and imo shold be compulsory reading for any newcomer, before buying books etc.

Also agree with preceding comments about not using managed funds.
Take your time and learn how to invest directly.


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## So_Cynical (30 April 2009)

Here's a good place to start...read Julia's first post and follow link. 

https://www.aussiestockforums.com/forums/showthread.php?t=15293


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## Sir Osisofliver (1 May 2009)

Y.T

It's good to know that some poeple are learning from the Newbie Thread - I just wish I wasn't so busy at work at present and could add to it...you'll just have to wait patiently for updates.

1) There are a few firms around where Financial Planners are NOT glorified salespeople. (Including my firm) Don't folllow the dark side of the force young padawan, a great deal of Financial Planners are parasites.

2) In my opinion property/equity should be 50/50 (long term) - but of course at present equities looks more attractive than property, so I'm buying more equity than property at the moment, and in about 5 years will stop buying equity and start buying property again.

3) Managed funds ... Rant rant rant = yuck (this is not a recomendation yadda yadda insert disclaimer here)

4) "I actually went to a proprety investors seminar around a month ago and..." So ask yourself whenever you go to one of these things... does the presenter have a vested interest?  I hope he sources his quotes...

5) Define "High risk" - (To me you would be prepared to take your hard earned savings, go to the casino and put it all on red - the potential to double your money, but also the potential to lose it all) - you need to have a clear understanding of the sort of investor you are (and because you have a partner - what their tolerances are).

6) How much have you now got from your budget and have you thought about reserves and gearing for your investment? Go compare LOC's and Margin Lending facilities (Never margin above 50% and let your LVR drop with the increase in equity).

Have fun


Cheers

Sir O


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## beamstas (1 May 2009)

Y.T. said:


> I actually went to a proprety investors seminar around a month ago and the person that was presenting was pretty much saying "equities = bad... property = good" and was saying that consistently over the past 90 or so years property has gone up on average 7% - 10% without a fall. not sure on the substance of his findings but it was pretty interesting to hear this.




Rubbish

Think Soros.. Think Buffet
Now name a famous property investor

They are not even in the same league


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## awg (1 May 2009)

beamstas said:


> Rubbish
> 
> Think Soros.. Think Buffet
> Now name a famous property investor
> ...





I agree with yr principle,

but a lot of very wealthy people made their money in property related businesses

Frank Lowy, John Simon?  Aussies I know, but still

I personally know a guy worth $200M+(nett)...all in real property


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## Gillie (1 May 2009)

I tend to agree with beamstas...

What the seminar guy was saying is a load of crap!!!!!

8 times outta 10 people who run seminars are in a grab for cash. Do your own research, and reach out on the forum - there is so much experience here!!!!

Look at the performance of the ASX over the same period and overlay the 2 charts (ASX performance Vs Property prices) - what do you have? both are rising and have always been rising - maybe not at the same rate, but imo typically equities provide better returns, depending on your investing patterns and level of risk.


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## Temjin (1 May 2009)

Y.T. said:


> Currently i am in the accounting profession (father is an accountant and I work for his firm) and have prevously been in the mortgage broking profession. I know there are a mass of regulations in the FP space but the way i see it lots of FP's i know within my dealer group are on a very healthy income so why can't I? =)




Good times mate, they have had such a good time. I.Bankers have made even more money during the credit boom than FPs. Does that mean the boom will continue?



> Also being an FP to me is much more fun than being an accountant in my personal opinion (not saying one is better than the other).




I guess it's because FP deals with people more than an accountant. Great for people with extravert personalities. 



> I actually went to a proprety investors seminar around a month ago and the person that was presenting was pretty much saying "equities = bad... property = good" and was saying that consistently over the past 90 or so years property has gone up on average 7% - 10% without a fall. not sure on the substance of his findings but it was pretty interesting to hear this.




Sir Osisofliver already mentioned it. If you were the presenter, and is remunerated from selling properties based on commission and value of the sale, why would you present evidences that would otherwise hurt your income? 

And no, property HAS NOT CONSISTENTLY rise on average 7-10% over the past 90 years. The presenter has not shown you the full picture and validate his source properly. Property has indeed risen at that average over the past 2-3 decades (largely thanks to the boom in credit), but properties have only historically rise along with inflation (and suffer occasion massive falls) over the past century. 

Let's look at it from another perspective. If annual wage growth remained at 3% and interest rate remained at CURRENT 50 YEARS LOW for the next 90 years, if property rise by an average of 10% per year over the same period, how "affordable" would an average property be to an average income earner in 2100? Since you are an accountant, I'm sure you can understand the maths. 

Now let's look at it from the perspective of compounding. 10% rise per year for 90 years at today's average house price of $400k (for the sake of it), a house (or rather, the LAND) would worth 1.1^90 x $400k = $2,125,209,000. 

And assuming the fractional reserve banking still exist in 90 years and that inflation is kept under control at 2-3% per year over the next 90 years, then EVERYONE in Australia with an average house would be MUCH RICHER than the "average" person. 

Do you see the fallancy in all this? This is not sustainable at all. Unfortunately, people with vested interest in selling properties would always find ways to persuade potential buyers that the boom will last forever. 



> I actually dont want to go into one asset class i would much rather diversify, however i think i need to read up a lot more on other asset classes to find myself somewhere to start.




Yep, www.asx.com.au reading list is a good start as investorpaul has mentioned. There are plenty more in this forum, do a quick search. 



> I had done the budget a month ago and it does need to be revised but a lot of the payments cant really be changed for example mortgage, insurances (including home, life, car, etc) but i am sure i can tweak some things.
> 
> I am sticking to the 10% pay yourself first rule so i will definately be placing $x away for investing, the real question is WHERE!




If you studied FP in full, you may be aware that "CASH" is an asset class by itself.  



> All this is very interesting to me and i know this is the "aussie stock forum" but everyone on here amazes me by the amount of diversified information and depth they go into to explain things that are not even stock related and it is great to bounce ideas of everyone.




That's true, we go far deeper than just individual stocks. 



> As Temjin said i am biased towards property due to my previous experiences and i need to try other assets which is what i will definately do in the very near future.
> 
> Are there any books one would recommend to read in relation to what i need to know? Markets, asset classes/diversification, etc.
> 
> Thanks again!




Also try reading up investopedia.com 

It's an excellent source of information.

I would recommend you get educated in the area of ETFs as well.

www.asx.com.au will have some brief info.

www.seekingalpha.com has more detailed info on international ones. 

Good luck with your further readings.


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## jono1887 (1 May 2009)

beamstas said:


> Rubbish
> 
> Think Soros.. Think Buffet
> Now name a famous property investor
> ...




Donald Bren and Gerald Cavendish Grosvenor  at $11bn and $12bn respectively ranked 26th and 29th in the World, tied with Soros who is at $11bn. 

True Buffet is 2nd in the world but if you go through the list of top 30, over 75% are from retail or software - IKEA, Walmart, Bloomberg, Dell, ALDI, Google, Microsoft ect ect... there arent that many equity traders either in that list the main 2 are just Buffet and Soros so I think you're quite biased there in your opinion.

http://www.forbes.com/lists/2009/10...hest-people_The-Worlds-Billionaires_Rank.html


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## Beej (1 May 2009)

One thing no-one has suggested: If you read the Noel Whittaker/Paul Clithero type books etc (the basic ones), they usually suggest that if you have a house and mortgage, you should focus all spare cash towards paying that debt down ASAP. Paying off the mortgage provides a zero risk, effective (pre-tax) return of the prevailing mortgage interest rate divided by (1 - your marginal tax rate).

Eg, if you pay up to 41.5c in the dollar in tax, and your mortgage rate is 6%, then your zero risk pre-tax return on money put into the mortgage is 10.25% pa. That's a pretty good return with zero risk, and this is what you would have to BEAT, consistently, with any other investment to actually be better off than having just put the cash in your mortgage.

Now allow for an average interest rate of say 7.5%, and that effective risk-free return goes up to 12.8%.

Over the long term, that sort of zero risk return is hard to beat. I can't think of anything else that can provide that sort of return with virtually zero risk, no entry/exit timing risk etc etc. 

This has always lead me to believe that if you own a PPOR and have a mortgage, that the best strategy is always to pay off the mortgage with every spare cent ASAP (which is what I have always done). Then, once that debt is gone, use the spare cash to start building a portfolio of other assets (shares etc), or a trading fund etc. Additionally, if at this point you see a particularly good investment opportunity you have to choice to redraw some equity as well, but in this case you have the choice as to how much risk you are prepared to take as until you redraw, you own your house outright - plus then any interest you are charged becomes tax deductible (making it cheaper money), as long as you structure your loan/accounts etc correctly.

Ie, If you invest spare money before paying off the mortgage off, you are still paying the interest in effect with after tax dollars, so the capital is in effect costing you twice as much.

This is not personal financial advice - just outlining a strategy that I have always followed and that is widely recommended in widely available books on such matters. Do your own research!

PS: This principle does not apply to loans related to investment property etc, as then the interest is tax deductible.

PPS: Re property billionaires - what about Donald Trump???

Cheers,

Beej


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## Mr J (1 May 2009)

> PPS: Re property billionaires - what about Donald Trump???




As much as he desires it, he should never be counted on these sorts of lists.


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## maffu (1 May 2009)

Please watch this video on Asset Bubbles, its 15mins long. Forward to the 6minute point if you are only interested in the property bubble (using US data, although I assume it would follow a similar trend in Australia.)

http://www.chrismartenson.com/crashcourse/chapter-15-bubbles

YT, Managed funds are often shown to rarely outperform the market over the longterm, and with fee's taken into account they are often a bit under the market. This makes perfect sense though, as a small fund is successful and gets bigger, it then has less options to invest in. The largest mutual funds in Australia pretty much have to invest in the largest companies in Australia, so as they get bigger their returns track closer to the market. 

However I know some smart Finance PhD's and lecturers who still use managed funds for convenience. So while it is important to know that Mutual Funds are in it for fee's, and may not be the optimal investment unit, for some the convenience is worth while. Its up to you if you want to get them to do the investing and save your time. Just know the risk.

Mutual funds will especially save in time and transactions costs in regards to access to international share markets, or property investments through mutal funds.


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## tech/a (1 May 2009)

Not much thinking in this reply







Gillie said:


> I tend to agree with beamstas...
> 
> What the seminar guy was saying is a load of crap!!!!!




More in this and there is much more to consider with serious Property investment,Tax,Super and ofcourse as mentioned real value.
Property V Sharemarket is a muted arguement in my view and should for the serious investor be hand in hand.
*You can bet all wealthy participants in the market will also have a strong property presence.*



Temjin said:


> Good times mate, they have had such a good time. I.Bankers have made even more money during the credit boom than FPs. Does that mean the boom will continue?
> 
> 
> 
> ...


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## Temjin (1 May 2009)

Most of the time my views on residential properties are opposite of Beej's, but I totally agree with his "personal opinion" (a recommendation is illegal on this forum hehe) this time on paying off your mortgage debt as it does indeed provide you with a risk free return since you reducing your cash outflows on tax non-deductible interest. 

This applies the same with other non-investment debt such as credit cards / car loans. Pay them off first before doing anything. 

There is so much opportunity out there, so take your time and try not to act on your emotions.


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## Jack Payback (2 May 2009)

Sir Osisofliver said:


> Y.T
> 
> 1) There are a few firms around where Financial Planners are NOT glorified salespeople. (Including my firm) Don't folllow the dark side of the force young padawan, a great deal of Financial Planners are parasites.
> 
> ...




I agree with Sir O. If you want to be an FP with a healthy income, don't just fall in to the trap of signing up anybody and everybody to anything just to generate fees and commissions. If you take the time to give good quality advice and actually care for your clients, you will find that you will build a trouble free client base, who will refer friends and family to you. You will not have to chase clients.

It will take longer, but do you really want dissatisfied clients, dealing with complaints, more admin taking up your time? If you burn clients you will get a bad reputation, you could probably get away with this in an anonymous city, but not in a regional town. Plus you will not be your compliance officer's best friend.

Some of my best clients were ones that I did not charge for 2 years, but they referred a lot of good clients who I could charge. Think of it as Karma.

In terms of the advice you will give to your clients. You will not learn this from your RG146 studies. This only teaches the laws and regulatory framework you will be working in. The practical stuff you learn on the job, the same way a mechanic, plumber or builder does. You will have learned a lot through your accounting work and studies that you will use - particularly reigning in a client's cash flow.Try and find a good mentor.


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## Y.T. (4 May 2009)

Really good replies to this thread, I have also being doing a lot of reading on other posts of this forum (I’ve nearly come to the point of making this place my homepage!).

What I have learned here in simple terms is:

- Tweak my budget so it is maintainable
- Pay off my home loan ASAP and then start investing

*Question time:*



> One thing no-one has suggested: If you read the Noel Whittaker/Paul Clithero type books etc (the basic ones), they usually suggest that if you have a house and mortgage, you should focus all spare cash towards paying that debt down ASAP. Paying off the mortgage provides a zero risk, effective (pre-tax) return of the prevailing mortgage interest rate divided by (1 - your marginal tax rate).




Hypothetical Scenario - Young professional on a fairly decent income with a PPOR debt.

Should this person put all their extra monies into their mortgage or maybe put some into another investment vehicle? I know the posts states that you should put extra monies into home loan for better return but this could take years, would you not miss out on other markets up in those years?



> I agree with Sir O. If you want to be an FP with a healthy income, don't just fall in to the trap of signing up anybody and everybody to anything just to generate fees and commissions. If you take the time to give good quality advice and actually care for your clients, you will find that you will build a trouble free client base, who will refer friends and family to you. You will not have to chase clients.




In regards to becoming a FP with a healthy income - I am not a greedy person - I didn't look at commissions from products when working in the mortgage field so I definitely would not look at it in the FP field. We built our accounting practice on word of mouth; this is how I am hoping to build the FP side of things. I know everyone has to make a living somehow but giving the clients the best advice for them means they will be clients for life and to be frank, they probably wouldn't mind paying a reasonable fee for service.

I have also been reading a lot of threads bagging FP's, saying "they are not worth it, do it on your own". What do other FP's on the board think of this? Where is the future of FP's going? Is there still a huge market for them?



> Define "High risk" - (To me you would be prepared to take your hard earned savings, go to the casino and put it all on red - the potential to double your money, but also the potential to lose it all) - you need to have a clear understanding of the sort of investor you are (and because you have a partner - what their tolerances are).




My partner has come from a fairly conservative family - they have never invested into anything apart from rental properties. However she is similar to me in the sense of investing, she knows really nothing about it but we have spoken about what risks we are willing to take and if we have enough reserve (say 9 - 12 months of expenses) we would invest into pretty much any asset class. 

In saying this if I were to invest ALL my money into an investment and it all disappeared then I can’t say that I won’t be upset, but if it dropped by 30% for example it’s a risk I would have been expecting (you haven't lost until you've sold). Maybe I am not a high growth individual but I understand that with high risk could come high return and am willing to sacrifice for a period of time to achieve this.



> How much have you now got from your budget and have you thought about reserves and gearing for your investment? Go compare LOC's and Margin Lending facilities (Never margin above 50% and let your LVR drop with the increase in equity).




I have managed to reduce my budget to $3,945 of essentials (electricity, gas, insurances, mortgage, etc). I think a fairly good start.

I was actually looking into gearing (and no more than 50% is exactly what I was thinking) but then I kept reading about paying PPOR off first so I am still contemplating on this.

Thanks again for all the resposes.


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## Julia (4 May 2009)

Y.T. said:


> My partner has come from a fairly conservative family - they have never invested into anything apart from rental properties. However she is similar to me in the sense of investing, she knows really nothing about it but we have spoken about what risks we are willing to take and if we have enough reserve (say 9 - 12 months of expenses) we would invest into pretty much any asset class.



How would you determine which asset class at a given time?



> In saying this if I were to invest ALL my money into an investment



What do you mean here?   e.g. all your money into one investment property, or all your money into a single stock?



> and it all disappeared then I can’t say that I won’t be upset, but if it dropped by 30% for example it’s a risk I would have been expecting



So, if the investment were to be in shares, you'd watch the value fall by 30% and do nothing?  What would you do at more than 30% fall?



> (you haven't lost until you've sold).



I guess that's what the faithful holders of ABC Learning, Allco Finance, MFS/Octaviar, Babcock and Brown et al thought as they watched their investment dwindle to pretty much nothing.  Maybe take a look at these charts and see if you still think 'you haven't lost until you've sold'.

I'm not trying to, um, take the wind out of your sails, but suggest you need to be a bit clearer about your plans before actually investing real money.


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## Y.T. (5 May 2009)

> How would you determine which asset class at a given time?




Research, lots of research. We would be going in together so i will try to explain to her where we are going and why, and seeing as i am on my way to being an FP myself, would be good practice.




> What do you mean here?   e.g. all your money into one investment property, or all your money into a single stock?




No, i mean into a portfolio of investments, not one investment. Sorry for the misunderstanding.



> So, if the investment were to be in shares, you'd watch the value fall by 30% and do nothing?  What would you do at more than 30% fall?




It would depend on the stock i guess. If i thought these was a chance of survival i would maybe buy more at a "cheaper" price?



> I guess that's what the faithful holders of ABC Learning, Allco Finance, MFS/Octaviar, Babcock and Brown et al thought as they watched their investment dwindle to pretty much nothing.  Maybe take a look at these charts and see if you still think 'you haven't lost until you've sold'.




I guess you have a point there. Hrmm i may need to reconsider my own risk profile =)

I do really want to get into international and australian shares though, would these not be classed as high risk assets? I understand that i may lose as much as i can gain but am willing to take the risk. Would this classify me as high risk?

It's actually pretty confusing profiling yourself!



> I'm not trying to, um, take the wind out of your sails, but suggest you need to be a bit clearer about your plans before actually investing real money.




I am way off implementing a plan. I am still researching and trying to get things in order so i can understand whats going on. Still a while to go!

Thanks for the replies Julia, puts things into perspective!


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## Sir Osisofliver (5 May 2009)

Y.T. said:


> Really good replies to this thread, I have also being doing a lot of reading on other posts of this forum (I’ve nearly come to the point of making this place my homepage!).
> 
> What I have learned here in simple terms is:
> 
> ...



Well you are training to be a FP so you should learn how do to things like cash flow modelling. (HINT HINT what rate can you borrow, what rate of return can you generate, what tax will you pay etc etc etc)  You've probably been told that PPOR debt is the worst kind of liability you can have because interest payments are non tax deductible. It's "bad debt" as opposed to the same debt on an investment property which is tax deductible.

I've mentioned it in the Newbies thread.... the BEST place to start is to have a couple of investment properties before you chain yourself to a large asset and significant non tax deductible debt. HOWEVER there is NOTHING stopping you from using your existing EQUITY in the house (without actually drawing on this equity) to cross commercialize into an investment property that does have tax deductible interest payments.

If you can manage to positively gear your property (yes it is possible) as well it will HELP you pay off your PPOR mortgage quicker.



> *Question time:*




What Julia said.


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## Julia (5 May 2009)

Y.T. said:


> It would depend on the stock i guess. If i thought these was a chance of survival i would maybe buy more at a "cheaper" price?
> 
> 
> 
> ...



I'm pretty conservative and regard capital preservation as main focus, but I'd guess that even people who are decidedly less risk averse than I am would regard your current attitude as 'high risk'.   

And unless some pretty radical enlightenment occurs before you actually become a real live FP - i.e. advise real live people  - I'd have to worry about your clients.

I'd suggest reading Sir O's thread for beginners,and  all the education section on the ASX website for a start.

Good luck.


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## lookout (5 May 2009)

I think now is an excellent time for a newbie to invest a SMALL amount of money in the sharemarket if they think the price will go up.

If you make a profit you will feel euphoric and confident and ready to invest more. Be aware that the sharks have noticed you dipping that toe in the water and are positioned to take a bite next time.

If you make a loss you'll feel pain and run away until you've learned some more and are ready to try again.

The pain is of a magnitude greater than the euphoria, but will pass quickly if you have only risked a small amount of cash. Upon reflection you'll be able to see how your emotions influence investment decisions. These are lessons that can only be learned with experience and lessons that are best learned before you have a significant amount of cash to invest.


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## It's Snake Pliskin (5 May 2009)

lookout said:


> I think now is an excellent time for a newbie to invest a SMALL amount of money in the sharemarket if they think the price will go up.




Lookout, be careful and invest only when you know how to. Pardon the pun. 

Actually lookout, I am interested as to why you say NOW is an excellent time to invest if a newbie thinks the market will go up. How will a newbie know what to think that will allow them to realise their opinion that a stock will go up?

Do you have any charts or basis for your thoughts?


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## lookout (5 May 2009)

The point I was trying to make is that the experience of losing a little money in the market is a valuable lesson that will make one more cautious in the future. Having lost money myself  (firstly in 1987) led me to be sufficiently informed/cautious that I was 95% invested in cash before this bear started.  

I have 3 relatives who have lost large amounts of their savings in the current bear market. I managed to get two of them out of the market last year but the third stuck with buy and hold. Had they previously made their own mistakes with small dollar amounts I feel they would be in a much better position today. 

I'm guessing there are inexperienced people out there who think the bottom is in and are chasing this rally with their hard earned dollars - my suggestion is to invest only a small amount and see what happens next.


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## So_Cynical (5 May 2009)

Beej said:


> One thing no-one has suggested: If you read the Noel Whittaker/Paul Clithero type books etc




Just for the record Paul Clitheroe made all his money when he sold out of Ipac 
in the early 2000's...think hes share was around 40 mill...i met him a couple of 
times, he only giggles like an idiot for TV. http://www.ipac.com.au/ipac/ipac.nsf

Oh and he made his money in money management...not real estate.


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