# ~75% in Cash... am I being too cautious?



## aroe (2 September 2013)

I've got around 40k tied up in a useless term deposit earning 4%.

The remainder is spread across a few of the banks, TLS and VTS. I also have $20k of available margin I have not touched.

As a large chunk of this is my share of a house deposit (for ~12 months from now) from now I'm probably being a bit too cautious.

I have been reading about floating rate notes, in particular ANZHA which is currently paying 5.55%. Does this return come at the cost of liquidity?

I just feel as though my cash is doing nothing, and I'm not going to make any money sitting on my hands.


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## Klogg (2 September 2013)

aroe said:


> As a large chunk of this is my *share of a house deposit (for ~12 months from now)* from now I'm probably being a bit too cautious.




Given you want to use it in 12months and have a passive-style of investment going on, I wouldn't be throwing any of it into equity markets. 12 months is not a long time and should the market come back 10-20%, you'll be forced to pull that money out at a loss so you can buy your house.

If I were in your position (and inclined to buy a house), I'd be holding my cash and waiting for the right house... (Not advice, just my way of thinking)

Personally, I'm looking to sell my house and rent, using the equity for other purposes, but this suits my situation at the moment.


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## burglar (2 September 2013)

aroe said:


> I've got around 40k tied up in a useless term deposit earning 4%.
> 
> ...
> 
> I just feel as though my cash is doing nothing, and I'm not going to make any money sitting on my hands.




What a strange thing to say!

This little piggy had roast beef!!


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## aroe (2 September 2013)

* Relatively nothing.

4% better than a kick in the shins, only marginally though.


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## burglar (2 September 2013)

aroe said:


> ... 4% better than a kick in the shins, only marginally though.




I was bored for three decades ... buying a house  ... raising a family!
Still have the house ... still have the family!



Then this little piggy went to market!  :


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## aroe (2 September 2013)

I'm only 24, probably not ready for the family at this stage, but don't want to 'miss the boat' on actually being able to afford a roof over my head.


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## pavilion103 (2 September 2013)

aroe said:


> I'm only 24, probably not ready for the family at this stage, but don't want to 'miss the boat' on actually being able to afford a roof over my head.




I'm not sure that there are any boats to miss?

How much more do you think property prices can/will actually rise?


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## Julia (2 September 2013)

Hello Aroe

Klogg's comments summarise my thoughts well.   Certainly the 4% is less than great, but it's not at risk.

Just ask yourself:  "how would I feel if I put that house deposit money into shares and, for whatever reason, the market tanked suddenly just before I wanted to pull it out, and I lost a big chunk of it?"

Good luck with the house buying.  Your first house is a pretty special achievement imo.


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## aroe (2 September 2013)

pavilion103 said:


> I'm not sure that there are any boats to miss?
> 
> How much more do you think property prices can/will actually rise?




Interest rates are down, half of the loans being approved in NSW are for IP's. I think they are headed up for now.

All the talk of a bubble.. maybe, but it's not near popping, how many years can we be near a popping bubble?. All the talk of abolishing neg gearing.. political suicide. 

Anecdotal, It's actually hard to find hard copies of real estate sales materials printed in English in Southern Sydney. There's a tonne of foreign money being poured into the market. Will the dollar effect this? 

But, what do I know.. I'm young and impressionable.  

I blame my parents and their damn 'safe as houses' brain washing.

We've digressed, but this is an interesting topic.


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## pavilion103 (2 September 2013)

PPR is a different decision to buying an investment property. 
Factors other than financial come into consideration with PPR. 
I think it would be crazy to get into investment property now. What yield would an investor be getting? What cashflow would they be getting?

But coming back to your question, I share the sentiments of others in here. 
4% risk free is not a terrible option, especially if you want the money in 12 months and especially if you're not proficient in trading/investing. 

For some reason we are all about growth growth growth. But in some market conditions it is about preservation of capital for when the great opportunities arise. 

There have been times that I've wished I had more money to pour into the stock market. This is not one of those times.


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## VSntchr (2 September 2013)

pavilion103 said:


> But in some market conditions it is about preservation of capital for when the great opportunities arise.




Excellent point and one that I am focusing on at present after having a few very strong periods of returns.


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## So_Cynical (2 September 2013)

aroe said:


> I've got around 40k tied up in a useless term deposit earning 4%.
> 
> ~75% in Cash... am I being too cautious?.




YES


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## Wysiwyg (2 September 2013)

Think about where you want to be at 44 years of age. Owning your shelter or still paying it off. The "window of opportunity" to buy a house opened late in my life so think about where you want to be. 60 year lowest interest rates is a "window of opportunity". 

Additionally, "playing the stock market" is for fools with money that is soon separated.


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## ROE (2 September 2013)

aroe said:


> I'm only 24, probably not ready for the family at this stage, but don't want to 'miss the boat' on actually being able to afford a roof over my head.




The Fear of Missing Out ...it's dangerous thinking if you don't know what you are doing or don't know the value of the asset you about to buy...

Buying just for the shake of fearing you missing out on the rally or people around you making more than you is a quick way to lose money.

It is natural human reaction..when things going up you FOMO and when thing going down you Fear of Losing (FOL)


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## Wysiwyg (2 September 2013)

Obviously, building a larger deposit is gonna cut those money shufflers out of interest earnings over the mortgage term too.


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## burglar (2 September 2013)

aroe said:


> ... I blame my parents and their damn 'safe as houses' brain washing ...




Sounds so like the Kelly Clarkson hit




> Because of you
> I never stray too far from the sidewalk
> Because of you
> I learned to play on the safe side so I don't get hurt


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## thebillyboy (27 September 2013)

Yep.

Real rate of return means your 4% turns into 1.5% after inflation. Any fees on that account? Cause your remaining 1.5% will get chewed fairly quickly.

The greatest risk is not risking anything....


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## coolcup (27 September 2013)

thebillyboy said:


> Yep.
> 
> Real rate of return means your 4% turns into 1.5% after inflation. Any fees on that account? Cause your remaining 1.5% will get chewed fairly quickly.
> 
> The greatest risk is not risking anything....




You have to net off tax too... prior to adjusting for inflation...

- - - Updated - - -

Conventional financial wisdom would suggest that 12 months is too short a timeframe to invest in the sharemarket as there is a risk that you could lose a large amount of money in a short space of time (for example, if the market goes through a correction) and not have enough time to recoup those losses.

It depends on how "good" you feel you are at the sharemarket. Some traders would suggest that you could still have a nibble and potentially use stop losses to minimise your downside risk. 

I suspect it also depends on how much you need as a deposit vs what you already have. If you will only just be able to scrape together enough money to afford the house you need in 12 months, then if it were me, I would be happy with the security of the term deposit. I'd prefer to cop a lower return than feel like I couldn't buy a home later on.


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## Garpal Gumnut (27 September 2013)

Being in cash to 75% can only be judged in retrospect.

It seems skewed though.

As the posters above have illustrated, cash has poor returns but reasonable stability depending on inflation.

I have always found the judicious trading of shares more advantageous.

Property investing will be proven to be the biggest mistake people have made this century, in my opinion.

Cash is good in a stable democracy, most of the time.

gg


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## Smurf1976 (27 September 2013)

Are you willing to risk the house deposit, and thus risk not buying a house 12 months from now, in order to have a slightly lower mortgage?

If not, then return of your money is more important than return on that money over the next 12 months and so cash is a sensible place to be keeping it. That would be true even if the interest rate was zero - at least you'll almost certainly get all of it back at face value (though cash isn't totally without risk).

Personally, I'm somewhat risk averse when it comes to houses but not when it comes to investing generally. I own the house outright and could, in theory at least, borrow against it and invest that money into something else. But I will not be doing so, simply because I am not prepared to risk losing the house if something were to go wrong (and if you don't think anything can go wrong, that just means you haven't worked out where the risk is - it will be there somewhere).

To me, a roof over my head is more important than the balance of my other investments. That's a personal choice obviously and others would take a different view.

If you did decide to invest in something else, then investing in something that has a reasonable correlation to house prices would make sense. House prices go up = your investment goes up. If the investment drops then houses should also have dropped in price. Easy to say of course, but such an approach would make sense. In short, that's hedging. It's much the same as someone who is (for example) planning a 3 month trip to the US and Canada a year from now would be wise to consider converting some of their money to US and Canadian $ now. That way, they'll still be able to afford the trip no matter what happens to the value of the Australian Dollar over the next 12 months. Obviously they miss out on the benefits if the AUD rises, but they also miss out on the loss if it falls. If the primary aim is to ensure that they can afford the holiday, then such an approach makes sense. Doing that with housing is harder, but in principle it makes some sense. Hedging.....


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## Garpal Gumnut (27 September 2013)

Smurf1976 said:


> Are you willing to risk the house deposit, and thus risk not buying a house 12 months from now, in order to have a slightly lower mortgage?
> 
> If not, then return of your money is more important than return on that money over the next 12 months and so cash is a sensible place to be keeping it. That would be true even if the interest rate was zero - at least you'll almost certainly get all of it back at face value (though cash isn't totally without risk).
> 
> ...




I reckon anyone investing in "houses" atm, is a muppet.

It's a bubble.

Cash would be better.

gg


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## notting (27 September 2013)

I think it's been a bubble for a long, long, long, long time.
So it must not have been a long, long, long time ago.
Now I think it isn't fully inflated yet.

The Chinese are buying our inner city pads like it's gold rush 0.2, straight off the plans like in China.
It's unbelievable.
Agents I know are employing at least one Chinese speaking person to do the deals.
It's kind of weird because they don't ever sell them or live in them they just sit there!

The demographic has changed and is hard to read it's a new thing.

I'm just itching to short this share market but apparently the fundies are very happily still buying dips so it's all a bit boring and you never short boring!
But I reckon you could.


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## qldfrog (28 September 2013)

I believe Smurf option is the one to follow if you want to buy soon:
edge.
If really keen in investing in share combine your stock purchase with a matching number of put optyions; will act as a safety,
you pay a premium for the put option but know that whatever happens, you will get your capital back,
 if the stockmarket rockets you are in and still a winner, if it crashes your loss is the premium only 
and if it wallows at the same price or so you have still the dividend to balance...a bit the put option premium
hope it helps


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