# 21 and wondering what to do



## Letts (18 June 2013)

Hey everyone, it's my first foray into the world of finance and investment -

I'm a university student and I'm looking for some advice on what to do. 

I have managed to find an excellent job throughout my uni years, and have saved enough to invest $10,000 in something - while I love the uni life of drinking and eating out all the time, I figure that if I set myself up as early as possible financially, I will have a leg up on my peers. 

My current goal is to own a house within the next 6-7 years. 

I am able to add another $300 a month into any investment that I make with my current job and expenses. 

I guess what I'm asking for is a little bit of direction or advice as to what I can do with my money - should I invest in a share portfolio, bonds, a property trust etc. 

Any advice would be greatly appreciated 

Letts


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## prawn_86 (18 June 2013)

Hi Letts,

Welcome to ASF.

Please note it is against the law for members without a financial services license to give specific financial advice. I would suggest reading through the 'Beginners Lounge' as there are some threads there that will be extremely helpful to you

Cheers


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## CanOz (18 June 2013)

Letts said:


> Hey everyone, it's my first foray into the world of finance and investment -
> 
> I'm a university student and I'm looking for some advice on what to do.
> 
> ...




Welcome to ASF Letts. Specific advice is not permitted, but general suggestions on what to research is fine.

Are you interested in a value investing approach or are the technicals something you want to pursue?

CanOz


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## burglar (18 June 2013)

Letts said:


> ... My current goal is to own a house within the next 6-7 years. ...




I put everything into a house until I owned it.
But back then, the interest rate was 17%


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## pixel (18 June 2013)

burglar said:


> I put everything into a house until I owned it.
> But back then, the interest rate was 17%




LOL them were the days 
When mortgage rates were so high, I rented for a few years at effectively 4%, while putting my money into term deposits and some good share investments. Most of the shares held/ traded in the wife's name because as the Chief Domestic Officer she didn't have any other taxable income.
Four years later, we bought a house in a leafy suburb without needing a mortgage. Had to compromise a little about the interior, but no mortgage meant we could renovate over the next few years - some of it DIY, new floors and paint jobs by tradespeople - and before long owned a gem "just right".


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## pavilion103 (18 June 2013)

What types of investing are you most passionate about?

What would you prefer to do if you could do anything?


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## Letts (18 June 2013)

pavilion103 said:


> What types of investing are you most passionate about?
> 
> What would you prefer to do if you could do anything?




Hey everyone, thanks very much for the replies. 

Ideally, from what I can see the only options open to me are to go with a low/no risk bond/banking scheme. Obviously, while this does appeal on a certain level I have always had an interest in Share trading and would prefer to do that over leaving my money in a bank for 5 years at 4% interest. 

With that in mind, my $10k investment is not going into penny stocks, as appealing as the potential return is I have seen a few of my friends and co workers look into these stocks and invest big thinking they are going to retire at the age of 25, only to lose most of the money they saved over the past 4-5 years. 

Ideally I'd like a simple portfolio of 3 major blue chip stocks, each with ~$2k each invested in them, another 3 mid-range shares with ~$1k each invested and 3-4 "penny" stocks with a total of $1k between them. 

This is just my initial thoughts, is there anything that immediately stands out as wrong about this? I do know that with a higher number of stocks the brokerage is going to add up, but I probably wont be trading more that once a year so this should keep the cost down. Thoughts?


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## VSntchr (18 June 2013)

Letts said:


> Ideally I'd like a simple portfolio of 3 major blue chip stocks, each with ~$2k each invested in them, another 3 mid-range shares with ~$1k each invested and 3-4 "penny" stocks with a total of $1k between them.




Brokerage is going to cost you probably about $20 per trade. Therefore you want to invest minimum $1000 (even with this the brokerage is 4% - which you must gain back just to get back to breakeven). So i'd scrap the idea of penny stocks and just stick to the solid companies until you learn more.


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## Gringotts Bank (18 June 2013)

Letts if you have a look on the "for sale" thread, JTLP has a double bed on offer.  Comes complete with instruction manual.  That's value investing  right there.


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## Letts (18 June 2013)

Gringotts Bank said:


> Letts if you have a look on the "for sale" thread, JTLP has a double bed on offer.  Comes complete with instruction manual.  That's value investing  right there.




Thanks mate, but I've already got one in my portfolio and I'd rather diversify. Too many eggs in one basket etc. What happens if the bed market drops?


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## PinguPingu (18 June 2013)

I'm your age, have a little bit more saved up from inheritance and work but seriously, owning my own home anywhere near work/friends/family or uni, even with this head start seems bit of a distant dream in Sydney.

In my similar situation I put 6k into a First home savers account. Its matched 17% up to that amount, meaning essentially a free ~1k. If you do that first take a look at the restrictions/ terms and conditions on the account. The rest I put into a listed ETF index fund (STW or something, saves on brokerage as its just one 'stock' and hey can't do any worse than the actual market then), and I've left a few grand which I f*ck around with on (long term) forex and index options. This higher risk stuff I always limit to 10% of my total money. 

If I get a good grad job I'm hoping to hopefully own a small unit or something in 6-7 years. My parents are very kind in that I pay minimal rent and help around the house to stay while at uni or post grad.


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## sinner (18 June 2013)

Take a look at the "Permanent Portfolio" for an easy concept to start with. $10k is not a lot in the markets, outside of buying an index fund and holding onto it for a long time, you will most likely be undercapitalised. 

Corporate profit margins are currently very high and valuations on stocks are also very high. Interest rates are at historical lows. This means the avg 5-10y expected return for a 60/40 balanced portfolio is going to be quite low! If interest rates decline, then even worse. 

If the projected long term return of an investment is less than cash (especially considering market volatility) then it's almost certainly a poor investment. 

i.e. this is a very very expensive market for investors to be entering into.


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## Letts (18 June 2013)

sinner said:


> Take a look at the "Permanent Portfolio" for an easy concept to start with. $10k is not a lot in the markets, outside of buying an index fund and holding onto it for a long time, you will most likely be undercapitalised.
> 
> Corporate profit margins are currently very high and valuations on stocks are also very high. Interest rates are at historical lows. This means the avg 5-10y expected return for a 60/40 balanced portfolio is going to be quite low! If interest rates decline, then even worse.
> 
> ...




Hi, thanks for the advice. 

Would you have any advice as to another direction I could head in?


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## sinner (18 June 2013)

Letts said:


> Hi, thanks for the advice.
> 
> Would you have any advice as to another direction I could head in?




Hi Letts,

At such a young age I think concentrating on retaining as much of your earnings as savings as possible is the kind of investment that will pay the best for you in the long run. 

Check out blogs like Mr Money Moustache which show the power of saving.

The markets won't always be so expensive and you will be best positioned to enter when they are.


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## chops_a_must (18 June 2013)

Invest in drugs.


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## Ves (18 June 2013)

sinner said:


> Check out blogs like Mr Money Moustache which show the power of saving.



When you said "permanent portfolio", MMM's blog and the guy from Early Retirement Extreme were the first things that came to mind.   I believe that it is an excellent concept for those who want to take the more passive route with some or all of their investments.  Most of the guys over on the ERE forums seem to use it, actually.


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## sinner (18 June 2013)

Ves said:


> When you said "permanent portfolio", MMM's blog and the guy from Early Retirement Extreme were the first things that came to mind.   I believe that it is an excellent concept for those who want to take the more passive route with some or all of their investments.  Most of the guys over on the ERE forums seem to use it, actually.




Hehe V, well the thing is, my personal opinion is to save in physical or allocated gold, but I didn't really feel comfortable suggesting that outright to an ASF newbie.

Permanent Portfolio gives exposure to gold, and especially if you have any technical and value overlays on the PP it's basically sitting 75% cash 25% gold right now.

This "PP Shakedown" from GestaltU was a very good read for me.
http://gestaltu.blogspot.com.au/2012/08/permanent-portfolio-shakedown-part-1.html
http://gestaltu.blogspot.com.au/2012/08/permanent-portfolio-shakedown-part-ii.html

but my favorite one is where they test it against Japan
http://gestaltu.blogspot.com.au/2012/09/the-permanent-portfolio-turns-japanese.html


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## Letts (18 June 2013)

sinner said:


> Hehe V, well the thing is, my personal opinion is to save in physical or allocated gold, but I didn't really feel comfortable suggesting that outright to an ASF newbie.




Interesting. After doing a bit more reading on here, I've noticed that the go-to safe investment seems to be gold - I already have some physical gold (my first investment at 15) that I have been sitting on. I would like to diversify though, and shares seem to be the logical place to start as 10k is not enough to crack into the property market. 

With the saving MMM idea, I would be lying if I said I'd gotten rid of all frivolous expenses, but I do have a dedicated saving plan, hence why I am able to have this spare 10k to invest at an age where 90% of my peers live paycheck to paycheck or have less than $1000 in the bank.


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## minwa (18 June 2013)

I am in a similar situation as you although I am a year older and started earlier when I was about 16. 

The $300 per month is going to be the key in the long term. Dosn't seem very much but adds a lot of difference when you get some good compounding going. Try as hard to keep it up as possible.

You're on this forum and said you're into shares so definitely get into there. 

You are PROBABLY going to lose some money first year or two. Do not get discouraged. I fully blew 2 accounts trading options both when I turned 18 and thought I was going to make it rich fast. Better to learn the lessons now when you still have a small account. 

If you maintain 2% return per month compounded for 7 years with $300/month addon is only going to be $114k. Yes your contributions should go up as you finish uni but your expenses will probably go up too. You also probably cannot maintain the return for the first year or two or three. Just letting you know being able to fully own a home will be hard. You also probably would not want to take out what you made for the past 7 years to put down as a deposit for a home. 

You will probably have to actively trade to get a higher % of return.


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## PinguPingu (18 June 2013)

sinner said:


> This "PP Shakedown" from GestaltU was a very good read for me.
> http://gestaltu.blogspot.com.au/2012/08/permanent-portfolio-shakedown-part-1.html
> http://gestaltu.blogspot.com.au/2012/08/permanent-portfolio-shakedown-part-ii.html





That is a very interesting read, but I must embarrassingly admit I'm struggling a bit to conceptually understand the volatility management part, that is calculating how to keep the aggregate portfolio volatility constant. Could just be a problem of trying to mathematically work out the adding and reducing of asset allocation.


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## odds-on (18 June 2013)

Letts said:


> Hey everyone, thanks very much for the replies.
> 
> Ideally, from what I can see the only options open to me are to go with a low/no risk bond/banking scheme. Obviously, while this does appeal on a certain level I have always had an interest in Share trading and would prefer to do that over leaving my money in a bank for 5 years at 4% interest.
> 
> ...




Welcome to ASF,

You have a serious competitive advantage at 21yo - time is on your side! Let the compounding take effect.

Agree with sinner, the "Permanent Portfolio" is worth thinking about...also check out the High Yield Portfolio, for an easy to manage and low cost portfolio strategy.

http://www.fool.co.uk/Investing/guides/The-High-Yield-Portfolio.aspx

Cheers


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## Julia (18 June 2013)

burglar said:


> I put everything into a house until I owned it.
> But back then, the interest rate was 17%



I did the same at a similar time.  It's not realistic, however, to just quote the interest rate (which seems so extraordinary today) without noting that inflation was huge, and capital gains on property exponential.
Ditto high rents.  It was a great time to churn property over.  I doubt we'll ever see such conditions again.



Letts said:


> Hey everyone, thanks very much for the replies.
> 
> Ideally, from what I can see the only options open to me are to go with a low/no risk bond/banking scheme. Obviously, while this does appeal on a certain level I have always had an interest in Share trading and would prefer to do that over leaving my money in a bank for 5 years at 4% interest.



Congratulations on the amount of capital you have amassed at this early stage of your career.
If it were me, I wouldn't be committing funds to any five year investment at such a low interest rate.
Imo, and I could be quite wrong, I don't think we're far from the bottom of the interest rate cycle.
Perhaps instead have a look at the at call rates which are often higher than longer term deposits and allow you much more flexibility.  See http://www.infochoice.com.au/?pid=infochoice



> With that in mind, my $10k investment is not going into penny stocks, as appealing as the potential return is I have seen a few of my friends and co workers look into these stocks and invest big thinking they are going to retire at the age of 25, only to lose most of the money they saved over the past 4-5 years.
> 
> Ideally I'd like a simple portfolio of 3 major blue chip stocks, each with ~$2k each invested in them, another 3 mid-range shares with ~$1k each invested and 3-4 "penny" stocks with a total of $1k between them.
> 
> This is just my initial thoughts, is there anything that immediately stands out as wrong about this? I do know that with a higher number of stocks the brokerage is going to add up, but I probably wont be trading more that once a year so this should keep the cost down. Thoughts?



Seems sensible to me.



sinner said:


> The markets won't always be so expensive and you will be best positioned to enter when they are.



Agree 100%.  Don't rush in.


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## ROE (18 June 2013)

burglar said:


> I put everything into a house until I owned it.
> But back then, the interest rate was 17%




17% was overrated it ...it only lasted for a year 89-90 and by end of 96 it dropped more than 50% back to around 8% ...compared to what the people pay in term of housing price and repayment today...17% isn't that more expensive....


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## ROE (18 June 2013)

CBA goalsaver offer fairly decent rate 4.4% at call ....provided you put in a min $200 a month and make no more than 1 withdraw ... you blow those conditions 0.75% .....

probably best if you start reading some books on investment and learn a bit while you pill up your cash and earn interest...

Mark Twain: "There are two times in a man's life when he should not speculate--when he can't afford to and when he can."

this is a well rounded book that quote taken from the book

http://www.amazon.com/Margin-Safety-Risk-Averse-Strategies-Thoughtful/dp/0887305105

you can get them in some library...


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## Letts (20 June 2013)

I made my first buy today, decided to start small on blue chip stocks to get used to it. 
Bought two stocks, ~$1000 of each. Hopefully all goes well!


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