20% above cash guaranteed: Would you invest?

[pursuitute]

Ok say I can pull $500,000 lazy dollars from the long term portfolio & house etc. look at this.

5 years on @ 40% I've turned $500,000 into $2,689,120. NICE!

or

$500,000 used to raise $1,250,000, $1,250,000 @ 40% = $6,722,800 Much NICER!!!! But I have to give back 20% each year + capital which would be $3,986,400 leaving me $2,736,400. Worst off?? ,

Thanks for the reply but I struggle with following your maths.

Can you please set me straight on the following:

1. You start investing with $1,250,000 on day one, by the end of Yr5, you have turned it into $6,722,800;
2. At the end of the Yr5, you return an amount of $1,250,000 that has compounded at 20%pa for 5 years - it is $3,110,400;
3. $6,722,800 - $3,110,400 = $3,612,400 in your pocket (not including the $500,000 that is now free again);

What have I missed that would make you have to return $3,986,400 instead of $3,110,400?

 

[nathanblack]

after the 1st year he puts aside HIS share of profits and uses it to tap into more investors on the same deal. gaining acess to more funds and earning profit upon profit, while maintaining the same gearing and same promise of 20% return.

CORRECTION: HE MEANS return of $3,986,400 to him (versus your calc of $3,612,400). not the mount he needs too payback the investor.

the discrepency is he returned 20% pa and didnt compund it. you reinvested that 20%(ie compounded).

NO: im just confused because i have no calculator lol

 

[Cartman]

What have I missed that would make you have to return $3,986,400 instead of $3,110,400?

the wages for his new secretary cause of all the goddamn paperwork

actually $3,110,400 looks correct ---- u just made an extra 800K TH

 

[nathanblack]

the wages for his new secretary cause of all the goddamn paperwork

actually $3,110,400 looks correct ---- u just made an extra 800K TH

For 800k i hope the secretary types extra fast or makes great coffee maybe she has great oral skills...to cumminicate over phone with satisfied investors.

 

[pursuitute]

actually $3,110,400 looks correct ---- u just made an extra 800K TH

I was thinking it might be something in the cash rate (which I have not factored).

edit - though the cash rate would only cut on the investors share of the greater # and would only account for half that gap.... unless TH was returning it on the whole shebang.

 

[nathanblack]

I was thinking it might be something in the cash rate (which I have not factored).

edit - though the cash rate would only cut on the investors share of the greater # and would only account for half that gap.... unless TH was returning it on the whole shebang.

i think the cash rate makes it even more profitable, because the money sits in an account earning 4% to offset the 20%.

 

[MACCA350]

All these calculations has me wondering about how the interest would be calculated and paid.

TH I think you mentioned that the investors funds would be at call, is that correct? if so is that at call 24/7, or outside trading hours.
Also how would the interest be calculated and paid? ie calculated daily and paid monthly like the usual saving acc since this would be an at call acc, so the interest would be compound on a monthly basis.

I think you also mentioned that the investors would have access to the trading account allowing them to close out trades, is that correct? Wouldn't that have an adverse effect on your profitability as the driver of this investment and cause you difficulty in meeting your profit goals and be a detriment to the overall success of the investment?

cheers

 

[Trembling Hand]

What have I missed that would make you have to return $3,986,400 instead of $3,110,400?

Err now I have confuesd myself!! lol.

I need a bean counter.

 

[Trembling Hand]

Oh and of course the above doesn't take into account tax being paid. Which is a drag on performance.

 

[MACCA350]

i think the cash rate makes it even more profitable, because the money sits in an account earning 4% to offset the 20%.

TH is suggesting that the investors will earn 20% above the cash rate........which at the moment would be 23%. I think he mentioned the funds would be transferred to some other account overnight to cover the cash rate amount so all TH needs to worry about is the 20% for investors.

So investors annual return would be 20% + variable cash rate(+ compounding depending on whether TH plans to pay the interest on a more regular basis than 1 year)

cheers

 

[pursuitute]

Err now I have confuesd myself!! lol.

I need a bean counter.

Bah, forget it. I prefer your maths anyway

 

[Trembling Hand]

All these calculations has me wondering about how the interest would be calculated and paid.

I'm thinking quarterly paid. That is I would return a flat 5% + LIBOR to the client to either reinvest or take as a div.So its not exactly daily compound, besides the LIBOR, but its better than annual compound.

TH I think you mentioned that the investors funds would be at call, is that correct? if so is that at call 24/7, or outside trading hours.

You normally deal with these things in the agreement thingo. You have a lock up period I would propose quarterly. Also in that agreement a drop dead level where trading is stopped, game over, funds returned - 20%, guarantee gets payed out of the trust etc.

I think you also mentioned that the investors would have access to the trading account allowing them to close out trades, is that correct? Wouldn't that have an adverse effect on your profitability as the driver of this investment and cause you difficulty in meeting your profit goals and be a detriment to the overall success of the investment?

No thats not correct. They have no trading permissions - obviously. But they do have at anytime the ability/authority to remove trading permissions. Call game over for what ever reason. Also real time monitoring.

TH is suggesting that the investors will earn 20% above the cash rate........which at the moment would be 23%. I think he mentioned the funds would be transferred to some other account overnight to cover the cash rate amount so all TH needs to worry about is the 20% for investors.

No need to transfer to other account. AUD LIBOR is the standard rate for overnight funds of this account.

 

[MACCA350]

Ok, so it's similar to a term deposit with the investor having the ability to close out their position at any time accepting any losses and forfeiting the interest.

I guess the shorter the term the more pressure on you to perform more consistently, and having an at call facility with calculated daily paid monthly interest setup would make things quite difficult for you to perform if you don't know exactly what your trading balance will be from day to day. Would that conclusion be accurate or is your strategy flexible enough to accommodate that kind of setup?

cheers

 

[Trembling Hand]

Ok, so it's similar to a term deposit with the investor having the ability to close out their position at any time accepting any losses and forfeiting the interest.

No losses buddy . I would assume such detail would be worked out in the hypothetical offer agreement.

 

[nunthewiser]

u considered the tax implications upon your good self ? seeing as the actual trading being done via your name only

 

[trainspotter]

Post me the hypothetical Offer of Information Statement with the usual "sophisticated investor" clauses please.

 

[MACCA350]

No losses buddy . I would assume such detail would be worked out in the hypothetical offer agreement.

Sounds interesting, would you have a cap on total initial investment?

I guess it would depend on the amount you'd be willing to invest also given the guarantee+draw down of 40%, say you put up 400k investors would be capped at 1M initially.

Also do you have a response for the second question in my last post? is it possible?

cheers

 

[Trembling Hand]

I guess the shorter the term the more pressure on you to perform more consistently, and having an at call facility with calculated daily paid monthly interest setup would make things quite difficult for you to perform if you don't know exactly what your trading balance will be from day to day. Would that conclusion be accurate or is your strategy flexible enough to accommodate that kind of setup?

If you want "a at call facility with calculated daily paid monthly interest setup" then they are readily available, paying 3% i believe. Its simply not the way any hedge funds are measured against. monthly performance would be really the minimum metric to judge on.

u considered the tax implications upon your good self ? seeing as the actual trading being done via your name only

No it aint. Each punter pays tax on their P & L. The p & l just filters through the tree.

Post me the hypothetical Offer of Information Statement with the usual "sophisticated investor" clauses please.

You trying to get me into trouble?

 

[kincella]

just wondering out loud, it appears your investment is only in cash and the stockmarket....
but look here, guaranteed 9% return for 20 years, then feel free to lease it to Lendlease again, or find another lessee, or sell the business...aged care units, a passive investment...returning $474,541 pa...so its for sale at $5,282,788....
and its backed by real estate....it certainly beats your 4% cash deposits
just need 5 investors at $1 mill a piece or 10 at half a mill
or like one of my investments, picked up for just over 200 k's now worth about 2 million in 7 years, plus a lovely passive yearly income....
or you buy a business, old rule of thumb was you recovered your capital costs within 5 years,,,so if it was turning a profit at 200k's pa, it would cost 1 million...so theres 20% return.....
'there are heaps of ways of earning 20% pa, or stacks more...and less risk than just the stockmarket.....
maybe you should look for a bigger picture or horizens

http://www.realcommercial.com.au/cg...t=&header=&cc=&c=14849312&s=nsw&tm=1249100690

 

[trainspotter]

Hypothetically speaking. "NO" ... was just thinking out a bit too loud.