Cash in the bank?

[Ariyahn2011]

Hey guys,

I just wanted to ask for some general advise while I understand you cannot give financial advise and I must do at my own risk.

I am currently 28, married with 1 son and renting. I currently have $30,000 in the stock market, mostly of which are in the AU market. They are mostly made up of growth stocks which include TME, VRT, S32, CWN, SOL and a few others. I used to invest in small caps, but I learnt the hard way that you mostly lose money in this area unless your a gun. If i ever invest in small caps again I will mostly definitely do it through a fund manager which is what I should have done from the start.

Also the main reason I have not got inteo property is because I cannot afford it. I dont have your typical stable job and I can only get finance of about $200,000 with a dependent. We are low income earners but through hard work I have managed to save and we can put away $380 per week which is pretty good for us.

My question is, I currently have $50,000 in Cash and I put $380 into the bank per week. The interest rate is only 4% but I am generally a bit worried about the markets in general. I feel they may be on the higher side of the cycle? Otherwise I would put the 380 per week into an Index Fund or pick some good ASX50 stocks. I personally feel the DJ is most probably open to a correction at some point. And the Chinese markets seems like it going beyond its FA. I read a lot of companies have P/E ratios of 40+??

My current strategy was to just save and wait for an eventual market correct and up my exposure to the markets, including international markets??

What are your thoughts guys?

Thanks in advance.

 

[Vixs]

Hey guys,

I just wanted to ask for some general advise while I understand you cannot give financial advise and I must do at my own risk.

I am currently 28, married with 1 son and renting. I currently have $30,000 in the stock market, mostly of which are in the AU market. They are mostly made up of growth stocks which include TME, VRT, S32, CWN, SOL and a few others. I used to invest in small caps, but I learnt the hard way that you mostly lose money in this area unless your a gun. If i ever invest in small caps again I will mostly definitely do it through a fund manager which is what I should have done from the start.

Also the main reason I have not got inteo property is because I cannot afford it. I dont have your typical stable job and I can only get finance of about $200,000 with a dependent. We are low income earners but through hard work I have managed to save and we can put away $380 per week which is pretty good for us.

My question is, I currently have $50,000 in Cash and I put $380 into the bank per week. The interest rate is only 4% but I am generally a bit worried about the markets in general. I feel they may be on the higher side of the cycle? Otherwise I would put the 380 per week into an Index Fund or pick some good ASX50 stocks. I personally feel the DJ is most probably open to a correction at some point. And the Chinese markets seems like it going beyond its FA. I read a lot of companies have P/E ratios of 40+??

My current strategy was to just save and wait for an eventual market correct and up my exposure to the markets, including international markets??

What are your thoughts guys?

Thanks in advance.

If you're saving well but limited by finance and worried about the markets, you could just keep saving until you can buy a modest home with your savings and the finance you can get.

You are doing much better than most to save 20k a year while on modest incomes.

I'm no property fanatic but owning your home has intangible benefits and a security factor, particularly once you no longer have an income.

If you are doubting the value of the market and aren't in a position to lose money, why take the risk?

Just my opinions.

 

[tech/a]

The important thing here is to make your money work as hard as it can for you

But also limiting the risk while you do that.

Waiting for markets to "Correct" or for house prices to drop or for the sky to rain gold coins is really risk paralysis.

Learn how do take advantage of opportunity while minimising risk.

You will rarely eliminate it but you can mitigate it.
Above all be pro active in your wealth creation.
Waiting for something to change and or for someone to take control is a losers path.

Become an expert in risk mitigation and a great deal of your fear evaporates!

 

[Ariyahn2011]

The important thing here is to make your money work as hard as it can for you

But also limiting the risk while you do that.

Waiting for markets to "Correct" or for house prices to drop or for the sky to rain gold coins is really risk paralysis.

Learn how do take advantage of opportunity while minimising risk.

You will rarely eliminate it but you can mitigate it.
Above all be pro active in your wealth creation.
Waiting for something to change and or for someone to take control is a losers path.

Become an expert in risk mitigation and a great deal of your fear evaporates!

Firstly thanks for the response tech/a. I suppose I agree with you in that you cant wait for the markets to correct forever otherwise you may miss the run all together. That is why I put in 30K. I thought to myself, if the bull market does keep going on at least I have a decent chunk in there so I dont completely miss the boat. On the other hand, if it does correct, perhaps I could put in more. I might just put more in an index fund or a managed fund. Almost every article I read says TLS, SYD, CSL, the banks are over priced. Majority of the manged funds that are seeking dividends/income would invest in the shares listed above or the ASX30.

I read the book Intelligent investor, and in this book he mentions to either go 25% equities and 75% cash/bonds or the other way around depending where the valuations are in the market. I am not suggesting this is the perfect strategy.

By the way thanks for the encouragment regarding our saving. We do sacrifise a lot. I never buy new clothes and buy things for myself. Of course sometimes I do, but i try limit it as much as I can. But i cant remember the last time I went shopping for clothes lol

 

[Anglers Rest]

Have you considered investing a portion of your portfolio offshore e.g. an ETF or managed fund index of the US market?

You can do this hedged and unhedged and for lower fees than a ASX small cap managed fund.

I don't know who said it's time in the market, not timing the market that counts but with a very long term investment horizon I think that's generally true.

 

[Ariyahn2011]

Have you considered investing a portion of your portfolio offshore e.g. an ETF or managed fund index of the US market?

You can do this hedged and unhedged and for lower fees than a ASX small cap managed fund.

I don't know who said it's time in the market, not timing the market that counts but with a very long term investment horizon I think that's generally true.

Hedged and Unhedged, is that in relation to the AU$?

I have thought about getting into some US market ETF's however with rate hikes on the cards I was planning on waiting it out. Also, from what I understand and I could be wrong, is that when governments change hands, the stock market tanks a bit. But I definitely want to increase my exposure overseas. The other reason why I didn't invest in China recently is many companies are on PE ratios of 40+.

The Chinese government is doing everything within their power to keep their markets propped up which is a bit concerning. Clearly, their market is not following true FA. Hopefully you understand my point regarding the timing.

And I may indeed be one of the fools but that is why I have come here to ask on general opinions
Thanks for taking the time to respond mate.

 

[waimate01]

With the scenario you describe, you are doing exceptionally well !

(I make that comment assuming you have no debt (car, credit card, etc); if you do, then pay it down forthwith and then you're doing exceptionally well )

People tend to castigate themselves about cash in the bank. It's true that at typical tax rates, cash at bank is going steadily backwards. It's not accruing value; it's shedding value. Bit by bit, year after year, cash at bank erodes away (after tax).

So does that necessarily mean it's a bad thing? No. Cash at bank is like buying insurance. It costs you. Each and every year it costs you money. But the goal is to avoid a possible larger loss.

So don't think in terms of "it's only making me 4%"; think in terms of "it's costing me 0.5%, but it's a worthwhile insurance premium".

It's not a good strategy for a 20 year or 50 year time-frame, but over small time-frames it can be a good insurance policy to purchase.

 

[Ariyahn2011]

With the scenario you describe, you are doing exceptionally well !

(I make that comment assuming you have no debt (car, credit card, etc); if you do, then pay it down forthwith and then you're doing exceptionally well )

People tend to castigate themselves about cash in the bank. It's true that at typical tax rates, cash at bank is going steadily backwards. It's not accruing value; it's shedding value. Bit by bit, year after year, cash at bank erodes away (after tax).

So does that necessarily mean it's a bad thing? No. Cash at bank is like buying insurance. It costs you. Each and every year it costs you money. But the goal is to avoid a possible larger loss.

So don't think in terms of "it's only making me 4%"; think in terms of "it's costing me 0.5%, but it's a worthwhile insurance premium".

It's not a good strategy for a 20 year or 50 year time-frame, but over small time-frames it can be a good insurance policy to purchase.

Hey waimate01,

Thanks man, for the notion around cash in the banking being like 'insurance'. I actually do have some debt. I have $4000 remaining on a car loan. I know you may think why the heck do I have a loan when I have cash in the bank. It is a good question and the answer is quite silly but to be honest. I have this rule where I would not touch my savings unless it was for extreme cases. For example, a great opportunity in the stock market, or say, a medical issue that may come about beyond our control. Psychologically, I felt like I would be losing money if I took money from my nest which I have managed to very disciplined with.

Anyway, clearly, the best thing to do would be to pay the debt down. Again, another mistake. I rushed this car. I spent way to much on it. I bought it for 20K, it now worth maybe 10K within 2 - 3 years. It is a Honda Accord Euro 2008. Anyway, another expensive lesson. I have learnt to never spend to much money on a car unless I have money to waist. I now realise, perhaps 10K would have been more appropriate for a decent family car. I recently looked at the statement from Melbourne Bank, and I have paid $2000 in interest. Yes, another silly mistake. I should have paid cash, and I would have been 2K better off. Anyway, I am going to pay off the remaining debt on Monday and from this day forward I shall not take on debt. Unless it is a house of course.

My wife wanted to get a car for her business. My accountant mentioned that she could claim the interest as a tax deducation if used 100% for her work. Which she will be as she works in the dog obediance industry. So I think, as long as it under her business, a little bit of debt is okay?

Apart from that car load. I do not have any CC's or debt excluding HECS.

Cheers boys

 

[tech/a]

Whoa
Slow down
How do you know a cheaper car wouldn't
Cost you $2000 in repairs.

Make your money work for you.
THINK
Anything over the interest your paying is better than
Paying down interest.
If your going to be different than 95% of the planet you
Need to think differently.

While everything is sound advice it's not different.

 

[Anglers Rest]

Hedged and Unhedged, is that in relation to the AU$?

I have thought about getting into some US market ETF's however with rate hikes on the cards I was planning on waiting it out. Also, from what I understand and I could be wrong, is that when governments change hands, the stock market tanks a bit. But I definitely want to increase my exposure overseas. The other reason why I didn't invest in China recently is many companies are on PE ratios of 40+.

Yes hedged (pinned to the AUD so currency changes won't impact return) or unhedged (letting currency changes impact return) is correct.

 

[Ariyahn2011]

Taken a hit recently in the savings department. Paid off my car (not sure why I had debt, was a silly move and I have learnt) and bought my wife a new car with cash for 5K. The bank offered us 12.5% interest. I was going to finance it because it was going to be on her business. But I figured we would just pay cash and try stay away from debt here on in.
Sitting on 40K cash and going back to the 380 p/w to rebuild.
Got my eyes on a number of stocks at the right prices.
CPU
CAR
ASX
WOW
SYD
Until then, will happily just keep saving away.