If you were young how would you do it?

[ck13488]

Didnt really know where to stick this but i think this was the most suitable section for my situation for you to ponder.

I am a fulltime student, living at home and working casually. I have no debts, own my own car and have no intention of moving out and paying someone elses house off. My goal for 2009 was to begin to save for a house and I have progressed well, now having ~$6k cash with Ubank (5.61% at call) and ~$3k worth of shares (WBC/MTS). My goal for this year is to progress to a trainee-ship (casual≠loan) and continue saving $250/week, although I'm unsure if I should concentrate on saving cash or look to purchase more shares?

what would you do if this was your situation? level of savings cannot be increased (although tax return would be added in). time is on my side and my prediction (hah) is that the housing market will remain stable or slightly decline with rate rises in the next couple of years or so, in line with when i would be able to enter the market

thoughts appreciated...

 

[suhm]

Not sure if this goes against the rules of providing financial advice but I am young so in a samish sort of situation.

How far are you from graduating/working full time? Are you in the 15% tax bracket yet? Would you need your money for some other thing before you bought your house i.e. backpacking, studying overseas?

If you don't mind not being able to touch your money its hard to beat putting a $1000 into super to get the co-contribution that'll give you 100-150% return and at least $1k and up to 5k a year into a first home owners savers account before june 30 to get the 17% from the government and you'll get your standard interest rates anyway and it'll also start the countdown for when you can use the money to buy your house.

That'll take up to 6k a year of your savings a year which will give you $1850-$2350 of co-contributions from the government. That's a 30-39% return without doing anything.

With luck and skill you could get more than that from investing/trading in shares but it'd be very hard to do that reliably.

 

[ck13488]

Not sure if this goes against the rules of providing financial advice but I am young so in a samish sort of situation.

yeah...im only after the opinion of how people would go about things if it was them in these circumstances

 

[Aussiest]

If i were you, i would continue to live at home and save. Keep the shares you have and stick the rest in a high interest earning account. I wouldn't get into too many shares atm, as the market has rallied and we may see a correction in Feb / March of this year (DYOR, but logic says the market can't keep going up forever).

I'm not sure about property, but i can't see it getting any higher for the moment. Already maxed out, and as you say, interest rates will increase significantly this year, so best to sit it out. So, save your money, set stop-losses on your current shares incase there's a market correction (Stop-loss: break even or trailing stop loss. Google for definition).

 

[Mr J]

although I'm unsure if I should concentrate on saving cash or look to purchase more shares?

Save, while educating yourself in trading/investing. I don't think it's worthwhile getting involved in any market unless you know what you're doing. This goes for property as well as the financial markets. I'd be very hesitant to buy a property, but then I'm ignorant of the benefits and cautious of the risk. Living at home is good, you'll save quite a bit.

If I was you I'd sell the shares, take the savings, sell the car (unless it's cheap) and then use it to trade, but that isn't something I'd recommend to anyone .

 

[Dowdy]

I'm in the same boat. Mid 20's, staying at home.


I'm waiting til the housing market crashes. I am a major bear in the housing market but i also don't believe the hype in the stock market. I bought some stocks in 08 when they were down but didn't buy any in 09 as i reckon this rally won't last. Also bought some silver bullion because i'm a gold bug.

What i'm doing is saving my money, and i also run a home business. Now is the best time to do it (if your parents are supportive and have the extra room in the house) because you pay nearly $0 in overheads, except board. They say 80-90% of business fail within the first 3 years. Well, I would of failed too if i had to pay for things like renting a factory, employees etc (my mum is my book keeper).

So that's what I'm doing. You might get some ideas from that.

If you're not sure what to do, read books about financial investment or economics. A good book on economics is "Economics in one lesson" by Henry Hazlitt. Too lazy to read, then watch youtube clips from the Mises Institute

 

[jonojpsg]

I'd get at least half of my total savings/shares and find some decent underpriced resources stocks that are heading for production in the next two years, or before you are planning on buying a house. Of course I own these stocks so I have a vested interest but Perseus Mining is a classic example of a company with a massive resource base that is bringing it into production by mid-late 2011 and is currently only valued at $80/oz of it's resource. Others might argue this but it is 90% probable that PRU will be at least double it's value by the start of production IMO.

Others such as BRM or IFE are worth looking at. Again, this is my opinion only. I must say well done for being focussed and goal oriented at a young age, that will definitely get you a long way towards being well off by the time you're my age (37).

 

[Ashsaege]

Im in my early 20s at the moment and this is what im doing.

I dont pay rent (though im not living at home with my folks), I own my own car (Toyota Vienta worth about $4k), I work full time and study part time. I direct a decent portion of my wages each week into a high interest savings account.
I use to trade with real money, but unfortunately i was too green in 2008 and blew up most of my account - that was a big lesson for me. So now im saving my cash, trying to keep expenses low, studying the markets hard, i subscribe to The Chartist, and im paper trading.

I think it is better, when starting out from scratch, to save your money and paper trade. that way when you have saved enough you should have built up some decent experience with the market and have a fair idea if you can be profitable

 

[brty]

Hi,

its hard to beat putting a $1000 into super to get the co-contribution that'll give you 100-150% return

I can't think of a more stupid place to put your money than in something that you have no access to for 40+ years (probably closer to 50 by the time you retire), when the governments are changing the rules every year.

Eventually this huge pool of super money will become too tempting for a govt and be taxed harshly. You also have to ask yourself if the current financial system will even exist that far out, or what will be the price of bread in 40-50 years time??

You have to realise that your thoughts, lifestyle, attitudes to many things will change in a lifetime, if you have invested in your own name then you always have access.

brty

PS The best thing/investment we ever did was buy a house and pay it off as quickly as possible, it doesn't have to be the Taj Mahal, just something comfortable to live in. Later we used equity and bought another property, then another etc, etc.

 

[skyQuake]

Hi,


I can't think of a more stupid place to put your money than in something that you have no access to for 40+ years (probably closer to 50 by the time you retire), when the governments are changing the rules every year.

Eventually this huge pool of super money will become too tempting for a govt and be taxed harshly. You also have to ask yourself if the current financial system will even exist that far out, or what will be the price of bread in 40-50 years time??

You have to realise that your thoughts, lifestyle, attitudes to many things will change in a lifetime, if you have invested in your own name then you always have access.

brty

PS The best thing/investment we ever did was buy a house and pay it off as quickly as possible, it doesn't have to be the Taj Mahal, just something comfortable to live in. Later we used equity and bought another property, then another etc, etc.

Disagree with that; Property values may fluctuate and if you bought at the top of a boom with 90% LVR you're basically screwed for life.
The co-contributions means u double up; Then its your choice to put that money into shares or even cash or property trusts etc. The price of bread is irrelevant as your investsments should keep pace with inflation (esp with a healthy boost at the beginning)
Most people won't be "rich" when they retire so a healthy chunck of super would be in their best interests.

Sure the govt can change rules and unforseen events can happen in 40yrs, but super would remain largely unaffected as there would be many concerned stakeholders.

 

[brty]

skyQuake,

if you bought at the top of a boom with 90% LVR you're basically screwed for life.

That is exactly what we did in 1981, and it was the top of that boom. By buying an ordinary place instead of the expensive ones we were able to pay it off quickly, in 6 years. With two incomes that were rising it was easy. A young person today would likely find themselves in a similar situation.


The name of the game here is investments, it is easily possible to invest over 30 years and have enough to live off, before eligible to collect super. Using leverage the returns will be much better than those of super without leverage. By purchasing property and paying it off, you are able to draw equity at low interest rates, while being tax deductible. This then opens many doors for investment.
Just as importantly, you have time to learn about investing correctly while paying off the property.

By the time you are able to draw super, you shouldn't really need it if you had spent a lifetime of paying off debt and investing.

When ck13488 starts work, his employer will be putting in 9% pa, that is plenty in something you can't touch for 40-50 years.

brty

 

[white_goodman]

gotta get me some boats n hoes!

travel for a bit do plenty of rack then think about saving...

 

[prawn_86]

gotta get me some boats n hoes!

travel for a bit do plenty of rack then think about saving...

+1. Great advice imo

 

[IFocus]

+1. Great advice imo

+1 on the +1 you are only young once don't blow it on being to cautious.

 

[Julia]

Re governments changing the rules on Super, I'll be surprised if there is not before long a new rule which dictates that at least some of Super has to be taken in the form of an annuity. Not a bad idea, in terms of avoiding people blowing the lump sum and then drawing the age pension.

But it's just one example of how governments can take away your choices with your own money.

 

[Largesse]

just ball

 

[white_goodman]

just ball

out of control...

BOC

 

[SmellyTerror]

In addition to advice already given: what ever you do, get an account you can paper-trade in, and educate yourself. If you find something you like you've got yourself an enjoyable hobby that you can turn into money some day.

If I was talking to the younger me, I'd tell him to grab Meta Trader, read as much as he could on trading Forex, and muck about - because it's actually kinda fun, in a Tetris kind of way. Whatever you settle on, just find something that's fun that you can trade on paper. If you like it, it's just a game. A passtime.

Then if you make it work, and want to put money in some day, you'll be well ahead of the game. You'll have screen hours logged. You'll have a profession waiting for you if you need it.

Worth doing, IMO.

 

[DocK]

I'm in mid-forties and reluctant to commit too much to super as I'm concerned about possible future restrictions on lump sums etc. As the OP is very young and can have no idea yet what direction his/her life may take, I would be reluctant to tie much up in super at such a young age. I've always taken the view that paying off a house mortgage takes priority over putting funds away in super for the young, then concentrate on increasing the super contributions once you have no non-deductible debt - my uninformed opinion only. Most people my age did not have the benefit of employer 9% SGC for their entire working lives, and although this won't be enough to allow a comfortable retirement in itself, it's a good start until it can be supplemented in later years.

Looking back, one of the best financial decisions I made was to buy our first home when still quite young, and pay it off as quickly as possible. If I had my time over, I'd probably make that first home an investment property and let tenants help pay it off for me whilst I stayed at home. The equity in the investment home could then be used as additional security if needed when purchasing a home to live in, or another investment property etc.

As to whether the $250/week you're saving in the meantime should be tucked away in a high interest bank account or invested into shares - imo that depends entirely on your tolerance for risk and time horizons. If it were me and I was looking at buying a property in the next year or so I would be reluctant to commit all my capital to shares in case the market corrects or moves sideways in the short-term, but would want to benefit from an uptrend if it should occur as you'll possibly do much better than bank interest. Perhaps an each-way bet is the prudent option - directing half your savings to shares and half to high-interest account. Don't forget to factor in the cost of brokerage when comparing potential returns from each option.

The other advantage in not having all your capital tied up in shares is that if the travel bug should bite - you'll have some funds you can use to scratch the itch You're being very sensible, responsible and forward-thinking which is to be applauded. Just don't forget that life is for living, and make sure you make the best of your youth while you have it:

 

[Tink]

I'm in mid-forties and reluctant to commit too much to super as I'm concerned about possible future restrictions on lump sums etc. As the OP is very young and can have no idea yet what direction his/her life may take, I would be reluctant to tie much up in super at such a young age. I've always taken the view that paying off a house mortgage takes priority over putting funds away in super for the young, then concentrate on increasing the super contributions once you have no non-deductible debt - my uninformed opinion only. Most people my age did not have the benefit of employer 9% SGC for their entire working lives, and although this won't be enough to allow a comfortable retirement in itself, it's a good start until it can be supplemented in later years.

Looking back, one of the best financial decisions I made was to buy our first home when still quite young, and pay it off as quickly as possible.

If I had my time over, I'd probably make that first home an investment property and let tenants help pay it off for me whilst I stayed at home. The equity in the investment home could then be used as additional security if needed when purchasing a home to live in, or another investment property etc.

As to whether the $250/week you're saving in the meantime should be tucked away in a high interest bank account or invested into shares - imo that depends entirely on your tolerance for risk and time horizons. If it were me and I was looking at buying a property in the next year or so I would be reluctant to commit all my capital to shares in case the market corrects or moves sideways in the short-term, but would want to benefit from an uptrend if it should occur as you'll possibly do much better than bank interest. Perhaps an each-way bet is the prudent option - directing half your savings to shares and half to high-interest account. Don't forget to factor in the cost of brokerage when comparing potential returns from each option.

The other advantage in not having all your capital tied up in shares is that if the travel bug should bite - you'll have some funds you can use to scratch the itch You're being very sensible, responsible and forward-thinking which is to be applauded. Just don't forget that life is for living, and make sure you make the best of your youth while you have it:

Good post Dock - I agree