Is it a good time to enter the market?

[Doh!]

Should I assume that investing with a managed fund is bad news?

Is it wrong to pay a fund manager for his expertise.

There are plenty of these funds avalible, someone must be using them.

 

[Trembling Hand]

Re: Is it a good time to enter the market ?

I don't see the point, people leverage money every day.
cars, homes.etc. etc. etc
if you can afford the repayments why not start with borrowed money?

Because when you invest it is always with not how much you can win but the relationship between what you could win and what you could lose.

Can you afford to lose money that is not yours?

Back of the envelope cal. tells me you are going to pay about $5000 this year in interest.

You are going to need close to a 10% return just to break even every year(to cover interest). If you want to be greatly profitable you are going to need a market to go up 20% every year, which will only then give you 10% on 50k. hardly going to move you out of Mr.average league.

but if you simply saved your interest payment you now have 5k no risk.

 

[Doh!]

The difference in using leverage in the market is you can lose money a hell of alot faster than normal. What happens if you jump in now, with high leverage and the market continues to drop and you get a margin call?

I would suggest you do a bit more research before entering the market, now isn't the time for a newbie to be entering the market with leverage imo.

There would be no "margin call" on an equity loan. it is succured by my house. as long as i can make the payments the bank is happy

 

[cuttlefish]

Re: Is it a good time to enter the market ?

you only make a paper loss the day you pull out
I'm looking at 30 years + of investment

i believe i'm starting out the correct why under the wing of a managed share fund

This won't seem like such a trite statement if you are paying off a $50k loan that is backed by only $40k of assets in 12 months time at interest rates of 10%+.

(I'm not saying this is the future but its one possible scenario).


Which fund are you going to invest in and who has recommended it to you (not the same people that are suggesting you borrow $50k to invest in it I hope). Are you paying for this financial advice? If not who is paying the advisor. What market sectors is the fund focused on?

What have you learnt about the markets and about investing in them in the 5 years you've been watching and how are you applying it in your current decision process.

 

[cuttlefish]

There would be no "margin call" on an equity loan. it is succured by my house. as long as i can make the payments the bank is happy

There will be if your LVR deteriorates below the required level which can happen when property goes down. And if investments are worth less than the loan you may not be able to meet it. How healthy is your property equity level?

 

[Doh!]

Re: Is it a good time to enter the market ?

Because when you invest it is always with not how much you can win but the relationship between what you could win and what you could lose.

Can you afford to lose money that is not yours?

Back of the envelope cal. tells me you are going to pay about $5000 this year in interest.

You are going to need close to a 10% return just to break even every year(to cover interest). If you want to be greatly profitable you are going to need a market to go up 20% every year, which will only then give you 10% on 50k. hardly going to move you out of Mr.average league.

but if you simply saved your interest payment you now have 5k no risk.

So it's true advisors are sharks

 

[Timmy]

Hi I"m looking for a bit of reassurance here.

You're probably in the wrong place...

 

[Doh!]

There will be if your LVR deteriorates below the required level which can happen when property goes down. And if investments are worth less than the loan you may not be able to meet it. How healthy is your property equity level?

I have about 300 k in equity

 

[Trembling Hand]

Re: Is it a good time to enter the market ?

So it's true advisors are sharks

Who knows but why don't you do some calculations for us just to show us what either they told you or what you are expecting to make from this. Please do this for us. just a simple P & L analysis. And post it here for some real meat to this thread. PLEASE.

 

[Doh!]

Re: Is it a good time to enter the market ?

This won't seem like such a trite statement if you are paying off a $50k loan that is backed by only $40k of assets in 12 months time at interest rates of 10%+.

(I'm not saying this is the future but its one possible scenario).


Which fund are you going to invest in and who has recommended it to you (not the same people that are suggesting you borrow $50k to invest in it I hope). Are you paying for this financial advice? If not who is paying the advisor. What market sectors is the fund focused on?

What have you learnt about the markets and about investing in them in the 5 years you've been watching and how are you applying it in your current decision process.

Can I name funds in this forum?
the advisor is paid on commission and yes they are the same people

 

[cuttlefish]

So it's true advisors are sharks

Not necessarily, but if you think about it the people best qualified to give financial advice are probably floating around on big yachts somewhere or off heli-skiing in Alaska.

The very same that do not need to earn an income giving out financial advice but will probably happily give it out for free to anyone within ear shot that happens to pique their interest.

 

[cuttlefish]

I have about 300 k in equity

What I'm meaning is the proportion of debt to equity - how much does property need to fall before the bank starts to query the healthiness of their asset (the banks asset being their loan to you). Though $300k equity sounds reasonable for most Australian suburbs. Banks do stress test their portfolio's and can theoretically ask for top-ups or adjustments if property values fall enough to affect the LVR levels on your loan.

Not trying to rain on your parade - though you seem to be placing a lot of trust in your advisers. Do you have some justification/basis for why you have this level of faith in them, and have you researched a range of funds or sought some alternate opinions on the advice you've been given?

Asking the question on here seems to have generated plenty of food for though which can't hurt - its always good to have a healthy level of skepticism and eyes wide open before taking any significant investment decision.

 

[Doh!]

What I'm meaning is the proportion of debt to equity - how much does property need to fall before the bank starts to query the healthiness of their asset (the banks asset being their loan to you). Though $300k equity sounds reasonable for most Australian suburbs. Banks do stress test their portfolio's and can theoretically ask for top-ups or adjustments if property values fall enough to affect the LVR levels on your loan.

Not trying to rain on your parade - though you seem to be placing a lot of trust in your advisers. Do you have some justification/basis for why you have this level of faith in them, and have you researched a range of funds or sought some alternate opinions on the advice you've been given?

Asking the question on here seems to have generated plenty of food for though which can't hurt - its always good to have a healthy level of skepticism and eyes wide open before taking any significant investment decision.

Debt = 35% Equity 65%

This advisors company is known locally and interstate. he writes for papers and has published a hand full of books

They don't call this the beginners forum for nothing
thank you all for your input

 

[Doh!]

Re: Is it a good time to enter the market ?

Who knows but why don't you do some calculations for us just to show us what either they told you or what you are expecting to make from this. Please do this for us. just a simple P & L analysis. And post it here for some real meat to this thread. PLEASE.

Fund #1 5 year return 38% }
Fund #2 5 year return 28% } average of 25% 5 years
Fund #3 5 year return 19% }
Fund #4 5 year return 17% }
FUND #5 1 year return 8%
All these funds are classed as growth
they have mixed asset allocations with the majority in the domestic market 65%

I under stand the first year I'll make a 4k loss with commission Fund entry fee $2000 Advisor $2000

I will pay intrest on the line of credit loan as interest only
any loss will be partially tax deductable

I will reinvest the divendends

 

[Doh!]

Paul Clitheroe is another writer who recommends the borrowing to invest strategy

 

[It's Snake Pliskin]

Hi I"m looking for a bit of reassurance here. I've been looking at investing now for about 5 years, but have only just decided to enter the share market with a equity loan of 50k this has has been advised through a well respected finance company. My itchy feet in the past have prevented me from making some fabulous gains in the last 5 years. Doh!
Any way to the future. Ive heard the saying "you can't time entering the market" but I have to ask is it a good time to enter the market now has the market bottomed out?

Please ignore cliches etc.

What does your advisor think?

 

[Rainmaker2000]

I'm assuming you've got some equityeg. cash otherwise they would not give you margin....

I'm loving the value there is out there in the market right now and definitely many astute buys.........since you are a market newcomer who has had some trouble pulling the trigger in the past, you would do well to head the caution from those above.....there are many not so astute buys too and this market has no mercy at all.......if I was you, I would look for some knowledge first to tell the difference between a great company and a future MFS, or ABS

 

[Rockety]

Ive heard the saying "you can't time entering the market" but I have to ask is it a good time to enter the market now has the market bottomed out?

Heh, I know a person who thought the market has bottomed out a few weeks ago and opened a few long positions...

 

[wayneL]

Budapest?

Bleedin' 'eck! Joe will have to change the name of the forum to something international soon

 

[cuttlefish]

Re: Is it a good time to enter the market ?

Can I name funds in this forum?
the advisor is paid on commission and yes they are the same people

You get what you pay for. If your not paying then they are probably not serving you - they will work for the people that pay them - those people are the fund managers.

I under stand the first year I'll make a 4k loss with commission Fund entry fee $2000 Advisor $2000

You have just stated you are borrowing $50k to buy $46k worth of assets - why?!? You will need a ~10% return just to get back to your initial capital. Then to cover the borrowing costs you will need another ~10%. i.e. just to get back to BREAK EVEN you will need to make 20% this year ?!?.

I've never put my money into a fund and don't know much about them, but as I understand it there are listed funds you can enter that you will pay no commission on. (except for brokerage - a lot less than $2000 - more like $20). You may even find that some are trading below value at the moment. They do of course have management fees, though again the management fees are in the fractions of a percent, not 4%!?!? ($2K/$50K).

Paul Clitheroe is another writer who recommends the borrowing to invest strategy

Investing is when your money works for you. You are getting fleeced by 8% on entry to this 'investment'.


The '25%' figure - is that the fully compounded return over the 5 year period?
If so thats not much more than 5% per annum. You're 8% down on entry and you're probably going to be paying 8% plus interest per annum. If I've interpreted the figures you've provided correctly you will lose money if the fund continues to perform at the current level.

I suggest you work back on those 5 year return figures (take the highest one if you want to be an optimist but I'd be working of the lowest one) and plug all of these numbers into a spreadsheet and you will be able to see exactly how much this exercise will cost you.

I'd be very curious to see an exact clarification of the figures and also see what sort of figures the advisor has given you.