Newbie strategies + Where to start?

[tech/a]

Not much thinking in this reply

I tend to agree with beamstas...

What the seminar guy was saying is a load of crap!!!!!

More in this and there is much more to consider with serious Property investment,Tax,Super and ofcourse as mentioned real value.
Property V Sharemarket is a muted arguement in my view and should for the serious investor be hand in hand.
You can bet all wealthy participants in the market will also have a strong property presence.

Good times mate, they have had such a good time. I.Bankers have made even more money during the credit boom than FPs. Does that mean the boom will continue?



I guess it's because FP deals with people more than an accountant. Great for people with extravert personalities.



Sir Osisofliver already mentioned it. If you were the presenter, and is remunerated from selling properties based on commission and value of the sale, why would you present evidences that would otherwise hurt your income?

And no, property HAS NOT CONSISTENTLY rise on average 7-10% over the past 90 years. The presenter has not shown you the full picture and validate his source properly. Property has indeed risen at that average over the past 2-3 decades (largely thanks to the boom in credit), but properties have only historically rise along with inflation (and suffer occasion massive falls) over the past century.

Let's look at it from another perspective. If annual wage growth remained at 3% and interest rate remained at CURRENT 50 YEARS LOW for the next 90 years, if property rise by an average of 10% per year over the same period, how "affordable" would an average property be to an average income earner in 2100? Since you are an accountant, I'm sure you can understand the maths.

Now let's look at it from the perspective of compounding. 10% rise per year for 90 years at today's average house price of $400k (for the sake of it), a house (or rather, the LAND) would worth 1.1^90 x $400k = $2,125,209,000.

And assuming the fractional reserve banking still exist in 90 years and that inflation is kept under control at 2-3% per year over the next 90 years, then EVERYONE in Australia with an average house would be MUCH RICHER than the "average" person.

Do you see the fallancy in all this? This is not sustainable at all. Unfortunately, people with vested interest in selling properties would always find ways to persuade potential buyers that the boom will last forever.



Yep, www.asx.com.au reading list is a good start as investorpaul has mentioned. There are plenty more in this forum, do a quick search.



If you studied FP in full, you may be aware that "CASH" is an asset class by itself.



That's true, we go far deeper than just individual stocks.



Also try reading up investopedia.com

It's an excellent source of information.

I would recommend you get educated in the area of ETFs as well.

www.asx.com.au will have some brief info.

www.seekingalpha.com has more detailed info on international ones.

Good luck with your further readings.

 

[Temjin]

Most of the time my views on residential properties are opposite of Beej's, but I totally agree with his "personal opinion" (a recommendation is illegal on this forum hehe) this time on paying off your mortgage debt as it does indeed provide you with a risk free return since you reducing your cash outflows on tax non-deductible interest.

This applies the same with other non-investment debt such as credit cards / car loans. Pay them off first before doing anything.

There is so much opportunity out there, so take your time and try not to act on your emotions.

 

[Jack Payback]

Y.T

1) There are a few firms around where Financial Planners are NOT glorified salespeople. (Including my firm) Don't folllow the dark side of the force young padawan, a great deal of Financial Planners are parasites.


Sir O

I agree with Sir O. If you want to be an FP with a healthy income, don't just fall in to the trap of signing up anybody and everybody to anything just to generate fees and commissions. If you take the time to give good quality advice and actually care for your clients, you will find that you will build a trouble free client base, who will refer friends and family to you. You will not have to chase clients.

It will take longer, but do you really want dissatisfied clients, dealing with complaints, more admin taking up your time? If you burn clients you will get a bad reputation, you could probably get away with this in an anonymous city, but not in a regional town. Plus you will not be your compliance officer's best friend.

Some of my best clients were ones that I did not charge for 2 years, but they referred a lot of good clients who I could charge. Think of it as Karma.

In terms of the advice you will give to your clients. You will not learn this from your RG146 studies. This only teaches the laws and regulatory framework you will be working in. The practical stuff you learn on the job, the same way a mechanic, plumber or builder does. You will have learned a lot through your accounting work and studies that you will use - particularly reigning in a client's cash flow.Try and find a good mentor.

 

[Y.T.]

Really good replies to this thread, I have also being doing a lot of reading on other posts of this forum (I’ve nearly come to the point of making this place my homepage!).

What I have learned here in simple terms is:

- Tweak my budget so it is maintainable
- Pay off my home loan ASAP and then start investing

Question time:

One thing no-one has suggested: If you read the Noel Whittaker/Paul Clithero type books etc (the basic ones), they usually suggest that if you have a house and mortgage, you should focus all spare cash towards paying that debt down ASAP. Paying off the mortgage provides a zero risk, effective (pre-tax) return of the prevailing mortgage interest rate divided by (1 - your marginal tax rate).

Hypothetical Scenario - Young professional on a fairly decent income with a PPOR debt.

Should this person put all their extra monies into their mortgage or maybe put some into another investment vehicle? I know the posts states that you should put extra monies into home loan for better return but this could take years, would you not miss out on other markets up in those years?

I agree with Sir O. If you want to be an FP with a healthy income, don't just fall in to the trap of signing up anybody and everybody to anything just to generate fees and commissions. If you take the time to give good quality advice and actually care for your clients, you will find that you will build a trouble free client base, who will refer friends and family to you. You will not have to chase clients.

In regards to becoming a FP with a healthy income - I am not a greedy person - I didn't look at commissions from products when working in the mortgage field so I definitely would not look at it in the FP field. We built our accounting practice on word of mouth; this is how I am hoping to build the FP side of things. I know everyone has to make a living somehow but giving the clients the best advice for them means they will be clients for life and to be frank, they probably wouldn't mind paying a reasonable fee for service.

I have also been reading a lot of threads bagging FP's, saying "they are not worth it, do it on your own". What do other FP's on the board think of this? Where is the future of FP's going? Is there still a huge market for them?

Define "High risk" - (To me you would be prepared to take your hard earned savings, go to the casino and put it all on red - the potential to double your money, but also the potential to lose it all) - you need to have a clear understanding of the sort of investor you are (and because you have a partner - what their tolerances are).

My partner has come from a fairly conservative family - they have never invested into anything apart from rental properties. However she is similar to me in the sense of investing, she knows really nothing about it but we have spoken about what risks we are willing to take and if we have enough reserve (say 9 - 12 months of expenses) we would invest into pretty much any asset class.

In saying this if I were to invest ALL my money into an investment and it all disappeared then I can’t say that I won’t be upset, but if it dropped by 30% for example it’s a risk I would have been expecting (you haven't lost until you've sold). Maybe I am not a high growth individual but I understand that with high risk could come high return and am willing to sacrifice for a period of time to achieve this.

How much have you now got from your budget and have you thought about reserves and gearing for your investment? Go compare LOC's and Margin Lending facilities (Never margin above 50% and let your LVR drop with the increase in equity).

I have managed to reduce my budget to $3,945 of essentials (electricity, gas, insurances, mortgage, etc). I think a fairly good start.

I was actually looking into gearing (and no more than 50% is exactly what I was thinking) but then I kept reading about paying PPOR off first so I am still contemplating on this.

Thanks again for all the resposes.

 

[Julia]

My partner has come from a fairly conservative family - they have never invested into anything apart from rental properties. However she is similar to me in the sense of investing, she knows really nothing about it but we have spoken about what risks we are willing to take and if we have enough reserve (say 9 - 12 months of expenses) we would invest into pretty much any asset class.

How would you determine which asset class at a given time?

In saying this if I were to invest ALL my money into an investment

What do you mean here? e.g. all your money into one investment property, or all your money into a single stock?

and it all disappeared then I can’t say that I won’t be upset, but if it dropped by 30% for example it’s a risk I would have been expecting

So, if the investment were to be in shares, you'd watch the value fall by 30% and do nothing? What would you do at more than 30% fall?

(you haven't lost until you've sold).

I guess that's what the faithful holders of ABC Learning, Allco Finance, MFS/Octaviar, Babcock and Brown et al thought as they watched their investment dwindle to pretty much nothing. Maybe take a look at these charts and see if you still think 'you haven't lost until you've sold'.

I'm not trying to, um, take the wind out of your sails, but suggest you need to be a bit clearer about your plans before actually investing real money.

 

[Y.T.]

How would you determine which asset class at a given time?

Research, lots of research. We would be going in together so i will try to explain to her where we are going and why, and seeing as i am on my way to being an FP myself, would be good practice.

What do you mean here? e.g. all your money into one investment property, or all your money into a single stock?

No, i mean into a portfolio of investments, not one investment. Sorry for the misunderstanding.

So, if the investment were to be in shares, you'd watch the value fall by 30% and do nothing? What would you do at more than 30% fall?

It would depend on the stock i guess. If i thought these was a chance of survival i would maybe buy more at a "cheaper" price?

I guess that's what the faithful holders of ABC Learning, Allco Finance, MFS/Octaviar, Babcock and Brown et al thought as they watched their investment dwindle to pretty much nothing. Maybe take a look at these charts and see if you still think 'you haven't lost until you've sold'.

I guess you have a point there. Hrmm i may need to reconsider my own risk profile =)

I do really want to get into international and australian shares though, would these not be classed as high risk assets? I understand that i may lose as much as i can gain but am willing to take the risk. Would this classify me as high risk?

It's actually pretty confusing profiling yourself!

I'm not trying to, um, take the wind out of your sails, but suggest you need to be a bit clearer about your plans before actually investing real money.

I am way off implementing a plan. I am still researching and trying to get things in order so i can understand whats going on. Still a while to go!

Thanks for the replies Julia, puts things into perspective!

 

[Sir Osisofliver]

Really good replies to this thread, I have also being doing a lot of reading on other posts of this forum (I’ve nearly come to the point of making this place my homepage!).

What I have learned here in simple terms is:

- Tweak my budget so it is maintainable
- Pay off my home loan ASAP and then start investing

Well you are training to be a FP so you should learn how do to things like cash flow modelling. (HINT HINT what rate can you borrow, what rate of return can you generate, what tax will you pay etc etc etc) You've probably been told that PPOR debt is the worst kind of liability you can have because interest payments are non tax deductible. It's "bad debt" as opposed to the same debt on an investment property which is tax deductible.

I've mentioned it in the Newbies thread.... the BEST place to start is to have a couple of investment properties before you chain yourself to a large asset and significant non tax deductible debt. HOWEVER there is NOTHING stopping you from using your existing EQUITY in the house (without actually drawing on this equity) to cross commercialize into an investment property that does have tax deductible interest payments.

If you can manage to positively gear your property (yes it is possible) as well it will HELP you pay off your PPOR mortgage quicker.

Question time:

What Julia said.

 

[Julia]

It would depend on the stock i guess. If i thought these was a chance of survival i would maybe buy more at a "cheaper" price?



I guess you have a point there. Hrmm i may need to reconsider my own risk profile =)

I do really want to get into international and australian shares though, would these not be classed as high risk assets? I understand that i may lose as much as i can gain but am willing to take the risk. Would this classify me as high risk?

I'm pretty conservative and regard capital preservation as main focus, but I'd guess that even people who are decidedly less risk averse than I am would regard your current attitude as 'high risk'.

And unless some pretty radical enlightenment occurs before you actually become a real live FP - i.e. advise real live people - I'd have to worry about your clients.

I'd suggest reading Sir O's thread for beginners,and all the education section on the ASX website for a start.

Good luck.

 

[lookout]

I think now is an excellent time for a newbie to invest a SMALL amount of money in the sharemarket if they think the price will go up.

If you make a profit you will feel euphoric and confident and ready to invest more. Be aware that the sharks have noticed you dipping that toe in the water and are positioned to take a bite next time.

If you make a loss you'll feel pain and run away until you've learned some more and are ready to try again.

The pain is of a magnitude greater than the euphoria, but will pass quickly if you have only risked a small amount of cash. Upon reflection you'll be able to see how your emotions influence investment decisions. These are lessons that can only be learned with experience and lessons that are best learned before you have a significant amount of cash to invest.

 

[It's Snake Pliskin]

I think now is an excellent time for a newbie to invest a SMALL amount of money in the sharemarket if they think the price will go up.

Lookout, be careful and invest only when you know how to. Pardon the pun.

Actually lookout, I am interested as to why you say NOW is an excellent time to invest if a newbie thinks the market will go up. How will a newbie know what to think that will allow them to realise their opinion that a stock will go up?

Do you have any charts or basis for your thoughts?

 

[lookout]

The point I was trying to make is that the experience of losing a little money in the market is a valuable lesson that will make one more cautious in the future. Having lost money myself (firstly in 1987) led me to be sufficiently informed/cautious that I was 95% invested in cash before this bear started.

I have 3 relatives who have lost large amounts of their savings in the current bear market. I managed to get two of them out of the market last year but the third stuck with buy and hold. Had they previously made their own mistakes with small dollar amounts I feel they would be in a much better position today.

I'm guessing there are inexperienced people out there who think the bottom is in and are chasing this rally with their hard earned dollars - my suggestion is to invest only a small amount and see what happens next.

 

[So_Cynical]

One thing no-one has suggested: If you read the Noel Whittaker/Paul Clithero type books etc

Just for the record Paul Clitheroe made all his money when he sold out of Ipac
in the early 2000's...think hes share was around 40 mill...i met him a couple of
times, he only giggles like an idiot for TV. http://www.ipac.com.au/ipac/ipac.nsf

Oh and he made his money in money management...not real estate.