Personal Investment Strategy

[Julia]

Re: Personal Investment Strategy Help

Have you ever considered capital protected annuities? I don't know much about them... but a rough idea of what they are seems to fit a lot of the issues that you are focused on mitigating.

Thank you for the suggestion.

There are many variations of annuities. I've only had a cursory look but don't see any advantages. The % return on capital is low, presumably on the basis that people pay extra for a guaranteed regular income.

Might be useful for people who cannot or don't want to manage their own investments, but certainly not attractive enough to persuade me to hand over a lump sum of capital to anyone. No firm or individual will have my best interests at heart as much as I will on my own behalf.

 

[Bill M]

Re: Personal Investment Strategy Help

Might be useful for people who cannot or don't want to manage their own investments, but certainly not attractive enough to persuade me to hand over a lump sum of capital to anyone. No firm or individual will have my best interests at heart as much as I will on my own behalf.

I agree, I was doing some homework on the Challenger website about these and it is very difficult to see what percentages they are paying. They quote returns on capital but I find it more useful to quote percentages.

Ves, question for you about annuities. Why is it so hard to find exact percentages and duration's of annuities on their websites? Why wouldn't they just be up front and put a table of returns up on their website? Make it easy and simple for all to see, are they hiding something?

 

[TPI]

Re: Personal Investment Strategy Help

Example:
You take a position in XYZ of $100K.
Grossed up yield is, say, 7%.
A 20% fall in your capital investment is $20,000.
I wouldn't have to think too hard about which way to go.

Thanks, so if you exited XYZ well before this after say a 10% fall in value and crystallise a loss then, but XYZ 3 months later is now worth $110k after a change in short-term sentiment, you are happy with this outcome in trying to protect capital?

If you had done nothing and ignored the short-term noise your capital may have grown instead?

 

[Triathlete]

Re: Personal Investment Strategy Help

I agree, I was doing some homework on the Challenger website about these and it is very difficult to see what percentages they are paying. They quote returns on capital but I find it more useful to quote percentages.

Ves, question for you about annuities. Why is it so hard to find exact percentages and duration's of annuities on their websites? Why wouldn't they just be up front and put a table of returns up on their website? Make it easy and simple for all to see, are they hiding something?

What about inflation linked corporate bond such as Sydney Airport 2030
they are paying 3.7440 + CPI 2.5% = 6.24%
Might be better than annuities from insurance companies as no ongoing fees.

Look at www.fiig.com.au

I am not making any suggestions but maybe another option

 

[Ves]

Re: Personal Investment Strategy Help

Ves, question for you about annuities. Why is it so hard to find exact percentages and duration's of annuities on their websites? Why wouldn't they just be up front and put a table of returns up on their website? Make it easy and simple for all to see, are they hiding something?

Absolutely no idea. All I know is that you can choose the term, and also whether you want the capital returned as a lump sum at the end, or progressively each payment, or a mixture of both. There's probably a lot of possible scenarios, hence the lack of any calculators or tables.

Annuity providers profits would appear to come from the excess return that they can achieve with your funds above the agreed rate of return at the start of the contract they made with you. Since they bear all of the market risk by guaranteeing your capital, you could assume your return would be low to compensate.

I guess the difference between this & giving your money to a managed fund, is that their profits come from their performance in the market, rather than FUM fees. Someone may want to confirm this.

Any financial planners here who can shed some light? DeepState might know something?

 

[tech/a]

Re: Personal Investment Strategy Help

Ive only had one dealing with annuities

My past Father in law.
One thing I noticed was that he used equity capital in his Managed annuity to
bring his drawings up to the amount required each (insert period). So if things were good
'he wouldn't be drawing on funds infact funds could be added.
If things were bad then he would be eroding capital.

It was worked out in someway that he wouldn't (Or very unlikely) run out of funds.

 

[RandR]

Re: Personal Investment Strategy Help

Absolutely no idea. All I know is that you can choose the term, and also whether you want the capital returned as a lump sum at the end, or progressively each payment, or a mixture of both. There's probably a lot of possible scenarios, hence the lack of any calculators or tables.

Annuity providers profits would appear to come from the excess return that they can achieve with your funds above the agreed rate of return at the start of the contract they made with you. Since they bear all of the market risk by guaranteeing your capital, you could assume your return would be low to compensate.

I guess the difference between this & giving your money to a managed fund, is that their profits come from their performance in the market, rather than FUM fees. Someone may want to confirm this.

Any financial planners here who can shed some light? DeepState might know something?

Hi guys,

From the position of an annuity provider like challenger and for why they can't provide rates on their website, simply think of them as an insurance company and how an insurance company won't provide a 'rate' without gathering some simple details first before offering you a 'premium' and a contract to accept.

So like an insurance company whenever you enter a contract to purchase one of their products they need to do a little 'underwriting'. For them it's not just a simply case of paying you an interest rate and then going away and making a higher return on investment for a year or a couple of years. They need to calculate and balance their investment portfolio and books and thus return offered depending upon the type of contract they are signing. (eg, if you sign up for a lifetime annuity that is linked with CPI, essentially the annuity provider challenger etc are doing some simple calculations around your expected life left and their forecast for CPI growth over that period of time prior to offering you the 'interest rate' on top). So they are making a bet that you will live for a certain amount of time and inflation will be a certain rate when calculating the interest return they will offer you. It is fairly important for a company signing contracts such as these to get their assessments around longevity and inflation correct, if they get them wrong and find their annuity book overexposed to these kind of deals things could turn sour quite quickly for them.

So someone who tries to sign up for a lifetime annuity in their 30's should be obtaining a rate different to someone who is in their 50's. The size of annuity contract you are signing could also have an impact on the rate offered, they won't offer the same rates to someone investing 10k vs 500k etc. If not a lifetime annuity the length of term will have an impact on the rate offered. It also could obviously differ if the annuity is to be in superannuation or with funds not in super.

Annuity terms can be fairly negotiable and the variables and time of signing ensure that there is no standard rate that they can provide on a website etc, so each can be tailored to the particular persons needs.

The truth is we fairly rarely use them (at a rough guess it probably only comes under consideration for 1 in 50 of the clients we see and we probably only include them as part of end strategy in about 1 in 400 of the clients we see), obviously the loss of liquidity and ability to move your capital once you are in can be difficult to justify and overcome if there are other low risk products that suit your needs and offer a comparable or better return. I do know that our business has a deal with Challenger to provide our clients slightly higher rates on quoted annuities (I believe this to simply be an extra 0.25% on the contract). We are fee for service and charge 0 commissions on any product. I would suggest if you are interested in the idea of annuities but don't know if the returns will be attractive or not, simply use their websites or call them to obtain a couple of quotes (you will probably have to put up with a follow up call or two from them after to try to close the deal).

But if you can put up with that inconvenience it will allow to see what rates they will currently offer you. I would suggest if you think it looks like a good deal for you to come seek the help of a financial adviser, 1. to see if it is really the right thing for you to lump into an annuity and make sure there are no other alternative strategies to consider. 2. to simply see if the quotes they can obtain on your behalf can get you a better deal. You could probably ask them before paying or seeing if they can get better than market annuity rates, which could make your outlay for seeing the advisor pay back quite easily over time.

 

[Bill M]

Re: Personal Investment Strategy Help

^^^Thanks for that detailed reply RandR, that gives us all a much better understanding of annuities, cheers.

 

[tech/a]

Re: Personal Investment Strategy Help

^^^Thanks for that detailed reply RandR, that gives us all a much better understanding of annuities, cheers.

Yes thanks Randy

Is it common for the Annuity to use base capital funds.
In the case I mentioned he died before the funds ran out.

It appears though that as he got older more of the initial capital was distributed to him
through the Annuity.
A cursory look didn't seem to reveal much more than a small interest ---benefit---payment added to his own capital and a quarterly payment.

Seemed very conservative and just really a funds organizer!

 

[Ves]

Re: Personal Investment Strategy Help

^^^Thanks for that detailed reply RandR, that gives us all a much better understanding of annuities, cheers.

+1

 

[RandR]

Re: Personal Investment Strategy Help

Yes thanks Randy

Is it common for the Annuity to use base capital funds.
In the case I mentioned he died before the funds ran out.

It appears though that as he got older more of the initial capital was distributed to him
through the Annuity.
A cursory look didn't seem to reveal much more than a small interest ---benefit---payment added to his own capital and a quarterly payment.

Seemed very conservative and just really a funds organizer!

Yes pretty common. Mostly it would be used as part of the income stream where there is an inability for the capital to generate a sufficient income stream on it's own.

IE: Jim decides he needs a 'guaranteed' income stream of $30,000k but ideally would prefer to have a bit more and earn somewhere around $50,000k per year in retirement. Jim does not have sufficient capital to achieve this income stream solely from interest on an annuity, so he chooses an annuity with a gradual return of his capital + interest over a 30yr term to enable him to obtain the $30k he needs, than uses a diversified portfolio that is still designed to be fairly low risk but will have the ability to have gains to provide the additional money that he would ideally like to get to the $50k.

I can assure most people here, including yourself tech if you obtain an annuity quote you most likely will not be impressed by the return offered as opposed to other investment options. The underlying investment manager (like challenger) can simply not offer up a capital guaranteed income stream potentially for someones lifetime or linked to annuity and take that money and invest in a high risk portfolio. (which could become problematic if something goes wrong) The underlying investments they make being fairly low risk overall themselves will be heavily influenced by the ongoing cash rate. (IE: If you talk with most of the large investment managers right now they will honestly tell you they see a historically low return environment in most asset classes going forward in the near future, they simply do not believe they will achieve historically high levels of returns in most traditional asset classes with underlying interest rates so low) So with this in mind and with the current interest rate environment being so low not only here in Australia still but in a lot of the world, I can assure 99% of the people on this forum will not be blown away or impressed by an annuity offering if they obtain a quote. Also always keep in mind just because the annuity is capital or income 'guaranteed' does not mean it is without risk, Although extremely unlikely if the managers of these companies do their job and contain risk adequately. Tbh the more relevant risk you need to think about if you do not inflation link your annuity will be inflation risk. IE: deciding you need a $30k annuity stream to survive in 2014 might be fine now, but what is your $30k a year going to do for you in 10, 20 or 30years. The biggest challenge to a long term successful retirement that is more comfortable than social security is being able to have your income stream source grow with inflation without running out of puff too quickly.

I don't see annuities as being the 'sole' answer, but they can definitely have their uses.

Can be rather handy if someone in the later years of their life really needs access to finance for whatever reason (if they are still staying in business of some form/developing property etc) has the asset base to satisfy a lenders criteria but if the lender won't help them because of the perceived lack of income. Even a small annuity could just do the trick for the lender to release the purse strings.

 

[galumay]

Re: Personal Investment Strategy Help

Added SGN to the portfolio, had been on the watchlist for some time, got in at 91c early this week, closed on friday at 98c.

 

[tech/a]

Re: Personal Investment Strategy Help

Added SGN to the portfolio, had been on the watchlist for some time, got in at 91c early this week, closed on friday at 98c.

Why then didn't you say so "Earlier this week"---(in the last 2 hrs of Tuesday)?
91c is at the very low of the last 52 weeks.
Very sus!---guess its Seemingly safer to call after a 10% rise.

Not one this techie would have bought---Not yet!

 

[galumay]

Re: Personal Investment Strategy Help

Why then didn't you say so "Earlier this week"---(in the last 2 hrs of Tuesday)?
91c is at the very low of the last 52 weeks.
Very sus!---guess its Seemingly safer to call after a 10% rise.

Not one this techie would have bought---Not yet!

Fair crack of the whip! I was flying out to NZ on Wednesday morning, staying at my brothers farm, when I placed an order at 91c on tuesday morning, it was filled late in the day.

I then thought this morning that i had yet to add that holding to my thread, didnt expect to be attacked for doing so!

 

[Triathlete]

Re: Personal Investment Strategy Help

Fair crack of the whip! I was flying out to NZ on Wednesday morning, staying at my brothers farm, when I placed an order at 91c on tuesday morning, it was filled late in the day.

I then thought this morning that i had yet to add that holding to my thread, didnt expect to be attacked for doing so!

Keep an eye on it galumay, from my own technical view the weekly and monthly charts are still down and only the daily chart is up. I would feel more confident if it closed above $1.20 on the weekly chart as this is a 50% retracement level of a previous range and would be just one technical indication for another run towards $1.65.It has strong support at around $0.76 so it could still come back here and test this support just be aware.

 

[tech/a]

Re: Personal Investment Strategy Help

Fair crack of the whip! I was flying out to NZ on Wednesday morning, staying at my brothers farm, when I placed an order at 91c on tuesday morning, it was filled late in the day.

I then thought this morning that i had yet to add that holding to my thread, didnt expect to be attacked for doing so!

Fair enough.
Looked really sus.

But hey to get the EXACT bottom (Currently) on your buy stop order---exemplary.

Personally think its testing the gap.
Fundamentally I read the Earnings update of 15/12 as soft.

 

[galumay]

Re: Personal Investment Strategy Help

half yearly report has me +2.50% total returns versus the AXJO at 2.87% - all taken with a grain of salt as a long term investor.

 

[qldfrog]

Re: Personal Investment Strategy Help

half yearly report has me +2.50% total returns versus the AXJO at 2.87% - all taken with a grain of salt as a long term investor.

not bad, after last two days I end up for my australian share play at a 1.09% loss 1/07 to 31/12 and not that unhappy as it was break even two days ago
obviously, I could also have put the lot in term deposit and be 1% ahead after tax....

 

[galumay]

Re: Personal Investment Strategy Help

Well another month has passed, obviously the benchmark performed pretty well, up 3.28% on PP and up 6.25% for the FY.

I continued to suffer the adverse winds in the mining sector, so overall PF is up 5.45% for FY, slightly trailling the benchmark.

I also realised I had made a mistake in the way I have been calculating my performance - which led to a significant under reporting of performance. A nice mistake to find!

What I had been doing is increasing the initial amount invested as I purchased more shares, but I was reducing the income component by the amount I had reinvested into more shares. It was one of those errors I made at the start of setting up my spreadsheet and then didnt pick up until now.

I only picked up because I was running a Time Weighted Internal Rate of Return model to compare that as a benchmarking indicator and there was such a large discrepency that I realised I must be doing something wrong in my calculations!

 

[themeinvestor]

Hi All

Just personally, I look for themes when I invest.

My view is the retail investor can't beat the professionals and the robots without a long term view.

The professionals will arbitrage any value in the market long before a retail investor will.

Thoughts?

Happy investing!