Securing your Financial Independance

[professor_frink]

you bought a house yet Prof? and have you made enough money from shares to buy one outright...

na, no house yet rafa- got cheap accommodation for the moment and I don't see another housing boom coming in my area for awhile yet so there's no rush at this stage. Technically I have made enough to buy one outright- it wouldn't be a great house and it would leave me with very little for my trading so I don't want to go down that path at this stage!
In a couple of years when I go down to the pub and people start talking to me about how well the sharemarket is doing, I'll probably cash out and buy a house then

 

[Rafa]

haha nice one...

i'm turning 28 this year, and i've pretty much followed the same principle and the same plan, tho I did have a small business on the side providing IT services that made me about 60K, which i promptly blew on two overseas trips and a second hand 1999 323i..! (you gotta have fun sometime... )

the only word of warning is that circumstances will dictate when you have to liquidate your shares to get a house... (i mean the girl friend / missus dictates.. hehe),

thanks to the housing bubble, i barely had half of what i needed to buy a house outright, i had to selling some shares (zfx for $3.30 , BHP for $17 ) last year to fund half the house, and taking out a mortgage on the other half... ALAS!!!

oh well, with cash borrowed from my old man... i am back in the share market... hoping to make enough to pay off this mortgage...

 

[Prospector]

Don't think there's any "secret".
I guess with some there could be an element of luck, but for most it's a case of a lot of financial sacrifice in the early days........
For me this was the best way to go, but for others, they will prefer to have business class travel a couple of times a year to various parts of the world, others again will choose expensive clothes and entertainment etc.. It's simply a case of individual priorities.

Julia

I do agree it is a case of different priorities. I have a different scenario. 6 months after marrying I almost lost my partner due to the big 'C' - I was only 22 at the time! So from then onwards we were deeply into experiences, because unlike our peer group, we had had a dreadful look at our own mortaility at a tender age! So we travelled extensively overseas and had the family as soon as possible, and then went travelling with them (not business class unfortunately). We still do. We have so many memories of our travels that I wouldnt give up for the world, although a nice new BMW would be nice, or one of those convertible SAAB's or diamonds :

Maybe it has put us somewhat behind the eightball? But wouldnt change a thing, well, except for the health issue of course, but maybe that too was karma because it led to where we are now.

In comparison with others, we dont have the flashy cars, dont have the mansion which our peers now enjoy, but also have no mortgage and have invested well. We also invested in our children's education, including their HECS fees.

We are both still around now, tottering towards a big birthday, and now saving madly for retirement in a few years, hoping for a big finish

 

[professor_frink]

the only word of warning is that circumstances will dictate when you have to liquidate your shares to get a house... (i mean the girl friend / missus dictates.. hehe),

The girlfriend is incredibly good with me- she understands where I'm coming from and is happy to wait awhile to buy- although if a frinky jnr was on the way she'd probably be pushing me then(current place not big enough for that)

thanks to the housing bubble, i barely had half of what i needed to buy a house outright, i had to selling some shares (zfx for $3.30 , BHP for $17 ) last year to fund half the house, and taking out a mortgage on the other half... ALAS!!!

Here's one for ya- june 2003 my dad bought aristocrat at $0.99. he had some cashflow problems soon after and got rid of them for $2. Everytime I speak to him he asks me what price it is. And then promptly swears. ALOT

oh well, with cash borrowed from my old man... i am back in the share market... hoping to make enough to pay off this mortgage...

Hope it goes well for you mate

 

[Julia]

I do agree it is a case of different priorities. I have a different scenario. 6 months after marrying I almost lost my partner due to the big 'C' - I was only 22 at the time! So from then onwards we were deeply into experiences, because unlike our peer group, we had had a dreadful look at our own mortaility at a tender age! So we travelled extensively overseas and had the family as soon as possible, and then went travelling with them (not business class unfortunately). We still do. We have so many memories of our travels that I wouldnt give up for the world, although a nice new BMW would be nice, or one of those convertible SAAB's or diamonds :

Maybe it has put us somewhat behind the eightball? But wouldnt change a thing, well, except for the health issue of course, but maybe that too was karma because it led to where we are now.

In comparison with others, we dont have the flashy cars, dont have the mansion which our peers now enjoy, but also have no mortgage and have invested well. We also invested in our children's education, including their HECS fees.

We are both still around now, tottering towards a big birthday, and now saving madly for retirement in a few years, hoping for a big finish

Prospector:
So glad to hear that you are both in good heart and health these days.
That sort of medical crisis does have a profound effect on how we feel about pretty much everything. Doesn't sound to me as though you're missing out on too much. I expect, too, that the shared travel experiences will have had a "bonding" effect on all of you as a family. (Sorry - that's a cliched word but I can't think of a suitable substitute right now.)

Sincerely hope you all continue with good health - it's simply fundamental to everything else in our lives.

Julia

 

[Julia]

haha nice one...

i'm turning 28 this year, and i've pretty much followed the same principle and the same plan, tho I did have a small business on the side providing IT services that made me about 60K, which i promptly blew on two overseas trips and a second hand 1999 323i..! (you gotta have fun sometime... )

the only word of warning is that circumstances will dictate when you have to liquidate your shares to get a house... (i mean the girl friend / missus dictates.. hehe),

thanks to the housing bubble, i barely had half of what i needed to buy a house outright, i had to selling some shares (zfx for $3.30 , BHP for $17 ) last year to fund half the house, and taking out a mortgage on the other half... ALAS!!!

oh well, with cash borrowed from my old man... i am back in the share market... hoping to make enough to pay off this mortgage...

Rafa

You are still young - you'll get to where you want.

How goes the 323i? I've been looking at something similar or a second hand Mercedes, but then I get realistic and think about all the dog hair and doggie dribbles down the windows and feel it's a bit of an insult to a nice car.

Julia

 

[Rafa]

Rafa

How goes the 323i?

Julia

its sheer driving pleasure... its a 2000 model, manual, 2.5L engine, 17" mags, etc, but you don't realise how good it is, till you go around a corner... handling is out of this world....

but don't feel bad for the car...., its a car... your dog will love it... as will you...

 

[tech/a]

Don't think there's any "secret".

Julia

(1) How about the power of COMPOUNDING?
(2) OR the power of LEVERAGE?
(3) OR the 80/20 Rule?
(4) OR the Education of RISK?
(5) OR the 50/50/90 rule
(6) OR The ability to RECOGNISE OPPORTUNITY a few UNDERSTAND how to take ADVANTAGE of the opportunity presented,even fewer ACTUALLY DO SOMETHING.How many see it all happen---like the last R/E boom and THIS current super bullish period and---lament---I wish I knew then what I do now!

 

[Julia]

Julia

(1) How about the power of COMPOUNDING?
(2) OR the power of LEVERAGE?
(3) OR the 80/20 Rule?
(4) OR the Education of RISK?
(5) OR the 50/50/90 rule
(6) OR The ability to RECOGNISE OPPORTUNITY a few UNDERSTAND how to take ADVANTAGE of the opportunity presented,even fewer ACTUALLY DO SOMETHING.How many see it all happen---like the last R/E boom and THIS current super bullish period and---lament---I wish I knew then what I do now!

Tech,

Fair enough, of course. But I don't regard the above as "secrets". "Secrets" to me implies some sort of alchemy or magic, or something which will eliminate the need for diligence, research, courage and discipline. In other words, some sort of magic formula for getting rich but staying lazy.

Julia

PS
Whilst I understand the usefulness of leverage during the time you want to increase your wealth, I can recall your saying that your ultimate aim is passive investment. Perhaps I've misunderstood, but I thought that implied not having the complication and possible risk of leverage?

 

[Julia]

The following is good common sense (courtesy Whittaker McNaught Pty. Ltd.)



Pay yourself first
So many people receive their pay packet, and then hand a portion of their money to the supermarket, the garage, the department store and so on. In the end, they discover there's nothing left for themselves. Remember, you worked for it!


Apply the power of compound interest
Often people commence a savings program, and then quit after a few years because they think they're not making much headway. The idea behind compound interest is that each year you earn interest on the previous year's interest. Accordingly, your investment grows exponentially. Compound interest works, but it takes a little time to get started. The secret is, start now.


Don't put all your eggs in the one basket
Remember,not all investments perform well at the same time. A diversified portfolio with a balance of shares, property, cash, and fixed interest investments, will reduce volatility and smooth returns.


Understand the risk/return trade-off
A general rule of investment is, the greater the risk, the greater the potential return. Greater risk may not mean the total loss of capital, but merely the volatility of returns over the investment period. Therefore, if you are prepared to invest for the longer term, you should be prepared for some volatility in expectation of higher returns. Remember, there's no such thing as a free lunch!


Keep money aside for emergencies
You should always be careful that you have sufficient funds available to meet unforeseen circumstances. By doing so, you'll avoid being forced into selling an investment at the wrong time.


Don't invest solely for tax benefits
Around tax time every year there will be a host of investments offering 100% (or more) tax deductibility. Remember, an investment should be judged on its overall growth potential, not solely its tax deductibility. If you were to lose ten or twenty thousand dollars, that tax deductibility would offer you little consolation.


Don't try to time the market
Share traders are a lot like punters. They tend to overstate their winnings and understate their losses. If you are going to try and time the market (getting in and out at precisely the right moment), you are not investing - you are speculating. There's nothing inherently wrong with this, provided you speculate with money you can afford to lose. Serious investors who invest for the long-term understand that the secret is time, not timing.


Beware of guarantees
You may be confronted by a friend or family member who has been knocked back on a loan, and asks you to go guarantor for them. This means if they can't pay the loan, you have to. Remember, there is an old saying in legal circles, 'There are no secrets kept, nor guarantees not called up'.


Ensure you are insured
Insurance can cover everything from your life to your home and contents, your business, your car, and even your income. But remember, insurance should be bought, not sold, and should be tailored to your individual needs.


Pay off non-deductible debt first
Your aim should be to reduce non-deductible debt, such as home loans, car loans and credit card debts. Leave deductible loans until last, since the Government is footing part of this bill.


Julia


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[tech/a]

But I don't regard the above as "secrets".

Julia I would hardly call you "Ms Average".
However 90% of people wouldnt have a clue about any of the above,particularly practical useage.
Lack of understanding leads to Mystique and as such lack of implementation.
So to must the knowledge and use of them are "secrets" of the wealthy.

Whilst I understand the usefulness of leverage during the time you want to increase your wealth, I can recall your saying that your ultimate aim is passive investment. Perhaps I've misunderstood, but I thought that implied not having the complication and possible risk of leverage?

If I/we/anyone was to reture at 55 there is a good chance we could survive till 85+.

Whats $1500/week going to be worth in 20 yrs time?
To maintain the life style we have now what will be required then or even 10 yrs before then?

Rolling over a lump sum cash super fund just wont cut it---they are flat out out performing the market to increase return on investment.Stop paying into them and start drawing from them and Oooops not enough for 15/20/30 yrs.

Passive income MUST come from areas which grow with inflation and Market cycles.Gaining enough capital to hold longterm Capital investments of a value high enough to supply on going passive income while increasing your capital base and in turn your passive income,isnt possible in my veiw without the use of Leverage. Perhaps thats all encompassing and I should say--"The use of other peoples Money" Wealthy people use it everyday and every one I know are experts in useage.

Investing purely for income with no regard to capital growth--infact a cavelier "If my capital increases then thats just a bonus" type attitude (Not one you have but Ive seen others here who have) is apathy to its highest degree.

When you have enough from use of other peoples money (While your working and have an income which allows you to service the money) you can freehold Property,Stock, Business/s,Collectables and maintain your life style while increasing your capital to keep abreast of cost of living increases.

 

[Prospector]

Investing purely for income with no regard to capital growth--infact a cavelier "If my capital increases then thats just a bonus" type attitude (Not one you have but Ive seen others here who have) is apathy to its highest degree.

.

That's an interesting point Tech/a. My accountant expressed concern that I had made many trades in my Super Fund. My past experience with a broker was that the Fund had just sat on shares through the rough patches rather than evaluate them and trade them out. So basically over time, not much increase in growth, but still received some dividends. I prefer to lock in profits when it seems that indicators are pointing to sell (within reason). Even if this triggers a CGT. So is buying in and out of shares part of your Capital growth strategy? or do you sit tight and hope for a better long term outcome?

 

[tech/a]

So is buying in and out of shares part of your Capital growth strategy? or do you sit tight and hope for a better long term outcome?

Somewhere in between. The method (One of 3) which I use is well documented on Reefcap. Its certainly not a short term trading methodology.
One designed for long term holding but not buy and Hold. The average hold is around a year but have some trades now 3 yrs old.
But they have increased 200-400% I actually dont hope for a better longterm outcome I EXPECT it as the methodlogy has been tested over 20000 potrfolios and returns a positive expectancy.
This has been reflected in realtime trading.
The other 2 methods are similar but with slightly different inputs.
Same stocks are held in each but not all.

My diversification is such (Not purely in stock) that a 25% collapse would equate to around a 3% dent Nett Worth. Or put another way a 3% drawdown on Total nett worth.

I still do some discretionary short term trades as its fun and it constantly reminds me how dumb I can be!! This is not part of my capital growth planning. The trading not the DUMB part!!!!

 

[bullmarket]

Hi tech/a

Interesting point you make :

Investing purely for income with no regard to capital growth--infact a cavelier "If my capital increases then thats just a bonus" type attitude (Not one you have but Ive seen others here who have) is apathy to its highest degree.

I haven't seen anyone post in here that they have no regard for capital growth, but then I don't spend as much time in chatrooms as you do

But anyway, I would generally agree with you in the case where someone's investment capital was just managing to generate sufficient income to accomodate their living expenses and lifestyle.

I don't see having income as a number 1 priority in the case where the investment capital is comfortably generating more than sufficient income and especially if the dividends, distributions, interest or whatever generally increase by at least the inflation rate.

In my case, being retired now, income is my first priority and capital growth second. Sure, 10-20 years ago capital growth was my first priority as well as it would be with most people, but not nowdays.

As I said in another thread, how one generates their required return boils down to lifestyle, objectives (which change as you get older) and risk tolerances

As long as the quarterly/half yearly distributions keep coming in mrs bullmarket is happy and if mrs bullmarket is happy then I am happy and in the very unlikely worst case scenario where the markets 'blow up' then we have the assets we have in mrs bullmarket's name which are more growth than income orientated to fall back on.

cheers

bullmarket

 

[Julia]

Julia I would hardly call you "Ms Average".
However 90% of people wouldnt have a clue about any of the above,particularly practical useage.
Lack of understanding leads to Mystique and as such lack of implementation.
So to must the knowledge and use of them are "secrets" of the wealthy.



If I/we/anyone was to reture at 55 there is a good chance we could survive till 85+.

Whats $1500/week going to be worth in 20 yrs time?
To maintain the life style we have now what will be required then or even 10 yrs before then?

Rolling over a lump sum cash super fund just wont cut it---they are flat out out performing the market to increase return on investment.Stop paying into them and start drawing from them and Oooops not enough for 15/20/30 yrs.

Passive income MUST come from areas which grow with inflation and Market cycles.Gaining enough capital to hold longterm Capital investments of a value high enough to supply on going passive income while increasing your capital base and in turn your passive income,isnt possible in my veiw without the use of Leverage. Perhaps thats all encompassing and I should say--"The use of other peoples Money" Wealthy people use it everyday and every one I know are experts in useage.

Investing purely for income with no regard to capital growth--infact a cavelier "If my capital increases then thats just a bonus" type attitude (Not one you have but Ive seen others here who have) is apathy to its highest degree.

When you have enough from use of other peoples money (While your working and have an income which allows you to service the money) you can freehold Property,Stock, Business/s,Collectables and maintain your life style while increasing your capital to keep abreast of cost of living increases.

Tech

Other than a different attitude towards leverage, we share the same approach.
I think that, as often happens in the forum type situation which is different to an ordinary conversation, it's interpretation/meanings/semantics which can cause some confusion.
My intention would never be to have my funds invested in, say, just bank deposits where there is no growth, even if the income appeared adequate to fund my living expenses. Nor would I be happy with it in essentially income producing shares, e.g. high yield property and infrastructure trusts that offer little growth. It has to keep growing to cover the very points you make of increasing longevity, inflation etc.

You are right to differentiate into the middle ground between trading and the traditional buy and hold. This is what suits me too, as you know. I have a few shares which would almost qualify for the Buffet quote "buy shares you will never want to sell" but most fall into the category of medium term hold with the proviso that if they "start to go bad" then they are gone. If there is one thing in particular I have learned - and possibly this from you - it is not to hold on to losing stocks even if it means just exiting temporarily.

Prospector: you seem to have the same view more or less?

Julia

 

[Prospector]

If there is one thing in particular I have learned - and possibly this from you - it is not to hold on to losing stocks even if it means just exiting temporarily.

Prospector: you seem to have the same view more or less?

Julia

Yes, I do but my accountant thinks you should buy and hold :swear: and to some extent undermines my confidence! You would think by now I would know better......

I have certainly got some shares in my Super that I have had for many years - the WOW's, ARG (that shows my SA origins) ANZ AGL etc etc. But I have done some major 'trading' with PDN and BTA this fy which was fun and overall made some wonderful profit, but it did result in a number of buys and sells! That is what the accountant can't cope with, not the profit but the number of trades - but it is also probably why he is still working flat out at his age! Sometimes I have sold too early, but getting that balance between greed and profit taking is very delicate sometimes!

 

[tech/a]

Yes, I do but my accountant thinks you should buy and hold and to some extent undermines my confidence! You would think by now I would know better......

This is sound advice in a bullmarket and over the last x years the ORDS has been in a Bullmarket. I certaintly believe that this is not going to change unless the US starts bombing small countries.

Simply ask him what risk measures he would place. A blank look and severe Mumbling indicates SMSF being your best RISK choice.

 

[Julia]

This is sound advice in a bullmarket and over the last x years the ORDS has been in a Bullmarket. I certaintly believe that this is not going to change unless the US starts bombing small countries.

Simply ask him what risk measures he would place. A blank look and severe Mumbling indicates SMSF being your best RISK choice.

Tech

Can you just clarify your above comment that "this is sound advice in a bull market...."
Do you mean the accountant's suggestion of buy and hold?

Julia

 

[Duckman#72]

Yes, I do but my accountant thinks you should buy and hold :swear: and to some extent undermines my confidence! You would think by now I would know better......

Hi Prospector

Take it as a compliment. In general people are too defensive with their super funds - taking a sit and hold strategy. Particularly if the members of the fund are young. You can afford to be more aggressive and growth oriented.

In defense of your accountant - the majority of people that he sees that trade and trade successfully would be very much in the minority. Your accountant is probably concerned that you will be another to lose capital.

It is very easy for someone to argue against the merits of trading in the current market - look at BHP. Someone that trades would have made a nice gain if they bought in at $16 last year and then sold at $23 a few months later. The trader is only ahead of the "sit and holder" if they then took the proceeds and made more than what BHP has continued to make.

Regards
Duckman

 

[Prospector]

It is very easy for someone to argue against the merits of trading in the current market - look at BHP. Someone that trades would have made a nice gain if they bought in at $16 last year and then sold at $23 a few months later. The trader is only ahead of the "sit and holder" if they then took the proceeds and made more than what BHP has continued to make.

Regards
Duckman

That is an excellent comment! And I have to admit that has happened with me! I must get better at/revisit my sell signals and trading plan. I guess if my super only had blue chips then I could sit back a bit. But I do have (am 'allowed' up to 10% according to the trust document) some spec stuff and these are the ones I tend to trade. And these have done well with minimum cost. But I am so concerned about protecting any profit that I am reactive too!

Trouble is, I remember Poseidon, and obviously the dotcom, and the 80's crash and how that happened before anyone could react - ie overnight. And the fact that people are starting to revisit those times, well....