$900 000 windfall - enough to retire now?

Discussion in 'Investment Strategy' started by Butterfly88, 19th May, 2017.

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  1. MTR

    MTR Well-Known Member

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    thinking exactly the same, seems logic is out the window.

    PT has a very successful business, he probably does not need to worry about whether shares go pear shaped or not, wont be the same for the average punter. Just saying... protect your capital, surely this is very important, especially when you are using finance and new to the game. Seems like everyone reads a thread and suddenly they have found the magic formula to become rich and income that will be like an ever ready battery, completely ignoring the risk.


    Also, people probably forget or don't know that there was a PC member who did give away their day job to retired on shares, but the share market went pear shaped and he had to return to work, it was not sustainable. For every great story there are probably 10 bad ones.... I don't know ??? if everyone was great and making pots of money on share market they would be retired today and we would be hearing about it here. Perhaps cynical, but looking at charts are no guarantees of future performance and what you will achieve.
     
    Last edited: 21st May, 2017
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  2. The Falcon

    The Falcon Well-Known Member

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    You sound a bit angry :)

    14% in a low inflation environment? Sorry, I can't tell you a guaranteed way to get rich with clean, soft hands.

    I'd work more on the education, you don't need to stay that way. The general gist of long term stock investment is right, but PTs myopic views in some areas are misleading (diversification, ETFs). id just temper expectations on real rate of returns and stop looking in the rear view.
     
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  3. truong

    truong Well-Known Member

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    We had the same conundrum many years ago when we started thinking about retiring. I’ve shared this in other posts so here’s a summary of what we’ve done in the hope it will give you a few ideas:

    - Sold about half of our property portfolio over several years to release equity while minimising CGT. Despite the large equity the income we received from these IPs had been ridiculously small.

    - Used proceeds to (i) remove non-deductible interest through offset account, (ii) reduce LVR on the remaining IPs to get more decent cash flow from them, (iii) supplement an existing cash buffer, (iv) buy LIC shares.

    - Restructured trusts and maximised contributions into SMSF

    - Set up testamentary trust

    - Lived off the property income for a couple of years while letting (i) the LIC shares compound with fully reinvested dividends and franking credits, (ii) the remaining IPs grow in value.

    - Sold one more IP then realised that the remaining IPs + the LIC franking credits were enough to provide us with a comfortable lifestyle. Dividends were left compounding in the LIC shares.

    - Survived the GFC virtually unscathed by not selling anything, focusing on maintaining cash flow and making CF risk mitigation plans (risks didn’t materialise).

    - We’re now in the process of selling the remaining IPs and reinvesting in more LICs. Although we don’t need the extra income, major refurbishment is looming and we just don’t want to bother with the hassles of property ownership anymore. Some of the cash is needed for charity.

    Looking back there has been plenty of stuff we could have improved on (eg. timing of property sales, initial share selection...) however we're very happy about the overall direction it has taken.

    For long term planning if you invest in LICs I suggest:
    - Base scenario: share value growth equal to inflation, 4% dividend and 1.7% franking
    - More likely scenario: share value growth 5%, 4.5% dividend and 1.9% franking
    - You need a cash buffer + conviction and personal disposition
    - Start reading the LIC thread on this forum, at least fully understand the Beginners’s Guide by @austing and team, then do your own research or get advice.
     
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  4. Lacrim

    Lacrim Well-Known Member

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    Horses for courses but for me personally, yes, $900K isn't enough of a moat for me to feel I could withstand most/all shocks. It's just cutting things a little too fine (for me if I was in your situation).
     
  5. Gockie

    Gockie Life is good ☺️ Premium Member

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    This is what happens if you dollar cost average even in bad times... for me... that's fine. Strategy has been use property to get me into to this position of having equity (using Leverage). End game, shares using equity for both growth and income. Low hassle. I've got many years still to go in the future, so my timeframe is long. Peter didn't start in shares till he was 41 (because of his wife's work). I'm not quite at that age just yet, I've got a long time frame to invest in. I'll just let it compound over time and keep investing.

    What Dollar Cost Averaging Did In The Lost Decade • Novel Investor
     
  6. Redwing

    Redwing Well-Known Member

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    Nice gift and gives a lot of options, if looking to retire ASAP it would be nice to cover the loan repayments plus give some spending money. You need to sit down with someone and work out a plan, including when you will access Super, what debt/risk you are willing to take etc

    Total Prop Loans $773,000
    Total IP Value $1,200,000
    Total PPOR Value $1,300,000
    Total Prop Value $2,500,000

    Throw in Cash Holdings of $970,000

    Net Equity $2,697,000
    Current LVR 30.9%

    Property Income $750 p/wk or $3,250 p/mth
    Other Income and Outgoings - Unknown
     
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  7. virgo

    virgo Well-Known Member

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    Oh no! Il Falco...not angry at all:p..if you know me in real life, i am one of the most even tempered person you will come across:)

    Peter Thornhill...he has a 9 million share portfolio with a $400 000 dividend income and a 40 plus years experience in the finance industry...and started only at age 41, a mere mortal just like me! Surely he has a few drops of wisdom for an uneducated ME!:D

    Would i sit up, take notice and pay $150 a pop to listen to him for the whole day AND then make my own conclusions? Hmmm....and what! he has no product or service to sell?:p

    Gockie has graciously co-organised the Sydney seminar .....i for one am grateful to her effort and her posts...

    With a small brain like mine, I may not know many things but i do know when a person is an expert and when i should take time out to listen:) and draw my own conclusions.........
     
  8. Butterfly88

    Butterfly88 Well-Known Member

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    Yep. That's our situation all right...we need to "sit down with someone and work out a plan"
     
  9. Realist35

    Realist35 Well-Known Member

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    Hey Mr @Il Falco ,

    It's been great reading your posts and learning from you!

    You say long run total return was 10%, fair enough. However from my understanding all industrials index has out performed ASX 200 Accumulation index by around 0.7%. So if we followed PT principle of investing only in industrial index hugging LICs (closest to that would be investing in ARG, WHF, BKI, MLT) our returns would be 10.7%. Furthermore, as these LICs distribute fully franked dividends, with reinvested franking credits that would be a further boost of 2%. So total return would be 12.7%.

    Can you please correct me if this doesn't make sense:)?

    I'm just thinking that this is a great investment strategy. Buy the four above mentioned LICs and get excellent returns, of course long term.
     
  10. The Falcon

    The Falcon Well-Known Member

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    It's not me saying anything, its fact :)

    Those LICs are not the industrials index. Yes, 0.7% is the historical outperformance of the industrials index. Most of that outperformance was in the 1980s. Let's think about this ; given that it is a widely understood source of premium, and everybody knows about it - do you think this will reliably persist? Think about how markets work before you answer.

    In 30 years from now, we could well be talking about the value premium extracted from buying unloved mining stocks!! :)

    Tell me how you intend to reinvest the franking credits? Is your tax rate zero?
     
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  11. Hodor

    Hodor Well-Known Member

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    Debatable as to what is good.

    WAM is 6.2% FF and WAX is almost 6% FF.
     
  12. Gockie

    Gockie Life is good ☺️ Premium Member

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    However remember the yield trap!
    High yield with low growth is not preferred to high grow lower yield. I'll take Westfield holdings please over Westfield trust... High growth, lower yield :) vs. High yield, low growth. :(

    Screenshot_2017-04-29-07-43-38.png
     
  13. Perthguy

    Perthguy Well-Known Member

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    Me too. A few preachy posters claiming it is all different when the market crashes. I held all my shares during GFC without breaking a sweat. If I had cash at the time I would have bought more. I had a shopping list but no cash to invest :(
     
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  14. Hodor

    Hodor Well-Known Member

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    WAM and WAX aren't a yield trap. They have stronger NTA growth (after fees) over the last 10 years than LICs like WHF.

    There may be other traps at play here, the yield trap is not an applicable argument against these LICs however.
     
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  15. Gockie

    Gockie Life is good ☺️ Premium Member

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    Awesome. :) How are they for liquidity and management? Not that liquidity will matter if you never sell.
     
  16. Perthguy

    Perthguy Well-Known Member

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    I agree. Shares like Telstra could be yield trap territory. WAM and WAX are not.
     
  17. Gockie

    Gockie Life is good ☺️ Premium Member

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  18. The Y-man

    The Y-man Moderator Staff Member

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    Righto - I am not sure if this question has been answered somewhere in this thread :D so here's what I have gathered from others:

    The 2 roughly agree - so an income of about 4.4%pa with CG on top as icing on the cake.

    @Butterfly88 in your case, you have a total loan of $773k less $70k in offset - so at 5% interest, your interst bill is about $35k.

    You get $750 pw rent - lets allow for 4 weeks vacancy (just to be safe) and Pm fees at 10% (I know a bit high) and other outgoings of $5k per year (repairs, insurance etc)

    This means you are $7.75k out of pocket per year.

    Your $900k generates cash flow of 4.4% pa or $39.6k pa

    The net cashflow is $31.85k ~ lets call it $32k pa

    Without taking any taxes for anything else into account, still falls short by about $28k per year unless you start "eating" capital ~ which is ok as long as you know what you are doing. So if we took @truong "more likely scenario" the value of your portfolio grows 5%, so if you can harvest about 3% of that (and "reinvest" the other 2%) then you should be fine to retire. The problem are the "bad year" when the values go backwards and what to do about it..... You will not have the option (really) of doing what some are saying to buy more shares - as you have no cash without effectively increasing your loan.

    Another option is to take a slightly "riskier" route such as hand picking shares and REITs where the yield might be say ~6% but you still fundamentally have the issue of needing 7.53%pa "edible" return of your $900k to do this.

    Beyond this, if you really wanted the "I want out now" option, is to sell one of the properties.
    Let's just say for sake of conjecture you do not need to live in a $1.3m home if you retire (no one to impress right? ;) - so you sell it. Let's say you can get the full $1.3m for it and it's your PPOR so tax free profit.

    You offset all you loans completely ($703k).
    You buy a $500k shack to live somewhere (hey it could be worse right?), allow $60k for selling expenses, stamp duty, touch ups on new ppor etc. You are left with $37k.

    Throwing the $37k in with the $900k generates $41k.
    The IP now generates $27.4k

    You have $68,628 to play with (not taking into account taxes, franking credits, depreciation etc)

    Done. :D


    The Y-man
     
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  19. Redwing

    Redwing Well-Known Member

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    You know the problem with that scenario though don't you (rewind to around 2004) :D
     
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  20. Gockie

    Gockie Life is good ☺️ Premium Member

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    The "they got merged?"
    Otherwise... Please tell me!