Guaranteed return

Discussion in 'Share Investing Strategies, Theories & Education' started by Bran, 27th Jun, 2016.

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In current times, would you invest in a 7.5% return over other asset classes (guaranteed)

  1. Yes

    27 vote(s)
    71.1%
  2. No

    11 vote(s)
    28.9%
  1. Bran

    Bran Well-Known Member

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    Per the poll, and for it's purposes I'd like to keep it simple.

    Would you invest in something that has a guaranteed 7.5% return in current times, over any other asset class?

    It has to be unleveraged, and it's basically risk-free.

    *The title of the poll isn't great, sorry.
     
  2. Mooze

    Mooze Well-Known Member

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    Sounds like a product pre gfc - a few even had guaranteed capital preservation.
     
  3. Bran

    Bran Well-Known Member

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    I'm happy to quantify conditions.

    Short of something more drastic than the GFC, your capital is preserved.

    Oh, and no running costs. That's it. That's the deal.
     
    Last edited: 27th Jun, 2016
  4. Hodor

    Hodor Well-Known Member

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    What kind of access do you have to the cash? Is it at call? Transaction costs?
    Can't make anything easy.

    Probably not. I'm not willing to miss out on a big year while accumulating.

    Would consider a % in such a product of it was easily accessed.
     
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  5. hammer

    hammer Well-Known Member

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    Risk free and 7.5% sounds a little too good to be true. Not saying your proposal is bad....but I would be cautious about approaching a deal like this.
     
  6. Ace in the Hole

    Ace in the Hole Well-Known Member

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    Shopping for funds for your development?
     
  7. MTR

    MTR Well-Known Member

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    I voted no:). Yield too low
     
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  8. Nodrog

    Nodrog Well-Known Member

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    I voted NO. First up always look to the risk free rate of return. Any guaranteed, risk free product with a much higher return than this that sounds too good to be true potentially equals "buyer beware". And even if the product appears sound as always beware of the "Yield Trap".

    And how is it taxed? What will the net return be given your current tax situation?

    Not some so called magnificant product a planner is trying to flog off by chance?
     
    Last edited: 27th Jun, 2016
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  9. Bran

    Bran Well-Known Member

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    No tricks.

    Playing with the calculator.

    Off-setting non-deductible debt gives me an effective 7.5% return. I might have it wrong, in which case its an 8.5% return. Or, if not a return - that is at least the return I need to have pre-tax to make it worthwhile (and not going backwards).

    I thought I'd put it another way - if I could get a return of that, would I invest? Would others? I think the answer for me is yes, as I don't really expect that yield (property excluded) in the next 3 years.

    This brings into question why I'm doing some things at the moment.
     
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  10. inspiredbyprop

    inspiredbyprop Well-Known Member

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    An example, direct shares investment into NAB is returning at about 8% at the moment. Hence, it's legit?
     
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  11. Bran

    Bran Well-Known Member

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    TBH, I'm not sure if I'm thinking about it the right way.

    I think most of my holdings are pretty good yielders, so it's not a no-brainer. What's the easiest way to calculate a yield based on todays or original purchase price/value?
     
  12. inspiredbyprop

    inspiredbyprop Well-Known Member

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    total dividend return/(Total purchase + cost etc) should give u the return%
     
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  13. barnes

    barnes Well-Known Member

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    I have voted NO. Something less then 15% a year is not a good investment strategy for me. Better not to invest at all, until something comes up.
     
  14. Nodrog

    Nodrog Well-Known Member

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    Is this all you were asking in a obscure way:
    Should I pay off my mortgage or invest? - thesmartmoney.com.au
    Plenty of opinions, pros and cons around on this. A Google search will bring up lots. Expect to be totally confused as there are convincing views for both sides of the argument!

    Doesn't matter what anyone says though it's what you feel comfortable with. At a given point in time YOU might feel confident that the return from paying off your mortgage will better typical investing returns. Hence directing spare cash into the mortgage will feel right. In more robust economic circumstances or during a market crash when bargains abound YOU might think the reverse and decide to only pay the minimum mortgage and use the spare funds to invest. You might even consider drawing down on principal in very opportune times to invest.

    Your decision I'm afraid.

    Not liscensed to give advice.
     
    Last edited: 27th Jun, 2016
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  15. inspiredbyprop

    inspiredbyprop Well-Known Member

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    Assuming the personal tax rate is 30% or less. Then for me, investing in a share that returns 8% fully franked dividend is a no brainer to pay off 4.5% mortgage loan on the PPOR.

    Just an example. But as mentioned by Austing, consider the risk factor also.
     
  16. Nodrog

    Nodrog Well-Known Member

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    Of course he mentioned a risk free, guaranteed return which is not the case with shares. But for me personally I agree with you.

    Trouble is nowadays some mortgages are so large the borrowers might be nearly retired by the time it is paid off. Nearly a lifetime of lost investing opportunity.

    In our case I chose to take advantage of both with more emphasis on reducing the mortgage earlier on but once we were well ahead in our repayments and had some reasonable equity in the home then started to direct more toward investing. Essentially the balance between the two varied from time to time depending on opportunities on offer.
     
  17. HUGH72

    HUGH72 Well-Known Member

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    What about corporate notes? For example after the GFC AMP were raising capital and their 5 year notes from memory were returning something like the 90 day bank bill swap rate plus a margin of 4 25%? Or something similar.

    Rates are now much lower but I'm sure a decent return is still available from these kind of products when the opportunity arises.
    Probably not 8% though.
    I voted no as a higher return in this environment requires a higher degree of risk.
     
  18. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Leverage

    ta

    rolf
     
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  19. Ouga

    Ouga Well-Known Member

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    7.5% compounding return is doubling your money over 9 years. Not bad.
     
  20. Steven Ryan

    Steven Ryan Well-Known Member

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    No leverage, no way.
     

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