Join Australia's most dynamic and respected property investment community

Guaranteed return

Discussion in 'Other Asset Classes' started by Bran, 27th Jun, 2016.

?

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

    Joined:
    20th Jun, 2015
    Posts:
    3,213
    Location:
    At work
    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

    Joined:
    19th Jul, 2015
    Posts:
    124
    Location:
    Australia
    Sounds like a product pre gfc - a few even had guaranteed capital preservation.
     
  3. Bran

    Bran Well-Known Member

    Joined:
    20th Jun, 2015
    Posts:
    3,213
    Location:
    At work
    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

    Joined:
    18th Jun, 2015
    Posts:
    738
    Location:
    Homeless
    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.
     
    Blueskies likes this.
  5. hammer

    hammer Well-Known Member

    Joined:
    28th Aug, 2015
    Posts:
    411
    Location:
    Darwin
    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 Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    1,516
    Location:
    Sydney
    Shopping for funds for your development?
     
  7. MTR

    MTR Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    7,362
    Location:
    Perth, Melbourne, USA
    I voted no:). Yield too low
     
    Leo2413, barnes and Bran like this.
  8. austing

    austing Well-Known Member

    Joined:
    28th Jun, 2015
    Posts:
    907
    Location:
    North Maleny, QLD
    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
    wylie likes this.
  9. Bran

    Bran Well-Known Member

    Joined:
    20th Jun, 2015
    Posts:
    3,213
    Location:
    At work
    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.
     
    wylie and Bayview like this.
  10. inspiredbyprop

    inspiredbyprop Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    159
    Location:
    Sydney
    An example, direct shares investment into NAB is returning at about 8% at the moment. Hence, it's legit?
     
    Bran likes this.
  11. Bran

    Bran Well-Known Member

    Joined:
    20th Jun, 2015
    Posts:
    3,213
    Location:
    At work
    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

    Joined:
    19th Jun, 2015
    Posts:
    159
    Location:
    Sydney
    total dividend return/(Total purchase + cost etc) should give u the return%
     
    Tekoz likes this.
  13. barnes

    barnes Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    674
    Location:
    Adelaide
    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. austing

    austing Well-Known Member

    Joined:
    28th Jun, 2015
    Posts:
    907
    Location:
    North Maleny, QLD
    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
    Chillingout and Bran like this.
  15. inspiredbyprop

    inspiredbyprop Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    159
    Location:
    Sydney
    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. austing

    austing Well-Known Member

    Joined:
    28th Jun, 2015
    Posts:
    907
    Location:
    North Maleny, QLD
    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

    Joined:
    18th Jun, 2015
    Posts:
    2,122
    Location:
    FNQ
    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

    Joined:
    14th Jun, 2015
    Posts:
    1,161
    Location:
    Gold Coast
    Leverage

    ta

    rolf
     
    Leo2413 likes this.
  19. Ouga

    Ouga Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    373
    Location:
    "Trying is the first step towards failure" Homer
    7.5% compounding return is doubling your money over 9 years. Not bad.
     
  20. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    2,458
    Location:
    Sydney & Gold Coast
    No leverage, no way.