Peter Thornhill 2021

I often wonder about this. On the one hand they are closed ended vehicles so don't really give a stuff about attracting new investors per se' ; as opposed to ETF providers who live and die by FUM. On another, they would do well to stay attractive and continue to broaden the base of investors beyond other cross-holding LICs, niche instos and the superannuated. One mechanism as these shares are transferred down generations might be to encourage them to pursue strategies around bonus-share plans to support those younger holders in higher brackets who continue in accumulation phase. This would offer a point of difference to ETFs and offer a disincentive to rotate out and be part of the cool crowd in VAS or A200. MER is all the young kids talk about nowadays.

 

{Note from mods. Created from Peter Thornhill 2020 }

Is there a 2021 thread yet?

Check your inbox for those that registered interest in his first talk of the year.
Saturday 6th March at Rydges Hotel, 9 Missenden Road, Camperdown, Sydney

Motivated Money - Peter Thornhill Wealth Inspiration Event - Sat 6/3/2021

 

Let us know how the event went today!

 

Taking the opportunity to test some ideas.

For those interested in PT's approach, it is interesting to compare two scenarios where the homeowner is considering investing with equity from PPOR, to produce a steady income with no plans to sell investments.

Scenario 1 involves using the PT method of using the investment loan secured against PPOR to invest in traditional LICs. A diagram of this method has been shared on the forum.

Scenario 2 involves using the same investment loan secured against PPOR to invest in an IP, with the equity loan funding 20% of the IP and the balance secured against the IP (interest only for the IP loan).

I believe in both scenarios the investor is taking advantage of borrowing to invest and debt recycling, depending on how the investment loan is set up. Both scenarios facilitate building a passive income stream for life.

In Scenario 1, using the PT method the investment income and salary income is used to pay down non-deductible debt and purchase additional shares with deductible debt (funded either by investment loan or loan splits).

In Scenario 2, the investor can still invest in LICs per the PT method if they wish, using the same approach in Scenario 1 using the rental income from the IP.

Assumptions
Let's assume the investment classes perform as per long term averages for the Australian traditional LICs and Australian property respectively. Loan rates are typical for PPOR and IP loans.

Are there any advantages/disadvantages to Scenario 1 or Scenario 2? Scenario 2 appears to have the arguable advantage of accessing greater leverage, due to the IP loan. This is what property investors will tell you is an advantage to investing in property over shares. Although this is a recognised point of debate amongst investors. PT supporters would probably tell you property is a poor investment class and should be avoided as much as possible.

I'd appreciate your opinions on which scenario produces better outcomes for the long term, steady income focused investor?

 

Have you run the numbers to see what kind of net income to expect from an IP that would be with 100+% leverage?

 

No, I would not expect very much in the way of positive cash flow though for your average IP for some time. Modelling in a general way has its difficulties but I do struggle to see anyone leveraging that highly with an IP and having greater than 2K positive cash flow unless we're talking areas where there are risks to medium-long term CG, but I'm happy to be proven wrong.

 

Agreed. As you were asking specifically about debt recycling, I guess I was asking can you really debt recycle with your average IP at 100% leverage in the first x years?

 

Debt recycling is the practice of paying down loans that are non-deductible and reborrowing for some deductible purpose. It could even be done on negative geared property or investing in assets without income.

 

So using equity to borrow to invest in something? I thought it involved using the additional cashflow from the investment, rather than your own free cash, to pay down debt faster. Then redraw/use equity to rinse repeat

 

no, that is just borrowing to invest.

see
Tax Tip 219: Debt Recycling v Borrowing Extra to Invest
Tax Tip 219: Debt Recycling v Borrowing Extra to Invest

 

Bump


....... so curious how did this strategy pan out for you in 2020

 

Yeah good, add in the divvies, a BSP and the DSSP : I was happy for this to anchor to PF

 

Some here sold holdings in LIC's which traded at a premium and immediately bought into VAS/IOZ/A200 - a smooth move. Others, like my Mrs, stayed the course and income remained largely unchanged

 

And others wondered what the fuss was all about.

 

So seems many on here no longer interested in PT model? Moved on

 

@MTR have noticed you frequent share investing threads quite often and ask how share investors are doing.

To be honest most of us here are long term investors and don't keep changing our strategy on a monthly or even a yearly basis. Things go up and go down based on market sentiment in the short term but over the long term the trend is undeniably up as can be seen from below S&P500 chart (It is price only chart not including dividends)



So after so much knowledge about shares that we have shared have we convinced you to invest in this asset class yet or are you still going to sit on the sidelines?

Cheers,
Oracle.

 

Yes, absolutely convinced me

I have been dipping and been in contact with a couple of share investors here. Have to run our own race and keep it simple I think.
Its balance for me

I could never be a trader, I dont have what it takes to do this. It is going to be buy and hold and drip feed

 

Incorrect. The fundamental principles are applied by quite a number of investors. Maybe they simply quietly getting on with things and have no need to tell others what they are doing.

Hmm, also they could be going gang busters in the Thornhill 2021 thread. Yep., there is one I belive.

 

Ok, I will check it out

 

Like others here I totally agree with what @SatayKing has said. Once adopted, there isn't much to do, just collecting dividends, adding to holdings when extra cash is available etc. Discovered this approach 4 years ago,read all threads here on Lic's & etf's & slowly adopted PT's model/ideas & just watched this very simple principle come together & work. Retired 1 year now ( sort of got covided), market dropped 25-30%, so the 'model' really got tested then, but div's kept coming (yes, some dropped but not alarmingly for me) & now value of holdings have come back & then some.