Starting my share journey

Discussion in 'Shares & Funds' started by bythebay, 13th Jul, 2021.

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  1. Big A

    Big A Well-Known Member

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    @bythebay , I don’t think it came across that you are looking for high risk options. I think you are asking questions and looking at all possible options / strategies. It’s a good learning / exploring process.

    My thoughts on using a line of credit with 4% interest rates. I only started using debt to for investing in assets outside of resi, this past year. But I am using money that was sitting in offset against PPOR loan with a rate of 2.79%. As a percentage of total portfolio the debt is around 5% LVR and to be honest with you I’m still not 100% comfortable with having it. Also have the tax deductibility benefit on this debt.

    I believe it makes sense on paper to use some low interest, tax deductible debt for investing in equities if you have that option.
    But what makes sense on paper doesn’t always work when you add human behavior and emotion into it.

    Only concern I would have in your situation is that you already hold debt against a significant property portfolio. Even though the lvr might be on the low side, you need to look at the total debt owing and your ability to service it in a worse case scenario. Because of this situation I would be cautious in using any more debt to purchase equities.
     
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  2. Zenith Chaos

    Zenith Chaos Well-Known Member

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    upload_2021-7-16_15-11-17.png
    Asset Correlations

    I provide no assertions on the accuracy of this tool, but you can see:
    VAP (Australian Property) has a higher correlation with VAS (ASX300) than VGS (world ex-AUS).

    Correlation is not the only consideration for an Australian investor buying shares. In this example, the investor has >90% of the property portfolio in Australia and probably his/her work/business income is derived in Australia. Purchasing VAS increases the impact of an adverse economic event in Australia. While conversely, purchasing VGS decreases the impact.
     
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  3. dunno

    dunno Well-Known Member

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    Kudos for looking at another asset class other than property. There is lots to like about shares, I am the last person to want to scare people off shares.

    Just take it slow and think in complete portfolio terms.

    When you hear some people talking aggressive equity allocations just bear in mind that A) they may have no debt and large surplus capital or B) they may have no awareness of the risks they take.

    Your debt levels are consequential. Does aggressive equity on top make sense for your risk appetite.

    Not a prediction but what does your position look like in a scenario of 2-3% increased interest rates and a sustained collapse in housing 20-30% and share markets 30-40%?

    What you learn as you take shares slowly could be invaluable for you at the right times in your future.

    Making dumb mistakes, burning yourself and swearing off shares forever could cost you dearly, possibly more so in lost opportunity cost than actual losses, because risk managed properly, equities can be extraordinary.
     
  4. bythebay

    bythebay Well-Known Member

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    @Big A thanks for giving me your viewpoint on whether to use LoC I really appreciate it, makes a lot of sense.Had a chat with partner last night and we decided for now we will just use our savings and see how we go in say 12mths. Can always top up with LoC money later if we get a little more comfortable and understand all the ins & outs.

    You could not have said it better. I’ve also found over the years what appears to look good on paper or makes sense in theory doesn’t always translate to same in practice.

    Partner transferred $5k savings to the SelfWealth account, we’ve requested a higher limit. Was going to wait but have decided to make our first purchase $5k of VGS earlier today! I may be following @SatayKing ‘s quote too literally :p
    First time shareholder here I come (everyone’s probably rolling their eyes and thinking “settle down”, wont be so chuffed when it goes down :eek:).

    @dunno appreciate your views, everything you’ve said is very logical and salient, same with @Ross36 as well.

    I can handle 20-30% prolonged housing collapse … I don’t plan to sell so that would just be wiping off my paper gains which I’m not utilising anyway. I’m charging rock bottom rents in most IPs, so not sure how much lower they can go.

    Share market 30-40% drop would most certainly concern me if I had a lot of money in there - as everyone has pointed out already it’s hard not to get emotional about losing your hard earned money. I’m ready to invest $50k now. Mentally I’m prepared to write off 50% of it [hopefully I’ll stick it out long term so this doesnt eventuate]. Who knows if I didn’t find PC I may have wasted $10k for some lame one off course with less takeaways.

    I will heed your advice and try to tread carefully - which unfortunately for everyone means I may continue to ask a lot of questions :oops:

    @Zenith Chaos thanks for sharing the graph, I’ll have to have a better look at it to understand it :)

    @tedjamvor thank you that’s a really good explanation :)
     
    Last edited: 16th Jul, 2021
  5. Big A

    Big A Well-Known Member

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    What you just said but replace the word housing with shares.


    Well done. It’s a great start. I did my first purchase of VGS on self wealth just yesterday. All previous buys were the wholesale fund.


    Get use to this. Some days it will go up and other days it will go down. Anytime it goes down right after buying it messes with your head. Not sure if that ever changes. On paper if it goes down some what, you should look at it as your next buy is getting a discount to your last buy. You are getting more shares for your money. In real life I did my buy on selfwealth in the afternoon and at close it showed I was $650 down :mad:. I was annoyed. Today my selfwealth app tells me I’m $920 up :). Feels much better. Theory and real life clash.


    Never hesitate to ask more questions. Regardless of how silly you make think those questions are. Answering those questions is optional so no one should be bothered by 2 many questions.

    Happy investing.
     
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  6. bythebay

    bythebay Well-Known Member

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    Thank you so much @Big A !!!
     
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  7. mistercoffee

    mistercoffee Well-Known Member

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    I agree that correlation shouldn't be the only consideration. One needs to be comfortable with their investments. I know a guy who is invested in a few retail shops around Melbourne, and also a couple of warehouses. Ask him about shares and he'll say something like "shares? You may as well go to the casino". But he has done well (totally unaffected by covid).

    I used to work with a guy from Sweden who has a massive holding in a single CEF that invests mainly in Swedish companies. That is his only investment, and that is what he is comfortable with.

    There are lots of people on this forum who are only comfortable with Australian residential property and would never touch shares.

    It might be heretical for me to say this, but I am comfortable with being invested predominantly in Australian shares. My very first share purchases were ANZ & NAB. Then I realised that I needed to diversify industries, so I bought other companies - e.g. AMC, CSR, AGL, TLS ... Then I realised that I didn't want to be managing individual companies and I discovered LICs. I now own a number of Australian LICs and some direct shares. My international exposure is very small, and that might not be for everybody. VGS carries its own risks (currency risk is one), and Aussie shares provide me with a great tax-effective retirement income.

    At the end of the day, you need to be able to sleep at night. I was never at ease as a property investor; being invested in shares (mainly Aussie shares) has been great.
     
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  8. Zenith Chaos

    Zenith Chaos Well-Known Member

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    I know people with the expertise and knowledge to successfully implement a barbell strategy. I know nothing, want to know the minimum, and continue to feel satisfied with an average index return. But I realise that for one such as myself, it means diversification. My ideal investment is a single ETF that buys every share in the world cap weighted.
     
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  9. number 5

    number 5 Well-Known Member

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    What do you mean? I transfer more than $5k to SW every quarter and have never had to up a limit or anything like that?
     
  10. Jack Chen

    Jack Chen Well-Known Member

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  11. SatayKing

    SatayKing Well-Known Member

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  12. Anne11

    Anne11 Well-Known Member

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    I remember reading one of Ashley Owen’s newsletters (link somewhere on PC) and by his calculation at the time 2009 or around that time, the dividends based on price would have been 8%.
    So when the markets crash if i can focus on the yield % and ignore the price I would never think about selling and only think about buying
     
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  13. tedjamvor

    tedjamvor Well-Known Member

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    This is why I wish Domain and REA would install a real time house price LED display on everyone's fence. The second by second fluctuations would make people think more about their most expensive assets.

    Who cares what the share price is right at this moment, I'm buying because I'm holding it for the long term, and it'll give me value and growth above what my bank will ever give me. Set and forget. If there's a dip, it's just a sale, having said that, buying today will always be a discount on buying in 20 years time (due diligence permitting)
     
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  14. Jingo

    Jingo Well-Known Member

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    Hi bythebay,

    Congratulations on your achievements to date. You have built a significant amount of wealth and obviously worked very hard to do so.

    I like your idea to establish a Family Trust and build an income stream by investing in ETF's and shares. There are many ways to do this as you've no doubt found out through your research.

    I personally found the writings of Nodrog and SatayKing extremely helpful in this respect and after doing my own research have since invested in a number of ETF's and LIC's inside both our Family Trust and SMSF to great success. (so far)

    I'm not sure if you've done some scenarios of selling down some IP's and keeping others debt free to generate an income stream?

    Its tempting to want to hold them all, but doesn't always lead to the life style outcome you want. (ie being able to stop work or go part time).

    I'd also add, it may be worth setting up a SMSF and investing in ETF's and LIC's inside this structure. I wasn't ever intending to do this myself and treated Super as a side thought.

    The SMSF is worth a sizeable sum now and my wife and I also contributed up to the concessional limits each year. Had we not done that, we would have had to pay more tax anyway. It was a no brainer for us.

    I've also found the SMSF to be a lot more transparent as I can see every transaction - unlike when I invested in industry super funds.

    I find it much easier to run than my property portfolio. It takes a lot less time.

    I'll echo MTR's sentiment - this is a terrific thread with helpful input from so many.
     
    Last edited by a moderator: 17th Jul, 2021
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  15. The Falcon

    The Falcon Well-Known Member

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    @bythebay

    Just catching up on this and apologise if this has already been answered, can you please clarify for my understanding ;

    Your assets ;

    $3.5m PPOR, nil debt
    $8m Resi investments at 40% LVR ($4.8m pretax equity)
    $0.5m superannuation, joint.
    $0.25m cash

    Cheers
     
  16. dunno

    dunno Well-Known Member

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    I'm sure @bythebay can clarify but....

    40% LVR originally stated against 8M then the above further detail provided.

    So 3.2M debt on 4.5M IP neutrally geared at historically low interest rates. Office admin jobs, but hoping to drop from dual to single income. Cash in offset to be converted to equities.

    Anyrate, thats what I got from the thread hence the riot act on too much risk, unless they are prepared to put at risk the PPOR.

    But details presented are a bit fuzzy until @bythebay clarifies.

    edit:
    As a side curiosity. Without a transparent market and residential real-estate not being homogeneous how does everybody quoting their 'current' portfolio value know the figure?
     
    Last edited: 17th Jul, 2021
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  17. bythebay

    bythebay Well-Known Member

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    8m total incl PPOR
     
    Last edited: 17th Jul, 2021
  18. bythebay

    bythebay Well-Known Member

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    @dunno as per my OP we have office jobs.
    We were planning to move, I obtained appraisals from REAs earlier in the year to help decide whether to sell And what to sell. We’ve since decided to stay put hence why I’m looking into shares
     
    Last edited: 17th Jul, 2021
  19. bythebay

    bythebay Well-Known Member

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    @The Falcon I didn’t mean to confuse. To preempt the question 3.5 plus just under 5 is not 8, yes it’s actually more than 8, I rounded it down to 8. That’s why in the OP I said “around 8”. Hope that clarifies.
    I put in OP “total value” but can see how someone may read that as IP value only.

    @dunno I’ve understated assets and overstated liabilities in the numbers shared.
    We are pretty private people. We don’t talk about finances at all other than between ourselves but I also felt it would not be meaningful for me to make a post that just asked “what shares should I buy” without any background or context. I included the LVR % as I understand some people borrow against properties to buy shares.
     
    Last edited: 17th Jul, 2021
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  20. bythebay

    bythebay Well-Known Member

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    @Jingo thank you for your kind words! (Though you may have read my OP the way Falcon did and thought we have a lot more than we actually do :( We generally prefer it to be the other way :))

    That’s great to hear you’ve taken advantage of other structures such as Family Trust & SMSF. This is definitely on my list to better understand. I looked into SMSF many moons ago as I wanted to explore buying a property with it! Had some hurdles at the bank - apparently had to pay a much higher % deposit, and I recall there was something about it not being able to carry a loss etc. It kind of fell off my radar. I’ve added it back to my list of things to pick up again. Also planning to make a couple of calls to see if I could get some advice.

    Great to hear you’ve made LICs & ETFs work within your SMSF, that definitely gives me food for thought. Can I ask how long you’ve been dabbling in them? What was your experience during COVID or other big dips?

    YOu’re right every time I get excited and think if I sell this and that then I can do this, I then look at the CGT and remember how hard I hustled to get that deposit and how many brokers/banks I went to see to squeeze out that loan :oops: …. Need to push through that

    What you said about your shares being easier to run than properties, this is one of the reasons why I wanted to start! I love to keep things simple if possible.

    I’m glad you and @MTR find this thread a good read. I was hestiant to post initially. Big thanks to everyone who has contributed! :)
     
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