Time for action!

You need to be careful, cause those 3-4-5-7 year results are AVERAGES over that period, not the actual return that year, so one year may have shown 60% but the previous may have lost 30% meaning it will show the average of 15% over the two years.

Just something to keep in mind, but I hope the OP doesn't just get confused with my comment! best he ignores this post!

 

I think the loans can be lower if you elect to have regular gearing.. but the OP needs to check the terms and conditions of the loan he is applying for.

Rather than asking questions here about it, he could also ring up colonial and get them to explain it to him. IE margin calls, LVR's etc.

I mean we are more than happy to help, but sometimes it can be explained better talking directly to someone.

 

Fair enough.

My main point is that you don't get seduced into investing with DodgyBros managed Funds because last year they did 50%. Last years performance is no indicator of next year and some studies have shown that it can even indicate a lesser performance than an underachieving share.

this can get quite complex and the point I wanted to make is that you look for a track record greater than a single good year.

 

exactly, this is my point. a 70% one year return, will scew even the 5-7 year returns.

So they may have had crap 7 year result, but the last 12 months might have been 70%, so they average that out to say a 14% average over 5 years.

So up front it might look like, cool 7 year average is 14% but last 12 months return was 70%.. looks like a good stable fund, when really it isn't.

 

I would prefer funds publish the ACTUAL return for that/each year, rather than averages over x period ie 5 years.

 

How I started

This might be of some help to you- how I started in managed funds and how I selected. By no means, an advice to you.

When i had about 30K I started pondering how I can make best use of it.

1. I started with Citibank-UBS products, where they guaranteed capital at the end of investment term along with projected returns(income +capital) of 10-12%. I started with this because I was afraid of losing the capital.

2. When the products matured, I thought I could take a little more risk. I put $2K (minimum possible investment)into Navra- applied directly with monthly instalments of $200.00 because I wanted a feel for the product. Reading the PDS I could not make any sense of it.

3. Watched the performance (unit prices) daily and added as the unit prices went up. (I don't do this anymore) Because it made me think that my investment was growing.

4. After getting two distributions in cash from NAVRA I decided that I could trust the product to re-invest the distributions. And moved most of my cash into NAVRA increasing it from $5K to $20K(as my citi bank products matured I put into NAVRA)

5. In the mean time I did more reading about income & capital and other investment strategies and decided that I need "growth" products. Applied for PDS from investsmart and direct invest. Skimmed through them and decided that I wanted to go with Colonial because of their low entry point and number of products they had. (I looked into Australian Unity, Perpetual, Platinum, UBS, Credit Suiss etc but the entry price of $5K scared me)

6. Invested 2K into three different products with Colonial- Geared share $1K, Property & Global Resources $500.00 each because I thought I needed growth products with some risk. I also set up monthly investment of $150.00

7. This is what I did in the first year and saved my employment income in Bank West because I thought I needed cash for rainy days.

8. After buidling my investment wealth to $50K, I thought I could take a plunge with Margin Lending. I thought if I borrowed $20K on $50K, I could still be safe. (i had the money to payback the loan if needed be and still have $30K)

9. I looked into different Margin Lending products. And chose ANZ. I used margin loan carefully. Taking instalments of $1k each time and getting used to the account statement and feeling comfortable with having debt.

10. Paid interest monthly on my margin loan.

11. Decided to capitalise interest on my margin loan.

12. Increased my margin lending limit to $50K and increased my usage to $35K (I like to leave a buffer of 10-20% in case of big drops in the market)

13. Increased my margin lending limit to $80K as my investments were growing. ( lending increased to $60K)

14. Increased my margin lending limit to $110K but only using around $90K to have a buffer but I am thinking of drawing down fully at the moment.

15. The increase of margin loan of $20K to $110K happened in the space of 7 months as I needed to feel safe and secure with seeing the interest repayments that I had to make each month and fully understanding that I could meet those payments in cash if needed. (they are being capitalised, though)

16. Now I am in the process of calculating whether I benefited from taking a margin loan and if I did by how much and considering whether I should apply for a further increase as I would like to put more money into NAVRA at the moment.(This will happen by September 07)But very reluctant because this will mean that I have taken my margin limit to a maximum and I will be taking more risk should the market fall.

17. Now I have stopped with monthly instalments because it will mean a lot of paper work when I sell down my managed funds to buy a property and making instalments in increments of $500 or $1000 or $2000 so that the calculations will become a little easier. I decided to stop because I felt I needed more cash reserve. My monthly instalments were almost 70% of my net income which meant very little spending for me and made me feel insecure as I also have a set up with a friend where we save $500 per month for 48 months. Now I hold on to the cash and look at NAVRA and Colonial site and look for the days when the unit price is low and send the cheque in straight a way when I see an opportunity or instruct my margin lender by 9am following morning. My lender seems to repond by that day, which I am happy with.

18 I am still in the process of learning, so there might not be many thing you can learn from my investing exercise/history, but I think it could be of some reference point to you, from someone who started with around same amount of money.

 

thanks hiflo! good to see how people start out!

What I do now is I have 50% of my wage placed into a ING account (my employer does it on my behalf) and once I reach $20k then I decide how to invest the money. I now have 6 funds, and will probably not increase these, so will now evenly top up these funds. Probably top up the funds which decreased in value, as I believe you should buy when milk is on sale!

I always use margin loan, and keep my gearing between 50-60%. Since I'm paying 9% interest, and I hope to get 14% or more from the investment, then I'm in front. I have a 5 year plan, and have written down where I expect to be at the end of each financial year. Having your goals written down on paper is great, as you can monitor what your doing and track your progress, and stick to a plan!

 

Thanks for sharing your story Hiflo, it's always good to hear from others who are making good progress.

I'm going to try and narrow things down to 2-3 funds today. I'll report back in later.

 

I started off with colonial first state imputation, future leaders and BT imputation about 6 yrs ago
I initially had up to 10k into them
They were very popular back then and had won many awards, best performance etc
Still I made very little money
and eventually sold out to put money into a deposit for property

For wealth creation you need leverage, with as low a risk as possible
I borrowed 97% for property
Revalued and bought a few more, renovated etc
to provide equity
then got back into shares with this equity and savings

I held a portfolio of direct stocks, and have played with stocks over the years
Ive then come to the conclusion that picking stocks is very difficult
you win some, you lose some overall you may do worse than the index after tax and trading costs
Glebes post is great
http://www.invested.com.au/7/goodby...cs-831/?highlight=listed+investment+companies
LIC's are good
AFI is one of my best performers
Low costs are key
I like AFI and ARGO
The index using ETF's are good like STW - aust index, and SLF - property
I also have some platinum funds

Ive recognised that the fees for managed funds are huge
considering most managed funds - something like 80% underperform the index - and they have MER's of 1.5% or so

I used navra fund to support the properties negative cashflow - and income is nice to have

Now Ive come full circle back to indexes, franked high yield stocks, value and small cap tilts and using asset allocation and rebalancing to get a few percentage points above the index

Presentations page
have a read of the 1st 2 presentations
It will take a few hours to go through


But some important points inregards to managed funds like colonial
Chasing returns are one of the worst things u can do
There are studies showing that if you invest in last years best performing stock, and keep chasing you will significantly underperform

The popular funds pay huge commissions and trails, and marketing for TV
where do you think the money comes from
They often have active turnover which makes their tax efficiency low
Large MER's
The head managers that have talent get head hunted by other companies with huge sums or they leave to start their own fund eg Kerr Neilson when he was with BT and left for platinum

There is a survivorship bias - where fund managers close the underperforming funds - thus whats left is the higher performing funds - which may be just due to chance

Also dont get fooled by colonials geard fund
sure great returns over the last few yrs
but it is internally geared - falls in the market would be very bad
You could have achieved better return on an index and gearing that yourself


So my tips would be
Have an overall plan for wealth creation
If you are not in the stocks for the long term, dont put significant amounts in
If property is going to be part of the plan
Save for a deposit
ING or bankwest are great for now
guaranteed return
Risks of margin lending vs gain at this point are not worth it
Start a small portfolio of stocks / LIC's / Indexes
Have a core of index/or LIC and a small portion of your 'stock picks'
That way you wont lose significant portions
Do this while you are learning

Decide if you are going into property
if not then you will need to margin lend to gain leverage to create wealth
or if you get a PPOR - leverage off that

 

Why are you after income
Is it to offset you erratic income?
Just remember that a lot of the income funds will be taxed
Your 15% return may be 10% after tax

Bank stocks may be a good idea - dividend yields of 4-4.7%
and they are franked so there are the tax advantages
Your effective return will be close to 7%, and there will be some capital growth on top of that

If you dont need the cashflow - then growth stocks would be better

 

dkmc, how could you have not done well with colonial first state future leaders?

I think that choosing one investment ie property, and not taking advantage of other asset classes is dangerous. Like you said, its hard to pick stock winners, and just the same, its hard to pick next years winning sector.. so the safer bet is to be involved in a few different things..

I disagree with you saying direct property is the way to go.

Property has hugh expenses, ie stamp duty, bank fees, etc etc etc which eat up your profit. Property over the long term returns 6-7% PA with 4-5% yeild. Hence a total long term return of 12% PA less all your expenses your left with about 8-9% return.. How can this be better than the stock market which averages 14% PA without any expenses? (other than cheap brokerage etc) gearing property to 97% is very dangerous and will cost you a arm and a leg in negative gearing, which kills cash flow.. and if the market goes bad, are you going to ride out 5 years of negative gearing with no capital growth?

At least with my set and forget managed funds stratergie, you set it up once, and leave it... no need to keep pumping your wage in negative gearing each year into it.. If returns go bad, then you just wait longer... I had 3 properties all negative geared, 2 cost me 10k per year loss, and the 3rd was 15k... I bought them during 2000-03 each year, and in the next almost was bank rupted with time.. I shat myself each time the RBA met, and prayed a tenent would renew their lease so I wasn't vacant for 1 month...

Sure property is good to get started, but you need to get it with the view to eventually be cash flow neutral. which is probably only 60% LVR. Same as shares.. So whats the difference?

Also with shares/funds you can sell down part of your portfolio is your situation changes, try selling your kitchen in your house!!

 

CRC_Error - back in 2001-2002 CFS future leaders performed badly
I cant give specific figures as I cant find them online
Anyway its intersting when I did a search for CFS future leaders
their 5 yr return is nearly 5% below the small ords index
but their 10yr return is impressive

I never said to go property only, or suggested that he/she should
I only stated how I did it 6 years ago

Strategies that worked then wont work now

I agree gearing 97% in today climate is asking for trouble
as yields in property are so low now

My point is that leverage is key
even if there is negative cashflow

for example
I bought a unit for 90k - as a PPOR in 2003
put down 9k as a deposit - 9k for expenses
movied in got the home owner grant
Did some painting new kitchen - with the FHOG money
moved out and rented the property out
I furnished the place for like 2k - and up the rent so that its positively geared

At the end it was revalued for 130k
today it is valued at 220k 4 years later

So 20k in, a little bit of painting and organising people to reno
growth of 130k, and growing
neutral cashflow
ability to borrow off that at a low rate like 7.27% instead of nearly 9% for a margin loan
Work out the returns on that

Dont think you can do that with little risk on the stock market
Though it is very hard to find good realestate investments atm

Key is you have to leverage - you have to cover costs
In todays climate CRC yes realestate yield is shocking so LVR will have to be around what you stated unless you can find a good deal
The difference is the volatility - with stocks and the risk that it can drop 30%, and that it did drop 44% in 1987 even with a diversified australian fund
also realestate loans are 7.37%, margin loans are close to 9%

End game is to have a mix of both

If he wants to buy a PPOR - by investing a lot in stocks are you not delaying buying a ppor which may go up a lot more in value
A bad scenario would be to be saving in stocks but have a short time frame of 3yrs - stock market tanks - you are 20% down
then find that you want a house when u are 25yo - 3 yrs is not long enough a time frame
would have been better off just saving in ING for that deposit

 

you raise some good points, and those are the benefits of each investment you make.

Once a ponna time you could wack on a lick of paint and get a instant capital gain. (I learn t this in 2000 with Peter Spann) however today everyone is trying to buy such properties hence pushing the price of un-renovated properties. Plus many people prefer to renovate to their taste.

Gearing IS the key to wealth, but you can gear with both shares and property, so this isn't a advantage of property over shares. Infact with shares you can gear 100% if you want via certain vehicles.

If your ultimate goal is to buy a property to live in, then investing in the sharemarket only to buy a house 3 years time is not a good idea. I consider shares to be a 5 years plus exercise, as with property. Property actually should be a 7 year exercise so you make back the costs of entry and exit.

As for interest rates, housing loans are cheaper, ie 7.5% however you need to add the $15,000 stamp duty you need to pay upon purchase, the cost of agent when you sell, usually 2.5% commission, and any bank fees, like mortgage insurance which could be $5000. All these charges will raise the cost of the 7.5%.

 

by the way dkmc, where on earth did u buy property in 2003 to have it double in 4 years?

My properties (units) I bought in 2001 in south yarra and 2002 in st kilda didn't double 5 years later!

They performed quite badly cause I bought close to the top. St kilda I actually lost money.

 

crc_error
would you believe adelaide eastern suburb close to city - it was nov / dec 2002, settled dec 2002
I got 2 of them at the same time, then another in the same group a few yrs later
Im getting semi furnished rental returns of 210-225/wk

 

nice! are they units or houses? sounds like units to me?

If you can pull things like that off, thats really good!!

 

crc_error they are units - in a group of 8
I never believed in units because of lack of land
I certainly dont believe in big unit complexes
You have to time units - as they have significant periods of no growth
However in the cycle here - they lagged behind in the boom vs houses
I just went along for the ride, there was no to minimal growth for 8-10yrs
prior
Id have to thank my buyers agent for finding the good deal, and negotiating the price
I see possible opportunities atm in rural SA

cheers
dkmc

 

Hey guys.
I just pinched these performance figures from Investsmart. I was wondering if you guys could just give some general comments or thoughts you might have about the fund based solely on this information.

Fund Performance (p.a.)
Performance Date: 30th Jun 2007
1 Month - 1.61%
3 Month - 16.2%
6 Month - 32.05%
1 Year - 76.83%
2 Year - 55.2%
3 Year - 47.64%
5 Year - 32.86%
7 Year - 21.96%

 

Thanks Sim.

Do the first four figures show how the fund has performed up to that given time (1, 3, 6, 12 months)?
Then after that are the figures an average performance p.a? So after 7 years, this fund has returned 21% pa. (as an average)?

Is there somewhere you can check the actual returns for each year? Not an averaged number.

Thanks.