What would you do

Discussion in 'Share Investing Strategies, Theories & Education' started by Rocket66, 5th Jan, 2018.

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  1. Rocket66

    Rocket66 Member

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    Scenario:

    You're 55 years old.
    Have only 50k in super.
    Have your own house but still owe 250k
    Have 250k in equity
    Have an income of 60k p.a.

    You want to pay the house off. And have a retirement income of 50-60k p.a. including the old age pension.

    What strategies would you consider to dig your way out of the hole?
     
  2. twisted strategies

    twisted strategies Well-Known Member

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    personally ( and please take note of my NIC )

    i would retire your debt as soon as possible ( before interest rates rise )

    study about investing ( not just shares) , but bonds and all the other stuff .. you might have a rare talent for spotting art for example .

    try to save a little cash ( but not at the expense delaying the paying out that mortgage )

    $50K in super won't get you anywhere useful BUT check and see what insurance cover is bundled with that super ( that might be a wealth saver )

    since you have a steady income , you probably can't claim 'hardship ' and withdraw the super and invest it better elsewhere .

    i try to keep a very low debt profile , hoping to never need to be a forced seller ( patient selling down is very different ).

    don't think of it as a hole , think of it as a very steep hill

    try baby steps , reduce debt and take sensible opportunities ( and try to avoid get rich plays that usually hide excessive risk )

    i am not a fan of complicated schemes , i like simple plans that work , best
     
  3. Rocket66

    Rocket66 Member

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    Thanks for your reply, I had been thinking along the same lines of starting a bit smaller and working towards paying out the mortgage.

    My train of thought was to draw perhaps 50k from the mortgage and invest into a share portfolio aiming for a return of as close to 10% as possible, with franked dividends. But then what would be the best course of action with the returns? Reinvest to grow the portfolio or pay down the mortgage debt? I thought paying down the mortgage would be best?

    As for the shares, I had aimed to put most or all of these into a high growth fund to give them a kick along a bit knowing that the we risk maybe one or two losses in the 10 years until retirement? Would have to end up in a better spot than keeping them in a safe fund for the next 10 years??
     
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  4. Bruce MacGillivray

    Bruce MacGillivray Member

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    I would pay off the mortgage asap, and then salary sacrifice into my Super.
     
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  5. Rocket66

    Rocket66 Member

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    Getting rid of the mortgage would free up cashflow to put into super but I'd thought borrowing to invest would help speed things up a bit?
     
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  6. Bruce MacGillivray

    Bruce MacGillivray Member

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    Personally, the last thing I would be doing is take on debt to buy shares. Don't fall into the trap of believing the market will rise forever--the last thing you want is to see all that you have worked for go up in flames. If, and when, the bear market arrives (and it will), the debt will destroy everything.
     
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  7. twisted strategies

    twisted strategies Well-Known Member

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    i decided against a formal super ( or SMSF ) and just invested as the cash and opportunity arrive..

    with 10 years ( assuming the government doesn't shift the goalposts again ) to retirement day timing your investment moves will do more than careful accumulation ,

    i was hoping for a major market downturn ( since 2013 ) to give me some bargain prices for those investments .

    currently the share-market is on the expensive side ( with a few exceptions )

    every investment in shares ( and interest-bearing securities ) has to be a big winner ( as in double your money in 10 years ) with NO bad outcomes ( zero growth , or capital loss )



    for a ( regular income ) return of $50K pa you will need around $1 mill .invested wisely ( not counting your home in the figures ) and then you have hard to predict inflation yet to come .

    remember you will have taxes , fees and other unplanned expenses on the way ( to try yo eat up that nest egg )

    5% return looks so easy on paper , but currently to acquire those returns means you have to take on increased risk ( say any of the 4 major banks , as an example ... shares or corporate debt ) and it is that extra risk that is the worry and while doing that you need to grow your investment capital ( or assets ) up to that $1mill. mark .

    i did things differently i went along to the doctor for a full-check up after roughly 6 months of tests and checks the government told me to stop work immediately , and paid me to stay home ( disability support pension ) and some doctors are hopeful i will live until i am 65 ( as a first hurdle ) then at 67 ( in 2022) hopefully i will be healthy enough to go on a normal aged pension ( after some rehab ) .... which is kind of lucky i was only about half-way to my retirement investment target .. so have more time to learn/research investment strategies ( if i need them )

    i am not a big fan of extra debt ( and recent events have proven that is the correct strategy for me .. imagine explaining to the bank you will never work again and you have a mortgage with a little left to pay .)
     
  8. Bruce MacGillivray

    Bruce MacGillivray Member

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    Don't forget that the pension for a single is currently $21k pa ($32k pa for a couple)
     
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  9. twisted strategies

    twisted strategies Well-Known Member

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    indeed but i wasn't sure i would qualify for a normal ( aged ) pension

    i had SOME investment assets and i am not 65 yet ... those pesky goal-posts might shift again

    only pollies seem to be allowed to feel 'entitled '

    those investment assets would have to sustain me for the rest of my life ( say up to 75 , before i got that medical check-up ) if no pension
     
  10. Hodor

    Hodor Well-Known Member

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    How long until you want to retire?
    Are you single?
    How much can you spare after expenses?

    You are earning $60k now and paying a mortgage, do you need the same amount (or similar) in retirement if you don't have a mortgage? Getting rid of your mortgage would free you up a lot, you will have to pay off $25000 a year in principle to achieve it in 10 years however.

    Super is the most tax efficient way to invest your funds. Who are you with now? Hoping not a high fee fund.

    Borrowing or chasing high returns will possibly land you in a worse position given your timeline is shorter.

    This is what you face;

    IF you get the $21k pa pension you need to make up the additional $29k for $50k.

    The best growth strategy is 6.2%p.a. over the past 10 years, A period which includes the GFC. (Top 10 performing super funds over 10 years (to 30 June 2017)). Working off 7% you need ~$415k in super to be able not deplete you balance at 10% you need $290k in super - pretty high historically.

    If for the next 10 years you make super contributions of $10k p.a. (about twice the compulsory contributions) and your fund returns an average of 10% pa you will have ~$290k in super. If you worked an extra 2 years then you would need 7% pa returns to reach $290k. Assuming you continue to get 7%p.a you could then draw $29k for about 17 years before your super runs out.

    No one knows future returns however.

    Hopefully that isn't too depressing, best to know where you are starting IMO and work out what you need to do.

    This would be a dividend recycling strategy where you would use the dividends to pay off the mortgage and then re-borrow an equal amount to by more shares, allowing you to pay off more next year with the additional shares.

    I'll say this, debt and leverage are great when they work. When you have 10 years and no chance of recovery and little margin for error I'd think carefully.

    A consultation with a good financial planner would likely be beneficial. If they try to offer you a high fee product (1% is high) find another.
     
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  11. twisted strategies

    twisted strategies Well-Known Member

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    luckily for me i got that concept correct ( as a 55 year old novice )

    recent history could have made another choice very chaotic .

    i MIGHT consider leverage if the market plunges below ( XJO = ) 4000 points , but at current levels

    no thanks, not me ( and DEFINITELY not an collateralized ETFs which are traded on computer generated NTA which would be in a steady slide )

    much worse than chasing a train as your collateral is shrinking before your very eyes
     
  12. Hodor

    Hodor Well-Known Member

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    Yes, a very different situation. Been younger I would be leveraging up if we ever see 4000 again. Prefer the conservative approach otherwise.
     
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  13. Rocket66

    Rocket66 Member

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    To answer your earlier question Horder,

    Yes she is single,
    Wants to retire at 65 or as close to it as possible.
    Probably about $800 in spare cash per month.

    Property seems out of the question as Im not sure she would qualify for finance and would have trouble servicing the loan with current low rents.

    I did think about the glut of apartments in Brisbane city but not sure their values would come back within 10 years.
     
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  14. twisted strategies

    twisted strategies Well-Known Member

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    sorry about being sexist on this but the wretched lender WILL BE ( and that is a shame )

    your lender is most likely to assume lower returns due to contractors over-charging , but also factor in a longer life span ( and the borrower is less financially astute , although Ms Rinehart should have smashed that stereo-type , most bankers will not have gotten that memo , but that could be her edge .)

    if looking at Brisbane apartments you need the advice of a trustworthy builder .. some constructions are just junk ( regardless of price tag ) ( if they inflict this rubbish , on councils and and government departments , they will do it to anybody .)

    there is a glut of rubbish , but a drought of solidly built properties ( don't let a multi-million dollar price tag lull you into complacency ).. the White Shoe brigade still operate .

    surplus cash above $500 a month ( allowing for inflation and cost rises coming ) will still leave room for a careful dabble in the stock market a few times a year , if a little lucky as well that could make a BIG difference in the longer game ( after 65 )

    in rental properties the name of the game is returns ( after all the costs ) ( not rent potential , and not resale value , unless you intend selling it in less than 10 years )
     

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