Financial Diversification Feedback/Advice Sought

• 

  Mackeg02 on 23/03/2016 - 14:43

  +1

  Wow to live mortgage free is a dream for many people. Congratulations!

  Put some money into renos keep 3 months living expenses for emergencies (eg loss of job, ill health etc)

  Put some money in to Argo or Afic Shares. They are good quality listed investment funds.

  Steer clear of investment properties as they will cost a bit maintenance etc

  • 

    Daniel Plainview on 23/03/2016 - 14:47

    +5

    Thanks mate - before anyone thinks we had this handed to us on a plate I should point out neither of us got any inheritances, money from our parents to help or anything like that - my wife's folks are 1st gen immigrants from non-english speaking background and I come from a broken home single parent family :-/. We both had relatively mid-level jobs (well below 6 figure salaries) BUT we sacrificed on SO MUCH stuff. So in nearly 20yrs together we've only been on overseas hols a few times and they were cheapos etc, we drive a 2004 Corolla, and all our rental properties have always been relatively low end etc.

    So it's only come through a lot of graft and sacrifice. Appreciate the tips on those ETF's. :-)

    • 

      Mad Max on 23/03/2016 - 16:01

      +1

      Shares could a good option, but it really is a hit and miss…even the classic blue chips are not that blue any more. And it is really paiful to lose money when you have earned it through "graft and sacrifice".
      A good investment property may be a better, steadier and safer option, but only if you buy it at a very good price. You make money when you buy it, not when you sell it. Having most of the purchase price in cash gives you an advantage because you can try the "cash unconditional" low ball offers way. Do your research first though.

• 

  Master Bates on 23/03/2016 - 15:07

  +3

  I'll just leave this here: barefootinvestor.com

  There is enough free info without signing up, but he suggests buying shares in either:
  * Australian Foundation Investment Company Limited (AFIC)
  * Argo

• 

  SnoozeAndLose on 23/03/2016 - 16:07

  +2

  $250K cash in early 40s , I would invest in another property to negative geared. I think Australia property market is the safest (in long term - 10 years +)

  And you can earn rent out of it, also if the interest rate not raising your replacement wont go up but your rent is going up a lots on 10 years time.

• 

  ilikeradiohead on 23/03/2016 - 16:37

  I wouldn't take actual investment advice from anyone - no-one knows how the market will go. Financial advisors may be able to help with tax arrangements and setting up funds etc, although most information is available online. I've got a mate who owns a couple of low end rental properties and it's been a nightmare for him (bad tenants and incompetent managers), although as with anything, YMMV (for WA folk, they're in Rockingham, so nuff said haha).

  You can always have a $250,000 crack party

  • 

    Daniel Plainview on 23/03/2016 - 16:42

    +1

    Hey I've got ALL Dave Chapelle's stuff - so nice gag. :-)

    Ah look it's a generalisation BUT I'm majorly down on financial advisors, as alluded to I used one many years back who at one point had been my best friend and one of the smartest and most trust worthy guys I knew. Was a complete PITA as he'd morphed into a money hungry louse who wanted 2% of our net worth just for having us on his books and did SFA of any real benefit for us.

    I'm sure there's a bunch of good ones BUT I'm pretty confident in my own abilities to navigate through and find a few options rather than a stranger who is only chasing the kickbacks and trailing commissions on everything they 'recommend' for me.

• 

  mskeggs on 23/03/2016 - 18:48

  +2

  First up, what are you trying to achieve?
  By that, I mean are you seeking security to protect yourself in case of a disaster, a high return to grow wealth, or somewhere in between?
  Nobody can offer advice without knowing what you are hoping to achieve.
  My opening thoughts:

  • you have a lot of security with a paid off house and two incomes with no dependents. You aren't going to starve even if there is that stroke of the pen in Beijing
  • you have some diversity already with various cash accounts,but as you point out, they offer little income.
  • I assume you have at least super guarantee level superannuation, so an income at retirement of age-pension-esque levels is reasonably taken care of.
  • $250k of renovations seems very excessive.
  • 

    Daniel Plainview on 24/03/2016 - 09:19

    Fair question, though that said also to be fair if I simply wanted total security I'd pop it in say 2-3 different bank accounts with the big 5 Aussie banks and it'd be essentially a sure thing, barring a complete toppling of society as we know it etc.

    So yes, on the scale of complete security on one end and capital growth on the other end - and lets assume a 1-10 scale, I'd be looking at a 5-6 type option. :-) Good balance of the two but very marginal weighting towards growth over security.

    Just on your opening thoughts:

    • We've actually only got the one income (my wife's), I've had depression issues all my life & also Asperger's - so haven't worked for around 8 of the last 10yrs. Her income is very mid range, ~$70k and I just do everything else in our domestic lives to provide some level of validation/self esteem. Weird system, but it kinda works. :-)

    • Agreed on the cash bank accounts, they were purely as a 'holding pattern' until we located, purchased a house. Hence reviewing strategy for 'next phase'. :-)

    • My wife has ~250k of super, due to much shorter working career mine is ~80k

    • I'm not sure anyone has suggested 250k into renovations and that certainly won't even be close to the figure. The majority of the renovations will be undertaken my myself at a manageable pace etc and I'd say will be done for ~1/10th of that at most. The property we've bought actually has a separate from the house, double brick, double garage that was originally used when the house was built (by an elderly Italian builder who owned and lived in the house for many years) as temporary accomodation whilst he was building the main dwelling. It needs to be re-lined and a small kitchen put in it but when done should be able to be rented out 'off the books' for ~$200pw. So thats another little handy feature of the property.

    • 

      mskeggs on 24/03/2016 - 12:27

      +3

      Right, sorry, I misread the $250k to invest as the cost of the planned renovations!
      My initial comment is you are in an envious position for many, not just the savings and assets, but the no doubt frugal lifestyle you have put in place to deliver those gives you very high freedom compared to somebody who is working all the time just to keep on top of debts.

      I am guessing your spending is within the limits of a partial age pension and some superannuation income, so your retirement is basically already sorted.
      Similarly, you could look at income protection insurance for your spouse, but should she fall unable to work, the income you would get from welfare would cover your living needs, and your savings would cover any medical/adjustment costs in such a catastrophe. That said, there are many who can't sleep at night without lots of insurance, and if that is you it would be a reasonable step, and likely to be available in pre-tax dollars via your partner's super fund.

      So I think from a security point of view, you are already well provisioned, although your difficulty in earning an income does add some risk. It wouldn't be ideal to have to rely on the government welfare system remaining unchanged, but even if they cut pensions etc. you would still have significant savings and future super income.

      So I think I ask again, what are your goals? You don't have kids, but is there someone/thing else you would seek to leave a bequest to? Does your partner wish to retire early? Do you wish to travel or do some other lifestyle spending you haven't had as part of your budget?
      I guess what I am driving at is that you have no need to adopt a higher risk investment approach unless you have goals that make it desirable.
      An analogy is it is dangerous to exceed the speed limit when you are driving, but if you are rushing to hospital the risk is likely worth it, but if you are on a Sunday drive, the added risk gets you no real benefit, but does expose you to the (slim) possibility of a disaster.

      So with your investing, if you keep your money in online savers etc. that are paying, say, 2% over inflation, you will double your money in real terms in 36 years with almost nil risk. If you invest in blue chip shares paying a return at historical rates you would double your money after 10 or so years, but you have a 1 in 5 risk (on average) that you will have lost money in two of those years, and it is quite possible they could be when you want to access the money.

      My personal belief is that the never-before low interest rates have inflated almost all assets to absurd levels, so buying any of them is risky. When investing becomes something so uncertain, to me it is an indication to keep the money in the bank. You want to be buying when it is all doom and gloom.
      Recently, that was oil stocks. Soon, it will be iron ore companies (although I think they have further to fall). When the newsagent no longer has several magazines devoted to property investing, it will be a sign to buy real estate ;-)

      • 

        Daniel Plainview on 24/03/2016 - 13:13

        I will reply fully in due course BUT I just wanted to immediately acknowledge what a brilliant and generous reply this was. Really, REALLY appreciate the effort made to assist a total stranger - so thank you.

        Full reply a lil later. :-)

      • 

        Daniel Plainview on 25/03/2016 - 08:21

        Ok sorry for the delay.

        Again absolutely brilliant post - very well written and the logic/thought behind it is fantastic - so thank you.

        Income protection for my wife is a good idea - we did have that in the past but got rid of it. So I will look into that again. :-)

        As you say whilst 1/2 of our 'advantage' on our peers might be our accumulated financial assets a large uncredited part is that we've very well established financial discipline to live well within our means & not succumb to 'upgradeitis' etc (which personally I feel is the undoing of many an OzBer……no real point saving 90% on an item IF you never needed it in the first place & aren't looking to Brogen it etc).

        Goals? Umm look I hate to be vague or general but to live a happy, comfortable life without worrying about money at all in our general living/decisions. So I can't imagine us suddenly changing our spending habits just because 'we can' - we're not top of the range iPhone & eat out every other night kinda folks - for better or worse.

        Yes, my wife would like to retire as early as she reasonably can - I know that takes a bit more crunching of numbers to ascertain and I don't expect or want that done on her but it's something I've told her we'd look into. Funny thing is I secretly think she'd go barney being home with me - as I'm a bit of a different breed able to amuse myself in the most mundane of tasks for hours but I digress. :-)

        Not sure if it's really relevant but you touched on it so I'll answer - yes as stated we have no kids so assets won't be left behind there but we'd probably investigate some suitable non-religious not for profit orgs that undertake the type of work that resonates with us. Something like that and again thats something I have to do soon.

        Travel is probably the only change of behaviour we'd likely tack on to our lifestyle down the track - as I've said we've just bought a home so I imagine that this will keep us pretty busy over the next few yrs and we'll be reluctant to leave it alone until we get a good understanding with the neighbours etc….but travel is one thing for sure. Again I'd imagine it'd be pretty simple and budget stuff - so no Orient Express sleeper carriages or Seine river cruises.

        I think you make excellent points regarding the risk vs reward approach and applying it to your actual goals - it's a basic foundation of investing but it's one that should always been kept front of mind. I agree that it's likely that we could take a more conservative approach and still likely fulfill our requirements - so that does seem logical. Your examples of this are excellent. :-)

        I also agree that the financial issues of globally cheap money over the past decades has made most equities very hard to really affix true value too as while the stock in question may be sound what if the entire economy around it is not and thus comes down like a house of cards! So yes point taken, thats what if one wanted to go that route I'd imagine you could emply some kind of medium term 'dollar cost averaging' by buying in many small lots….but as with anything that involves timing the market thats likely a crapshoot as well.

        I agree 100% regarding buying up when others are saying to sell. I remember hearing a quote from a well known investor who was saying that when the sharemarket is crashing it's like hearing there's a massive sale at your favourite store.

        Anyway have to get breakie ready but very much appreciate the reply. :-)

      • 

        mskeggs on 25/03/2016 - 09:11

        @Nikko:
        Everything you are saying says you are already on top of this.
        Perhaps add some money to super, you could invest that portion of extra in equities and the regular contributions would dollar cost average without you having to give it any thought.
        I know there will be an event in the next few years when you will see it is time to deploy some cash. It could be like 1987, or the Dotcom crash or 2007. When it comes, you will be well placed to take advantage.
        If it never comes, hooray, your safe investments will still be ok, and that bit extra you tucked away into equities will have done well.

      • 

        Daniel Plainview on 25/03/2016 - 15:34

        @mskeggs: Thanks again for your reply and great feedback. :-)

        Dunno about on top of it, but I think we agree on a few things.

        RE: Super - yes, I've been ensuring that my wife makes salary sacrifice contributions for the past few yrs. Which seems to have worked reasonably well as her balance is around seven times the average that the 2010 ABS figures show for a female of her age. Suffice to say I've got the balances of both our funds customised to try and maximise their returns….as my balance is quite low, I've gone very aggressive…whereas hers is more balanced with a slightly defensive focus.

        Again I think you make a good point and I've been thinking that I should keep a share trading facility setup with the ability to rapidly move funds into it IF (or should I say when) some global clusterphark occurs. Obviously such things often aren't the 'bottom' of things in themselves and tend to deadcat bounce etc a number of times - but buying quality equities in a major correction is a pretty reasonable strategy dependent on the term you're looking at.

        That'll be something I'll have to get to doing as well. Much thanks again for the great feedback - any more very welcomed. :-)

      • 

        danyool on 31/03/2016 - 13:59

        +1

        @Nikko:

        Travel… reluctant to leave your house alone until..

        When you're ready, you could look at house swaps. National or international. There are several companies that do it. Then you get to stay at someone else's place and travel on the cheap with accom sorted.

        One other point I'd look at is if you're income is low (less than $11k), you wife could do a spouse transfer up to $3,000 into your super account and get an 18% tax offset (tax refund) of the amount up to $540 - ie, it would only cost $2,460. Saves her tax, builds your super. Might be something for next year though depending on how much interest you've earned this year (and assuming it was in your name - which it should be since you're the lower income earner)

• 

  PLANT on 25/03/2016 - 21:30

  1. Income protection insurance for wife MUST….your stuffed if she has an issue. You have house\car insurance right?
  2. Wife Max SS into super so that $30K($20K SS…Employer $10) a year is reached!
  3. Have Wife pay your $30K super as well.
  4. Get yourself a job as an Uber driver after you upgrade your car to less than 10years old! If not what is your PASSION and pursue it…in some form of a job!(are you getting disability pension???)
  5. Keep $30K in cash in Ubank.
  6. AFIC and ARGO the rest……Otherwise buy low after you have researched the stock to the hilt!
  7. Expect nothing for Free online advice!
• 

  meumax on 29/03/2016 - 10:59

  ETFs all the way. Pick an asset allocation mix from among the many freely published online or in advice books.

  Why? Allows you to participate in equities without worrying about financial meltdown, GFC etc. Over long term (20-40 years), equities always goes up (we are now above 2008 GFC levels). But picking individual stocks is risky because you have no idea which stocks will be wiped out by a future GFC. However, is is extremely unlikely the whole market will go to zero. Also most also won't have the balls to buy in at the bottom of the market.

  Diversified ETF strategy solves all these problems. Since you know equities as a whole always goes up over long term, you can confidently keep buying at any point in the cycle. You buy them like fruit and vegetables. Less when expensive and more when cheap. It also stops procrastination. When I used to try and pick stocks, I would spend weeks researching an individual stock but procrastinate on making the buy call because of fear. Then the price may have gone up and I missed the boat. Or I picked something else and the original stock I was looking at goes up and I curse myself.

  I found it truly liberating to admit to myself that I have no hope of beating the market with individual stock picks and just to buy the whole market(s) (which go up long term). Now my investment decision is so simple. Just transfer X portion of salary each month to broking account and buy ETFs according to my asset allocation strategy. No mucking about, no procrastination, no stressing about researching which company to buy, no worrying about a future GFC.

  • 

    Doggiie on 31/03/2016 - 10:09

    The whole reason why ETFs are considered safe in the long term is that you will only lose all your money if the industry or industries that the fund tracks collapses completely, which usually can only happen in a major disaster, and by that time you probably won't be living off money anymore.