How shuld I invest half a million?

Hi

I am another beginner here and wanted to know how you people (now experts … at least experts to me ..) would invest if you were in my seat.

I was feeling rather hesitant to ask for free advice from you people but Sim wrote me back that I can post such a message on this forum and people are free to share their experience.

I believe that I will get the tips and tricks based on hands on experience from this forum.

I read the LOE article and I decided to try it out.

Today I got a sanction for 350k of LOC on my home. And I went to ANZ for advice on investment. They further told me to gear another 200k (margin loan) and go into ANZ funds.

That adds up to more than half a million which is over and above my current IP loan of 350k.

These numbers are really scary to me but I am slowly gaining the courage to talk and handle these numbers (step one in the LOE article.)

The financial advisor at the bank has come up with few funds for me to invest. The estimated cost will be around 4% in the first year (0.5% for managing services, 2% entry fee and 1.5% ongoing cost) and 2% in every subsequent year. This amount looks high.

I am rather busy with my work and still treat all this financial engineering (my vocab is improving) as a hobby. So I am looking for a reasonably automated solution for investment. I am looking at a moderately agreesive strategy as there is no cash flow problem to me in the near future.

Thanks in advance for your comments.

By the way, I am here in Perth and could not contact Narva people.

Punter

Good post Punter, we like you are in a similar position having received advice to take out an LOC against PPOR and couple of IPs and then margin loan with numbers a bit bigger than what you are considering. We also find the numbers a little scary but are adjusting. Would appreciate thoughts on diversification. We have invested in the Navra retail fund for a couple of years but in a small way and have a lot of faith in Steve Navra and his investment philosophy. Considering investing much more seriously in the fund (Navra Retail) but would like to hear thoughts of others re diversification.
Moonbeamzz.

Some of my rules here:

Rule 1: never pay entry fees - there's no need. The only thing the advisor is going to do is fill out a few forms for you. That's not worth 2%!!!. I suggest you do it yourself through a discount provider who will rebate 100% of the initial investment - or else invest in wholesale funds where there is no upfront fee. Otherwise negotiate with your advisor - the fees are completely negotiable (down to zero !!).

Rule 2: 2% is high for fund management - although it is around the average for most retail funds. Consider wholesale funds, which generally have a lower management fee, although usually require a larger initial investment (Navra AUS Wholesale is $250K minimum).

Rule 3: Don't go to a bank for financial advice.

Rule 4: You get what you pay for. That includes personal effort (cost) - the more effort you put in yourself, the better your rewards will be. It's worth doing a bit of research yourself so that you can judge whether the advice you are being given is valuable or not.

Just my personal opinions

I have a lot of money in Navra AUS Wholesale. I expect it to return a decent income (I'm hoping for 10%+ annually, even in a poor market).

But I also want to capture some of the growth in foreign markets and other well performing sectors right now. Asia (especially China and Japan) are likely to do well in the next few years. Europe seems to be picking up a little. Resource stocks should continue to do well for a few more years. The Australian market is not likely to continue the high levels of return we've seen recently.

That's my thought - and it's just an opinion only ... I'm certainly no expert, and I am not offering advice - simply my thoughts.

I'm looking at roughly 50% of my fund portfolio in the Navra AUS funds and the other 50% split between some geography and sector specific funds (all wholesale only). Once I reach my investment targets, I might diversify a little more into listed (and perhaps a bit of unlisted) property - that's still a few years away though (hopefully in time for the next upswing).

Many advisors would suggest that's a little too agressive - would probably suggest 60 - 70% of my investments in Australia ... and over time I would probably move towards those kinds of figures. Biggest problem with foreign investments is the extra variable impacting on returns - currency.

Thanks for the reply Sim, you are up late. Our split is something of the order of 2/3 rds Navra Retail and 1/3 rd cash and other funds primarily Asia. Looking to use Navra dividends to balance up more toward a 50 50 split between Navra Retail and cash/Asia funds. Have an LVR of about 40% (according to our Margin Lender - Leveraged Equities) so guess we are conservative. However still get a tad nervous on occasion (understand your feelings Punter) with borrowings over the magical $1 mill which Steve Navra does allude to in his LOE articles. That figure seems to be a psychological barrier. Doesn't cause us to lose sleep at nights but do reflect occasionally on whether or not to be more diversified.
Moonbeamzz

Reading the various posts on this site frequently causes me to reflect on my own lack of knowledge (financial) compared to the insightful and informative comments made by many others, also makes me very shy to actually contribute. However that aside it does pose the question, why are there no unbiaised training packages out there for us 'mug punters' to educate people in financial knowledge. I know there are heaps of people out there willing to educate us while pushing their own product (I guess Steve is one of them). But for something which seems to consume a heap of our thoughtpower there seems to be little in the way of practical educational training. The Unis, TAFE colleges and business colleges don't, though they often are big on impractical theory. Sites such as this are extremely helpful but don't fill the gap I am referring to. Any thoughts anybody??
Moonbeamzz

I remember reading some statistics somewhere that the average LVR for margin loans in Australia is around 40% ... so while you might call yourself "conservative", you are also likely to be considered "about average"

What does that mean ? Dunno - just thought it was an interesting statistic!!!

I think it depends on your goals for the money. If you are happy to just get a relatively reliable return, I think Navra will suit you very well. The highly blue-chip nature of the shares they carefully select, along with a relatively stable Australian economy ... I can't see that you'd have many problems there ... we may see some negative years in relation to growth, but I'd hope to still see some level of income returned from the funds in that time.

However, if you are looking to grow your portfolio further and more aggressively, in perhaps a more tax effective manner (ie. less declared income each year), then some other funds might be worthwhile in addition to your Navra funds. This is why I'm diversifying a bit myself - I'm looking for higher growth than Navra gives me, while also maintaining a significant exposure to Navra for that "safety" in returns (no guarantees, but I'm expecting relatively consistent returns).

A 40% LVR gives you a lot of wriggle-room ... if things get tight (negative growth and less income than your margin costs), you've plenty of spare equity available to service the debt in the short term until things pick up again.

Again, please don't consider this advice - I don't know your personal circumstances and goals, and I'm not qualified to give advice anyway.

The biggest problem is that everybody is different. We all have different personal circumstances, different goals and aspirations, different tolerances for risk, different interests in various asset classes, and different ideas about what is the best way to invest.

I think it is virtually impossible to construct a single "roadmap" for how to invest ... there are some broad concepts that can work, but as soon as you start to get into any meaningful detail, there are too many variables to make it useful.

Over time, we hope to produce our own "roadmap" here at InvestEd, which will provide our own "general" view on what is one (of many) paths to building wealth through investment using the concepts of an optimised investment structure (ie. a combination of shares or funds, real estate, and cash, combined with a tax effective structure). It is by no means the only path, but it is one path which many of us are following (each in our own way). It will take us a while to articulate it fully, but we'll get there eventually (oh, how we wish there were more hours available in a day !!).

It can't really be seen as a "training package" - more of a suggested path to follow, if you so choose (or if you aren't sure where to begin and need some guidance to at least get you started). I work on the assumption that once people have a good feel for investing, which only comes through experience, then they will develop their own strategies, or their own variations on other people's strategies to suit their own needs.

Punter,

I recommend you look at some of the Listed Investment Companies or Exchange Traded Funds - basically both are investment companies/funds/trusts which invest in a range of areas. Usually they have no entry fees - you just pay for brokerage, have a very low ongoing management fee - as low as .2% compared to 2% and you can sell at anytime during trading hours and have funds in your account within 3 working days.

A good place to start is the ASX website and do a search on both of those terms (LIC or ETF). Ring a few brokers for their 2c as well

OSS

Dear Moonbeamzz,

Let's just confirm your situation.

1. You are taking out LOC on your home. What is the interest rate?

You may already be aware of this, but if LOC is around 7.5% you have to invest your money somewhere that is going to producee more than 7.5%(compounded, calculated daily).

2. What kind of investment do you want? Income based (more than 7.5%) so that you can pay off your interest and pay off undeductible debt? Or do you want capital growth only because you can afford to pay interest with your own pay and you don't want to pay tax on the growth? Or do you want a combination of both?

3. If you use tradingroom.com.au or smartinvesting.com.au you do not have to pay any entry fee for the managed funds. But they receive trailing commission. So you probably do not need to go through a financial adviser to pay for his commission. Just get the list of funds that he recommends and see whether it is offered by trandingroom or smartinvesting.

4. You should also note that managed funds that are heavily hedged have higher management fees but if the fund performs well it magnifies your returns.

5. Is buying an investment property an option for you?

Regards
hiflo