New would love help with our investment plan

Hi,
This is my first post. I'm 31 and My husband is 35, we have 2 little kids.
I am at a point where I can't decide what to do.
We have our PPOR and 2 investment poperties and I am currently searching for our 3rd one. We have decided to use the Jan Somers approach of buying when we can afford to.
From reading these forum I realise we should be using our lazy dollars or equity in our properties to produce income and there fore we could expand our property portfolio more quickly.

We are trying to find a safe way to do this.
In the past our share market performance hasn't been to great. We will receive less then 10% in the last year so our Financial planner who was given funds to be aggressive with hasn't really performed as well as the market this was our money, not equity so we were less risk adverse.
I don't like playing the share market so would prefer to place most of it in a fund or LIC or LPT.
I gather we increase our loans and get our equity out. But I'm unsure where to place it.

We also are unlikely to get sued but we were wondering if we should get a trust set up or not.
Hubby earns all the money, i'm at home with the little ones. He is unlikely to be sued.


Any advice would be much appreciated,

Thank you
Caz

Hi Caz and welcome on board!

A couple of observations/questions:

1) there's no "should". Only you and your husband can decide what's an appropriate allocation of your money. Hopefully what this site can do (along with your other reading and research) is point out some different options for creating wealth that perhaps you hadn't thought of before.

2) What do you need at the moment to achieve your goals safely? By which I mean, for example, are your IPs heavily negatively geared so that you want some additional income to meet the holding costs? Or do you just want some extra cash to accelerate your wealth building/personal spending? Your immediate needs and long term goals should drive your investment decisions. By seeking to emulate the Somers model I don't think you can go far wrong!

3) Asset protection is just one benefit of trusts. The tax advantages of being able to stream income and in some cases defer tax are tremendous...particularly in your scenario with one working spouse and one spouse at home (but still working hard! ).

4) Do you have valid and up to date wills, powers of attorney and enduring guardian directives in place? In your situation with young kids a testamentary trust will is critical in my view.

5) Personal risk insurance - with hubby the sole breadwinner you should be insuring his ability to work and earn income to pay for the IPs!

6) All investing involves some degree of risk. You say you want safety...but really: a diversified mix of solid, blue chip companies with solid earnings, low gearing, geographically diverse and sound businesses are much safer than your IPs...particularly if you don't gear too heavily to buy those shares... It's a mindset shift I know...but think about it. Ignoring the gearing for a moment, would you rather have your IP or an equivalent value of shares in say woolworths or commonwealth bank?

Given you're inexperience with shares, investing through a managed fund, LIC or even buying exchange traded funds (ETFs) eg streettracks would be a sensible way to go. Also, bear in mind that with the market cracking new highs on a regular basis, it is perhaps not the right time to just dump a huge chunk of cash into the market!

One option may be to set up a regular drip feed into a fund or just regularly buy into an LIC or ETF over a few months to get a better feel for this type of investing. You could even combine that with regular gearing via a margin loan i.e. you put in $500 a month and the margin lender lends you $500 so there's twice the amount dribbling into the market...

In any event...just some food for thought.

ps. If you're not happy with your planner then see them, tell them, demand an explanation and decide whether or not to move.

Cheers
N.

Hi Caz,

I can't add much more than Nigel except to say that I'd also recommend that you look into trust structures as well. We're in the same situation as you (PPOR, 2 IPs, 2 small kids, one income, plus we have some managed funds as well) and we have a two trusts - although they cost a bit to set up and run if you plan to build significant wealth then they are certainly worth looking into.

As for the financial planner, I also agree with Nigel. If you don't have the time or inclination to research about the shares/funds then a good FP can be a great help. We use one for advice on our managed funds investments and have achieved around 15% - 20% over the last 2 years. Sure, some people can do better than that, but without the FP I wouldn't have had time to invest in the funds at all, so 20% is better than 0% in my books. And now that we've been in the game for a bit I have had a chance to learn a lot more, so I will start to rely less on the FP as time goes on (time will tell if I can do any better ).

John.

Hi Caz and welcome to InvestEd

Another excellent "food for thought" post by Nigel and I would reiterate his point about insurances, particularly when you have one working partner and no backup income source- vitally important for both your husband as main breadwinner and you as primary caregiver and mum (you should also be insured- don't underestimate the value of your worth here!! )

Another thought about "shoulds". Let them become well planned and formulated "musts" when it comes to plotting your financial future. Too many investors sit on the fence and believe they "should" be doing something but in reality do nothing or procrastinate to the point of becoming so disinclined and putting it all into the "too hard" basket..... they do nothing now and then regret later on. Don't be such an investor. Take charge now, learn as much as you can, and control your path.

Re: financial planners. Finding a good INDEPENDENT one who isn't simply relying on income streams/commissions from pushing particular funds and products onto you is not easy. It's for this reason that you won't find many FP's (unless they're receiving a fee/commission from developers) who recommend direct property investment. Most FP's are simply glorified funds salesmen, in my opinion . That isn't to say there aren't any who charge you for their time to develop a balanced plan that includes diversity across asset classes, but you will need to seek them out. However, ask for full disclosure of rebates/commissions etc upfront and try to seek out an FP who is going to assist with your individual situation by recommending a plan that both suits and benefits your style of investing. Everyone has differing levels of risk, after all.

Re: trust structures. These can be beneficial for the right situation, but I would ensure that you fully understand the ramifications of trusts before setting up one unneccessarily. Be aware, too, that property purchased in trust structures, in some states, is exempt from current land tax thresholds. For some great light reading on trusts try reading Dale Gatherum-Goss's excellent TRUST MAGIC series. See here for more details:

Trust Magic

Good luck with your decisions and remember to enjoy the journey