"You're too young"

I started investing about half a year after I turned 18. I'm now getting close to 20, I'm at uni fulltime and I work casually (average of 25 hours a week but can be as low as 15 or up to 35).

I feel I'm currently stagnant with my investing process, almost to the point where I'm becoming frustrated. My parents say I'm doing fine as I am, however I'm someone who always wants to do better, learn more, try something new.

I guess I'm just after a few suggestions of other things I could do as I'm quite new to the whole investing thing.

I work on an ITHelpdesk and it pays quite well, I have no debt, I live at home and my expenses consist of uni fees, books etc, fuel, rego, insurance for my car and about $50 a week to spend.

For the last year I've been investing $1250 a month into managed funds, this combined with the initial amount + growth has them currently worth just under $30 000. I also put an extra $350 aside each month which I used to buy into a new fund every few months, however I think 5 different funds is now diversified enough.

I could just keep doing what I'm doing, like my parents suggest to, however, I know I've started early and I realise I've got a great chance to buildup quite a substantial amount of capital before things such as a house, wife and kids come along I guess in a nutshell I want to ensure I'm making the most of my opportunity.

I have no work deductions, I earn about 35k - 40k a year in wages (obviously as a casual the amount will vary, but that is roughly correct). My work hours aren't stable enough to take out a margin loan, but someone has suggested gearing by installments and prepaying the interest. It has also been suggested that I'm 'too young' and not in a stable job for any type of loan. I agree with the job part, although it is reasonably secure, I hate the 'too young' part though LOL.

My goal is to generate enough capital to use it towards a house in 5 or so years time and then borrow to invest. I have about 7k sitting in a high interest bank account; this can be withdrawn at anytime.

Also, I have all the funds in my own name, should I be using a different trust structure? I read 'How to legally reduce your tax' but I posed more questions than answers for me. I realise there is an importance of getting it right now as it can be quite costly in the future to change. However, I also realise the rules change every year.

Any thoughts would be appreciated

 

I've had a credit card for about a year now (I got one when I started the Helpdesk job) and I put everything on it, my wallet only ever has $30 in it. I pay it off each month and it has no fees because I'm a student - what a way to get 55days interest free haha

What do you think about the installment margin loan? At this stage I couldn't purchase a property, however once I finish uni and get a fulltime job I'll look into it.

 

Meggsy,

You're net worth is $37 000 and you're 19 years old. I'm 29 and you're worth more than half of my friends. You're doing really really really well.

Keep doing what you're doing and you'll find when you finish uni, get a fulltime job etc your wealth will springboard further.

Just ensure you don't buy a sportscar or lose your way with expensive women!!

 

Haha... sports car - no - Dad is a self employed mobile mechanic, he made sure I got a nice little Toyota Corolla, few years old and cheap enough to buy without a loan but still well maintained. I'll tell you what, fuel is a killer though (even with the 10c/L that the QLD govt chips in). With the new Green Bridge in Brisbane I might go back to bussing to uni.

The girls will be something I'll have to watch though lol.

 

Of course you're too young!...Too young and foolish to listen to the nay-sayers and others who want to hold you back out of jealousy. You'll just go your merry way steadily and sensibly building your wealth...what a bummer!

Most Aussies are happy for people to get ahead...just not ahead of them.

Ditto Glebe's comments. You're doing well. Just keep on doing what you're doing and explore and critically examine the additional investing opportunities over time.

Cheers
N.

 

Meggsy:

That's a great story so far, nice work!

A couple of questions... Why do you want to wait 5 years for an IP? Is that when uni will finish? I'm definitely not alluding to an imminent property boom; just keep your mind open about buying an IP. It may be easier than you think.

Also, why so much cash sitting in the bank? A lot of people here seem to hold no cash even with a lot of property. Are you dollar cost averaging into funds with that money or just keeping it for a rainy day?

Lastly, to address your initial frustration with being stagnant... the short answer is: a) you need to start gearing, and/or b) you need to make more money. The only other way is to chase higher returns, but I think that will only lead to lots of risk and lots of tears.

 

I'm feeling quite encouraged, thank-you all The reason I found this site was trying to Google installment gearing. I went to the bank this afternoon to get an idea on what they could offer, it was super busy so I just picked up all the booklets I could get on investment loans etc and I'll have a read over the weekend.

Well I have 2.5 years left of uni, I wouldn't want to borrow a serious amount of money until I have a fulltime job. 5 years wasn't a set time, just a rough thought of when I might look into it seriously. I'd also be a little worried with tennants - maybe I've just been watching too much TodayTonight. I am however concious of the fact that property isn't going down in price... the earlier I can get in, the better.

No reason for cash in the bank, I put $1250 a month into my managed funds ($250 each fund) and so I like to keep 2 months worth as a buffer for that. I'm going to Alaska later this year, so I've got a bit kept out for that (family holiday, only my spending money). I'll have a few uni expenses soon with the start of semester too. I guess there is no 'real' reason I keep cash besides paying for those few things. I've done a fair few accounting subjects at uni, do you think 1:2 - short term debt:cash ratio is usually enought?


I came to the same conclusion and I currently can't see a way of making more money without investing more time, I already work around 25hours a week, 20 uni contact hours, 2 team sports + family and friends time. Looks like gearing is something to seriosly consider.

Chase higher returns... one word comes to mind right about now... Westpoint.

With gearing, are there any tips that you have? Things I should look into such as installment options vs lump sum, prepay interest, how much i.e. $1 for $1 or more/less? Does anyone else besides banks offer these services? If you gear via lump sum opposed to installments, does that mean you don't dollar cost average? With the stock market up so high currently I wouldn't want to stick it all in only for it to crash (my parents invested for the first time back in 2001 - 80k turned into something closer to 50k within a week, mind you they still own the funds and they have since doubled in value - time in the market not timing the market).

Anyway, thanks to everyone for your help so far

 

Your never too young to borrow money

There will be days you bleed with borrowed money, today is one of those days for me. Managed funds are a bit of a bet each way first you are betting on a rising market and secondly that the fund managers can make better choices than you can. Time in the market does cover for many short term timing errors. Funds and fund managers are good for diversification and as a learning base for the future. In an ideal world you would have funds that cover property localy and internationaly, Australian shares and international shares as well as cash/others. Residentual stuff you have to go and direct invest although there are hand holding services available for a price.

An investment in a good woman does pay off too

 

Just looking at a PDS, it says high risk, but I don't understand why. I can't see how you would ever lose all of your money with one.

For examle, I have the CFS MIF Geared Share Fund...

http://www.colonialfirststate.com.au/Prospects/FS1631.pdf

Top 10 Holdings Nov 30 2006
1 BHP Billiton Limited 10.11%
2 National Australia Bank Limited 5.60%
3 Commonwealth Bank of Australia 5.21%
4 Australia and New Zealand Banking Group Limited 4.62%
5 Westpac Banking Corporation 4.18%
6 Rio Tinto Limited 3.74%
7 Macquarie Bank Limited 3.45%
8 Brambles Limited 3.34%
9 AMP Limited 3.02%
10 Transurban Group Stapled Security 2.62%

I know large companies have gone bust in the past, Enron, HIH, OneTel etc etc, however, correct me if I'm wrong, but to lose your money in a fund, all of those companies would have to go bellyup along with the companies outside of the funds top 10 holdings?

If the market drops/crashes you only lose money if you pull out, and from the graphs I've seen the market has always eventually risen above the last high point.

I've been reading the other threads around here and I came accross one about Woolies shares and their mate was spending 25k on a car, I loved that story, as the author pointed out, that car is pretty high risk compared to the shares to me.

 

Don't get me started. My latest rule is to never again rent to two girls!

I assume by 'short term debt' you mean current debt - due within the year. In that case if you're part time, have somewhat unstable cash flows and not the best job security, maybe it's a good measure to hold on to a bit more - like you are.

Very cool. I was very close to going at the start of the year, but am now leaving it until April next year. I'm not sure if it's your cup of tea, but I want to plan my trip around doing the 12 day mountaineering course at AMS. I already talked the better half into doing it, so I just need to set a date and make some time. Suffice to say I'm jealous you're going this year!

The more the better!!! Only joking... of course. It's really going to depend on what you're willing to handle and your cash flow. You could go and gear to 70% tomorrow, the market could drop 30%, you'd get margin called, you may feel pressured to sell to stop your losses and then you'd have lost all of your equity and would be starting with $0.

Maybe my one tip would be to make sure your investments are diversified enough before you add gearing.

 

As Sim said, this is dangerous thinking. It makes about as much sense as dollar cost averaging and portfolio balancing. Dont make the mistake of holding onto a poorly performing asset to avoid crysalizing your losses.

 

The only debt I have is a credit card, which is always paid in full monthy. I also have the $1250 that goes into my funds monthly... which leads to my next question...

Are you suggesting dollar cost averaging is not always a good idea?

How do you mean? With the managed funds I have they suggest 5-7year timeframe, are you suggesting that if they had halved in value within two years you might look at selling them?

We are doing a boat cruise, which should be great. Also a few weeks around Canada in a car and San Fransisco... I can't wait to go to Alcatraz...

I did some calculations, and it seems I would only be about $25 000 better off after 5years of gearing at 50% once everything had been paid back. I assumed 15% returns and 9% interest. I'd contribute $1250, the bank would match me, total os $2500 a month. Does this sound right? Or have I calculated something wrong?

 

I would have to agree not to short term trade managed funds for profits. For a long term buy I would rather come in after a distribution than just before one but that is personal preferance.

I do like trying to pick the right spots for long term buys rather than just picking the right stock, buy enough right ones you can then pick a free one from CG if you are working on margin loans.

Dollar cost averaging is great for building up managed funds and while it works for shares I think value investing comes out in front it is a little harder to add an extra layer to your investment picks, it saves you cash up front that can be used for extra investments.

 

Thankyou for the detailed response, I really appreciate it. I don't really have enough experience to openly disagree with anyone, so I think I'll take it all on and make a decision based on what people have said when the time comes. Currently everything is doing well but it seems we could be at the end of the boom-bust cycle.

If you had $2500 to invest, would you do it now, or would you hold off until the market drops a bit?

 

A quick search on Morningstar reveals that it is about three times more likely that a fund will do below 0%pa return over 7 years than it is to do over 20%pa over 7 years. It was only a very basic search, but it puts it into perspective.

 

It does indeed put it into perspective.