10 yrs to "do it" - what would you do?

[Olly]

Scenario
50 year old earning $50k/year with annual increases of approx 4%.
Owns PPOR - value $400k
Has 1 IP - value $175K - owes $70K
Super is 10% company contribution + 10% salary sacrifice
Current super balance - approx $50K
Some savings and shares and only a small credit card debt.

Assuming the experts are right - you need to own your own home, car etc. and have no debts and need $500k to retire on for an annual income of $33-35K.

How best to achieve that with the above scenario?

Ideas
1. Pay off IP quicker, move into that at retirement and sell PPOR which hopefully is worth $500k by then plus they'd have their super etc.
2. Buy new PPOR and rent out current PPOR and assess situation in 10 years.
3. Buy another IP and assess situation in 10 years. (Don't want to buy IP too far away. Living in western suburbs of Sydney.)
4. Rent somewhere while PPOR is knocked down and duplex built. Move back into one and rent out the other. Cost - approx $300K to finish for asset worth about $800K

Feelings
Don't feel that waiting for 12-18 months like the property experts suggest for things to change/become clearer is acceptable as it cuts time from the 10 year period to less than 8 to "make it".
Feelings of should be "doing something" right now - can't waste any more time.

Person has no dependants or baggage to worry about so is willing to move etc to make plan work.

Also toying with the idea of opening a business in an area they know well and have a loyal, knowledgeable person who'll follow them. All thought out and looks very successful on paper. Fear of failure at this stage of life is stopping them from following through. :o

In short - the name of the game is to "get there" or better within 10 years by building on what they've got already and doing whatever it takes.

Problem
They're not clever enough to work out the figures to see which is the best way to go or whether it's even attainable!! :mad:

The above is not a hypothetical situation - it's me! I'm in a period of indecision and I hate it. I'm just constantly aware that time is slipping by and I'm not doing anything about it. I've been a member of this forum for a while and read and read until my eyes have bled (read books, watched TV and listened to radio too!), but I know I don't have I still don't have the knowledge to make a confident decision. :(

Thoughts, suggestions and advice PLEASE! If I haven't given you enough info - just ask.

Thanks
Olly

[Aceyducey]

Olly,

I'd recommend you talk to Navra invest, Steve Navra's company - they have some fairly active strategies to get you to where you want to be.

Cheers,

Aceyducey

[Bill.L]

Hi Olly,

My thoughts on your dilemma come back to what you think the future holds. There are many people in your situation, reaching the age when the "retirement" looms large and how to pay for it larger. I am not as old as you (but not far behind :eek: ) my situation is also different.

Whatever you choose will come back to your thoughts on inflation, interest rates, growth rates of property/shares, government policy, oil reserves?, global warming? maybe others.

For me I feel that we could be approaching a round of inflation. This therefore means that borrowing money now to payoff deflated dollars later is a prudent approach. So in the situation you have outlined, if it was me then I would gear more heavily into property at the expense of the salary sacrifice into super. But thats just me.

What are your expectations for the next 10 years??


Acey, apart from sending Olly to a FP, What would YOU do in that situation and why??

[Thommo]

I would think the biggest risk would be to assume that what worked for the last ten years will work just as well in the next. It might but the odds are agin it.

Running a business can be rewarding and it can be organised so that there is no "gold watch" day. Can you tell us a little about that opportunity?

Thommo.

[Garry K]

Hi Olly,

I always like to start with the end in mind.

Lets assume you want income of $35K (todays dollars). Index that by 3% pa for 10 years = $47K. Assume investments earn 7%(growth and income).

Based on you having investments worth $155 (super $50 , Ip equity $105), and saving $20K pa for 10 years (super $20K -15% tax = $17,000, plus $3,000 own savings), at age 60 you'd have about $370K.
If you start drawing your $47K then, your capital will run out around age 69.

If you had $350 K now working for your capital would last until around age 80.

(this is just a "big picture" estimate, see your own adviser first)

So, I guess that's saying, you need to take action. How much risk you are prepared to accept will depend on what outcome you want.


GarryK

[Olly]

Running a business can be rewarding and it can be organised so that there is no "gold watch" day. Can you tell us a little about that opportunity? Thommo.

It's a product I know well and have been involved in for a number of years. I'd be a re-seller so only minor stock holdings (accessories and display stands). It's not seasonal although does sell more in warmer months. I've done a business plan, have my suppliers and costs sorted, insurances, advertising, logo, stationary, shop layout and colours planned etc. - everything has been thought of - I've even got a website ready to go! And I can do it all for less than $20,000. But, even after all that I can't help thinking "what if no customers come in and buy anything - what do I do then?" I'll be $20,000 poorer, unemployed, and will I be able to find a job so easily again? I'm also afraid for the loyal person who'll come into this business with me. He's young enough to get going again, but I wouldn't have wanted to bugger him up in the first place.

The thing too is that I actually like my job and want to stay here. It's just I can't see it giving me the retirement $$$'s I need, so I need to look elsewhere and that's where I'm undecided on which way to go.

Do I stay in my job and look at property etc to make money for me and if that's the case how best to go about it, or do I take a make it or break it chance with a business?

Thanks to those you've answered so far. I know it's my decision ultimately but I reall appreciate your thoughts or a completely different tack altogether!! I'm just in one of those places where I can't seem to focus and maybe one of you will say something that just makes perfect sense where I can just say "of course!! why didn't I see/think of that!!" Here's hoping anyway. :)

Cheers
Olly

[WillG]

Hi Olly,

$500k to retire on ($33k per year untill the age of 75).
Save $20k per year for the next 10 years: $200k

If you sold your PPOR and moved into a smaller PPOR worth say $300k you could pocket another $100k in your retirement account.

You will now need to generate $200k(cash) in 10 years to retire. ($20k after tax per year for the next 10 years)

Drop $70k (of the $100k) into an offset account linked to your IP to generate a cashflow of 5 - 10k per year (dependant on rent and expenses.Note - This is taxable at your marginal rate). You can then look for IP2 using the remaining $30k as a deposit. After the first year you will have another $20k savings to drop into an offset account to make IP2 cash flow positive (fingers crossed).

The IP cashflows may give you $50k - $100k in 10 years leaving you with $350 - $400k (depending on the rent you can generate), and 2 IP's that that have doubled in value. You could then have the option of managing the properties yourself to cut down on expenses or sell 1 IP to pay off the other IP and give you the extra $100k.

Note: These numbers are rough and I have made a lot of assumptions

This approach keeps your savings working for you 'tax free - due to the offset account and gives you flexibility if a 'bargain' comes up in the next 10 years. I believe it is low risk if the second IP is selected well and you do the maintenance and maximise rent where possible.

In 10 years IP1 will be worth ($175k * 2) = $350k
Assume gross yield of 4% = Gross rent of $14k
Expenses @ 25% of Gross rent = $3500 per year
Leaves $10, 500 per year
Thus you will only have to use $23k of your savings per year to make up the $33k per year to live on. This means your savings will run out at age 80.


How does this sound to you ?

[Aceyducey]

Acey, apart from sending Olly to a FP, What would YOU do in that situation and why??
Bill,

I realise how ironic it is for me to be recommending a financial planner :)

However I don't feel fully qualified to offer Olly financial advise in this situation.

I know what I'd do - but I doubt it would match what Olly is prepared to do.

But as you asked....

Kill the salary sacrifice & invest that money in higher yield assets. Property is one, selected shares would be good as well.

The crucial thing is to gear into the assets as soon as possible to permit the longest possible period to let that cumulative growth occur.

Yes property is likely to be depressed in the next 3-5 years - maybe longer - but in a ten year outlook well selected property should do very well. Poorly selected will not appreciate much.

If a deposit is an issue (which it shouldn't be with the equity Olly has), put that 10% of salary each month into shares....repeat each month.

Join an investor club to do this or keep it in safe steady divident producing stocks for a few years until you have an idea about how the market behaves.

Cheers,

Aceyducey

[Garry K]

Hi Olly,

Thus you will only have to use $23k of your savings per year to make up the $33k per year to live on. This means your savings will run out at age 80.



Will

Does this mean he lives on $33k per year until age 80?

I ask because $33k in 10 year plus another 20 years to age 80, wont buy you much.

GarryK

[Garry K]

Kill the salary sacrifice & invest that money in higher yield assets. Property is one, selected shares would be good as well.

Aceyducey

Hi Acey

I'm wondering why you would do this.
Based on his salary of $50K, his MTR is 30%.
Super contributions tax is 15%, and income tax in the super fund will only be as high as 15%, again less than his MTR. Don't forget the benefit of the 15% tax rebate on super income stream too.

And, nothing to stop him having an agressive share fund in the super fund eg small companies fund etc.

GarryK

[Aceyducey]

Garry,

I'm not a big fan of super & I'm more interested in asset appreciation than tax minimisation.

Super is fine over a 40 year window....but for Olly to get to the level of super she requires for retirement in 10 years she'd have to sacrifice significantly more of her salary.

Thus as super is highly unlikely to allow her to reach her income target given the level of sacrifice she can make, she needs to consider alternate investment approaches.

Cheers,

Aceyducey

[WillG]

Hi Garry,

Agreed - $33k is not a lot of money. The rental component will continue to grow and the cash component is not taxed. This amount of money is effectively $50k(I'm not sure of the exact amount) in pre tax dollars.

If the remaining cash component is put to work during the retirement years it will compound. For example ...

$500k - $23k(first year in retirement expenses) = $477k

$477k at 5% interest = $23, 850.

Theoretically, the bank balance wouldn't decrease after the first year as long as 5% interest was paid (The interest would be taxable)

There are many ways to generate income besides pure rental income !

[Garry K]

Garry,

Thus as super is highly unlikely to allow her to reach her income target given the level of sacrifice she can make, she needs to consider alternate investment approaches.

Cheers,

Aceyducey

Happy enough with that explanation.

I asked the question orginally as it seems many people still think Superannuation is an investment, when its not. As you pointed out, it's a tax structure.
Doesn't stop you from investing in a whole range of assets, including direct shares etc.

GarryK

[ani]

Olly

Have faith in your business idea - you know the market and it sounds like you have thoroughly researched it.

Is it possible for you to retain your current job for 6 mths to a year while your business builds? Can the loyal knowledgable person cope with most of the day to day stuff and you do the rest after hours and weekends?

This would overcome your fear of failure mind set:)

cheers
ani

[superted]

I dont wont to offend anyone..but why is it the Australian way to look forward to 60-65 and retirement???

Why not keep powering along hopefully doing things you really want to do and at a bit slower pace. You can do this if your the boss and it will lengthen your timeframe to really want to retire.

Ive seen so many people get to retirement and then drop off the pirch a few yrs later (boredom dunno??) mostly wage earners not self employed. Also a lot of people when they get old tend to not need the big house (downsize), gadgets and eat as much etc. Whilst there costs are smaller their medical can be huge (so work on staying healthy as well).

As with Ani If the business model is good why not give it a go. The satisfaction from this is a lot better from this then working for someone. Plus the tax advantages.

Not moving forward based on fear of failure shouldnt be on the cards really be it 50 or 25.

[Thommo]

I dont wont to offend anyone..but why is it the Australian way to look forward to 60-65 and retirement???

Why not keep powering along hopefully doing things you really want to do. You can do this if your the boss and it will lenghten your timeframe to really want to retire.

This is what I meant by "no gold watch day".

A fit, healthy 30-40ish guy/gal finds work a terrible distraction from golf/fishing/partying etc but an overweight 60's grand parent (I won't even mention the blood pressure and diabeties) can find a great deal of satisfaction in simply being useful and being a granny.

IMHO, of course.

Thommo

[Aceyducey]

SuperTed,

It does get down to how you think about retirement :)

It doesn't necessarily mean stopping.....

Cheers,

Aceyducey

[handyandy]

Hi Olly

I am with Ani here and say give the business a go. particularly if you can do it on a part time basis until somewhat established.

You mention a cost of $20k but that just seems to be set up costs what about running expenses for a period of time. These cost would be rent, you and your partners living expenses and any other expenses until the business is properly established.

As far as your retirement plans are concerned if the business has as good a potential as you indicate than all the good things will follow as a result of the business cash flows.

Maybe to help make up your mind go along to the cash flow game this Saturday the game has certainly helped me see things a little clearer in the past.

Cheers

[Aceyducey]

Olly,

Can you start your business part-time?

And how easy would it be for you to find another job?

Cheers,

Aceyducey

[geoffw]

I dont wont to offend anyone..but why is it the Australian way to look forward to 60-65 and retirement???Probably because 98% of Australians can't afford to retire before then- and are not allowed to work after then.
As with Ani If the business model is good why not give it a go. The satisfaction from this is a lot better from this then working for someone. Plus the tax advantages.Business for many (myself included) is a fear of the unknown. I've heard to many stories of failed businesses, or people working 18 hours a day for years on end, to be confident of doing well in a business. (Yes, limited by my own fears). Though some good equity now gives me the glimmer that perhaps I can do something, and all I have to lose is a lower paper net worth.

[Bill.L]

Hi all,

Olly, despite all the benifits of going into business for yourself, be very wary of going into a partnership with the "loyal young follower". Business partnerships have a tendancy to deterioate over time, through differences of opinion.

bye

[see_change]

Probably because 98% of Australians can't afford to retire before then- and are not allowed to work after then.


Geoff, not necessarily true re not not being able to work.

My Dad is approaching 80 . I attended a farewell dinner for him at his work about 4 months ago , and they still havn't got him out of the place yet :).

They brought in Age discrimination legislation many years ago , ( just prior to his 65th birthday )

See Change

[see_change]

Alternative suggestion

Spend the next years working out how to make money ( conservatively ) on the share market , so when the property market kicks in you have a bigger pot to play with .

See Change

[thefirstbruce]

Olly, you must not go into small business without being 110% you are on a sure thing. Remember, most fail.

Have you factored in wages, income protection insurance, other insurances? What will you do if your young partner gets disillusioned, due to their lack of experience.

If it is retail, have you factored in the cyclical nature of retail, and that Australia is up to its eyeballs in debt, and an economic downturn is due within the next 5 years. Discretionary spending will be hit hardest.

Go and talk to a few people in your industry and find out how well they are doing now, and how many hours they work. Most small business people in retail work very long hours, and the hourly rate comes no where near a paid salary.

If you do not understand the risks you are undertaking, and have doubts whether customers will come to your shop, then your business plan needs more research to back it up.

Starting a small business is a risk to achieve a reward. You are gambling on the market wanting what you think it wants. You want to have a serious look at what you are risking (opportunity costs, dollars, health) to achieve what sort of reward. You have to be objective about this. Go and talk to a good entrepreneurial accountant or business coach or other successful small business people to get their views. You have to believe in what you are doing 110%. If haven't worked in retail before, then have you got the right personality for it? Do you have a database of customers already? Are you aware of how much advertising a start up business costs? And how long it takes to break even?

risky stuff. ensure you know what the risks are before, not after. measure twice, cut once......

[McKlusky]

Olly, you must not go into small business without being 110% you are on a sure thing. Remember, most fail.

Have you factored in wages, income protection insurance, other insurances? What will you do if your young partner gets disillusioned, due to their lack of experience.

If it is retail, have you factored in the cyclical nature of retail, and that Australia is up to its eyeballs in debt, and an economic downturn is due within the next 5 years. Discretionary spending will be hit hardest.

Go and talk to a few people in your industry and find out how well they are doing now, and how many hours they work. Most small business people in retail work very long hours, and the hourly rate comes no where near a paid salary.

If you do not understand the risks you are undertaking, and have doubts whether customers will come to your shop, then your business plan needs more research to back it up.

Starting a small business is a risk to achieve a reward. You are gambling on the market wanting what you think it wants. You want to have a serious look at what you are risking (opportunity costs, dollars, health) to achieve what sort of reward. You have to be objective about this. Go and talk to a good entrepreneurial accountant or business coach or other successful small business people to get their views. You have to believe in what you are doing 110%. If haven't worked in retail before, then have you got the right personality for it? Do you have a database of customers already? Are you aware of how much advertising a start up business costs? And how long it takes to break even?

risky stuff. ensure you know what the risks are before, not after. measure twice, cut once......

I disagree with this. How can you be 110% sure you are on a winner with your business. No one ever is. There is risk in every buisness/investing undertaking, your job is to minimise the risk. If the majority of people had views like thefirstbruce we would still be living in the dark ages. There is no such thing as success without risk. Wether you give it a go or not is entirely up to you. If you believe in your business model (and it sounds like you do) its important to have a good marketing strategy, (the reason most businesses fail) you can employ a marketing firm cheaply these days. ($2-5k) but as with everything you get what you pay for. This will be the major factor that determines wether your business succeeds or not. Taking for granted that its a good business to start with.

There is some good advice on this thread and some not so good but whatever you do, make sure you are in a position to buy property the next time the cyclic property market comes around again. Make sure you can buy as much neutral/positive geared property with good prospect for quick growth (similar to the previous 5-6 years) as you can borrow/beg/steal. If you do it right you will make so much money you will forget about relying on your super fund.

So i would educate myself and study the market in the years leading up to then and be ready to buy when the time is right. Be ruthless with the property you buy and set a tough criteria that will meet the above and you wont fail. You could even start now by studying trends in capital growth and rental yields over the last 5 or 10 years in markets anywhere in Australia. At least this might give you a short list.

Hopefully that time will be around 3-5 years when yields are better than today and the market settles.

Good luck with whatever you decide.

[abcdiamond]

Olly, despite all the benifits of going into business for yourself, be very wary of going into a partnership with the "loyal young follower". Business partnerships have a tendancy to deterioate over time, through differences of opinion.

Olly, you must not go into small business without being 110% you are on a sure thing. Remember, most fail.


These two quotes got my attention, having been in business by myself, and with partners!

BillL is not wrong with his warning. Avoid partnerships if at all possible.

And as for being 110% sure, you need to be absolutely sure of what you are doing.
However, being sure isn't a guarantee of it working, but if you are doubtful in the first place then you are more likely to be in the "Failed" category in the end.

[Olly]

Thanks everyone for the replies. You've certainly given me food for thought.

Just to clear a couple of points - the person who will come in with me is very experienced and will work FOR me not as a partner. He's very competent and trustworthy - I headhunted him from another company where I worked with him before. I've given him the leg up no-one would ever have given him into the job he has now because I recognised his potential. He even moved to Sydney to take the job. He's gone from strength to strength. He trusts me and I now have his loyalty and he will follow me into my business if that's the way I go. I will, unfortunately be robbing my current employer of their most experienced staff in this area. And as I said I actually like my job and who I work for and don't want to 'hurt' them either. Bit of a moral dilemma there, I know if I go the business idea. They actually deal in the product I'd be dealing with in my business, so I see on a daily basis the potential I would have. I know the fluctuations of the market and it's a product that's needed all year round with no market forces to effect it e.g. drought effects swimming pool companies, downturn in property effects real estate agencies or the building industry etc.

I've also thought of ways of opening the business part time (it can't be part time) or some other way while I hang onto my job, but it can't be done. Anyway, lots to think about but I won't rush in.

I do have a question though -
why is it recommended to put your money in shares (managed funds I presume) over super, if your super is put into 100% growth (predominately shares). And isn't super treated more favourably at retirement time in regards to fees and charges if you roll it into a pension fund than managed funds? What am I missing here? Isn't it much of a muchness?

Olly
Sigh.........
So much to learn - so little time. :(

[Aceyducey]

Olly,

Many employers have something in their contracts about if you leave you can't take other staff with them.

Check your legals or you could be sued by your employer for taking someone with you (and because you'll be competing with them!!!)

Cheers,

Aceyducey

[handyandy]

I do have a question though -
why is it recommended to put your money in shares (managed funds I presume) over super, if your super is put into 100% growth (predominately shares). And isn't super treated more favourably at retirement time in regards to fees and charges if you roll it into a pension fund than managed funds? What am I missing here? Isn't it much of a muchness?


Hi Olly

Might I suggest control is the issue. With your own directed investments you are in control as against super where the Government pulls the strings

The only reason I am involved in super is because there is a slight tax advantage and for me is just another way of diversifying my investments but otherwise I wouldn't have bothered.

Cheers

[geoffw]

I've got money in super, but only because I have to.

I have an SMSF, which gives me control- but for a fund which had 5 transactions in the prfevious FY, it cost me $1200 in accounting and compliance fees.

[Olly]

Olly,

Many employers have something in their contracts about if you leave you can't take other staff with them.

Check your legals or you could be sued by your employer for taking someone with you (and because you'll be competing with them!!!)

Cheers,

Aceyducey

Thanks Acey, but no problems there.

Cheers
Olly

[thefirstbruce]

Super companies and managed funds invest in the stock market conservatively, and when you subtract their fees, they rarely do much better then market indices.

With a moderate understanding of the stock market, an individual investor more often than not does better than the managed funds and super funds.

The stronger returns of funds in the last 18 months are due to them riding a bull market. The value added by the fund managers (post fees) is historically minimal. Funds perform poorly in choppy and bear markets, and we are coming off a bull run now.



McKlusky wrote "If the majority of people had views like thefirstbruce we would still be living in the dark ages."

I would reinforce my earlier point that most businesses fail, and leave people in a worse state, many on welfare with compromised health, broken marriages, and less opportunity for their children. Business is more competitive and regulated and complicated now then ever before, and requires more hours per week. Consumer habits are different, retailing is less cottage industry and more centralized. 50 years ago just about anyone could hang a shingle up and sell something and make a living. It isn't that easy anymore, and anyone who downplays how hard it is has a blinkered perspective.

Olly, keep in mind that if you go up against your competitors and your current boss, that they may have deeper pockets, or access to greater credit than you. They may engage you in a price war, and kill your margins long enough to break you. Just make sure you have your eyes open. That's all I am saying.

BTW, my experience is that I am in small business myself and am a silent partner in two businesses.

[Aceyducey]

McKlusky wrote "If the majority of people had views like thefirstbruce we would still be living in the dark ages."Historically the dark ages were a very good time for small business. It was the industrial revolution that brought about the decline of the cottage industry, and the information revolution that has brought about a resurgence.

Olly, I suggest you head over to AskSim's Australian Small Business Forum (http://business.asksim.com/forums/).

It's still lightly populated but over there we can have serious discussions about business matters separate from property ones. Helps keep the focus pure so to speak.

There's a side area that I've been thinking about and that is - can you do any kind of deal with your current employer such that rather than competing with them you license from them or sell to them.

Relationships like this can really help in getting started & keep the doors open for a return if things don't work out.

Another thing to bear in mind is what will you do with your business in ten years when you retire? Is it likely to be a business you sell (perhaps to your potential employee or former employer), will it be wound up, will you put in a manager?

Exit strategies are important...it is possible to get stuck with a business you can't sell & thus all the goodwill you've built up is pretty much worthless.

Cheers,

Aceyducey

[Thommo]

Super companies and managed funds invest in the stock market conservatively, and when you subtract their fees, they rarely do much better then market indices.

With a moderate understanding of the stock market, an individual investor more often than not does better than the managed funds and super funds.

The stronger returns of funds in the last 18 months are due to them riding a bull market. The value added by the fund managers (post fees) is historically minimal. Funds perform poorly in choppy and bear markets, and we are coming off a bull run now.
So far so good!


McKlusky wrote "If the majority of people had views like thefirstbruce we would still be living in the dark ages."

I would reinforce my earlier point that most businesses fail, and leave people in a worse state, many on welfare with compromised health, broken marriages, and less opportunity for their children. Business is more competitive and regulated and complicated now then ever before, and requires more hours per week. Consumer habits are different, retailing is less cottage industry and more centralized. 50 years ago just about anyone could hang a shingle up and sell something and make a living. It isn't that easy anymore, and anyone who downplays how hard it is has a blinkered perspective.

Olly, keep in mind that if you go up against your competitors and your current boss, that they may have deeper pockets, or access to greater credit than you. They may engage you in a price war, and kill your margins long enough to break you. Just make sure you have your eyes open. That's all I am saying.

BTW, my experience is that I am in small business myself and am a silent partner in two businesses.
Here B1 and I diverge a little.

His assertion that "Consumer habits are different, retailing is less cottage industry and more centralized. 50 years ago just about anyone could hang a shingle up and sell something and make a living." is correct but the market place is swings and roundabouts. When I was young a bright young lad did indeed hang up his shingle and ply his trade. Easy! Today, without ten pieces of paper and a quarter mil's worth of envo-friendly equip he can't do it. Besides, it's a throwaway society and many tradesmen have been displaced.(Me!)

But another door has opened. Big Biz no longer wants to retail anything. (Excepting the specialist retailers)They don't even LIKE their retail customers! (eg.Try buying a phone direct from Telstra.) They abhor paying wages to service the end user and will gladly allow a third-party between them and the user to do the work and cop the flack. I compete directly with Coke (They don't like it however) and can match them on price and leave them for dead on service.

It seems Olly's venture could be like this. It could explain why he has not mentioned concern of a heavy-handed reaction.

I do not know enough to say "Go for it" but I do know you can't drive watching the rear vision mirror. Money will be made in the next decade in ways which will surprise many (any?) who remember this conversation in 10yrs time. Something else will replace houses as the primary barbeque/cocktail party topic of preference and as the way to wealth. Acey might even devise another poll, he's better at these things than I.

Thommo

[McKlusky]

thefirstbruce,

Firstly, some funds can be very aggresive investors, it just depends what the customer wants. They range from the ultra conservative to the really agressive, investing in biotech or hitech start ups.Thats risky but can be very rewarding.

My particular super fund allows me to invest 60% of my fund in shares of my choice, within ASX 200 which i havnt taken up as i have my own share portfolio.

Now to your view on business,

Statistics as always lie and that much bandied about cliche that 80% of businesses fail is a statistical lie. Why?

Because it includes businesses that are registered and never acted upon. It includes Joe the local lawn mower that registers a business name and mows lawns for one month then gets sick of it. It includes Mrs Jones down the road who makes cakes or pies and decides to register a business name to sell them and then if the business name is not renewed in 3 years, it is considered 'out of business'. It costs only $126 and about 10 minutes to register a business name in NSW so its very easy to register a a name and not act on it or let it lapse.

Like everything, business is not difficult if you know what you are doing. Just like property, to most members here buying a good IP is as easy as making breakfast in the morning. But to a large percentage of the population its a very difficult, secretive black science and way tooooo risky. Which of course it isnt........if you know the ropes, just like business.

Its like you know the ingredients to make a good investment property portfolio
(correct structure, flexible cheap finance, well positioned property bought at a good price with a good yield, good management and tenant, insurances...etc) and you put them together to succeed, absolutely no different to business. Only, you have to know what you are doing and education minimises the risk.

Its only as hard as you make out if you dont know how to put together the ingredients for business success. Some people are able to succeed at every business venture they enter, because they know exactly what they are doing and know the risks and how to minimise them.

Instead of me stating that you dont have a clue about business and questioning your post in that context, i would like to ask you to state your experience in business and why you are so negative about it.

Your comment that competitors will start a price war to force Olly out of business is ludicrous! Do you think they dont have bigger and more important competitors than the latest one (or two) man band start up. If they reduce their margins to compete with Olly and take their eye off their real competition they might gain market share but still go broke so it just doesnt work like that. Not at this level anyway. You make it sound so melodramatic.

They are used to competing for market share and thats just part of business.


Acey,

Two points here. One is that every business venture should be started with 2 goals in mind. Number one is of course the income from the business and number two is creating an assett to sell down the road (5-10 years), in fact number two being the main priority and is where the real money in business is made. Experienced business people start a business with just this in mind. Not doing this is really just being self employed and no different to having a job.

Two is that no business needs to enter cosy agreements with competitors. If a business cannot stand on its own feet and compete in its chosen space it doesnt deserve to be there in the first place, has problems and obviously is a flawed business model.

ps: Thanks for your apology and i dont want this thread to turn into another
flame war. Hopefully i can hang around for a while and contribute to the forum.

[Garry K]

Super companies and managed funds invest in the stock market conservatively, and when you subtract their fees, they rarely do much better then market indices.

With a moderate understanding of the stock market, an individual investor more often than not does better than the managed funds and super funds.

The stronger returns of funds in the last 18 months are due to them riding a bull market. The value added by the fund managers (post fees) is historically minimal. Funds perform poorly in choppy and bear markets, and we are coming off a bull run now.



.


Hi Bruce

Only partly true.

By investing "conservatively", I gather you mean they only invest in the, say the ASX 300, which is correct for many funds.

If you want more agressive managed/super funds - look for a small company fund. The ASX Small Ordinaries Index for 12 months to 31/5/04 return was 28.8%. I can quote you funds that returned 35%, 48% 50% 37% for that period.

GarryK

[Thommo]

Hi Bruce

Only partly true.

By investing "conservatively", I gather you mean they only invest in the, say the ASX 300, which is correct for many funds.

If you want more agressive managed/super funds - look for a small company fund. The ASX Small Ordinaries Index for 12 months to 31/5/04 return was 28.8%. I can quote you funds that returned 35%, 48% 50% 37% for that period.

GarryK
The problem here is that the ASX is dominated by a few big players. The ASX50 is half the worth of ALL the All Ords. Because people only speak of price/share it may look as if NAB is only 6 times bigger than a mid-cap with a $5 share price. Not true. I just looked at Tabcorp Holdings, in the top 50 but only comprising 1% of the Top50 index ie 10% of NAB.

If super funds shifted 1% extra into small caps there would be one mighty boom/bust. That area is best left to specialist funds and us amateurs who think we're pretty smart. ;)

The other side of the small cap's coin is that they will get cut to shreads in any broad retreat. By all means diversify but don't put more than 10% of your investment in this market.

Off topic I know, but do you know that the total value of all the gold miners in the world does not equal that of The Coca Cola Co.? I shudder to think how small the capitalization of specialist silver miners must be yet we have almost run out of above ground silver.

Thommo

[Garry K]

Hi Bruce

Agree with all you said.. :)

I just wanted to point out that not all super/managed investements are "conservatively invested".

GarryK

[thefirstbruce]

McK, you misrepresent what I have said earlier, then come out with gems like "business is not difficult if you know what you are doing", and state that that oft overlooked death trap for new start ups is 'ludicrous'. McK, does your business experience include advice to the string of busted domestic airlines that took on Ansett and Qantas over the last 15 years? I'll take Superted's signature advice in regards to your last post.

Re my business experience, that includes:
- working in advertising with Leo Burnett, USP Needham, and Schofield Sherbon Baker in Australia and the USA.
- area manager for Mobil in Sydney, responsible for optimsing the profitability of 37 service stations on the north shore and inner to middle western suburbs, and repping to Ford, Hasting Deering, and many small businesses.
- feasibility studies for and silent partner in an earthworks company, and a property dev't company which grew $300 million of projects within the last 2.5 years.
- I also run a physiotherapy practise part time now.



Garry, I'll just reiterate what I said earlier that the value added by funds managers is historically minimal, if you take history to mean more than the past 18 months. I didn't make this up. The AFR have had several articles recently exposing the dubious funds industry. Do the pro funds lobby here want to submit which funds are going to do better than the indices over the next 18 months?

[Garry K]

Garry, I'll just reiterate what I said earlier that the value added by funds managers is historically minimal, if you take history to mean more than the past 18 months. I didn't make this up. The AFR have had several articles recently exposing the dubious funds industry. Do the pro funds lobby here want to submit which funds are going to do better than the indices over the next 18 months?

Hi Bruce

I don't recall arguing that point? :confused:
In fact, for many fund managers it's true. And for the record, I reckon most of them are way overpaid.

Again I will say, my point was that there are other investments (read "asset classes") that are not "conservatively invested" in managed funds/super.
And for some people, it is a reasonable alternative.
It is very easy for experienced people, such as you have just chronicled you are, to say to everyone else - do it my way, it's better.

If managed funds are not a reasonable alternative, then market forces will prevail, and I guess everyone will soon take there money out. :)

GarryK

[Lily House]

Hi Olly,

To go back to a question you asked earlier about buying shares yourself versus buying them through super:

The reason for some is because your super is inacessable until a certain age. I am 35 and cannot touch my Super until I am 60. Probably by the time I am closer to this age, the rules won't allow me to touch it until I am 65. I don't want to wait this long to retire - hence the need to invest outside of super.

For those aged in their 50's now, this is not such an issue - as far as I know most can access their super at 55.

Good luck with your decision - it is a big one.

Lily

[Olly]

I can't answer/explain a lot of what has been bought up here because I'd have to divulge some of my employers business which of course I can't do, but I can say they deal in millions and I won't be, so won't be any threat to them. They will actually be one of my suppliers and there are opportunites in the future I could be actually involved in WITH them.

As for 10 years down the track - who knows? Hopefully, I'd have a couple more outlets and just oversee them. Maybe have my kids/grandkids work in it and take over? Maybe sell to my offsider? Franchise the outlets? Maybe just sell it? Maybe not be able to sell it and not give a hoot if it had already got me where I wanted!

Acey,
Joined Sims business forum but just couldn't wait for the member numbers to get up to put this out there, and 'cos it involved property investing I threw it in here.

It's certainly ended up a lively debate! :eek:

Cheers and thanks again everyone.
Olly

[jahn]

Hi
Good topic.
McKlusky
Don't know much about the share scene (unfortunately), but I've been in businesses, mainly retail, for nearly 40 years. In one of the larger Australian companies that I worked in, over the years, there was quite a number of small businesses driven out of business. OK I was younger and very naive at the time, and I do not agree to the blatant abuse of big power dominating small business, but let me assure you , it does happen.
jahn

[Thommo]

Hi
Good topic.
McKlusky
Don't know much about the share scene (unfortunately), but I've been in businesses, mainly retail, for nearly 40 years. In one of the larger Australian companies that I worked in, over the years, there was quite a number of small businesses driven out of business. OK I was younger and very naive at the time, and I do not agree to the blatant abuse of big power dominating small business, but let me assure you , it does happen.
jahn
But Jahn, the big companies now have bean-counters deciding "interest" not founders. They are lackys, advised by lackys, and all want to go home at night. So if I can present a case to a national to "relieve" them of the burden of servicing retail customers and allow them to concentrate on their core business of manufacturing(?) I suspect they will listen. Note that selling off fringe interests and concentrating on said core interests is mandatory in big biz today.

Thommo

[thefirstbruce]

Note that selling off fringe interests and concentrating on said core interests is mandatory in big biz today.
Thommo

Thommo, my view is that focusing on core business tends to happen more in recessions, just as does centralization of decision making within a company.

In good times, many businesses look to diversify. Two examples:

1. Telstra looking for something to do with their wads of cash (apart from giving it to shareholders via buybacks) by getting into the internet in a big way via Sensis- buying the Trading Post, developing a real estate listing website (www.justlisted.com.au). The upside on both these is enormous. Good investments IMHO.

2. Richard Pratt's Visy, a hard core manufacturer. His company has successfully diversified for over 15 years.

[Thommo]

1. Telstra looking for something to do with their wads of cash (apart from giving it to shareholders via buybacks) by getting into the internet in a big way via Sensis- buying the Trading Post, developing a real estate listing website (www.justlisted.com.au). The upside on both these is enormous. Good investments IMHO.

On the other hand have you tried to buy a phone from Telstra? They would rather the plebs go to a booth in a shopping centre run by a third party, than to deal direct. Years ago there was good money made by these third party operators.

Thommo

[thefirstbruce]

On the other hand have you tried to buy a phone from Telstra? They would rather the plebs go to a booth in a shopping centre run by a third party, than to deal direct. Years ago there was good money made by these third party operators.

Thommo

I agree that for as long as I can remember, Telstra have not understood good service... hopefully, they'll do better at e-commerce. but then their own website has been a tangle of spaghetti for yonks. I often wonder where Telstra get their management from. I am inclined to believe they promote their technical people into marketing management.

[Aceyducey]

I often wonder where Telstra get their management from.
See here: http://www.somersoft.com/forums/showthread.php?p=110993#post110993

Cheers,

Aceyducey

[McKlusky]

McK, you misrepresent what I have said earlier, then come out with gems like "business is not difficult if you know what you are doing", and state that that oft overlooked death trap for new start ups is 'ludicrous'. McK, does your business experience include advice to the string of busted domestic airlines that took on Ansett and Qantas over the last 15 years? I'll take Superted's signature advice in regards to your last post.

Re my business experience, that includes:
- working in advertising with Leo Burnett, USP Needham, and Schofield Sherbon Baker in Australia and the USA.
- area manager for Mobil in Sydney, responsible for optimsing the profitability of 37 service stations on the north shore and inner to middle western suburbs, and repping to Ford, Hasting Deering, and many small businesses.
- feasibility studies for and silent partner in an earthworks company, and a property dev't company which grew $300 million of projects within the last 2.5 years.
- I also run a physiotherapy practise part time now.



Garry, I'll just reiterate what I said earlier that the value added by funds managers is historically minimal, if you take history to mean more than the past 18 months. I didn't make this up. The AFR have had several articles recently exposing the dubious funds industry. Do the pro funds lobby here want to submit which funds are going to do better than the indices over the next 18 months?


Hi All, ive been in Melbourne for a few days (funnily enough on business)

Bruce,

Can you point out where i misinterpreted your post please? And if you re-read my post you will see where i stated that it doesnt happen at this level. Meaning the level of business that Olly is thinking of, she even agreed with that in her particular case.


Its easy to start (and win) a price war when you are pretty much have a market monopoly (or duopoly) you dont have to consider competitors too much in that case. Unless you are British Airways who tried the same thing on Richard Branson who took them to court and won and receive very large damages. But he isnt your average business man.

The thing is that competition is healthy and without it businesses will never be strong enough to survive anyway. In the unlikely event of a larger business is trying to force you out, there are bodies that you can complain to and the penalties are severe for unfair business practice, restraint of trade and/or collusion.

I can see nothing in your business CV that suggests you have the business experience to back up your ill informed statements. And i stand by all my previous statements.

Lastly, i would like to suggest to anyone out there thinking of starting their own small business.....FORGET IT NOW!!!........follow Bruces advice and give it a miss as its just toooooo risky because there are large multinationals out there that dont want you to exist and will force you out of business. Stay in your PAYG and dream of what could have been.

[Thommo]

Some of these multi-nationals are bigger than entire nations so it is quite easy to stay in a blind spot. Just be one of the chickens at the bum end of the big chook picking the scraps that she scratches up. They really don't mind that much. Like a cleaner wrasse or the tick bird on the back of the crock in Swamp

Just don't get out front and try to stare them down.

T

[thefirstbruce]

McK,

I disagree with your generalization that price wars do not happen in small business. Petroleum resale is a small business as most of the sites are franchises. They have a price war every week.

Jahn also pointed out that retailing has copped a hiding via price wars. Coles and Woolies killed many small corner stores, butchers, and f&v shops over the last 20 years. Now they want to do the same to pharmacies.

In all business sectors, there are price wars when a product evolves into and remains a commodity. A price war is a natural part of the rationalization process. ISPs, real estate listing web sites, computer retailing, stationery supplies, and mortgage broking are recent areas where price wars rationalized players. Just about any sector I recall being involved with has competed aggressively on price, in an effort to gain market share.

As for my CV, I won't argue with your view on that, as I don't know from whence you gain your superior outlook.

Finally in this matter, as I am ignoring Superted's signature advice, my advice isn't to not start a small business, but to be overprepared rather then underprepared. Luck favours a prepared mind. And relying on luck and carefree Aussie bravado seems to be all you have to offer.

[abcdiamond]

Some of these multi-nationals are bigger than entire nations so it is quite easy to stay in a blind spot. Just be one of the chickens at the bum end of the big chook picking the scraps that she scratches up. They really don't mind that much. Like a cleaner wrasse or the tick bird on the back of the crock in Swamp

Just don't get out front and try to stare them down.

T
I can't help replying to, and agreeing with this.
Many years ago, in the UK, I ran a successful small transport company, then decided to make it bigger, and began to undercut TNT on prices for overnight deliveries. Either by design or co-incedence, TNT cut their prices, just after I spent a load of money advertising our prices. I really felt like I had been stepped on by a giant !! :)

I was out of the transport game not long after that. But fortunately I had more "irons in the fire" so to speak.

[thefirstbruce]

Either by design or co-incedence, TNT cut their prices, just after I spent a load of money advertising our prices. I really felt like I had been stepped on by a giant !! :)

ABC, it is an old strategy to let your opposition exhaust their advertising budget on a big launch, and let them capture more market share, but only for a couple of weeks max. You then respond with an advertising campaign to regain market share. As both of you do not have limitless advertising resources, your opposition is unable to come back at you with another ad campaign for a long time, unless they have deeper pockets. This strategy relies on a psychological phenomenon called the primacy and recency effect. A part of this effect is that consumers are influenced by the most recent information presented to them moreso than information presented earlier.

[abcdiamond]

Bruce

That was a lesson that I learnt when I was a lot younger :) And a mistake I did not make again. However, I do like to think that TNT actually sat up and took notice of me :)

Several "small" successful businesses later, and I was set up to take it easy, but I am again looking around for the next opportunity to arise.

[thefirstbruce]

ABC, what have you done since TNT times? And are you looking for anything in particular now? Not that i am trying to sell anything to you. I am always on the look out myself. Am looking at a way to use the internet to service the anticipated growth in health industry for ageing cashed up baby boomers. I am also exploring new strategies in weight loss/control. I think it sucks that we have foreigners like Jenny Craig taking money out of the country.

[abcdiamond]

ABC, what have you done since TNT times? And are you looking for anything in particular now? Not that i am trying to sell anything to you. I am always on the look out myself. Am looking at a way to use the internet to service the anticipated growth in health industry for ageing cashed up baby boomers. I am also exploring new strategies in weight loss/control. I think it sucks that we have foreigners like Jenny Craig taking money out of the country.
Subsequent ventures, all in the UK, have included an Insurance Brokers (sold as going concern), a Book-Keeping and Taxation business (sold as going concern), and a Computer Company (sold as going concern). I really have been grateful to those who wish to become self employed, but did not have the ability or desire to do the hard slog in getting it going in the first place. :D

I'm currently semi-retired, and just waiting for the right thing (or idea) to drop into my lap :) The problem is that I feel like I have lost the energy/enthusiasm, that I had when I was younger. I'll probably end up staying retired now, but keeping my mind active on the various forums around :)

I've just remembered, as well as the TNT saga, the main reason for my transport company going under was the advent of Technology. We used to deliver Computers around the UK. The big ones before the PC came out !! Then all of a sudden, the Computer salesmen were able to deliver most systems in their cars.
I remember the days when we used two people and a special trolley, just to deliver a dot matrix printer !!

I feel like I am showing my age :D

[TryHard]

Olly

$33K p.a in 10 years will have you close to the poverty line. You already have a strong asset base and with smart use of your equity you would be able to reduce the 10 years and increase the $33K. If not Navra, some other proven financial management approach focussed on goal setting for accelerated retirement.

Best wishes
TryHard

[ggumpshots]

Olly,
How keen are you on you to do your business. Could you cope with the pressure of failing for say 2 years before business kicked off and you started to do well?

How would that affect your personality?

Being cautious is good but business requires risk.
You seem to have everthing planned, just needing to take the plunge
It seems to me people with passion tend to be successful.
Where do you fit in?
I have made some pretty bad decisions but if I had the same situation over again I would do the same, as one was not to know the outcome. As a result I am never wondering what I should have done...............I did it..........even though it was the wrong thing to do.
If you have a small holding of shares and 1 investment property I think you are on the fringe in terms of investment so I would heed well what others have replied to you. If investment was that easy we would all be rich

Good luck........trust your self