Your current risk profile ?

Based on Steve Navra's post in the Living off equity – a Reality Check thread ... here's a poll on how forum members view their current risk profile based on Steve's categories.

Definitions:
(from Steve Navra)

Conservative

Conservative investors seek maximum protection of capital combined with stability of income. The income from this type of investment is lower, with minimal capital growth. Liquidity is also often a concern, with lower income being accepted as trade-off for maximum liquidity.

Moderately Conservative

Moderately conservative investors seek stability of income, combined with modest capital growth over the medium to long-term as a protection against the effect of inflation. A modest level of volatility of both capital and income may be expected from time to time.

This class of investor seeks a modest level of CG together with his guaranteed income. I suggest that property would not form part of this portfolio. An example of this type of investment portfolio would be the “Bond” market, where there is stability of income and also the face value of the bond can give growth over the period. Please note that LEVERAGE is generally not included with this class of investor.

Balanced

Balanced investors seek both a regular income and a growth in capital that is above the rate of inflation over the medium to long term. A moderate level of capital and income volatility is tolerated as a trade off for the higher expected return.

This class of investor seeks income and growth ABOVE the rate of inflation.

The income will NOT be guaranteed (Rental income, dividend income etc) and also, property and shares for capital growth (NOT guaranteed) will fit with this category. Generally lower levels of leverage fit this class. (LVR up to 65%)

Investments would most likely include: Property, Cash, shares and other – hence balanced.

Moderately Aggressive

Moderately aggressive investors seek a high level of medium to long-term capital growth combined with a modest income stream. A higher level of capital and income volatility is normally accepted as a trade off for more rapid wealth accumulation. Investors should have an investment time horizon of at least five years because investment values are likely to fluctuate over the short to medium-term.

Investments would most likely include: Property, Cash, shares and other – with a high degree of leverage.

Aggressive

Aggressive investors seek a high level of long-term capital growth, with a greater volatility or return being accepted as a trade off. Investors should have a time horizon of at least seven years, and preferably longer, to allow for possible loss of capital value in the short to medium-term.

Investments would most likely include: Property, Cash, shares and other – with a high degree of leverage.

And also some of the more highly volatile classes including: Option Trading, Futures, Commodities etc.

I don't really fit into these exactly (of course) but moderately aggressive seems to fit the fill. Unlees you view the US investmetns as high risk. I also note that a pursuit of positively geared properties is not a strategy that is really accounted for under the definitions.

Hi all,

Sim, I'm glad you put the word "current" into the poll, as most people will change categories throughout their investment lives. (and I don't just mean from working to retirement)

The risk profile of people changes as often as their success changes in many instances as well as their families attitude. (ask Always-learning)

Where we are now, at the end of a property boom with the stockmarket at record heights and the All ords having 5000 being talked about (Yesterdays Age), we should all expect the risk profile of the already successful to be high.

It all changes when people experience a recession, no/negative growth, lower stock prices. If a family with growing children go down the path of higher risk, then when the slowdown comes about, the less risk tolerent of the partners will be doing the "I told you so" speech.

Even though I am painted as a conservative gloom and doom knocker, I fit into the balanced/moderately aggressive category according to these categories. I have also occupied the aggressive category in the past.

In the eyes of most of the population, their investment in the compulsory superannuation is enough for their retirement along with the pension.
These people also think that anyone with more than 1 IP is insanely leveraged and way out there on the risk profile.

Which of the 5 profiles would have been most successful in the Japanese economy over the last 10 years?? Remember that is 5 years after they had their big bust.

bye

quiggles said:

I also note that a pursuit of positively geared properties is not a strategy that is really accounted for under the definitions.

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Hi quiggles,

Positively geared properties are catered for

It would fit in with creating an income stream and seen as less aggressive than an income from say shares; so I guess, depending on the balance within the portfolio it would be 'Balanced' / 'Moderately Aggressive'.

Regards,

Steve

g'day

i picked balanced - but i agree with bill, my risk profile is more fluid rather than set in stone. It changes with my environment (financial, personal, work etc etc)

i wonder how well people actually UNDERSTAND their OWN propensity for risk. Risk can also be subjective. By avoiding all risk you are infact taking a risk if you know what i mean.

tks to steve for all his work and to all forum members - great threads...

cheers

I picked Moderately Aggressive because:

Looking at purchasing 3 business's over the next year or so to help generate cashflow.

Cashflow from managed business's will be used to fund more IP's, looking to purchase in 2006 but willing to change plans if bargains come along earlier.

Cashflow from business's also used to pay of PPOR debt which will allow me to stop working 9-5 Mon - Fri and still have plenty of cash to spend.

Main problem currently is cash reserves are gone, LVR 50% which is good, once we settle on the first business we will be back to 60%, then 70% or 80% once we get a couple more.

cheers
quoll

Buying businesses

Quoll,

I'm thinking about buying a business as part of my strategy. I have a good day job, earning good money but but not as fulfilling as I would like. Having just clicked over the 50 mark I'm keeping one eye on the possibility of having to create my own income, there's always a retrenchment risk. I'm at 70% LVR and need to keep earning for a few more years yet.

What sort of businesses are you looking at? Franchise, buying established or start up?

Regards
Trump

I couldn’t vote. Slotting me into one of 5 categories is to simplistic.

I fit into most of the above.
Eg
1. I need a guaranteed $xK pa for food & petrol & beer – so I have a proportion of assets conservative/moderately conservative.
2. I would like a further $yK pa for new car & 2 x O/S holidays, but if it doesn’t happen every year its OK by me – so a chunk of balanced investments.
3. It would be nice to be able to buy a $500K Winnebago some time in the next few years, so I have a bit of aggressive stuff.
4. It would be really nice to be able pay cash for a $5M holiday home in Dubai some time in the next 10 yrs…. and also some really high risk, highly leveraged, high reward assets.

I picked the "Moderately Agressive" option. Though I would be prepared to move into the Agressive catagory depending on the extra return expected and actual risks of having unrecoverable losses. A loss doesn't worry me if I know i'll make it back reasonably quickly, an unrecoverable loss where not only all or most of your capital is at risk but the investment itself may never recover would be too high risk for me.

quoll said:

Looking at purchasing 3 business's over the next year or so to help generate cashflow.

Cashflow from managed business's will be used to fund more IP's, looking to purchase in 2006 but willing to change plans if bargains come along earlier.

Click to expand...

I'm also in business to help the cashflow- but there are snags.

I knew that self employed people required two years of income to check servicibility- but I didn't realise:

1. That I have two IO loans expiring this year- servicibility for renewing as IO is now shot thanks to my new status.

2. NAB uses three years, not two.

I'm hoping that I'll still be able to use P&I, but that in itself will hit servicibility- I'll be paying $600pm extra for the two properties.

Balanced describes our current position. After reading Steve's scenario of requiring $6million (asset base) for income $100,000pa (in Living off Equity thread) I think we need to leave the comfort zone again. Damn, have just adjusted to putting lots of borrowed $ into managed fund. Swallow hard and contemplate 50% margin and then sell the idea to my partner

The learning curve continues........................

trump said:

What sort of businesses are you looking at? Franchise, buying established or start up?

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Trump

Looking at established business's, put in an offer (has been accepted) on a franchised business, figure to start it might be better to have the franchiser to get some advice from. Accountant was very impressed. Settlement is due early May, just sorting out finance, lease, ABN, workcover, etc.

I'll stick to the day job and Mrs quoll will be able to drop kids at school, spend a few hours working, pick kids up. If all goes well we should be able to look at business #2 later this year.

Cheers
quoll

geoffw said:

I'm also in business to help the cashflow- but there are snags.

I knew that self employed people required two years of income to check servicibility- but I didn't realise:

1. That I have two IO loans expiring this year- servicibility for renewing as IO is now shot thanks to my new status.

2. NAB uses three years, not two.

I'm hoping that I'll still be able to use P&I, but that in itself will hit servicibility- I'll be paying $600pm extra for the two properties.

Click to expand...

g'day geoff

Hadn't thought about that!

Was talking with my bank, Westpac and they have some nice rules regarding franchieses so I hope I'll be able to purchase more business's and properties before we have to wait for a couple of years of tax returns.

Spoke about buying more and the bank is happy with that strategy.

thanks for the heads up
quoll

what if?

What if the lenders all got together and stopped Lodoc loans completely. That would be disasterous for me as most of our strategy is based on acquire first then worry about fine tuning later.

Bought several IP's based on currrent lodocs being available so maybe time to look a little more closely at the figures.

You never really know whats in the wind do you?

NZ has 6.50% central bank rate now and we have 5.5% this comparison was made tonight on the telly so maybe they are going to try this BS comparison as the excuse for a couple more hikes this year.

When is the next election??? Bring it on.

DD1

1. Presently, I see myself as belonging to the "Moderatively Aggressive" investors profile group at this point in time, being currently in the midst of the Wealth Building Phase.

2. From an initial 2 houses Australian property portfoilo of A$420,000 in October 2001, my wife and I have grown our property portfolio to its present 5 properties portfolio, which have totalled to more than A$1.5 million in value by December 2004. Hopefully this same 5-houses property portfolio will further grow to more than A$2 million by end of this year. (This does not include our other Singapore and Malaysian properties portfolio which we are presently holding now.)

3. In the meantime, while I am still building the 2 houses in the Perth property market, using an Australian Company structure, I have also began to more actively study/research into the Melbourne and NZ property markets to position myself there for the next property cycle in the near future while keeping an eye over the Goldcoast property market.

4. If God be willing, I hope to be able to invest into the Melbourne property market with the help from Michael Yardney and his Metropole Properties Group before the end of 2006 (;- though I do not rule out investing before the end of this year in 2005 once I have completed my own property market research and study there and the investing conditons are indeed found to be very favourable), hoping to buy an A$500,000-$750,000 resale property to do "sub-divide/house re-development" project or/and alternatively also further acquire a development site back in Rockingham/Perth and to do a small scale 3-4 units/townhouses housing development myself, totalling to A$1 million to A$1.5 million in project cost value, as a full-time property investor. This will be one of my own investing objectives set for FY 2005/2006.

5. Despite presently being a full-time property investor and able to live off on the house equity to a certain extent, however, I do not see myself as being "Financially Free" at this point in time yet.

6. While I understand that the NZ property market has also more or less peaked and will soon be expecting a house price correction soon later this year in 2005, however should the circumstances and investing conditons be found to be still right and favourable, my wife and I will also be interested in acquiring some high-yield POSITIVE Cashflow properties there. This will allow us to better "balance" my present high capital growth-focussed Australian property portfolio, either through Kieran from the Hybrid Group or/and the ESC Entreprenuers Success Centre (ESC) and its Richmastery Academy Programme in New Zealand.

7. While I know that even with my present 5 houses Australian property portfoilo, it can and will eventually grow to more than A$6 million value over time for our own retirement planning (as projected by Steve Narva), I am presently enjoying the property investing game myself. As such, I will still actively seek to invest in more properties so as to further increase our property portfolio, as soon as our present financial situation will permit us to do so again.

8. To me, this is investing into our future and into our financial freedom goals, by pro-actively " buy into" and creating more time in future for ourselves and to acheive my full financial freedom and to effectively retire at a younger age, together with my wife and family as planned, if God be willing.

9. I also know that from my present "Moderately aggressive" risk profile, I will need to have to lower it to the "Balanced" or even down to the "Moderately Conservative" investor group profile in the medium term as we begin to concentrate on building up our next level of security assets for safety and protection with lower capital growth anticipated while still trying to maximise the returns for our present property portfolio during the next property cycle both in Australia and New Zealand.

10. Thank you.

regards,
Kenneth KOH

I put balanced but I think the choices are more to do with a perception of risk rather than risk. I am happy to use Futures/CFCs/Options. Used properly they can reduce overall portfolio risk and smooth out annual returns. For example a legendary trader Victor Sperandeo studied the American Stock market for 120 years and found that using a simple long term systems you could average 18% per year buying and selling the DOW Index.

People see risk in these leveraged instruments as they don't have the knowledge on how to use them and/or seen people with little knowledge use them a lose their dough. I call myself balanced as I will not use a strategy that I fully understand.

Remember to 95% of Australians most of the people on this Forum are reckless fools risking their future by actually borrowing to buy investment properties.

Michael

Remember to 95% of Australians most of the people on this Forum are reckless fools risking their future by actually borrowing to buy investment properties.

Michael[/QUOTE]
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Dear Michael,

1. I don't care if you are really indeed very rich now and as rich a multi-billionaire as Bill Gates. Even if you are now, I do not think you have a right to openly insult our forum members and the Australians in general, by openly calling them "reckless fools".

2. Please remember, "One man's meat is one another person's poison".

3. I'm sure that you do not want other people to call you a "reckless fool", do you?

4. For your kind considerations,please.

5. Thank you.

regards,
Kenneth KOH

Kennethkohsg said:

Dear Michael,

1. I don't care if you are really indeed very rich now and as rich a multi-billionaire as Bill Gates. Even if you are now, I do not think you have a right to openly insult our forum members and the Australians in general, by openly calling them "reckless fools".

2. Please remember, "One man's meat is one another person's poison".

3. I'm sure that you do not want other people to call you a "reckless fool", do you?

4. For your kind considerations,please.

5. Thank you.

regards,
Kenneth KOH

Click to expand...

Sorry, Kenneth you took the comment the wrong way (I left out a critical comma I think). I meant it as an ironic comment on the general population to anybody that invests in anything. From other posts on this forum others have had the same reaction as I have had when other find out about my IPs.

I have nothing but respect for those that contribute to this forum.

Michael

mjanos said:

I call myself balanced as I will not use a strategy that I fully understand.

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you're going to have to watch that typing, sunshine, or people will indeed think you a reckless fool.

More seriously, nice post. Knowledge - true knowledge - does smooth out risk to some degree.

I am reminded of what must have been a quote from a stock market commentator recently. He said "Bulls make money. Bears make money. Pigs get slaughtered." Same applies in property.

BTW, that's also what some of the forum's nay-sayers are saying. In a bull run, both the bulls and the pigs make money. When the market turns bearish, the bulls have already taken their profits but the pigs hope that by running faster, they can generate more. The bears move in, and as usual it's pork, not beef, on the menu. So the nay-sayers are saying "Don't make the classic mistake!", quite often with the addendum "...like I did." (NB - I have no-one's permission to put my words in their mouths so please object if you feel misrepresented.)

It's not a case of who's right - everyone has some degree of correctness. It's whether you have a strategy for dealing with all markets (including sitting them out) and whether you stick to your strategy.