Have you felt the "GFC"??

[Andrew_A]

Very real hit to our finances when the business formerly known as RAMS imploded (direct result of the GFC and the borrow on 90 day business model being whacked) and interest rates on the borrowed loans soared. The early refinance fees were substantial.

Now I appreciate the difference between one of the big banks and a smaller lender, all unknown to me before the GFC

 

[kero]

lost job at the beginning of the year but got a new job within a week. 20% pay cut though. then pay cut again last month (another 20%). all these cuts are still quite managable until RBA starts to increase interest rates. If they are going to increase by 200bp then the Mrs will have to start to chip in in the mortgage repayments.

 

[Perth Investor]

Why did folks near retirement age have shares / managed funds. Any first year financial planner would tell you that risk vs return is a function of age, and if you are in riskier assets at age 60+ you are on dangerous ground. When you have 15 years to recover from a bad year you can take the risk, when you have less than 5 years, surely 80%+ of your assets should be in cash.

I feel for those who had mortgage funds, which are close to cash and would have been told they were safe and now their funds are frozen. But I'm sick of hearing of retirees who had 6 figure sums in Babcock or Allco or ABC and now have no money. Their money shouldn't have been there in the first place.

And this talk of retirees income streams being slashed because of rates plummeting is only a short term problem. Rates dropped Christmas last year, and now Chirstmas this year you can get a 12 month TD from Westpac for 6.8%. Rates for retirees are definitely not still low and it's only fair they should suffer for 12 months like so many others did!

 

[piNoob]

Haven't felt GFC at all, except maybe in super, but I don't care about it much anyway (has a lot of time to recover till I retire).

Our company (IT) did extremely well this year which really surprised me - dividend, bonuses etc.

Not sure what next year brings, as I don't personally believe in mantra "we are different here".

 

[Pushka]

Absolutely. I know of somebody in retirement who had a net worth approaching $10M. He got a margin call and lost everything. The kids are now trying to find Mum and Dad somewhere to live. .

Oh, that is just so bad. But obviously a very risky strategy.

 

[tess85]

Haven't felt GFC too much.

Employment - Only effect was when employer didn't increase payrise in line with inflation (3%) but the eventual payrise was 12% anyway so I was happy.

Shares - privately owned shares dropped about 30%, currently sitting at -10% which isn't too bad... Would've made a killing if I had bought at the low point but oh well.

PI - bought PPOR when the market was in the doldrums in Nov 2008, up +10-15% which is great

Overall you win some, you lose some!

 

[Pushka]

Why did folks near retirement age have shares / managed funds. Any first year financial planner would tell you that risk vs return is a function of age, and if you are in riskier assets at age 60+ you are on dangerous ground. When you have 15 years to recover from a bad year you can take the risk, when you have less than 5 years, surely 80%+ of your assets should be in cash.!

I think that is a little niaive. Because anyone who has any money in a commercial Super Fund will most likely always have at least some of their funds invested in shares. Even in a conservative fund - these will always have the Blue Chips like BHP. And BHP was close to $50 at one stage then fell to the high twenties. I also think that a lot of people dont realise what their Super Funds have done with their money. People assume because they dont have direct ownership of something, means that they are not affected.

 

[VYBerlinaV8]

I'd say efficient risk management is not having the margin loan in the first place.
Not being bale to cover it with cash.

I think I have to disagree with that. Avoiding a risk altogether is certainly a valid risk management strategy, but it's not the only one. I want high exposure to potential growth and dividend yield from shares over the next ten or so years, hence levering up. I also accept that sometimes the value of the shares will fluctuate, and to address the risk of being forced to sell shares when I don't want to, I keep cash reserve to top up the loan whenever necessary. I like keeping the gearing ratio high!

 

[evand]

There's certainly enough risk in buying shares without margin loans. I would just buy less shares without margin loans.

The cash you have to use for the margin calls are compromising your overall performance from your share portfolio.

Worse case, they could seriously damage your wealth creation plans.

I think I have to disagree with that. Avoiding a risk altogether is certainly a valid risk management strategy, but it's not the only one. I want high exposure to potential growth and dividend yield from shares over the next ten or so years, hence levering up. I also accept that sometimes the value of the shares will fluctuate, and to address the risk of being forced to sell shares when I don't want to, I keep cash reserve to top up the loan whenever necessary. I like keeping the gearing ratio high!

 

[VYBerlinaV8]

The cash you have to use for the margin calls are compromising your overall performance from your share portfolio.

Why? The cash for margin calls reduces the gearing ratio by reducing the loan - it has nothing to do with the performance of the shares. The shares will fluctuate in value over time, but will typically trend upwards in value. The gearing allows me more exposure to that, including collection of additional dividends (which I reinvest).

Thanks for your response, I get the feeling I'm about to learn something here...

 

[Ausprop]

cross refer to the thread

http://www.somersoft.com/forums/showthread.php?t=57186

where I pointed out that for many many people it was far from a good year. i know of another guy that sold his long held family business for $20m, stuck it into god knows what shares and blew the lot. went bankrupt, developed a brain tumour and sadly passed away leaving his family with nothign but bills and sadness

 

[toony]

Have you felt the GFC?

I have felt it in different ways

1. I was contacting as a Vic Govt business analyst in the IT industry. Project costs blew out so at end of Stage 1 they asked BA’s if they wish to continue on project to go fixed term. They quoted the GFC. So its been a 25% pay cut. Now looking to move back to contracting after Xmas.
2. Bought a holiday rental in Goughs Bay at the height of the GFC. I reckon I bought well and have made a 35% gain. Paid $165k and reckon its worth $225k.
3. No real effect on Superannuation. I hold very little superannuation.

 

[Lynchy]

Have felt it a little, overall I have come out of it better I'd say

My company cut 15% off its staff = about 90 - 100 people. Large Perth engineering firm. I was lucky enough to stay on, no pay rise for the last 12 months though.

Brought an IP in Feb for $340,000. The 1 next door in original condition (mines partly renovated) has just been put under offer for $447,000 so I have seen a nice boost there.

I hold less then $20k in super so the loss there doesnt worry me

 

[Neophyte]

Not directly other than through IRs dropping. We bought just before the cuts started and by settlement they were done 3% or so. Then dropped another 1% or so. We also got a pretty decent price (I think). Mostly just lucky to buy at the right time when things looked like turning bad.

No payrise start of this year and pretty non-existent bonus. However we didn't have to cut back hours or lose staff to non-natural attrition. Hopefully payrise and bonus get rectified in the next few weeks.

I know a couple of people who lost jobs and haven't found anything other than retail casual work. I know a builder or two who had almost no work for 3-6 months.

 

[Ausprop]

actually there was quite an interesting article the other day talking about the state of the nations health as a result, for example somehting like 20% of people have stopped taking their necessary prescription medication. gym memberships cancelled, obesity etc. Look at James Packer.

 

[wobbycarly]

Look at James Packer.

You mean James Packer is putting on weight because of the GFC? Wouldn't that be the KFC?

 

[grossreal]

hi
two thing put on weight
worry people eat lots of cocolate and beer as its a case of well it doesn't matter till tomorrow.
depression
well im going anyway might as well enjoy it while I have it
first thing you need to watch with either of the above is a drastic change in a person behavior
gfc is not the issue a word with a few more letters maybe
casino's

 

[EGB18CT]

lost my job as an accountant in the travel field, 2mths later the mrs lost hers too in admin but got a better job with 5k more pay - lucky her! Still off work been 7-8mths now was about to put down a deposit on a PPOR the week job got redundant, lucky for that. Thankfully dad's been inundated with work in his painting business so helping him out and the deposit has been preserved, now to find an accounting job!

 

[Intrinsic_Value]

I think I have to disagree with that. Avoiding a risk altogether is certainly a valid risk management strategy, but it's not the only one. I want high exposure to potential growth and dividend yield from shares over the next ten or so years, hence levering up. I also accept that sometimes the value of the shares will fluctuate, and to address the risk of being forced to sell shares when I don't want to, I keep cash reserve to top up the loan whenever necessary. I like keeping the gearing ratio high!

There is not right and wrong answer, both you and Evan are correct.
The difference is that your strategy reduces the risk but doesnt eliminate it.

I also use margin lending, but i dont leave it during the course of a cycle. As the cycle progresses i reduce the % exposure.

I also use it in the same way as with property investing. It must produce cashflow not just capital appreciation (although i reckonise that it has higher risk being marked to market every day).

 

[JIT]

I did, I found it impossible to get a 95% LVR + LMI loan, and had to settle for 90% LVR instead, but still not without great difficulty and persistence.

Doubled my total property loans in the process, and have been rewarded with massive CG on purchased properties and a doubling in net equity position since.