I just seen an interesting headline on BBC UK

[allmine]

Thought I'd share this,
On the local BBC news just now was a peice about what happened with a 1,000 pound investment.
Financial people caculated if a 1,000 gbp was invested in a variety of places, the one which would have given the best return was a good old fasioned bank savings account.
They did say that the new online side accounts have been introduced since the study commenced and would have given a better return.
This was over a 5 year period I believe.

 

[rogue]

I actually created a calculator that does this myself.

If you want financial freedom in retirement, you are often better off investing an extra $10k pa (adjusted for inflation/pay rise every year) into a term deposit over your life. There are some currently offering 8.4% fixed for 5 years.

The only exceptions are properties returning a rental yield of more than 10% (or CF+ from day one) or those with exceptional capital growth rates, though even in this scenario you are coping losses for maybe many years and sacrificing financial freedom while you are young for financial freedom when you are older.

After all, with what other investment do you often spend years losing money with the promise that one day you might make money?

You can have financial freedom your whole life if you just invest 10-20% of your income. If yields on property return to 1990's levels then you could rethink this strategy and return to property then.

be sensible but enjoy your youth (within reason)....because no one thinks a 60y/o in a red convertible is attractive

 

[Trogdor]

I actually created a calculator that does this myself.

If you want financial freedom in retirement, you are often better off investing an extra $10k pa (adjusted for inflation/pay rise every year) into a term deposit over your life. There are some currently offering 8.4% fixed for 5 years.

Ummm..... I did you include inflation and tax???? You must have a pretty modest defn of "financial freedom"!!

 

[murtagh]

After all, with what other investment do you often spend years losing money with the promise that one day you might make money?

Good point! I know, I'll make my money through being an astute businessman, making an actual profit instead of this evil negative gearing rubbish.

I'll just print some letterhead up to get started.

Oh hang on, I've just lost money on my way to making money.

Dammit, no business on earth is a viable investment either!

It can't be done, we've just proved it.

 

[lizzie]

did they also calculate that if you took you $1000, and used it as a deposit to borrow another $5000 (total $6000) and then invested the $6000 at a cg return of higher than the borrowing cost - what would be the end result?

to compare apples with apples - lets say term deposit returns 8% vs property returns 7% (cg and rent).

$1000 over 1 year @ 8% = $80 return
$6000 over 1 year @ 7% = $420 return.

but out of the $420 property return you might have ng (interest less rent) costs, ng tax income, depreciation income, maintenance costs - so - say these cost/add to a total return of $210. i know which one would make me richer faster.

by year 5, compounding, the money in the term deposit would be worth $1469. the money put into the property would be worth $8138-$5000 (borrowed) = $3138.

put a couple of 0's on the end of the figures ...

 

[evand]

How did you prove it? Businesses don't fail, people do.

Dammit, no business on earth is a viable investment either!

It can't be done, we've just proved it.

 

[Dazz]

no one thinks a 60y/o in a red convertible is attractive

...except the 19 y.o muscly surfer guy sitting next to her....is that what you meant ??

 

[BayView]

Thought I'd share this,
On the local BBC news just now was a peice about what happened with a 1,000 pound investment.
Financial people caculated if a 1,000 gbp was invested in a variety of places, the one which would have given the best return was a good old fasioned bank savings account.
They did say that the new online side accounts have been introduced since the study commenced and would have given a better return.
This was over a 5 year period I believe.

Here's one for ya.

In 1991, I bought a block of land with cash - $60k.

I had a house before this, but sold it and put the money into my business, and rented a place to live. While doing this I saved the $60k.

A year later, I borrowed the money to build a house on it.

Since then, I have only ever kept on doing the same - sold one to buy another, borrowing to buy, and using equity to buy.

Since then, along the way I have made some stuff-ups, but the equity today is $1 mill.

That's a rough return of 98% per year on the original $60k.

Not that great, but better than the Bank, and I didn't start trying to make money out of this caper until 2001 with the first IP.

I reckon if I'd had the investor mindset between 1991 and 2001, rather than the o/o and consumer mindset, the result today would be at least double.

 

[allmine]

Lizzie
I like your post, but, how does paying the interest on what you borrow factor in? I know it is tax dectuable and all.

Also there was a lot more said on the Tele, but I missed a lot of the indepth detail, I was in an airport lounge at the time.

 

[lizzie]

one word ... leverage.