Income Generating Funds

[arg821]

Hi all,

I have seen the term "put your money into income generating funds" used quite frequently here as of late, presumably as some people are a little unsure as to what to do next in the real estate world during the quiet times.

My question is to those who do put money into these "income generating funds". Could you please explain in brief or detail, what sort of funds you are referring to, and the returns associated with them?

I understand there is Superannuation, Shares, and Managed Funds. Am I missing something else? I also didn't realise you could get an "income" from these things, I thought you just put money in and although you earn some interest etc., it wasn't really that much (i.e. I have $40K I could invest, but 40K at 6% (bank) only gives me $46/week!).

Thanks for your information,
Andrew.

 

[The Y-man]

I have an expectation for "share based" income funds to perform at around 12%-14% pa

We currently use:
Navrainvest
Macquarie MQ Multi-Strategy Fund
Macquarie MQ Enhanced Income Fund


I expect about 8%-12% for commercial property funds (plus additional tax benefits):

Colonial First State Property Fund
DB Property Fund

Cheers,

The Y-man

 

[alexlee]

I understand there is Superannuation, Shares, and Managed Funds. Am I missing something else? I also didn't realise you could get an "income" from these things, I thought you just put money in and although you earn some interest etc., it wasn't really that much (i.e. I have $40K I could invest, but 40K at 6% (bank) only gives me $46/week!)

BankWest gives you 6.8%, but remember that's zero risk. Everything else has risk. Incidentally superannuation is NOT an investment TYPE, it is an investment VEHICLE. So you would actually be putting money into a super fund and investing THAT in managed funds, shares, etc. When you put money into super, that money is being invested in share funds, etc.

If you aim for 10% or so return from share funds, etc you will be taking risk. e.g. you can buy one of the big banks and make around 5% franked dividends, so that actually means around 7%+ before tax plus capital appreciation. Bank shares have done well, but of course they can go down as well.

All boils down to how much risk you're willing to take, and when you need the money. If you want the money back in a year, that's different to if you want the money back in 5 years. Playing the average, you might find that gearing into a property in a slow market now may not be a bad thing (imagine if you bought a property in the early to mid 90's. You would have been sitting flat for a few years, but would have ridden the WHOLE boom right up to now.)
Alex

 

[Ausprop]

I have an expectation for "share based" income funds to perform at around 12%-14% pa

We currently use:
Navrainvest
Macquarie MQ Multi-Strategy Fund
Macquarie MQ Enhanced Income Fund


I expect about 8%-12% for commercial property funds (plus additional tax benefits):

Colonial First State Property Fund
DB Property Fund

Cheers,

The Y-man

If I have read the reports right, the MQ multi-strategy fund will stuggle to cover the interest cost the way it is going?

 

[The Y-man]

If I have read the reports right, the MQ multi-strategy fund will stuggle to cover the interest cost the way it is going?

That's all part of the fun and games - especially if you have geared it to the hilt (100%) as we have.

In all seriousness though, that is part of the risk equation, part of the risk one takes, and it will be interesting to see how it goes for the rest of the term. One of the countermeasures we take of course is diversification of managers (the ones I listed are only the income oriented funds - we have another set of CG type funds too...)

Cheers,

The Y-man

 

[The Y-man]

... presumably as some people are a little unsure as to what to do next in the real estate world during the quiet times.


Thanks for your information,
Andrew.

Incidentally, this is not our reasoning in developing our income fund portfolio. We simply believe that these funds will produce better yield than residential property, and more importantly, require only minor involvement on our part.

Furthurmore, our belief is that residential property in Melbourne is a capital growth proposition - so during quiet times in R.E., we would actually be looking at other growth mechanisms (eg. shares, growth funds).

Cheers,

The Y-man

 

[arg821]

Thanks for the replies guys. I was recently having a look at colonialfirststate.com.au and checked out the different options with associated returns etc., and WOW there are a lot of returns in the 20% and greater performance categories.!!

Could you imagine having borrowed 200K from the bank @ 6% and getting a 20% return on that (profit = 28000 in 1yr). I guess the only thing stopping people doing this (inc me) is that you just DONT KNOW what will happen from year to year. Full credit to you guys who do invest directly/indirectly in shares etc., because it does seem to be a "high flyers" way as opposed to r/e which is normally "slow and steady". It is intriguing though.

Thanks,
Andrew.

 

[LearningMan]

agleave - perhaps you should talk to a few financial planners. Even if it's to get some insights into the various investment options available other than RE.

It all of course depends on what you want and the risk you are prepared to take. Many refer to this as SANF ( Sleep at night factor ).

Just remember ... everyone's situation is different ! Goals, priorities, ambitions etc...

 

[redwing]

AgLeave

We currently hold NavraRetail and are looking at several other funds as well

 

[Monopoly]

Furthurmore, our belief is that residential property in Melbourne is a capital growth proposition - so during quiet times in R.E., we would actually be looking at other growth mechanisms (eg. shares, growth funds).

Exactly Y-Man!!!

It's funny how so many people get dispondent when property doesn't perform in leaps and bounds, and think that because the property market is quiet other avenues aren't any better.

IMO diversification is not just about making the most of your money in one area, it's about making money in many areas and for the majority of the time.

 

[Glebe]

Thanks for the replies guys. I was recently having a look at colonialfirststate.com.au and checked out the different options with associated returns etc., and WOW there are a lot of returns in the 20% and greater performance categories.!!

Could you imagine having borrowed 200K from the bank @ 6% and getting a 20% return on that (profit = 28000 in 1yr). I guess the only thing stopping people doing this (inc me) is that you just DONT KNOW what will happen from year to year. Full credit to you guys who do invest directly/indirectly in shares etc., because it does seem to be a "high flyers" way as opposed to r/e which is normally "slow and steady". It is intriguing though.

Thanks,
Andrew.

Andrew,

If you have no short term need for the money then have a big think about doing what you've just illustrated (give or take your individual circumstances).

A couple of years ago I had $330k. I took $300k of it, borrowed $350k, and spread it between a few different managed funds. Some invested in international companies, some international companies, some property trusts etc. My remaining $30k I kept aside to pay the interest cost.

Anyway fast forward 18 months and I've made $200k or thereabouts. I wouldn't be surprised if the market drops 5% over the next 6 months but if you're in it for the long term it's not a big deal.

Good luck. PS I'm not a financial adviser and this is education not advice.

 

[arg821]

A couple of years ago I had $330k. I took $300k of it, borrowed $350k, and spread it between a few different managed funds. Some invested in international companies, some international companies, some property trusts etc. My remaining $30k I kept aside to pay the interest cost.

Anyway fast forward 18 months and I've made $200k or thereabouts. I wouldn't be surprised if the market drops 5% over the next 6 months but if you're in it for the long term it's not a big deal.

Wow, thats an impressive 30% return (or near enough) on your original 650K!
Did you directly invest yourself in shares, or invest through a managed fund scenario? I am interested in Colonial First State, but at the moment am nervous about proceeding with the shares/managed funds arena. I've always been a R/E person, and enjoyed the security of bricks & mortar. I guess it is just a mindset that I need to overcome. Where would you suggest I get started, even if it were just a small amount of say $10K first up?

Andrew.

 

[Monopoly]

Wow, thats an impressive 30% return (or near enough) on your original 650K!
Did you directly invest yourself in shares, or invest through a managed fund scenario? I am interested in Colonial First State, but at the moment am nervous about proceeding with the shares/managed funds arena. I've always been a R/E person, and enjoyed the security of bricks & mortar. I guess it is just a mindset that I need to overcome. Where would you suggest I get started, even if it were just a small amount of say $10K first up?

Andrew.

Agleave,

To give you a more recent example, my son wanted to invest 160K but was reluctant to do so in property because of the current climate. After all, you ain't gonna get too many bricks for $160K these days!!!

A couple of years ago I had $330k. I took $300k of it, borrowed $350k, and spread it between a few different managed funds.

So after some discussion, he decided to put the money into managed funds that invested in various asset groups (international companies, australian stock, property trusts etc) and in just 5 weeks he has made 8K.

Warning: Now that sort of growth won't last forever as fluctuations are inevitable, but if he keeps it there for the longer term it should grow quite nicely and with minimal effort on his part!!!

Oh and BTW Glebe wrote:
A couple of years ago I had $330k. I took $300k of it, borrowed $350k, and spread it between a few different managed funds.

 

[FrankGrimes]

Agleave,

To give you a more recent example, my son wanted to invest 160K but was reluctant to do so in property because of the current climate. After all, you ain't gonna get too many bricks for $160K these days!!!

You've hit the nail on the head. My first property was 135k and second was 187k, both are nothing flash but they are ok. This amount of money buys nothing now, hence putting my money into managed funds for the time being to build up my asset base.

But be aware, shares, lpts etc have had a stella run of late. As many have already said, diversify and have a reasonably long term view.

 

[WildDog]

Hi all,

I have seen the term "put your money into income generating funds" used quite frequently here as of late, presumably as some people are a little unsure as to what to do next in the real estate world during the quiet times.

My question is to those who do put money into these "income generating funds". Could you please explain in brief or detail, what sort of funds you are referring to, and the returns associated with them?

I understand there is Superannuation, Shares, and Managed Funds. Am I missing something else? I also didn't realise you could get an "income" from these things, I thought you just put money in and although you earn some interest etc., it wasn't really that much (i.e. I have $40K I could invest, but 40K at 6% (bank) only gives me $46/week!).

Thanks for your information,
Andrew.

Most income fund invest into stable stocks that pay regular dividends, so you wont see dramatic change in stock price.

Why dont you do it yourself, to get average result 10-15% return it's easier than most people think, to get superior result 20% Plus it's harder than it's look .

you can easily do fundamental analysis on any stock if you have a comsec or similar account and work out some under value stocks and buy it and eventually the market will catch up and you have your good rate of return and in the mean time collect some nice dividends.

you may need to educate yourself a little if you never invest in stock before ..stuff like

Return of Captial, Return on Equity, Earning Per Share, Future (forecast) Earning per Share, Profit Margins, Book Value, PE Ratio etc...
stuff like monopoly and brand name will come into the equation as well so understand how these play in factoring a stock price.

once you started and like this sort of stuff you will find it's not that hard core like fund managers make you think you incapable of doing it yourself.
and once you been though enough it only takes like 5-10 minutes at glance of the financial data and you know if a company is worth a closer look.

out of 5-10 that worth a closer look maybe one or two fit the bill and you make a purchase and watch the price roll up.

Once thing you have advantage over fund manager is SIZE... exploit your small size advantage. Fund usually invest millions or billion into a certain company and it's very hard for them to get in and out without effecting the stock price and it usally takes them more than a few days or even week to get their money out/in. Even Warren Buffett the rich man himself admit that in his 2004 annual report so use it to your advantage.

You on the other hand, can pick up a good stock watch the fund money pouring out and in a certain stock and act accordingly and you can make handsome profit because you can spot the fund manager putting $$$ in and out of a stock and beat them out and in of it.

This is not day trading as such but picking a good under value stock and know when to get in and out and repeat the process. I make 15% on TLS in the last 8 months by just moving money in and out of the TLS stock when I spot fund money movement.

Good luck.

 

[Monopoly]

Why dont you do it yourself, to get average result 10-15% return it's easier than most people think, to get superior result 20% Plus it's harder than it's look

Don't you mean it's "easier" than it looks??? Surely if it was "harder" he'd be a fool to do it himself.

Managed funds certainly don't give the growth that you'd achieve with DIY share trading, but to DIY is not a simple step to take, and requires time, a lot of reading, and plenty of commitment otherwise you could make some doozies that can cost you dearly!!

I guess it really depends on how much you're prepared to put in, to get the most out. And of course, whichever way you choose, the long (investment) road is by far the best road to take!!!

 

[willy1111]

I think he means getting 10-15% is easier than it looks but...

getting 20% plus is a lot harder (than it looks).

Why not get a copy of Dale Gillham's "how to beat managed funds by 20%" book.

I think it is a great book for starters - goes through some pretty simple ways of putting the odds in your favour - and as wild dog says afer you read the book you'll think making 15% is not too difficult.

Essentially he trades a strategy from 1997 to 2003 showing the results for each year. The strategy involves looking at monthly bar charts of say the top 20 stocks, and only buying the stocks that break up over a downwards trend line on the monthly chart, and sell when they break the monthly up trend line. Would take less than 20 minutes a month.

The trick is in the disciple to carry out this tedius and boring task each and every month.

For $30 odd bucks I think it is a great place to start - no I have no connection with the book or author - other than having read it.

 

[Monopoly]

The trick is in the disciple to carry out this tedius and boring task each and every month.

How many disciples does it take.........???

 

[arg821]

I think he means getting 10-15% is easier than it looks but...

getting 20% plus is a lot harder (than it looks).

Why not get a copy of Dale Gillham's "how to beat managed funds by 20%" book.

I think it is a great book for starters - goes through some pretty simple ways of putting the odds in your favour - and as wild dog says afer you read the book you'll think making 15% is not too difficult.

G'day,
The book sounds really good, and sounds like something I could definately benefit from at my stage of play, so I'll be checking this one out. Thanks for the info.

Andrew.