I've been thinking . . .

[Tibor]

Hi Dale,

I know, you are a very conservative person and prefer P&I over IO, albeit fully aware of the advantages and disadvantages of this strategy. I respect that, and I fully agree that whatever strategy you use, you should feel comfortable with. So please just keep collecting your P&I properties at your own pace, you are comfortable with, I will be the last person to criticise it.

I personally am an I&O person until enough property accumulated, then I will start to do one-off repayments on I&O loans. It does not necesseraly makes any sense, but makes me feel happy, so I will do it. Within a limit I can repay the principal every year, without potentially over committing myself on the repayment front.

I am not so concerned about great interest rate rises as (assume it could happen) if RK is right and people will stick what they understand (cash) then you can imagine what a nice portion of interest rate rise would do to an already bleeding stock market (due to large amount of withdrawals and insufficient capital replacement) and to the public confidence, etc, etc. People don't need shares or managed funds or any paper assets to live, but still have need shelter, which is a bit of encouragement for property.

Regarding to RK's latest book. I read it on day one, it came out. As I see, the point he is making that Defined Benefit based retirement turned into Defined Contribution based. This takes the responsibility away from the provider (employer) and also improves the liability columns of balance sheets. This also assumes that the future retiree (or its employee who places the compulsory amount with a superannuation manager) fully conversant with the rules of gambling (pardon me), the right word is investing.

As this is not the case (which does not seem to be), so the retirement / financial planning / fund management honey band wagon is in full swing and we see lots of newly created, highly educated in the latest theories "experts" travelling freely on it. What I mean, they advise, place, manage (put mis wherever applicable) for a nice fee with absolutely no accountability for their actions. Our banks have also smelt the honey pot, so they bought up several quality and quantity funds for sometimes absolutely ridicoulus prices.
Our Goverment also liked the smell, so it taxes left right and center and whenever it can get hold of it. I may add just a pinch of lack of financial education for the masses and I would say we are up for a very nice ride, where annually at least 1 HIH value goes down on the gurgle. This is the regulated retirement financial plan for the majority.

I think I might just stick with properties, and maybe some other form of gambling (I can learn how to throw a dart, so I might apply for a fund manager position) where I feel that at least I am in control of my own destiny and may choose the "experts" I am willing to share the path with.

Just the 2c.


Tibor

 

[Bill.L]

Hi all,

Always-learning Sorry I must have misinterpreted what you said. Looks like we are in agreement, just communicate poorly.

Tibor just love your sarcasm re FP, managed funds etc. You seem to understand the game, therefore could be a good player, unlike the many lambs to the slaughter. Remembering that money can be made when shares go down as well as up.

Dale our plan/arrangement for loans is P+I on first loan then IO. First loan with offset acc and plan to pay off as quick as possible, then will move P+I to first IO loan etc.

bye

 

[Les]

G'day all,

Just stumbled over this thread - I think this book is a "must-read". As I recall, Kiyosaki's slant was that (in the US) legislation changes have FORCED the Mums and Dads into the DC Super realm (Defined Contribution). i.e. THEY will fund their own retirement in XX years time.

Also, he sees the injustice of having the foxes running the chook-house - Mum and Dad are forced to go to FP's, fund managers, etc to get direction re "where" to place their Super.

He believes we will see another Stockmarket boom over the next few years (as Mums and Dads madly add to their Super...) - then, 1 by 1 (or million by million) they will all call on their Super - and "Whammo !!!" A big, BIG bear market !!!

That's about a 10 line synopsis. Definitely food for thought. Thanks for introducing the subject, Dale. I must've been "head down, bum up" in Bne when you brought this one up.

Regards,

 

[Rixter]

Hope all the long term "IP"ers have or are structuring their portfolios to cater for the largest market place of consumers to ever move along the age pipeline - the babyboomers!

 

[qaz]

Theres as much "wealth" in the economy boom or bust. Its just the price we are willing to pay for that wealth/assets is much lower during a recession/depression and economic activity is much lower. Kiyosaki in my view is right, the retiring babyboomers will create a surge in economic activity as money is moved on mass from one point to another. This will create booms in some areas and crashes in others. Either way, eventually the mass movements of funds will stop and economic activity will plummet. Classic boom-bust. Another thing to keep in mind is that at the end of the day the babyboomers wont be producing anymore only consuming.

 

[quiggles]

I've got to say that my take on this is considerably different from Kiyosaki's. 2 significant points - when was the highest year of birthrate in Australia? Answer: 1974, 12 years after the baby boom ended. Secondly, how much do the boomers have in super? Not a lot, as they came late to the show. Compulsory super for most is a child of the 80's. Compound interest owing to them won't be as substantial as that owing to gen x, gen y, the me gen and all the others. Don't forget, our poulation is growing in absolute numbers - the percentage is less important.

Also, like a kind of legalised Ponzi scheme, more and more money flows in - if the boomers lump sum out, it may cause a blip, but many are better off being pensioned out, especially if they hold large amounts (concessional tax treatment for pensions). So the little guys cash in, but the big guys pension out, which enables the super funds to balance dividends against payouts.

I really don't see a problem. Cool way to sell a book and make a quid though. And since the market is bound to crash at some stage fpr some reason, he's going to be able to say "I told you so!"

 

[Sunfish]

"If you pay IO then the interest payment is evenly spread throughout the term"
The term being infinity

 

[Tibor]

Hi quiggles,

I dare to disagree with you in several points and agree with Kiyosaki. You don't have to agree with, but you might just missing the point completely. The issue in the book was that the superannuation had changed from defined benefit scheme to defined contribution scheme. If you do not understand the importance of it, you might just like to read the book again.

As a results if the stockmarket vagaries will erode the boomber's super, guess what they are gonna do? Little hand out called pension from the government (meaning all taxpayers). At the same time for the next generation what it will mean when the boomers also start to cash out from their superfunds. The funds have to sell (which usually lowers the unit price as the underlying stocks under pressure also will fall) to pay out the boomers and the next generation's super (and also investment) will also go backwards for around 15 years until the boomers stop retiring and drawing cash as this is what they can relate to.

Regarding to your last comment that this is a cool way to sell a book, let me assure you that some large well known business colleges put onto their recommended / compulsory listing his books. I dunno, maybe they also want to share that cool feeling, or somone else (apart from the millions who read his book around the world) thinks that it might not be completely silly what he says.

Just the 2c mate.

 

[Aceyducey]

Quiggles,

I think you underestimate the total net worth of Baby Boomers

It's not simply the superannuation that applies - it's the family homes & other investments.

Cheers,

Aceyducey

 

[austini]

Hi guys,

There is always some guru out there taking a point of view that for this reason or that the cyclical nature of our markets has changed and "it will be different this time". History somehow seems to keep finding a way of repeating itself. The length of the cycle and severity of it may vary but it is always there.

It was interesting whilst going back through a number of my investing books written a handful of years ago that I saw time and time again the prediction that look we are in a low inflation environment so property prices are only going to grow very slowly from now on. Therefore it is best to invest in shares and managed funds. This remined me of how many so called financial gurus back then were preaching this mantra. And look what happened. We had as good a property boom as any investor could hope for whilst the share market was lack lustre.

Super in only a recent thing. Prior to super our markets still operated in their cyclical manner. So we are going to have a lot of baby boomers retiring but this will be over a twenty year period. And you only have to look at government policy to see that one way or another that the working population from now on is going to be forced to contribute progressively more towards their retirement throught compulsory super etc. For a good part of the baby boomers working life their was nothing in place to force them to save for retirement.

Also I was only reading recently that we are going to see the greatest transfer of wealth of our time as the baby boomers start to die off and their assets transfer to the kids. I'm sure a lot of this will go to the kids maybe even prior to the baby boomers death (eg gifting etc to be eligible for the pension or just because parents feel good about helping thier kids out whilst they are still alive). So where do you think the kids are going to put the money??? These kids who are much more aware of the importance of investing in growth assets in addition to their home. TV shows like Money and a wealth of great books have seen to this.

As a previous post highlighted there will always be opportunities. So companies whose business provides goods and services for our retired baby boomers will certainly do well.

After having fallen victim to various investing fads over recent years I am personally trying to de-educate myself, get back to investing basics and take an "Active" approach to investing in property, shares and cash products at the appropriate stages of the cycle. If you follow simple diversification rules and reguarly (perhaps yearly or half yearly) rebalance your portfolio by taking profits and/or investing new funds accordingly this should minimise the risk of having all your eggs in a single asset class should it turn sour for an extended period of time.

Sorry for the long rambling post - I blame the early morning walk.

Cheers - Gordon

 

[plumtree]

I would like to suggest that there is a tendancy to over estimate the adverse impact of retirement by the baby boomers. This retirement will come over a period of a few years and not everyone who retires will drop into a giant hole of morbitity. There is little reason for retirees withdrawing all their money and depositing it under the mattress.
Baby boomers are not idiots and most will certainly continue a life of some productivity including property investing, shares and whatever seems profitable. As a group of property investors, we should consider investing in, not necessarily nursing homes, but places where retirees would like to be- 'away from the cities'- the beaches, farms, Queensland because its seen as the place to be,and even the mountains.
The other thing to consider is the general health of these people. At age 65 they are much heathier than previous groups and they will more inclined to be going on with life. There will be more people with money to invest. In fact they will probably establish their own businesses.
It will in fact be a very productive period barring any unforseen world event.

Regards Plumtree

 

[Peter 14.7]

Hi All

I don't believe their will be a massive crash and RK is simply regurgitating other theories that have been around since the mid 90's in the USA. There Super is called 412k Accounts or something like it.

What I do see is a change in spending patterns and locations which will influence the market and profitability of one company over another.

Ask a BB close to retirement (5 years or less) what they propose to do they answer:

Men: Take up that Hobby, Project, Trip I have always wanted to. Do nothing and enjoy my favorite thing Golf, Fishing, etc.

Woman: Find things to get Hubby out of my hair!

The average Guy (most about to retire are Men) has never had a lot of time on their hands or the cash to do with it.

Expect a explosion in:

new cars (my last car better make it good one approach)
courses and classes in how to do it,
hardware stores serving the home handy man
camping and leisure equipment (caravans, trailer homes, 4WD's)
adventure trips to Kakadu, Tasmania, New Zealand, etc.

Now compare that list to what is already happening and you will see we are already in the great change!

new cars record new car sales

courses and classes in how to do it, tafe and community colleges every where

hardware stores serving the home handy man Bunnings ….they even run courses on how to sand and how to build a birdcage, etc..

camping and leisure equipment (caravans, trailer homes, 4WD's) huge growth evidenced by regular expos and gadgets being invested, SUV or Soft 4WD Roaders fastest growing car segment

adventure trips to Kakadu, Tasmainia, New Zealand, etc.
yet to kick in but seeing signs with 4WD safari driving holidays, Anzac Cove visits, Alaska Ice Cruises etc..

I dont know if a great shift to QLd any more than it is will occur. Most older persons actually stay put on retirement with those who want to move having done so during their earlier years.


FYI , Peter 147

 

[Aceyducey]

Baby boomers are not idiots and most will certainly continue a life of some productivity including property investing, shares and whatever seems profitable. As a group of property investors, we should consider investing in, not necessarily nursing homes, but places where retirees would like to be- 'away from the cities'- the beaches, farms, Queensland because its seen as the place to be,and even the mountains.
The other thing to consider is the general health of these people. At age 65 they are much heathier than previous groups and they will more inclined to be going on with life. There will be more people with money to invest. In fact they will probably establish their own businesses.

Plumtree,

I think you're projecting there a little.

Unlike yourself (assuming you are a boomer), the majority of baby boomers don't have an investment mentality. For most of their lives they've lived in plenty.

Overall they have proven to be lousy savers, big borrowers & very conspicuous spenders.

They are only now beginning to come to terms with the fact that they are getting old & that they are likely to outlive their lifestyle.

They are faced with mounting health costs, diminished earnings capacities & many (well over 50%) still have large mortgages.

There are many investors who are babyboomers...but this adds up to only between 20 & 30% of the generational group according to figures I saw last year.

What will the other 70-80% of people be doing when their super money runs out? They'll be downgrading their family home & otherwise selling assets to fund lifestyle & rising health costs (90% of health costs occur in the last 10 years of life) - and like previous generations the majority will be on the pension.

Now some will undoubtably start businesses - but most are not suited to this....after 40 years as a wage slave it's a lot to expect someone over 60 to learn to run their own business AND put their lifestyle and assets at risk if it fails.....

Some will keep working regular jobs until they can no longer do so.....falling effectiveness, health issues and stress will ensure that for most people this won't be for very long.

Now who will be funding each retiree's pension you (should) ask - well we're getting very close to a point of one working person supporting one retiree, down from 40 workers per retiree back when the pension was introduced.

We'll also have to fund health costs - and think about the wonderful technology advances, artificial hearts & limbs, ever more effective drugs....it adds potentially a decade or more to their lives - with associated health costs & pension ramifications.

Think about it.

Also think about the impact of 30% of the workforce leaving work over a 20 year period. The loss of expertise, knowledge & bodies!

Wages go up (scarcity), asset sales skyrocket (financing lifestyle)....and currency values fall. Can anyone say double-digit inflation?

I expect the period 2010-2030 to be very challenging for both Australia and other western countries - Italy, Japan, USA and all the others with rising aged populations and slow replacement rates (and post-peak energy reserves).

Note, I don't call this a disaster - I call it an opportunity!!!

Lots of wealth to be created addressing the structural challenges of a aged-heavy population....

The question is who will create that wealth?

Cheers,

Aceyducey

 

[beech]

Acey could you expand on your thoughts re "Structural Changes",please.

 

[Peter 14.7]

Hi All

Aceys post has reminded me on one Baby Boomer aspect that will hurt the economy through higher taxes.

That Issue is Unfunded Government Pension/Super Schemes.

What are those?

Back in the late 70's early 80's the Commonwealth and States were the leaders on Superannuation or Employee Funded Pensions as they were known then. Now I don’t know why, maybe the Unions were trying to show it worked or it was the Gov paid well under the market wage and this was an incentive to public servants to stay in but they were and remain very, very generous packages.

How generous you ask?

How would you like a Super that paid 75% of your final wage, indexed for inflation for life! No… this is not a misprint. I cannot comment for all states but that was the NSW Scheme and I understand others are similar if not the same.

Why a problem?

Now the Super boffins either didn’t understand or consider demographics and failed to realize that the pool of public servant workers contributing may actually decrease in number and that those retiring may live a longer life in the future with medical advances or that wages in the public sector may rise to be on par with private. Nevertheless there is much more money owed to workers, unfunded than in the pool. The Treasurer Costello touched on the Fed issues in the last budget when he put so many $$$ away for a Future Fund.

What did they do to fix it?

When they did realize new schemes were introduced but those on the old scheme had the right to stay there and many have despite large cash injection bonuses to move over. New public servants don’t get the old scheme but the damage has been done.

When will it hit.

Most on the Public sector in NSW is average age 47 and ready to cash in over the next few years from 55 onwards. I personally know of two (husband and wife) who are both on 80K p.a. as of 2004 and will both be on 75% indexed for life. They are 50ish, fit and well and not likely to kick the bucket for twenty years.

So Who Will Pay

You and I. The taxpayers of NSW. The public sectors in continually shrinking and even if it was not there is no way they can pay the benefits being indexed and so high.

Summary

Yes there is an issue on super that will lead to higher taxes both federally and state unless the can increase the tax base via immigration.

Maybe RK is right? Peter 147

 

[Aceyducey]

Acey could you expand on your thoughts re "Structural Changes",please.

Beech,

Healthcare
Retirement housing (with appropriate fittings for the mobility challenged)
Medical technology
Any products/services or fads that revitalise a baby boomer's youth
Labour saving devices

Basically anything targeting those over 65

It's been discussed several times in the forum - I suggest you refer back for more comments on the topic.

Cheers,

Aceyducey

 

[Bill.L]

Hi all,

Acey, In your comments on possible inflation you also mention massive asset sales by the BB's to fund the retirement.

Who are going to buy these assets??

Can you see that a large asset sell off could lead to much lower prices than expected(supply/demand).

Anyone willing to have a stab at what assets will be sold off?? My sugestions include the family home(or the holiday house) and the super fund itself(because it is sitting there, and underfunded), with people deciding to fall back on the pension.

The future, always open to sooo much debate.

bye

 

[MarkR]

Small point about Govt power

Interesting thread guys, one small point is that any 'crystal ball gazing' may do well to consider the past Ok, not trying to wind anyone up (seriously) but I read with interest about the 'indexed for life' supers & the inherent assumption in a lot of posts in this thread that Govt doesn't change the law when it suits them DESPITE the howls of the public.

In NZ there was compulsory super in the late 50's early 60's (can't remember the % but 7% or 9% I think), the Govt of the day allowed you to contribute 1:1 tax free i.e. if for every 1$ of your compulsory super you could contribute $1 pre-tax. Now my Dad thought this was a great idea being in his mid 20's & contributed the max for the 5 or so yrs it was running. Then the Govt decided that it was running at too big a deficit (surprise ?) & would use all the money in the compulsory super funds as additional revenue. Instead of leaving the funds as unfunded it simply closed them, meaning it essentially confiscated all the super money INCLUDING the additional $ that people such as my Dad contributed. Did he ever get it back ? No.

My take on all this.... the rules can & will change depending upon the environment. Does the NZ Govt have any greater power than the Aus Govt ?

Although all said forewarned is forearmed & I'll be watching this forum over the next 10-20 yrs to see which way the wind is blowing

Cheers
Mark

 

[plumtree]

Dear Acey,

Many thanks for the incisive info. This forum is certainly blessed with the number of willing and deeply experienced participants. I continue to wonder how my investments would have progressed if I had always had access to these ideas....and to be able to "sound" ideas on this forum.

I am too old to be a boomer but I have been investing in property since I was 18. All of my ventures have been on essentially a "judicious guess" and because I was just in front of the boomers, all have come good in the end.

I still feel very strongly that there is a tendency to overreaction in respect to the boomers and their retirement. My guess is that the period and impact will be smoothed and softened by a variety of factors. These factors may include government intervention, the boomer's new found ability to spend & invest, enforced migation incidents and improved health issues.

My guess is that success in property will depend on the area you target.
I don't intend to sell the house in Paddington but I will be looking at areas that answer the question.." if I sell the family home, were can I buy and still have some cash in my jeans"

Again, thanks Acey for your info.

Regards Plumtree

 

[quiggles]

Hi All

Aceys post has reminded me on one Baby Boomer aspect that will hurt the economy through higher taxes.

That Issue is Unfunded Government Pension/Super Schemes.

(snip)

Nevertheless there is much more money owed to workers, unfunded than in the pool. The Treasurer Costello touched on the Fed issues in the last budget when he put so many $$$ away for a Future Fund.

Boy was I shocked when they showed that much forethought.

When will it hit.

Most on the Public sector in NSW is average age 47 and ready to cash in over the next few years from 55 onwards. I personally know of two (husband and wife) who are both on 80K p.a. as of 2004 and will both be on 75% indexed for life. They are 50ish, fit and well and not likely to kick the bucket for twenty years.

Yes, but they have to work until age 65 to get that. Early retirement is considerably less generous.

So Who Will Pay

You and I. The taxpayers of NSW. The public sectors in continually shrinking and even if it was not there is no way they can pay the benefits being indexed and so high.

State taxpayers have a real problem. And all of us, as property owners (read BIG FAT TARGETS!), share that problem. I think the Feds are planning to fix their problem before it hits, but that's a personal opinion. Who knows, maybe that's what Egan's Egregious Excise is all about (hah!).