Overall financial strategy - property & non-property

[auror]

Hi there,

I know this is a property forum so topics are, of course, geared more towards property.

However I'm just wondering about people's overall approach to investing (ie. direct share investments, investment funds, super) in addition to property.

I've always been a fan of not putting all your eggs in 1 basket (learnt this the hard way). I am in the accumulation phase for investing in property but my only concern is that I am too heavily focussed in this area - as evidenced by the amount of mortgage repayments compared to the amount of money going into shares, super, managed funds, etc.

Currently my ratio of money going into property:non-property is 15:1.

This ratio is extremely high because I am paying down my PPOR as fast as possible, and maintaining I/O repayments on IP1. I have very little left over for managed funds and am concerned that I'm missing out on opportunities there.

What's your overall approach?

(also, is there any other place to put this than Coffee Lounge?)

 

[want2bewealthy]

Ive only ever been a fan of putting all my eggs in one basket, property only for me.

 

[Aaron Sice]

i like a few specialised baskets - but not too many.

at present my money is property:non-property - 0:100

but i still think a PPOR is an investment (with no yield) so i guess it'll be 50:50 by middle this year.

 

[auror]

hmmm. it's just occurred to me that there's another ratio to be looked at: rather than the amount being drip-fed into property:non-property, it's the ratio of amount in property:amount in non-property assets. Mine is about 5:1...

I don't mind property investing, I just feel that it ultimately leads to an unbalanced basket of eggs.

 

[The Y-man]

However I'm just wondering about people's overall approach to investing (ie. direct share investments, investment funds, super) in addition to property.

My personal view is that investments in various asset classes are necessary for the following reasons:

1. to take advantage of differing market cycles
2. to provide "fallback" when one class (or more!) tanks big time
3. to provide different mix of yield/CG/liquidity/tax advantages.

Just to be pedantic, super is not an asset class. When you put money into "super" it still needs to go into cash, property, shares etc.

Cheers,

The Y-man

 

[boomtown]

I think you need to talk net of debt.

In that case Im about 3:1 property to shares. But my property interests are highly geared and my shares not at all.

 

[Player]

Ive only ever been a fan of putting all my eggs in one basket, property only for me.

And there's nothing wrong with that.......just make sure you watch that basket like crazy.

Auror, who said that there anything wrong with an unbalanced basket of eggs.

I am not passing judgment, however think about these words from Warren Buffet:

"Wide diversification is only required when investors do not understand what they are doing."


Personally, I've always been heavy in property. That doesn't mean that at times in the past I haven't held shares, because I have. However when a portfolio of mine in our SMSF got to the point where I could buy a property according to my criteria, I liquidated the stocks and bought cash.

Ditto last year on a development site, shares went in June 2008....phew

That's just one strategy in our SMSF. In my personal name I have property holdings that I have investment loans for. I do not however borrow money to buy shares. Nothing wrong if you do; that's just me and my mindset.

I currently own no shares and have funds in our family trust waiting for the opportunity to enter again. Keeping my strategy simple and long. When I have indications to re-enter, I will do so, however for me, I will still be overweight in property. It's what I know and understand.

Bottom line don't "diworsify" just for the sake of spreading risk. That's a term you will hear from managed funds sales men.

 

[Aaron Sice]

Bottom line don't "diworsify" just for the sake of spreading risk. That's a term you will hear from managed funds sales men.

it's when they're cold calling you for your money, yo realise you've prob got a few too many pies with finger holes in.

 

[auror]

Just to be pedantic, super is not an asset class. When you put money into "super" it still needs to go into cash, property, shares etc.

Yep, I'm aware of that. However the "property" options in super (ie. I thought they did more commercial stuff/LPTs) differ from direct property investment, right?

Perhaps I should have referred to direct property investment (which is what gets talked about on SS) as opposed to non direct PI.

 

[MarkB]

Diversification has it's merits, but so does picking one asset class and doing it very well (especially when you're in the wealth building phase).

 

[Rob Williams]

I am not passing judgment, however think about these words from Warren Buffet:

"Wide diversification is only required when investors do not understand what they are doing."

Like the Zen saying "The average person does 100 things on time. The Master does one thing 100 times".

Specialisation is the way wealth has been created by many people, over a long period of time. Diversification protects the wealth once accumulated.

 

[WillG]

"overall approach to investing"

Regardless of which asset class's you choose, you should be keeping an eye on LVR, cashflow, risk and management.

I generally hold between 70 - 80% of assets in property, the rest in cash and shares. As I learn more about shares I may well have more $$'s invested in shares in the future - I am not ruling out direct business in the future.

Cash is saved at the rate of at least 10% of after tax cashflow each year (see richest man in Babylon)

Every property has different purposes and benefits in terms of cashflow, cap growth, depreciation.

The PPOR value as a ratio of overall net worth decreases every year (investments always increase)

Holding a core of assets (70 - 80%) in property allows access to equity at reasonable rates (keeping a close eye on LVR). This equity can be used for shares, business's and other higher cashflow investments.

Investment 'education' and continual hunting for opportunities is an intangible asset that is harder to quantify.

Flexibility is very important because the asset classes change and you need to move cash & equity to control cashflow.

The above techniques/rules provide flexibility and a sustainable portfolio that will at least keep up with inflation, provide cashflow & capital growth from various sources and continually reduce the reliance on a 'day job'.

I believe it is very important to 'take control' of your investing and continually learn. Handing over SOME control to financial advisors and fund managers is OK but you must make the decisions and have 100% confidence in them. It is likely that the approach will change/improve over time because of changed personal circumstances, economy and age.

Hope this helps

 

[ianvestor]

Mostly property for me... like 20:1 where the 1 is mainly cash.

I also just bought a rather large chunk of AUD (against USD) at 65.9c. I know it could still end up going lower but I'm willing to wait it out as I'm confident ~66 is a fairly good price.

 

[beatenpath]

Originally posted by Rob Williams
Specialisation is the way wealth has been created by many people, over a long period of time. Diversification protects the wealth once accumulated.

Well said, Rob. Diversification has its place when you are in the preservation mode of your portfolio.

 

[want2bewealthy]

Mostly property for me... like 20:1 where the 1 is mainly cash.

I also just bought a rather large chunk of AUD (against USD) at 65.9c. I know it could still end up going lower but I'm willing to wait it out as I'm confident ~66 is a fairly good price.

Thats a good ratio
Mine would be around the same, property being the majority and cash the other, along with a few depreciating 'assets'

 

[our obsession]

Eggs in the one basket, gone into it eyes wide open, doing okay, enjoying the investing/learning/researching.

Each to their own eh. I think my wealth creation involvement in property suits my personality.

Shares, LPT's, DDT's, BBY's just don't do it for me. I think it's wonderful (and admire) other people do....it's just not my cup of tea. (COT).

I also love that i was able to get into property with relatively little cash input, I love leverage, I love equity, I love growth and I love rent!

Magic words, the leverage, growth, and equity.

If I keep playing my cards right, buying well, managing well, researching well, enjoying it all...it will all look after me.

I get a beautiful balance of doing my own "solo thing"....plus meeting/interacting and learning from the most amazing people.

If everything went derriere up tomorrow, I would look and learn to see where I stuffed up and jump back on the (investing in property) horse.

We are all our own masters of our own destiny, choices, decisions, research, behaviour...I love this game. I love the people, and I love houses, architecture. It's all fun for me.

 

[Old Mate]

I am about 90% in shares and the rest in cash. At the moment I do not have enough cash for a deposit nor the cashflow required for investing in property. However I am keen to get in as soon as possible and am hoping my share purchases can accelerate this. Our Obessesion; you have a great attitude and I wish I had as much passion as you do.

 

[santaslayer]

Approx: 80% property
20% Shares/Managed funds.

 

[kum yin lau]

Hi, guess we've all read the same books.

I'm like Michael in his approach. Now putting money into shares.

In younger days, I'd variously 100% shares, and then 100% property. Forex was 10% Speculation $8000 [put money into KI tree plantation]

Results: property = best = longterm stable yield + growth
Shares = spectacular short term boom & bust [I'm still very fond of stocks because they gave me the seed capital to buy property]
Forex = nailbiting anxiety boom & bust [made $80000 then gave back $50000 or something like that]

The trees? Became sawdust!!! Forever don't listen to sister's lawyer friends!

Whatever baskets you choose, watch them closely.
KY

 

[chilliaa]

I firmly believe there is no right and wrong generic answer. More importantly it relies on your personal knowledge and skill base. Diversification for the sake of diversification leads to diworsification. This is mainly because the investor is naive and doesnt understand the asset class.

Personally i believe that NEW money should be allocated to the asset class that has the best future growth opportunities over the next 5 - 10 years. This is dictated by two factors:
1) The long term earnings growth of the asset
2) The current market price of the asset.

If the price appreciation of the asset class has been above its long term price appreciation, then even with consistent earnings growth, the price of the asset class (which gives capital appreciation) may underperform as the asset class reverts to its long term pricing norm.