Shares or Property!

[ziggy2214]

Talking about shares that I know nothing, can anybody tell me where to start? any books or web site recommended? I want to learn.
One more thing, since most of the people in here are investors, I believe some also invested in gold or silver. Can any of you also tell me where to start learning about investing in gold as well? any books or web site?
I just want to learn and watch then decided later where to go with extra money that is not enough be invested in IP
Thanks.

Chara

The ASX has some info on shares
http://www.asx.com.au/investor/shares/index.htm

There are also free online classes

ASX offers a wide range of free online classes,

Classes include:

Getting started in shares
Starting in the sharemarket
Tracking your sharemarket investment
Developing your investment portfolio
Getting started in options
Getting started in options and warrants
Advancing in options
Getting started in instalment and trading warrants
Getting started in interest rate securities.
Detail class outlines can be found at http://www.asx.com.au/investor/education/classes/online.htm

To access, simply register for MyASX for free at http://www.asx.com.au/resources/myasx/index.htm

Investment books – learn the ASX Way
The ASX Way investment book series allows people to start from scratch and build their confidence and knowledge as they progress through each book. Available titles:

Starting out in shares the ASX Way
Trading the sharemarket the ASX Way
Trading options the ASX Way
Investing in warrants the ASX Way.
For more information, visit http://www.asx.com.au/investor/education/index.htm on the right hand panel

 

[Pete_d]

It's official....

http://news.theage.com.au/business/shares-beat-property-long-term-report-20080519-2fud.html

Australian shares outperformed both listed property trusts and residential property to provide the best real returns for local investors over the past two decades, an industry survey has found.

The 2008 Russell/ASX report found Australian shares outperformed all other sectors, delivering the best after-tax and after-cost returns at both the lowest and highest marginal rates.

Local shares returned 16.2 per cent after tax versus 13.4 per cent for residential property at the lowest marginal rate.

Shares returned 13.9 per cent compared to 12.0 per cent on property at the highest marginal tax rate.

...It factors in a 50 per cent gearing ratio for the most commonly geared assets, Australian shares and residential investment property.[/I]

An important point about the level of gearing but relevant to this discussion.

 

[Bill.L]

Hi all,

Let's see, commissioned by the ASX, gee I wonder what they are trying to promote??

50% leverage for IP + shares, I wonder why they chose this level??

Answer, this is the level that gives the answers they want.

By the way, which shares?? or is it funds?? which funds??

Beware silly grab bag stories, they do not mean a thing.

bye

 

[alexlee]

I don't know about the rest of you, but I don't buy property at 50% LVR. I don't have enough money for the deposit.

It's basically saying 'if you invest in property in THIS particular way, you'll find that shares outperform property'. Which isn't that meaningful if no one actually invests in that particular way. I'm not actually saying which outperforms what: just that a 'report' like this is meaningless.

So shares do even better when the owner is at a lower tax bracket. That makes sense, since the tax deductions, especially depreciation, are 'better' when tax rates are higher.
Alex

 

[yo yo ma]

Similar article to the one Pete posted above...

http://www.news.com.au/business/money/story/0,25479,23721991-5013953,00.html

 

[contrary]

saving tax is a sure return

My 2cents worth : Make sure you maximise your eligable goverment concessions eg government co-contribution to super for low income earners or first homeowners saving co-contirb. These are guaranteed return. No one speaks of super but I think super is a good investment if you are on a higher salary. You can contribute up to total 50k per annum, taxed 15% in and ongoing and it is like self funded life insurance- goes to your beneficiaries if you die. It is also conservative and allows you to dollar cost average. 50k per annum over 15-20 years and you have enough for retirement. You don't need to sweat figuring out some great investmenting strategy and spend 5mins on it a year! (high or medium growth if you are less than 40) It's the best investment I've made to date.

 

[alexlee]

My 2cents worth : Make sure you maximise your eligable goverment concessions eg government co-contribution to super for low income earners or first homeowners saving co-contirb. These are guaranteed return. No one speaks of super but I think super is a good investment if you are on a higher salary. You can contribute up to total 50k per annum, taxed 15% in and ongoing and it is like self funded life insurance- goes to your beneficiaries if you die. It is also conservative and allows you to dollar cost average. 50k per annum over 15-20 years and you have enough for retirement. You don't need to sweat figuring out some great investmenting strategy and spend 5mins on it a year! (high or medium growth if you are less than 40) It's the best investment I've made to date.

I think super is a poor 'investment' ESPECIALLY if you're under 40. You can't access it efficiently until you're 65. If you can't save and don't want to invest yourself, by all means put the max into super. If you can save and you are willing to invest yourself, focus on the personal investments instead. It's like saying I'll give you a 30 year term deposit paying 10% a year, but you can't break it early. Would you do it? What's the point of putting money into a place that locks it away for 30 years, when by that time I sure won't need it?
Alex

 

[granev]

I think super is a poor 'investment' ESPECIALLY if you're under 40. You can't access it efficiently until you're 65. If you can't save and don't want to invest yourself, by all means put the max into super. If you can save and you are willing to invest yourself, focus on the personal investments instead. It's like saying I'll give you a 30 year term deposit paying 10% a year, but you can't break it early. Would you do it? What's the point of putting money into a place that locks it away for 30 years, when by that time I sure won't need it?
Alex

Depends what stage of life you are at and your personal circumstances Alex , I have a couple of good reasons for super being an important part of my stratergy , but I am mid 40s

 

[ziggy2214]

I think super is a poor 'investment' ESPECIALLY if you're under 40. You can't access it efficiently until you're 65. If you can't save and don't want to invest yourself, by all means put the max into super. If you can save and you are willing to invest yourself, focus on the personal investments instead. It's like saying I'll give you a 30 year term deposit paying 10% a year, but you can't break it early. Would you do it? What's the point of putting money into a place that locks it away for 30 years, when by that time I sure won't need it?
Alex

It depends on what you would otherwise do with your money
If you are going to spend it you are better off putting some straight into super

 

[contrary]

super

Alex, I used to think the same, but if you are in the top or even 40% marginal rate of tax I think it is hard to go past super even if you are in your 30's. you get taxed 15% vs 40% on the way in and ongoing. If you use these post tax savings to fund investment you are taxed 40% on the way in and 20% on CGT's and 40% on income. It takes a lot longer to accumulate post tax savings. I have put it in a spreadsheet over 10 years and if you are on 40% or above you are better off putting it in super than paying off your home loan early or levering it with a margin or investment home loan. That is if you are interested in total return after 10 years. You can still determine your investment strategy in super (eg DIY or fund selection). It being inaccessable until 60, well that is a good thing as well as a bad thing. Means you can't blow all your dough in bad investments!!

The way I think of it is : I have 50k, I can put it in super and pay 7.5k tax (leaving me with 42.5k into super) or save/invest and pay 24k tax (leaving me with 26k into my bank account to invest). Bugger if I am going to do the latter!! With the former I have a guaranteed return 42.5k Vs 26k.

Bill is correct with the property vs shares, there is much more potential and average leverage % in property and that is why the actual return for the average investor is much greater as % equity. Property in Sydney actually has a better risk/ variance adjusted return than the stockmarket which no one mentions, but is implied by the higher gearing ratio allowable on property.

 

[alexlee]

Alex, I used to think the same, but if you are in the top or even 40% marginal rate of tax I think it is hard to go past super even if you are in your 30's.

Except I can't access it until I'm 65. That's a LONG time, and I'm going to be rich way before then.

you get taxed 15% vs 40% on the way in and ongoing. If you use these post tax savings to fund investment you are taxed 40% on the way in and 20% on CGT's and 40% on income. It takes a lot longer to accumulate post tax savings.

It isn't going to take me longer than 34 years. In any case, most property gains are in the form of CG, and appreciation ISN'T taxed until you sell. As a property investor surely you know this. And if you refinance your property and use new borrowings as deposits, the new borrowings are also not taxable (though of course you have to pay interest on it). I used after tax cash as deposit for the properties initially, but I did that by saving 40% of my after tax pay when I was in my 20s. I've been growing my portfolio and have never paid a cent of CGT because I've never sold a property. By the time I DO sell, you can bet I won't be working so I won't be paying 40% marginal rates.

I have put it in a spreadsheet over 10 years and if you are on 40% or above you are better off putting it in super than paying off your home loan early or levering it with a margin or investment home loan. That is if you are interested in total return after 10 years. You can still determine your investment strategy in super (eg DIY or fund selection). It being inaccessable until 60, well that is a good thing as well as a bad thing. Means you can't blow all your dough in bad investments!!

Comparisons of 10 year returns mean nothing if I can't access it. Who cares about performance after 10 years if it's locked in for another 35? So I'm basically insuring against my own financial stupidity? That's not playing to win. That's playing not to lose. I think that's fine for people who otherwise wouldn't be able to save. I started buying shares at 20 and property property at 22. I already HAVE 10 years of experience with this. Do you really think it's going to take me until 65 to get rich?

At the moment, I'm minimising the amount I put into super by packaging investment loan interest. Because I can do better myself.
Alex

 

[Andrew_A]

Contrary, interesting idea.

I'm thinking that this could be a wizard idea for a younger person on a high salary if for example you are then able to take your super and some form of gearing to say buy a long term PPOR for your family!?

If it's just a case of saving for 65 with no investment or lifestyle payback then no thanks, no matter how much the tax benefit.

Thoughts?

 

[WinstonWolfe]

Contrary, Alex is right.

Go back to your spreadsheet and fiddle with maintaining your DSR at whatever you can afford and the banks allow, say 80%.....i.e. as your income goes up, and your asset valuations, you keep taking on more debt to keep DSR at 80%.

The only way super can compete with that is if asset growth averages less than ~6%pa until you retire.

However, interestingly, it isn't so wild to imagine property growth being flattish for 10-15 years.

Finally, it is unwise to make tax minimization the pinnacle of one's wealth creation strategy. That is akin to not going to work because you don't want to pay more tax.

And the real feather in the cap of wealth creation is to actively invest. Rather then use capital to provide a mediocre return on putting a roof over other's heads, there's higher rewards for matching supply to demand in any number of endeavours, risk adjusted and all. Though risk adjustment has a lot to do with how much education and life experience one takes on.

 

[alexlee]

Depends what stage of life you are at and your personal circumstances Alex , I have a couple of good reasons for super being an important part of my stratergy , but I am mid 40s

I really don't understand that. If it's just for safety and having something that can't be touched, why not invest a regular amount into shares into a family trust? In my case that's what I'll be doing as I have a non-working spouse.
Alex

 

[LynnH]

Alex, I used to think the same, but if you are in the top or even 40% marginal rate of tax I think it is hard to go past super even if you are in your 30's. you get taxed 15% vs 40% on the way in and ongoing.

You can still determine your investment strategy in super (eg DIY or fund selection). It being inaccessable until 60, well that is a good thing as well as a bad thing. Means you can't blow all your dough in bad investments!!

I think the greatest 'danger' for people who maximize their super contributions while they are relatively young lies in the area of future changes in government legislation in relation to superannuation - it is impossible to foresee what changes lie ahead.

We have been contributing to super since the early 1970s, and have experienced first-hand the many changes in Government legislation in that time. Currently the laws in relation to super are benevolent - but there is much speculation that, with the growth in the number of older people, the current tax-free status of super for the over-60s cannot continue indefinitely.

IMHO, locking a large amount your money away for 30 or more years - particularly when no-one can foresee what legislative changes may lie in the future - may not be the wisest thing to do. I think people should look at their overall individual financial positions and review future plans before committing excess funds to super - different approaches are appropriate at different ages and stages in one's investment journey.

Having said that, we are currently maximizing pre-tax contributions to our SMSF - but we can both access the funds tomorrow if we need to do so!!

Cheers
LynnH

 

[contrary]

maybe not for everyone

well, it may not be for everyone, but it makes sense to me. I don't mind delaying gratification and I quite like the idea of self financing my life insurace. The premium for 1m death is about 1-2k/annum and once you have more than 500k in super you may not need the life/death insurance.

I am in the top MRT and given my saving preferences it makes sense to me. Alex, it is true that you are better off funding new investment with unrealised CG's than saving. However, there is still taxable income, and if I don't put it in super then I will be saving and at the top MRT. I get a 80% guaranteed return by putting it in super compared to not. Even if they changed the rules later, I figure I will be better off as I am being taxed on it at 15% rather than 45%.

There is of course getting more leverage, but I figure I already have enough and it is hard to see how you can weather volatility in interest rates if you are leveraged to the hilt. I don't put all my savings into super, I contribute about 15% of my gross income to super and I think it helps get my tax down.

 

[alexlee]

I am in the top MRT and given my saving preferences it makes sense to me. Alex, it is true that you are better off funding new investment with unrealised CG's than saving. However, there is still taxable income, and if I don't put it in super then I will be saving and at the top MRT. I get a 80% guaranteed return by putting it in super compared to not. Even if they changed the rules later, I figure I will be better off as I am being taxed on it at 15% rather than 45%.

There is of course getting more leverage, but I figure I already have enough and it is hard to see how you can weather volatility in interest rates if you are leveraged to the hilt. I don't put all my savings into super, I contribute about 15% of my gross income to super and I think it helps get my tax down.

That's my whole point. Your strategy of contributing to super saves you tax. I agree. But should saving tax (and ignoring what is, to me at age 31, a horrible situation of locking money away until 65) be the main objective? Shouldn't the objective be to grow assets, and leverage certainly helps that? Most importantly, why should I 'plan' to 'retire' at 65, when clearly I can achieve it much faster than that? Why specifically lock myself into a vehicle that is designed to provide a good retirement to people over the age of 65, when clearly my objective is different?

I don't know about you but my LVR is about 65%. How do I weather volatile interest rates (actually VOLATILE interest rates doesn't concern me, RISING rates concern me but not much)? Having a lot of spare cash lying around in offset accounts and shares I can actually access, not locked into a super fund for 34 years.

What if they change it so that you have to be 70 to access super? Or 75? That's not too far fetched. They made massive changes to super in the last couple of years. Who is to say it won't happen again?

Each to his own. As far as I'm concerned, as a relatively young person who invests diligently, super is the LAST thing I would put money into.
Alex

 

[alexlee]

well, it may not be for everyone, but it makes sense to me. I don't mind delaying gratification and I quite like the idea of self financing my life insurace. The premium for 1m death is about 1-2k/annum and once you have more than 500k in super you may not need the life/death insurance.

And if I have a couple million in net assets personally or in trusts anyway, who cares how much money I have in super?

There is of course getting more leverage, but I figure I already have enough and it is hard to see how you can weather volatility in interest rates if you are leveraged to the hilt. I don't put all my savings into super, I contribute about 15% of my gross income to super and I think it helps get my tax down.

If you've been investing in shares and property since the 90s and you still need super after the 15 years, and you're making $150k+, then I'd argue you need more leverage.
Alex

 

[asdf]

Living your life when you're 65 or even 70 is no way to live your life even if you have a few mil tucked away. Each to their own I suppose.

Ask any retired baby boomer now what they regret the most and I bet over 80% will say they did not spend enough time with their families in their 30s, 40s and 50s cos they had to work so hard to put food on the table. However they deserve everything they have now but its come at a price - youth. They are all making up for the lost time - holidays, caravans, cruises, plasma TVs, holiday homes and off course their grand kids are now being spoilt rotten.

 

[jingo]

Interesting topic regarding super.

I agree, rules may change. This is a risk that can affect assets both inside and outside super.

I have a foot in each camp. I have an LVR of around 60% on my portfolio outside of super. But do contribute to super. I have several reasons for doing so.

*Cheaper life insurance

*Brings down my taxable income effectively

*My super will probably grow to an amount which is equivalent to my property loan and could be used to pay this out in the future.

*Finally I use my super as an insurance policy. If I happen to go bankrupt, I understand that my super is quarrantined.

In the future I intend to set up a SMSF with my wife. We will buy assets within the fund.

Each to their own I suppose!