The Silence is Deafening ...Disappointed ... re cash bonds

[see_change]

In the last few days the question of how the income from a cash bond will be treated in terms of assessing servicability has been raised.

In this post
http://www.somersoft.com/forums/showthread.php?t=22204
and in another post at Invested.

From my understanding of Steve's methods , the use of Cash bonds is an important factor in maximising your servicability.

Certainly one of my main concerns about approach was an underlying assumption that the banks and Tax system would continue to use the same approach to cash bonds.

Well, we're only at the start of a down turn and already one bank has indicated they are changing their approach to assessing the servicability treatment of the income of a Cash bond. Obviously this doesn't impact on existing loans ( hopefully ) but people who were relying on drawing equity to buy a cash bond to maintain servicabilty in the next few years maybe in for a suprise. In particular, if prices havn't gone up , their sevicabilty is borderline or good forbid they have to sell.

Given the speed at which various members come forward to defend this approach , I am incredibly dissappointed at their reluctance to come forward at this time when their is a possible crack in the foundation.

As the topic say ... The silence is deafening

See Change

Disclaimer . This critisism is directed at the Wholistic approach which , as presented , includes maintaining an 80 LVR and using cash bonds for servicability ( so it doesn't apply to people like SimonJulie... ). As I've said before I think all of the elements that Steve suggests have a place at an appropriate time in the cycle.

 

[thefirstbruce]

Have noted the silence SC.

I am also wondering about the length of the investment 'period' of an investment in a dollar cost trading approach. And please, I am not trolling Steve Navra. I just feel the DCT approach has a downside that has been skimmed over a little too nonchalantly (in a bouyant or choppy, but never bearish market).

I think it would be sensible to raise exactly what is a reasonable minimum period to invest in a DCT fund in this climate. And revise that every month. This way, investors who might be looking at different time frames, are less likely to argue over, or be caught in a negative equity position, when they had expectations of cashing out.

 

[Mikhaila]

Fair call SC. I must admit I am surprised with the silence too, especially on the Invested.

I think it would be sensible to raise exactly what is a reasonable minimum period to invest in a DCT fund in this climate. And revise that every month. This way, investors who might be looking at different time frames, are less likely to argue over, or be caught in a negative equity position, when they had expectations of cashing out.

The period clearly stated on the website. It is 5 years.

http://www.navrainvest.com.au/index.asp?content=our_fund

I guess this time frame is fairly standard and takes care of different market conditions.

 

[willair]

Mikhaila,
what is time frames?
good luck
willar............

 

[Mikhaila]

what is time frames?

It meant to be timeframe. It is 5 years by the way.

 

[see_change]

Have noted the silence SC.

I am also wondering about the length of the investment 'period' of an investment in a dollar cost trading approach. And please, I am not trolling Steve Navra. I just feel the DCT approach has a downside that has been skimmed over a little too nonchalantly (in a bouyant or choppy, but never bearish market).

I think it would be sensible to raise exactly what is a reasonable minimum period to invest in a DCT fund in this climate. And revise that every month. This way, investors who might be looking at different time frames, are less likely to argue over, or be caught in a negative equity position, when they had expectations of cashing out.

Bruce

My concern has never been Steve's fund. Steve has been trading shares for over 20 years and has a proven track record over a long period of time , in different market conditons.

I do think there are people who arn't aware of the risks involved in any managed fund. The main time I get concerned related to managed funds is when I see posts from people planning on putting all of their funds in one fund ( regardless of what that fund is )

My concern has always been the concept of living off equity in particular when cash bonds are used for servicability.

I summarised my thoughts in this post
http://www.somersoft.com/forums/showpost.php?p=95292&postcount=37

I also think the comments made in this post by an infrequent but well experienced investor in this post were interesting though over looked many
http://www.somersoft.com/forums/showpost.php?p=141256&postcount=18

See Change

 

[rambada]

I posted the original query regarding cash bonds & servicability. I am disappointed in the response as well. But as to if it will torpedoe going forward, I dont think so.
There are different ways to skin a cat and you find a different way. Myself, I am now looking at equity based lending. The CB's help pick up the loans through the use of 'top ups' for our current full doc lender. Its when you use another department and get a new loan that the question mark is raised. Same organisation, different department, different policy - bizzare.
As for LOE, if you do the maths, it is cheaper to get a LOC and live off it than to draw out all the equity as a lump sum to buy a CB to live on. Its simple math. The advantage of buying the CB was servicability in the banks eyes. I will now be moving to lo doc lenders due to policy change and wanting to spread my exposure.
However I am still LOE and believe in it. We just had vals in the 'disasterous' years and since our last vals 12 monthsago, we have can borrow another $147,000 (full doc). Now we don't need any where near all of that so we will use some for investing and some for life style.
I think from a security (or sleep easy factor) point of view, do the LOE on a broader base ie $5M vs $2M or $10M vs $5M. This is just a numbers game and the broader the base, the easier it is. There was an excellent spreadsheet posted here that gave the predictive models for LOE and by playing with the figures, it demonstrated the options and the comfort factor for each person.
I agree with whats been said though and would have at least expected some clarification or update on CBs for servicability ie what other banks.

 

[BBarnes]

Hello, SeaChange,
I notice from your post that your concern has never been Steve's Navra fund. Yet your following sentence infers that it is unwise to invest all your money in any one fund.
So if I have a certain amount to invest in a managed fund, are you suggesting that I spread my investment over 2 or 3 fund managers, rather than invest the lot with Navra, or whoever?
I was always under the impression that by investing in a fund manager like Navra, and assuming they invest your money in the top Australian Blue Chip companies, you ARE diversifying sufficiently.
In my case, I have invested with Navra, and am thinking of placing more of my funds with them.
Am I doing the wrong thing...should I go elsewhere and 'spread the risk'?
Sorry if I've gone a bit 'off-topic', but would appreciate any advice.
Thanks,
Bill

 

[Alan H]

Hi SC.

The 'Silence is Deafening '? You don't think think this is just a little 'dramatic' do you?

I guess Steve Navra would be one of the better people to comment on the specifics of the use of the Cashbond concept. As you well know, for personal reasons he generally speaking no longer posts here. InvestEd would be the better place to seek clarification from him on this issue.

Secondly, as you also visit InvestEd you would also be aware that Steve Navra has recently apologised on InvestEd for his relative 'absence' due to work commitments. If we were trying to raise another $5mil, start a US Fund etc. etc., all of which was scheduled to close yesterday, I'm sure our 'absence' would be well understood by the majority of fairminded people too and wouldn't necessarily be construde as a 'deafening silence'.

Finally, again as you visit InvestEd, you would also be aware from the following that Steve has committed to catching up on some of the 'back issues' and start posting again asap from this weekend.

http://www.invested.com.au/forums/showthread.php?t=264

I'm sure you meant this query as a general enquiry, however since 'annuities' seems a more general term used by most and 'cashbond' a term more often used by Steve, I'm sure you would also want any misconception by some that Steve has been unreasonably avoiding a response to be quashed. I'd be very surprised if a specific question has been put to him at InvestEd it didn't receive a response in the near future.

Now, more generally to these strange 'cashbond' creatures......

I've used them in the past, and it isn't really news that some specific institutions have had 'changing attitudes' to them from time to time.

I set one up a number of years ago when one major bank in particular was fine with them. Due to some changing circumstances we didn't immediately proceed with the loans until sometime later and then our broker indicated that this particular institution was possibly changing their policy and was less likely to accept them in all circumstances but we should apply anyway. We applied and it was accepted 100%. Worse case scenario by the way was that we simply cashed the annuity back in for a small loss. Not a 'biggy' considering the potential 'upside' that did eventuate anyway.

18 months later I wanted to top up some LOC's and again the broker indicated that this same institution may no longer accept the cashbond. Application was filled in and again it was accepted 100%.

Institutions, people, even Governments ( ) change their minds all the time. It doesn't really concern me that not every institution may accept a cashbond from everyone, in every circumstance.......as long as they accept it in mine.

Cashbonds are one tool that may be used from time to time in individual circumstances. For many, there are better and cheaper ways to demonstrate good serviceability in the bank's eyes and for others this tool does the job nicely.

Will there be a point in time where no institution will accept them under any circumstance? Who knows.....could be. It's simply then time to find a new tool.

If someone was looking at using this methodology, I'd get some professional advice from those with current expertise in this area and have it investigated for my specific situation.

If a cashbond was the best method, and if the professionals stated that it could successfully be placed through a specific institution in the short term for the specific individual circumstances, then I guess there is no problem. If the professionals state that it can be placed, and it turns out it can't, then I think there might be an issue.

 

[redwing]

?

Geez..

Just when someone suggests them to me as a potential way to increase seviceability I find out that it may no longer be the case..

typical..gotta act faster I guess

REDWING

 

[see_change]

Hello, SeaChange,
I notice from your post that your concern has never been Steve's Navra fund. Yet your following sentence infers that it is unwise to invest all your money in any one fund.
So if I have a certain amount to invest in a managed fund, are you suggesting that I spread my investment over 2 or 3 fund managers, rather than invest the lot with Navra, or whoever?
I was always under the impression that by investing in a fund manager like Navra, and assuming they invest your money in the top Australian Blue Chip companies, you ARE diversifying sufficiently.
In my case, I have invested with Navra, and am thinking of placing more of my funds with them.
Am I doing the wrong thing...should I go elsewhere and 'spread the risk'?
Sorry if I've gone a bit 'off-topic', but would appreciate any advice.
Thanks,
Bill

Steve has a particualar style of investing that he uses in his funds. There are other funds that specialise in different areas and different styles eg growth funds , or small cap funds or hedge funds just to name a few.

It's not an area that I've looked at in detail, but brief discussions I've had with people within the managed funds industry indicate there are various funds that have produced consitently good results for reasonable periods of time.

To the best of my knowledge , if you talk to Navra invest and say you want to invest in more than one managed fund , they will only be to happy to advise you about which other funds you might want to park your funds.

Morningstar is well know as a place to start looking at managed funds.

See Change

 

[BBarnes]

Hi, SeaChange,
Thank you for your response.
As you state, if I was to say to Navra that I want to invest in more than one managed fund, I'm sure they would advise me on other funds in which to invest.
But if I didn't ask, wouldn't they naturally push Navra?
And it gets back to my point......If I invest all my money in a fund which diversifies across the top Australian Blue Chip Shares ( ie Navra ), is that not enough diversification?
Or should I still spread my money around several fund managers for safety?
And in saying that, does that mean that if one invests with one fund manager, and that fund goes belly-up for some reason, can you still lose your investment funds...even though they are invested in Australian Blue Chip shares?
I have never had a definitive answer on this question, and would appreciate any advice......as usual
Thank you,
Bill

 

[see_change]

Hi SC.

The 'Silence is Deafening '? You don't think think this is just a little 'dramatic' do you?

Given the fanfare of replies that normally accompanies Steves posts I didn't think it was innaproriate. I didn't post this untill it was obvious that the concerns in the original posts wern't being addressed and people seemed to happy for them to slip away with as little comment as possible.

I guess Steve Navra would be one of the better people to comment on the specifics of the use of the Cashbond concept. As you well know, for personal reasons he generally speaking no longer posts here. InvestEd would be the better place to seek clarification from him on this issue.

Alan , First , this issue was raised on Invested before it was rasied here but there has been little comment . Given that most of the questions raised about Cash bonds have been raised on this forum and out of a degree of respect for Steve I didn't was to post this style of post on his forum . Maybe this was wrong.... . I am also aware that there are people who have been involved in these debates who are not members of Invested, so would not have been able to contribute over there

Secondly, as you also visit InvestEd you would also be aware that Steve Navra has recently apologised on InvestEd for his relative 'absence' due to work commitments. If we were trying to raise another $5mil, start a US Fund etc. etc., all of which was scheduled to close yesterday, I'm sure our 'absence' would be well understood by the majority of fairminded people too and wouldn't necessarily be construde as a 'deafening silence'.

Yes steve has been busy , and I know he can't drop everything to answer posts
But
what about all of the other people who normally post to his defence.
Do they have no original ideas of their own?
Do they have to wait untill steve provides the answer before they know what to say and do ?

There are various members who go around repeating the works of many gurus without really understanding what they're talking about.

These are more the people who I am mainly having a go at.

Finally, again as you visit InvestEd, you would also be aware from the following that Steve has committed to catching up on some of the 'back issues' and start posting again asap from this weekend.

http://www.invested.com.au/forums/showthread.php?t=264

I'm sure you meant this query as a general enquiry, however since 'annuities' seems a more general term used by most and 'cashbond' a term more often used by Steve, I'm sure you would also want any misconception by some that Steve has been unreasonably avoiding a response to be quashed. I'd be very surprised if a specific question has been put to him at InvestEd it didn't receive a response in the near future.

Given the fan fare for the launch of invested and how cash bonds do play an intergral part in his structure and he's using invested to promote his services , I actually would have expected a response from Steve sooner. A lot of trouble and effort from several people has gone into setting up Invested and if one of the key players doesn't appear to be pulling his weight I'd be getting a little frustrated if I was involved.

Now, more generally to these strange 'cashbond' creatures......

I've used them in the past, and it isn't really news that some specific institutions have had 'changing attitudes' to them from time to time.

I set one up a number of years ago when one major bank in particular was fine with them. Due to some changing circumstances we didn't immediately proceed with the loans until sometime later and then our broker indicated that this particular institution was possibly changing their policy and was less likely to accept them in all circumstances but we should apply anyway. We applied and it was accepted 100%. Worse case scenario by the way was that we simply cashed the annuity back in for a small loss. Not a 'biggy' considering the potential 'upside' that did eventuate anyway.

18 months later I wanted to top up some LOC's and again the broker indicated that this same institution may no longer accept the cashbond. Application was filled in and again it was accepted 100%.

Institutions, people, even Governments ( ) change their minds all the time. It doesn't really concern me that not every institution may accept a cashbond from everyone, in every circumstance.......as long as they accept it in mine.

Cashbonds are one tool that may be used from time to time in individual circumstances. For many, there are better and cheaper ways to demonstrate good serviceability in the bank's eyes and for others this tool does the job nicely.

Will there be a point in time where no institution will accept them under any circumstance? Who knows.....could be. It's simply then time to find a new tool.

If someone was looking at using this methodology, I'd get some professional advice from those with current expertise in this area and have it investigated for my specific situation.

If a cashbond was the best method, and if the professionals stated that it could successfully be placed through a specific institution in the short term for the specific individual circumstances, then I guess there is no problem. If the professionals state that it can be placed, and it turns out it can't, then I think there might be an issue.

I think that's the first response that actually addresses the initial question

Thanks

See Change

 

[Alan H]

Given the fanfare of replies that normally accompanies Steves posts I didn't think it was innaproriate. I didn't post this untill it was obvious that the concerns in the original posts wern't being addressed and people seemed to happy for them to slip away with as little comment as possible.

This issue was certainly posted on InvestEd which is still in its first few weeks of operation and hence has a much smaller number of contributors, however I believe it did have a few responses.

Fair suck of the sav.......the topic was only posted on Wednesday.........not Wednesday a few weeks ago but a couple of days ago.

I can think of a number of topics over there that have only had a few responses, but I wouldn't be jumping to the conclusion that because of this there's some sort of 'conspiracy of silence' with them all.

Sometimes here(as well as there), a lack of response simply means that the topic isn't seen as a big deal. I must admit I saw it and simply didn't think it was a big issue.

Indeed, with your wealth of experience on this Forum over the years which has covered many in depth discussions about Cashbonds, you also chose not to contribute to that particular thread at InvestEd. Should we therefore jump to the conclusion then that you were also ".....happy for them to slip away with as little comment as possible.....".

Hardly I would have thought.

A few days later you raise it here in a Forum where Steve is unlikely to respond to anyway and your average Forumite is unlikely to know the current banking guidelines for the variety of permutations this could take anyway.

Based on Steve's post, I would have given it a few more days and given him the opportunity to give an authoritative response.

 

[kissfan]

Hi all.

This is probably not a direct reply to Seech (which I apologise for), but more of a thought.

I've often pondered about the LOE scenario, whether it be from a cashbond or LOC and the obvious problem for me is the fact that your debt is growing every year. Yes, yes, I realize that you only spend a portion of what your portfolio has grown but I personally would have problems with that conception.

This mindset may hinder or delay me from going ahead in leaps and bounds, but I think it is an individual thing that each investor must determine if they are comfortable with.

I suppose the obvious question is what is the alternative then. Well, once again it is probably an individual thing, but the old buy as many I/P's as possible, let capital growth take place and then sell a couple to accommodate loan requirements still sounds like a SAFE way to me. Possibly a growing managed fund/s as well would be wise.

As I said, this is just a thought and I may change my opinion down the line.

Regards
Marty

 

[see_change]

This issue was certainly posted on InvestEd which is still in its first few weeks of operation and hence has a much smaller number of contributors, however I believe it did have a few responses.

Fair suck of the sav.......the topic was only posted on Wednesday.........not Wednesday a few weeks ago but a couple of days ago.

I can think of a number of topics over there that have only had a few responses, but I wouldn't be jumping to the conclusion that because of this there's some sort of 'conspiracy of silence' with them all.

Sometimes here(as well as there), a lack of response simply means that the topic isn't seen as a big deal. I must admit I saw it and simply didn't think it was a big issue.

Maybe I'm wrong , but to me this is something that affects the foundations of Steve's structured approach, and was the main reason I have concerns about his approach so for me it is a big deal and I would have hoped for people who are using his approach it would also be a big deal . As a result I felt it deserved more attention than it got. So far the only person who has contributed in a worthwhile fashion ( rolf ) isn't a proponent of cash bonds.

I've already said why I posted here.

:
Indeed, with your wealth of experience on this Forum over the years which has covered many in depth discussions about Cashbonds, you also chose not to contribute to that particular thread at InvestEd. Should we therefore jump to the conclusion then that you were also ".....happy for them to slip away with as little comment as possible.....".

Hardly I would have thought.

I deliberatly chose not to respond early because if I'd commented earlier , I would have been accused of not giving people time to respond......

I was very tempted not to respond because I could see myself being accused of whinging and saying " I told you so " , and no one likes whingers...

:
A few days later you raise it here in a Forum where Steve is unlikely to respond to anyway and your average Forumite is unlikely to know the current banking guidelines for the variety of permutations this could take anyway.

The original post is still there on Invested and so far no comment ( maybe even a quick, " I've seen this guys and will be making a reply in the next few days ..." ) and I would be very suprised if Steve hasn't either read this post , or been made aware of it .

See Change

 

[The Y-man]

And it gets back to my point......If I invest all my money in a fund which diversifies across the top Australian Blue Chip Shares ( ie Navra ), is that not enough diversification?

Hi Bill,

Steve actually invests in a relatively small number of blue chip shares (as he has a fairly strict selection criteria as to what he believes will perform well for his strategy).

However, as SC and others have stated, you miss out on various other markets (and funds) which generate returns in various other market conditions.

For example, you would not get exposure to international markets (US, Europe, Asia), commodities (gold, oil), derivatrives, commercial properties, and foreign exchange to name a few.

They also aim for different outcomes- growth, income, tax effectiveness, low volatility - just as in residential propoerty, generally you can't get all in one hit.

There is ALWAYS the possibility of your funds disappearing where a manager goes belly up - often depending on how the fund (trust) was set up in the first place. There is also the possiblity of the shares held in the funds going belly up, despite careful selection.

So for myself, I feel more confortable spreading amongst several fund managers (each with a very different mandate) - 8 at this very point in time actually (had to go back and check! )

Cheers,

The Y-man

 

[Alan H]

Maybe I'm wrong , but to me this is something that affects the foundations of Steve's structured approach, and was the main reason I have concerns about his approach so for me it is a big deal and I would have hoped for people who are using his approach it would also be a big deal . As a result I felt it deserved more attention than it got. So far the only person who has contributed in a worthwhile fashion ( rolf ) isn't a proponent of cash bonds.

Ok SC, I don't want to go put words in either Steve's or Rolf's mouthes. They are far more capable of clarifying their own positions than I am.

The only comment I would make about the linking between Steve's structured approach and Cashbonds is that although it's been a while since I went to one of those Courses, I never got the impression the two things were 'joined at the hip' or inseparable.

We start with trying to optimise an investment structure to make best use of our equity and cashflow. That is important to all of us.

We then look for some 'tools' that may help this situation. Cashbonds may be one of these at a point in time but there are many others. eg. demonstrated income from Managed Funds, Lo-Docs, LOC's etc etc. The variations are as diverse as the individual's situation and that of the multitude of lending criteria that the institutions may have.

If I was to go to another Navra Course tomorrow, it wouldn't concern me in the slightest if Cashbonds were no longer available as I'm sure there would be other options for us to quite legally and morally maximise our investment structure.

I'm happy to leave it there......I agree with you that it would have been great if Steve had been able to spend a bit more time at InvestEd in the first few weeks and respond to this and a few other questions immediately.......but hey......sometimes big events in our lives do overlap and we can't be everywhere.

I know I've been flat out trying get half the things I want to get done this weekend and they are somewhat on a smaller scale ..........(*Yes......yes dear........I'm coming.....no ......kids.....don't stick that in the toaster!! ).

 

[BBarnes]

Hello, Y-man,
Thank you for your reply, and all your points have been taken on-board.
To take your example, it may have been more prudent and safe to invest with several fund managers at the start, rather than settle on just one. And I wonder how many others have their funds with one manager only? I suppose, taking your advice, I should withdraw some of my funds from one fund, and re-invest this in several other funds. As I said earlier, I was always under the impression that if your funds were invested in the top Blue Chip companies in Australia, the chances of them all going down the gurgler at the same time were pretty remote, and if it were ever to occur, the whole of Australia would be a 'shot duck' anyway. I guess I'd better re-appraise my whole situation now, particularly in light of the fact that your Fund Manager can fall over as well.
I wish I could predict the risk factor, though, and know which fund managers are NOT likely to collapse. My crystal ball never worked properly, anyway.
Anyway, I appreciate your good advice, as usual,
Thanks,
Bill

 

[see_change]

Hello, Y-man,
Thank you for your reply, and all your points have been taken on-board.
To take your example, it may have been more prudent and safe to invest with several fund managers at the start, rather than settle on just one. And I wonder how many others have their funds with one manager only? I suppose, taking your advice, I should withdraw some of my funds from one fund, and re-invest this in several other funds. As I said earlier, I was always under the impression that if your funds were invested in the top Blue Chip companies in Australia, the chances of them all going down the gurgler at the same time were pretty remote, and if it were ever to occur, the whole of Australia would be a 'shot duck' anyway. I guess I'd better re-appraise my whole situation now, particularly in light of the fact that your Fund Manager can fall over as well.
I wish I could predict the risk factor, though, and know which fund managers are NOT likely to collapse. My crystal ball never worked properly, anyway.
Anyway, I appreciate your good advice, as usual,
Thanks,
Bill

Bill

From my point of view it's not a matter of whether a fund is likely to go down the gurgler.

The issue is that at different times of the investment cycle , different sectors will perform better than other sectors , and different styles of investing will do better than others.

The style of investing that Navrainvest does is different to how most managed funds invest. I'm not say better or worse, just different.

Over the last 2-3 years some of the Small cap funds have done exceptionally well. Will they keep on performing like that , who knows.....

Generally I'm not a fan of Diversification as a concept. I'm more a put all my apples in one barrel and watch it very carefully type of one person , but from the risk management view point , I think funds should be approached from the view point of shares .

In a share portfolio, you can ( IMHO ) decrease your risk and increase you potential gain if you have a portfolio of around 8-10 shares.

See Change