why "risk" investing when you can save?

Oscar

Oscar

Lately I've been thinking about the safety of savings versus the risk of investing via IP's and equities.

I am fortunate to be in a high income situation where I can save around $100K per year net. Job prospects in my industry are fairly good and there's a good chance of continuing this level of income (and even increasing it) until I decide to retire from the workforce.

The thought came to me recently that if I just save this amount in a "next to no risk" internet savings account I could actually save a million dollars in less than years (depending on interest earnings from the bank). I'm 43.

That being the case, why would I want to risk the money in any form of more aggressive investments such as property and/or equities? I could just sit back for 10 years (or less) doing my thing and make the million just about risk free....

Right now I'm continuing to dollar cost average into an index australian share fund and looking for more IP opportunity but wonder if the time/effort/risk is worth it ??

I know it's a good problem to have but appreciate thoughts on this...
 
Oscar said:
I am fortunate to be in a high income situation where I can save around $100K per year net.
I could just sit back for 10 years (or less) doing my thing and make the million just about risk free....
Click to expand...

Good for you Oscar, others aren't in the same position and need to use leverage.

Dave
 
Oscar said:
Lately I've been thinking about the safety of savings versus the risk of investing via IP's and equities.

I am fortunate to be in a high income situation where I can save around $100K per year net. Job prospects in my industry are fairly good and there's a good chance of continuing this level of income (and even increasing it) until I decide to retire from the workforce.

The thought came to me recently that if I just save this amount in a "next to no risk" internet savings account I could actually save a million dollars in less than years (depending on interest earnings from the bank). I'm 43.

That being the case, why would I want to risk the money in any form of more aggressive investments such as property and/or equities? I could just sit back for 10 years (or less) doing my thing and make the million just about risk free....

Right now I'm continuing to dollar cost average into an index australian share fund and looking for more IP opportunity but wonder if the time/effort/risk is worth it ??

I know it's a good problem to have but appreciate thoughts on this...
Click to expand...

lol..this is a joke right? Seriously..joke. Yes, I think it's a joke. Good one!!! :):):)
 
it is what it is.

I've been investing in IP from 1998 to 2003 and then another dip in 2007. I've done OK but not brilliantly. The IP's will continue to grow over time and are now cash flow +ve. My index fund has gone south obviously. It came to me in the morning that if I just do nothing else other than save over the next 10 years then i would do OK. Or I could take higher risk for an even higher return but nothing would be guaranteed.
 
the real world value of your savings would diminish over time due to inflation - or at BEST increase by a hopeless 1%pa.

It would be like me saying - why not just retire on the pension?
 
HA888, why would you think it's a joke? :confused:

Oscar, the returns from investing may be more volatile, but you'd have to be a very bad investor to end up worse off leveraging into some investments. You have enough spare cash to achieve some significant diversification.

Why would you leverage? Because it amplifies your return, allowing you to live off a higher income, and/or have the freedom to leave your job sooner, and/or have more cash to donate to worthy causes. If you don't value any of these outcomes, then don't invest. If you do value any of these outcomes, then I think you'd be crazy not to have at least some leveraging working for you. If you don't like risk, then don't go for a high degree of leveraging, but even 50% on a diversified portfolio of managed funds, commercial and resi IP, gold, bonds, etc, would provide a substantially increased return.
 
I agree with BB. Good for you too!!

A property may take a while to appreciate but if you can save even more then go for it.

You can take 5 yrs to amount a $500k equity that's leveraged to 95% LVR and only realised if you sell them all or you can take 5 yrs to save $500k which is all yours and is actually worth a lot more because cash is king in uncertain times.

Property is only one of many ways to build wealth. I see ppl that are wealthy just by saving and they have no hassle of property, loan and bills to pay, tenants etc Own their own house out right and still have lots of cash.

Ozperp, he already has some properties under his belt so I think he knows what he's doing.

I think people tend to be more conservative when they have been burnt from investing.
 
Oscar

If that's what you want to do , and it suits your appetite for risk then do it.

Personally I've seen how slow it takes to save and how much more I've personally made investing.

The gearing and getting your timing correct is the thing that makes the difference.

I've always been aware of the concept that there are times to sit on the sideline and the recent 18 months have shown this working in practice .

They've blown out of the water the concept of " the best time to invest is now ".

From my observations much of the investing " Wisdom " that we get told , is more aimed at protecting the income stream of the advisors rather than the capital of their customers.

I saw an article recently where an advisor came out and said no advisor is every going to tell their customers to put their money in cash as the advisor is going to loose their income. ( though I have heard stories of a couple doing that ...)

Cliff
 
Hiya

Im with Seech, do what you believe is right.

Once you have assessed all the risks and benefits of a particular strategy, stick with it.

As has already been pointed out, inflation and a lenghty life are 2 issues that need to be considered highly on the risks, but the other main risk is that of inconsistent application of a well thought out but poorly executed strategy

ta
rolf
 
Why not consider buying IP's outright from your savings or at a very low LVR.

That way depending on how you buy(important) you may be guaranteed 5% rental return (indexed). Any capital growth you get (which over the long term I am positive you will) is a bonus.

Just my opinion.

Cheers,
Oracle.
 
With the 100k you 'save' each year you could be making hundreds of thousands of dollars, thats the first good reason to invest it

Secondly, your 100k is eaten alive by inflation,

What about grandpa back in the 50's
his $5 per week was good money then, imagine what he would have today if only he 'saved' it!! ;)
 
But hang on a sec here folks..Oscar is saying he has ONE HUNDRED THOUSAND DOLLARS "SPARE" EACH YEAR. Imagine what portfolio you could build up with that, not to mention the tax breaks....seriously, I think this money can be used better elsewhere than an online saver. If it couldn't, this forum should just be shut down....:eek:
 
he could invest in inflation protected securities... like TIPS in the US.. but I am not sure if they have them over here in Australia...

Long term though, it seems keeping your investments in fixed income and cash is an irresponsible thing to do, according to Warren Buffett anyway...
 
Hi Oscar,

Seech and Rolph are on the right track.

Fundamentally, there's an optimal time to be investing in equities, shares or cash in every business cycle. I suspect what you're experiencing now is the impact of having the wrong allocation mix during the cash phase of the cycle. You're seeing the inherant risk in leveraged asset categories such as equities and real estate and extrapolating the implications of this into the indefinate future. What this does is distort the cycle and presume the "current" phase of the cycle is the norm. Its not. Its just the cash phase of the cycle and its a doosie this time around.

In a few years time (or maybe even sooner) the cash phase will have past and equities and real estate will once more come to the fore. Over the long term, they will outperform, but in any short term horizon period there is always the risk of their underperformance as they are a more volatile asset category. With risk comes return, and conversely with return comes greater risk / volatility.

SeeChange mentions the importance of timing your asset allocation choice, which basically suggests being aware of the inherant risk of resi property and equities so that you don't buy at their cyclical peak and then exit shortly thereafter with devestating impact.

My personal opinion is that the cash cycle in Australia has almost ended. With falling interest rates, returns from cash are falling in sympathy. Eventually, the stimulatory impact of the interest rate setting will cause the cash holders to exit their position to a more risky allocation chasing bargain prices and higher mid to long term returns. When this will happen I can't say. But now is not the time in the cycle to be looking to exit risky assets to lower your risk profile and associated returns. If you do so you're likely to contravene SeeChanges argument which I adhere to about the importance of correctly timing your asset allocation decisions.

Unfortunately, most investors have very short memories. They look at today, yesterday and project tomorrow and make huge strategic decisions based on that experience. Investing decisions should consider a much longer horizon than that. And, again in my humble opinion, in today's business cycle situation, should genuinely see the merit of choosing a riskier asset allocation mix than holding cash.

Cash today = lower returns tomorrow. Cash was a good decision two years ago, but that cycle has now almost played out. You'd be lagging the cycle and late to the cash party. In all probability you'd probably then be late to the equity party and lagging the equity rebound party. Extrapolate on another 5-10 years and you would be late to the resi prop party and lag those ensuing fantastic returns.

Don't lose the faith. The business cycle is far from dead. And I personally reckon with all the global stimulation going on that the next "up" cycle is going to be a doozy! Hold onto your hats. China is only just waking up, and the US is far from dead. I definately do NOT want to be late to the next party!! :D

Cheers,
Michael
 
MichaelW said:
Don't lose the faith. The business cycle is far from dead. And I personally reckon with all the global stimulation going on that the next "up" cycle is going to be a doozy! Hold onto your hats. China is only just waking up, and the US is far from dead. I definately do NOT want to be late to the next party!! :D

Cheers,
Michael
Click to expand...

I'm really starting to get sick of all your damn positivity Michael!!!!

..... :D
 
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