Australian Investing Thread

[andystkilda]

I've been going for several months on Ratesetter and Marketlend (also available to 'retail' investors).

I have found them fantastic and consider it a great yield-increasing part of our portfolio - will probably have around 10% of net worth in there - it can help smooth out returns in other asset classes quite nicely, like a rental property - they have some certainty around future returns (as well as a risk of loss of capital).

[faramund]

I've been going for several months on Ratesetter and Marketlend (also available to 'retail' investors).

I have found them fantastic and consider it a great yield-increasing part of our portfolio - will probably have around 10% of net worth in there - it can help smooth out returns in other asset classes quite nicely, like a rental property - they have some certainty around future returns (as well as a risk of loss of capital).

ratesetter looks interesting, but even with a 10% annual return, the tax on that would hurt too much. Still, it seems an interesting alternative to a term deposit.

[FFA]

I've been going for several months on Ratesetter and Marketlend (also available to 'retail' investors).

I have found them fantastic and consider it a great yield-increasing part of our portfolio - will probably have around 10% of net worth in there - it can help smooth out returns in other asset classes quite nicely, like a rental property - they have some certainty around future returns (as well as a risk of loss of capital).

ratesetter looks interesting, but even with a 10% annual return, the tax on that would hurt too much. Still, it seems an interesting alternative to a term deposit.

personally i'd consider these growth investments, as opposed to defensive. even though they pay out an interest rate like a deposit. the credit risk is on another spectrum versus high interest savers / TD's which are Govt guaranteed up to 250k. potential for capital loss, and also return at 10% is comparable to equities.

so if you're asset allocation is 70 growth / 30 defensive, and you want to add ratesetter 5%. I would suggest you take it out of the growth pool, to keep at a steady level of overall risk.

[KittyZero]

Hi Everyone, I am new to MMM Forum and I thought I would post to follow this thread and say hi! I have recently wanted to kick start my investment/retirement plan - which as it stands is my $73000 in Super.

Unfortunately I know completely 0 about investing or even where to start. So I have a lot of research to do! I have $6000 debt which I hope to clear in the coming 3 months- it is highest priority, and a home loan of 180000. I'm currently trying to understand the for/against of paying this down vs investing.

I'm 32, and if all goes to plan (yes, I know...first I need a plan) I would like to be retiring or at the very least semi retiring 10 years early.

[MsRichLife]

Unfortunately I know completely 0 about investing or even where to start. So I have a lot of research to do! I have $6000 debt which I hope to clear in the coming 3 months- it is highest priority, and a home loan of 180000. I'm currently trying to understand the for/against of paying this down vs investing.

If I were in your position, I'd:
1. Pay down that debt ASAP
2. Set up an offset account against your mortgage and then start saving as much as you can into that account while you work out your plan.

[happy]

+1

[dungoofed]

***NOTE I'M NOT TRYING TO TURN THIS INTO A POLITICS THREAD***

Trump being elected POTUS is no longer a black swan event. Any concerns for your VTS? VAS? How about your China-heavy VGE?

Any speculative plays you're considering? Any hedges?

edit: http://www.smh.com.au/business/the-economy/donald-trump-as-us-president-no-longer-a-black-swan-event-20160229-gn70oy.html

[Primm]

Watching carefully. No decisions made yet about VTS, but yeah, I'm worried mildly concerned. Definitely not buying any more at this point in time, which is where I was up to not so long ago. Glad I didn't pull that switch.

[dungoofed]

I think even the markets are struggling to price in the Trump Effect.

[stashgrower]

Naive question from one too traumatised to follow the Trump Effect: Are there particular policies of Trump's that are being referred to here? Or is he a general "OMG how is this going to play out" unknown?

I've been wanting to buy VGS :)

[dungoofed]

No particular policy, just Trump in general.

Analysts are all over the board. A few say he will be pro-business (ie good for US stocks and probably your VGS too). Others are more "doom and gloom" saying that Trump will destroy the US.

Pascoe above seems to be saying that it would be disastrous for the US and therefore Australia.

Buffet says as he always does that people should continue betting on America.

His policies are subject to change but he has at least written down on his site that he will:
- use tax reform to try and balance the budget (a large part of this is lowering corporate tax to 15% and hence limiting corporate inversions).
- go after China and renegotiate trade deals with them.

[stashgrower]

Good one, thanks dungoofed. My view lines up with:

"Analysts are all over the board. A few say he will be pro-business (ie good for US stocks and probably your VGS too). Others are more "doom and gloom" saying that Trump will destroy the US."

Good intentions to be pro-business, but I'm not convinced on the well-being of the US in general ("doom and gloom").

[marty998]

Trump has economic policies?

[deborah]

Trump has economic policies?

Haha! Like our Tony - who seems to be turning into the Liberal answer to Mark Latham.

[dungoofed]

Trump has economic policies?

Well that's precisely why I found the Pascoe opinion piece odd.

Some existing Australian exporters will have to find some other markets to sell to, and ween themselves off America's teat. Other Australian companies will flourish. A far cry from the doom-and-gloom story Pascoe tries to paint.

[frozzie]

Hi all,

Hopefully I'm not hijacking this fantastic thread but my mind is in a loop thinking about options so I wouldn't mind a bit of help/advice.
Here is the current situation :
After 2 years doing 30-45 mins school commutes each way, I finally convinced the wife that we should get closer to the school (same distance for the bike to work commute for me). The school is important to us as it's the only public school with a bilingual program that teaches english as wel as our native language (French) so can't really change that.
Wife is doing casual work and I'm full time at $100K/year (savings ratio at about 50 to 60%)
Buying is out of question (Forestville, Frenchs Forest is about $1.2M and we don't want that kind of mortgage) so we will rent at $800-$900/week... ouch

The question is what to do with our current unit ?
Selling would get us $500k to invest. We bought the unit for $500k on a $300k mortgage in 2009, and started to grow the mustache a couple of years back :  $260k left on the mortgage and a $100k offset. The place should sell at around $650K (conservative, some valuation put it at 800k !)
OR
Finding tenants for $600/week and get an income of $5k/year after repaying a Principal+Interest Mortgage ($15k/year on Interest only) maybe a bit more after tax deductions ...

We're both in our early mid-forties with a view to ease down on work in the next 10-15 years.
Wife is for the tenants option but if I get my maths right income would be pretty low compared to investing the $500K.
Over 10 years, this would grow to $760+K at 4% or $1+M at 7% ... we could even use some of the investment income to offset the cost of renting ... all this while having no debt and without caring about housing market.

Am I missing something here ?
Her argument is that share market experience crashes, my argument is that they usually recover better than housing market crash (not sure if/when it will happen in Sydney but don't want to be involved ...)

Appreciate your thoughts, advices, face-punched :)
Renting is nice in theory for passive income, but in this case it feels like putting all our eggs in the same basket (we have just starting investing with about $6K in Vanguard fund and $2K in shares, Super is about $170K).

[FFA]

hi frozzie,
basically it is a call on investing in your unit versus shares, so many of the basic pro/cons lists shares vs property will be applicable. Yes shares are more volatile, but far better diversified, liquid and lower in transactional costs than property. Some of the volatility is apparent, since your property price does not fluctuate every minute in front of your eyes as shares do. Property is also much more hands on, dealing with tenant issues or at minimum a property manager if you can be lucky enough to find a good one. Shares you can be as hands on (active) or passive as you choose. Many Aussies tend to be well overweight property owning their own home plus investment properties, in which case I would suggest shares. In your case you will be renting so this would be the only property investment, so it is not too heavy into property compared to the norm here. I don't know much about Sydney property so won't comment on that.

I invested a lot in property through my life, but if I had my time over I would choose shares, as you can probably tell by the above paragraph. The political tax debate is also quite interesting at the moment, and depending on how it ends up might have implications for the attractiveness of shares vs property, so that is also something to monitor.

[steveo]

Hi frozzie,

I basically agree with FFA. We own our house and there is no chance we will pick up an investment property. The yield is simply way too low and it's a hassle. On the flip side if property continues to increase in price there is the possibility you could pay off the house and live there when you retire.

[ynotme]

@frozzie - why not keep the unit and rent it out. Once it becomes an investment property, you can invest the $100k from offset in shares. The loan becomes tax deductible if tax rules don't change. That way you are invested in both asset classes and more diversified.

[chasingthegoodlife]

I agree with FFA that it is worth examining this from a property vs shares perspective. Both have pros and cons and may increase or decrease in value. It sounds from your post that you are predicting shares will increase over the long term but concerned property may crash. Could be true, but worth examining why you think that and how sure you are.

Maybe also worth keeping in mind that you have already paid significant transaction costs on this property. Not a good reason to hold onto it if you think shares are a better bet, but may not be worth selling if you see yourself buying a similar property as an IP in the next few years.

How would you feel about keeping your unit as a rental for the first year in case you do not like your new location? Or course, this leaves you exposed to any upcoming crash. On the other hand, you can be sure you will not be 'priced out' if values continue to rise.

Good luck with your decision!

[marty998]

Tough one. I'd find a way to hold on to as much in assets as you can. No use selling up when you're going to need it.

Makes me uncomfortable that you're willing to spend $45k a year on rent. Thats a lot of cash to be pouring away, especially when you have to earn so much more than that, pay your tax on it first and then hand it over afterwards.

Regardless of what you choose (rent vs buy), my view is that you should start salary sacrificing to super as much as you are able to.

[happy]

Am I missing something here ?

Yes, you can't afford it! Sorry this is a face punch post.
This move, which on the face of it sounds mustachian…i.e. a smaller commute, involves a housing upgrade from an apartment to a house whether you are renting or buying.
Secondly its based on the premise of being near the bilingual school. I don't underestimate the importance of the language to a Frenchman, but is this a need or a want? Your child can grow up bilingual if you speak French at home.

As Marty says if your salary is 100k aftertax (not sure you didn't say) and you rent at 40-45k, your saving rate will plummet. I wouldn't necessarily recommend buying in Sydney, but if you did the rent vs buy equation on selling the apartment and buying, there is probably not a lot in it ( quick back of envelop stuff).  You're also probably better off staying where you are and driving.

You can have anything you want but not everything!

[frozzie]

To answer the bilingual question, it came about after seeing so many second generation kid slowly ditching their parents language.

Yes $45K is a lot and believe me "willing" is not really the word to describe it :)
I guess I'm trying to find a way to compensate the saving rate taking a bashing. Hence why I was considering shares to maybe get more diversified and potentially better growth/income.
Thanks to your comments and facepunch, I'm realising that it might be a bad move no matter what.

I'll go back to my little spreadsheet and reconsider all options ... including staying put.

[oysters]

On the language thing...I think that depends a lot on the parents, and the child. A colleague of mine and his wife are German, children born in Australia, grew up in Adelaide. They didn't have German lessons in Primary School. Both their German and English ability is amazing. Both parents put effort in to make sure they are equally competent in both. Its astonishing being in their presence...they can be having an in depth English conversation with you, while their parent asks them German, and they respond in German, all like its the one language, its seemless. Not sure about the boy, but the girl is at a high school (yr12 now) that doesnt do language (because its an Agriculture special school in the city). Didn't matter. She did spend a few months last year on exchange in Germany (stayed with her cousins, Aunt and Uncle and went to school there).

So there is that option for teenagers, too, exchange. And travel. Factor in some travel to help maintain language and culture :-)

[Primm]

I've got nothing, except - holy hell, I'm glad I don't live in Sydney...

[frozzie]

Reran some numbers and I'm glad I got face-punched !
Renting at those prices would mean having no saving power (or close enough) !
Selling and getting the biggest loan I can get ($700K over 30 years for $3500/month) would equate to $1.1M buying power. Which still means nothing unless relocating far far away, and then I might just consider moving interstate :)
Personal conclusions so far :
- Renting market in Sydney is crazy !
- Buying in Sydney is crazy !
- Bubble or not, I'm not sure I want to take the bet

[deborah]

As there are plenty of people who live in Sydney who have half your income, you are looking at a pretty expensive place - either it is in a "good" suburb which is really outside your price range, or it is too big, or both.

[marty998]

As there are plenty of people who live in Sydney who have half your income, you are looking at a pretty expensive place - either it is in a "good" suburb which is really outside your price range, or it is too big, or both.

He said he wanted to be near the French school... kinda restricts them to the Northern beaches (Frenches Forest).

Maybe as far North as Hornsby/Asquith is an option. It's difficult there with lack of public transport. Train line doesn't really service many of the areas.

Wonder where all the money comes from for young families to be buying up $1.5m+ houses around there.

[steveo]

Wonder where all the money comes from for young families to be buying up $1.5m+ houses around there.

I wonder where the money is coming from as well. The median house price in sydney is about $1 million.

[misterhorsey]

I'm curious about this too. So I did a back of the envelope calculation using:

-  a WBC mortgage calculator (http://info.westpac.com.au/homeloans/calculatortools/borrowing-capacity-calculator/)
- asic money smart taxation calculator (https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/income-tax-calculator)

Assuming a couple are on:
- $70k gross ($54k after tax)
- $55k gross ($44k after tax)

then WBC wants them to borrow up to $747,656

It's a bit off a median house price of $1m but its not far off if this hypothetical couple have equity/deposit of $200k (20% of $1m)

Weekly repayments @ 5.4% for this couple come to $924, monthly $4005 (which is about 50% of net income)

I chose a couple as people often buy as a couple, and these income amounts as they are near to average and median earnings, taking into account some amount of gendered pay imbalance.

I'm not saying it makes sense to buy at $1m, but if everyone else is it's easy to confuse price with value, particularly if you garnish with a bit of Fear of Missing Out. And perhaps these are the figures that RBA and other bankers look at when they say house pricing is affordable, or servicable.  The debt is definitely servicable at these amounts.

But it doesn't take into account future variations in interest rates and capital growth/loss/stagnation.

[steveo]

50% of net income is probably doable but geez everything must get tight. Add to that cars, private schools, holidays etc. I think most people buying at those levels are going to be in a tonne of pain.

Then again my mum thinks we are crazy. In her eyes just don't worry about it.

[happy]

French's Forest/ Forestville is a middling good suburb. I think couples buying there would be earning more than 70/55k gross and are probably trading up from a cheaper first property.  But likely to be servicing 700k or so of debt.  Doable but if/when interest rates go up, a disaster waiting to happen.

[Primm]

I just don't get how "ordinary people", like teachers, cleaners, retail workers etc., anyone on less than $100k family income really, actually survives living in these places. At least here in Brisbane we have not-far-out suburbs where you can pay far less if you want to (we live 35 minutes from the CBD and paid $280k for our house, rentals are $250-$300 per week for 3 bedders), but that option doesn't seem to be available in Sydney. Or am I missing something, and there are pockets where it's possible to live on less but not as desirable?

[happy]

Sure, you can buy a basic 3 br house for 500k in Campbelltown postcode 2560, or Liverpool postcode 2170(a bit harder there). And probably quite a few more, I just got tired of looking..

[BattlaP]

They just don't save any money.
Most people don't really like talking about finances so it's hard to know for sure, but on the odd occasion when it comes up people mention 'struggling' to save 20K over the space of a few years or they just simply don't save money and don't think about it. Parking/speeding fines seem to destroy peoples lives for weeks. Most of those with mortgages openly regret buying and I know quite a few people that have ended up selling and been relieved to 'break even' (which probably actually means losing to inflation, but I can't bring myself to rubbing salt in the wound by asking for specifics).

[happy]

Also, if you are buying/selling its quite expensive with stamp duty etc..when you are up over 1MM you might be up for 50-70k. So if you haven't made good capital gain, trading houses is a good way to lose lots of money.

[nolongerhere]

Hi Everyone,

Just started reading MMM and wanted to join to be part of a lifestyle and investing philosophy that reflects my own values too.

My life's pretty cheap at less than 10k PA, everything that makes me happy is basically either free, at home or in my own brain, so I was interested in building up 'a bank' to be able to continue like that.

I've worked casual / PT for about the past 6 years and I'm glad I did as they turned out to be great experiences.  The bonus is that I've been able to save up about 10 times PA expenses.

I've read just about every (bad) financial investing forum, and have had about 3-4 years experience in researching and observing and customizing my own beliefs.  I'm a high conviction believer in long term index investing (15+ year type timeframes).  Interested in the economics of Asset Classes, Risk, Timing and how that juxtaposes with life goals.

[Aussiegirl]

I just don't get how "ordinary people", like teachers, cleaners, retail workers etc., anyone on less than $100k family income really, actually survives living in these places. At least here in Brisbane we have not-far-out suburbs where you can pay far less if you want to (we live 35 minutes from the CBD and paid $280k for our house, rentals are $250-$300 per week for 3 bedders), but that option doesn't seem to be available in Sydney. Or am I missing something, and there are pockets where it's possible to live on less but not as desirable?

Bottom line is they don't.  They live quite a distance away from their work and commute as they can't afford the rental or mortgage near their work.  In WA there was a push a while ago for "affordable housing" for what the government termed essential services because there was a recognition that police, nurses, teachers etc couldn't afford to live in their work districts. 

$280k or $250-300 per week for a 3 bedder is a good deal.  Not sure if the same is available in WA - a quick search on Realestate.com.au shows the min price available within greater Perth is $250/week.   

[frozzie]

French's Forest/ Forestville is a middling good suburb. I think couples buying there would be earning more than 70/55k gross and are probably trading up from a cheaper first property.  But likely to be servicing 700k or so of debt.  Doable but if/when interest rates go up, a disaster waiting to happen.

Doable maybe but I wouldn't sleep well at night ...
Looking at Domain, Manly/Hornsby are somewhat affordable to at least rent and in some cases buy ... anything else goes up pretty quickly. Not sure why Frenchs Forest/Forestville is that special apart from the fact that it's mostly houses with not many units, maybe the new Hospital being built ?
Makes me wonder if nurses, teachers, police etc with an average income are all commuting crazy distances ? My school commute doesn't look so bad in comparison ...

Time to reconsider I guess ...

[qwerty8675309]

I just don't get how "ordinary people", like teachers, cleaners, retail workers etc., anyone on less than $100k family income really, actually survives living in these places.

More and more people seem to be sharing places now. Having housemates now doesn't seem so uncommon.

[limeandpepper]

I still haven't decided whether I want to buy a property or not. I'd ideally like a 2-bedroom, but I'd be happy with a studio or a 1-bedroom in an inner-city suburb. The rent vs. buy dilemma is still going on for me! I wouldn't be buying in Sydney, though. :p  But still not sure where I'll end up.

By the way, what does everyone think about purchasing investment properties that cannot be owner-occupied e.g. serviced apartments?

[limeandpepper]

My life's pretty cheap at less than 10k PA, everything that makes me happy is basically either free, at home or in my own brain, so I was interested in building up 'a bank' to be able to continue like that.

I've worked casual / PT for about the past 6 years and I'm glad I did as they turned out to be great experiences.  The bonus is that I've been able to save up about 10 times PA expenses.

Well done! That's an incredibly low number for annual expenditure. If you don't mind me asking, do you have very cheap rent, or do you have fully paid-off housing?

[nolongerhere]

Family Owned Home.

If I rented/mortgaged it would take my expenses to $15-20k absolute minimum instead of <$10k

So I want to be smart with what I do with that saving.

[misterhorsey]

I just don't get how "ordinary people", like teachers, cleaners, retail workers etc., anyone on less than $100k family income really, actually survives living in these places.

More and more people seem to be sharing places now. Having housemates now doesn't seem so uncommon.

Indeed. I moved back into a share house (of other thirty year sumfinks) at the ripening age of 39, last year.

I have previously owned (underperforming property/didn't hold for long enough/didn't see Sydney's boom coming). I got sick of second guessing whether I should get back into the property market or not, which I think is harder a single person, so I decided to reduce my overall expenditure and upgrade my lifestyle by going back into sharing.

I could easily afford my own place but I couldn't see the value in it.  By comparison with renters around the nation I'm still probably paying a lot ($230 a week for a large room, but in a $2m house) but it's still cheaper than $350-500+ for a comparable one bedroom place in my area.

As a result of lowering my rent I'm technically FI, but I don't know that i would count myself as really FI if I have to live with other people to achieve it.  Otherwise I could move back in with my parents and call myself FI! (Hi mum. Hi dad).

I see the americans talk about the cost of their housing and when they are outside of NYC and SF, it seems crazily low. 

[KittyZero]

Unfortunately I know completely 0 about investing or even where to start. So I have a lot of research to do! I have $6000 debt which I hope to clear in the coming 3 months- it is highest priority, and a home loan of 180000. I'm currently trying to understand the for/against of paying this down vs investing.

If I were in your position, I'd:
1. Pay down that debt ASAP
2. Set up an offset account against your mortgage and then start saving as much as you can into that account while you work out your plan.

Thank you for the response :) When you say pay down 'that debt' do you mean my personal Loan? Or both my Personal Loan and my Home Loan? Currently I have a PIF CC, and all my pay gets put in to my personal loan and what is left over my HL so that I can reduce the interest in both.

I know I have to reduce my PL before I start investing, but are you suggesting I need my HL paid off too?

I dont have one of these offset accounts on my mortgage, but every spare cent I have stays in the mortgage. Its like my everyday account and I only take from it what I need and when. Its an ANZ variable loan with 4.86% interest. I dont know what this mortgage offset account thing is, but sounds like im doing this anyway because all my pay is practically deposited in to the homeloan and I only ever withdraw on it to pay my PIF CC Bill?

[Sapphire]

Great thread, as a late arrival to MMM (but hopefully converting DD16 and DS18 quickly) - another Aussie subscribing to follow this very helpful thread. 

[stashgrower]

(Would it be helpful to have an Aussie thread specifically on the RE vs shares vs super question? It seems to pop up a few times here. I'm only a newbie though, so maybe I'm missing something.)

Any suggestions on how to prioritise a house deposit, super and shares? I can see they are all useful but not sure what order to do things in.

The house deposit has been the priority so far, only because I don't know any better. The deposit-saving stage (halfway through) means there is no mortgage interest pressure, but now I see there is opportunity cost to leaving it as cash (in high-interest savings account).

I'd like to build a shares portfolio, mostly in index funds.

Super is low due to circumstance and prior lack of knowledge (do I need a facepunch?), but being in my 30s and on a low income I'm not sure if I should salary sacrifice extra or put it towards the house deposit or shares.

As with KittyZero, I have no interest in borrowing for shares. I prefer to pay down debt asap.

Suggestions welcome.

[Grogounet]

French's Forest/ Forestville is a middling good suburb. I think couples buying there would be earning more than 70/55k gross and are probably trading up from a cheaper first property.  But likely to be servicing 700k or so of debt.  Doable but if/when interest rates go up, a disaster waiting to happen.

Doable maybe but I wouldn't sleep well at night ...
Looking at Domain, Manly/Hornsby are somewhat affordable to at least rent and in some cases buy ... anything else goes up pretty quickly. Not sure why Frenchs Forest/Forestville is that special apart from the fact that it's mostly houses with not many units, maybe the new Hospital being built ?
Makes me wonder if nurses, teachers, police etc with an average income are all commuting crazy distances ? My school commute doesn't look so bad in comparison ...

Time to reconsider I guess ...

The Frenchs are in da place :-)

There will be building a lot of units around the hospital and many expect prices to go bananas... I'm like you, I stay in my unit for now and don't want to move to Frenchs Forest until it's becoming a bit more reasonable price wise.

[happy]

Forestville used to a poor relation to French's Forest and Belrose ( for no apparent reason but thats how suburbs go), but has now come up in value - at least as high as French's Forest from my quick perusal- I suspect because of its proximity to the Roseville Bridge - if one doesn't work on the Peninsula, but closer into towards the city, that will help the commute.

Oh and there's no French national connection with the name as far as I know… named after John French.

[frozzie]

The Frenchs are in da place :-)

I think Grogounet was referring to the 2 mustachians, Frenchies and living on the Northern Beaches :)

But you're right happy, no French connection with the name ... La Perouse, Sans Soucis, Engadine and Vaucluse on the other hand ... :D
Anyway, I've been told today by a Real Estate Agent (so take with a massive grain of salt ...) that the whole area was pretty much "paused" as most owners are waiting to see if they can sell to developers (like those guys http://www.domain.com.au/news/group-of-neighbours-in-sydneys-frenchs-forest-make-200-million-property-play-20160229-gn6amy/) and therefore willing not to get tenants in the meantime.