Investment advice

[NUFC Tiger]

Hey all,

I'm in my early 20s and have a disposable income from working full time and live away from my parent's home. I've paid off my HECS (uni fees) and have saved up about $10k in my bank account that I want to invest as I have no upcoming expenses or large purchases on the horizon.

Just wondering if anyone had any tips on what investment options would be best to consider? I've already got a few shares and have always had an interest in the stock market - would using this money on shares be a worthwhile venture?

My mum says I should look at property (though I would need to take out a loan to do that surely). A mate reckons term deposits are the way to go. Just interested in getting some advice and pointers on what's worth considering and where to start.

Cheers!

 

[Troubadour]

Term Deposit rates for 10k will likely be less than you can get from an online/bonus saver account. You should be able to get 5% return in an online saver.

As long as you take a long term view shares or property are valid options. I'd hold off on property until you have a larger deposit to try and avoid lenders mortgage insurance which applies on loans over 80%.

One thing I did when I was a similar age was invest in managed funds. I put a few thousand in as well as $100 a week into two different ones. It's a great way to get exposure to a wide range of asset classes and is also a good way of enforced saving having to meet the direct debit each pay period.

All the banks have managed fund options - they aren't risk free as you are indirectly investing in shares - but they are an alternative to direct share ownership.

 

[NUFC Tiger]

Term Deposit rates for 10k will likely be less than you can get from an online/bonus saver account. You should be able to get 5% return in an online saver.

As long as you take a long term view shares or property are valid options. I'd hold off on property until you have a larger deposit to try and avoid lenders mortgage insurance which applies on loans over 80%.

One thing I did when I was a similar age was invest in managed funds. I put a few thousand in as well as $100 a week into two different ones. It's a great way to get exposure to a wide range of asset classes and is also a good way of enforced saving having to meet the direct debit each pay period.

All the banks have managed fund options - they aren't risk free as you are indirectly investing in shares - but they are an alternative to direct share ownership.

Thanks for that Nightrain - I've basically been throwing all my money into my netbank account as that has about 4.5% interest pa (just did a quick look at my statement and I'm getting about $35 a month ($400 ish a year) in interest which isn't too bad I guess. I just checked the term deposit interest rates and they are the same as my netbank interest rates so seems there wouldn't be much point in looking at that option (unless I wanted to lock the money away so I couldn't spend it hehe).

The managed fund sounds like a good idea though - I just did a quick read on my bank's website to get some more information. If I understand the concept correctly, I basically would invest some money which is pooled together with other investor's money to then be managed by a fund manager who invests the money into various asset classes and any returns are then made based on the number of units you have.

It seems there are different types as well so there is a flexibility to get the fund that best meets your needs/goals. This might be a bit of a silly question but once you become a unitholder, are you able to sell your units like you would shares if you wanted out? Do the banks ever try and 'purchase' units back?

 

[Troubadour]

Thanks for that Nightrain - I've basically been throwing all my money into my netbank account as that has about 4.5% interest pa (just did a quick look at my statement and I'm getting about $35 a month ($400 ish a year) in interest which isn't too bad I guess. I just checked the term deposit interest rates and they are the same as my netbank interest rates so seems there wouldn't be much point in looking at that option (unless I wanted to lock the money away so I couldn't spend it hehe).

The managed fund sounds like a good idea though - I just did a quick read on my bank's website to get some more information. If I understand the concept correctly, I basically would invest some money which is pooled together with other investor's money to then be managed by a fund manager who invests the money into various asset classes and any returns are then made based on the number of units you have.

It seems there are different types as well so there is a flexibility to get the fund that best meets your needs/goals. This might be a bit of a silly question but once you become a unitholder, are you able to sell your units like you would shares if you wanted out? Do the banks ever try and 'purchase' units back?

You've got the concept pretty well. Selling units or cashing out is usually pretty straightforward, just fill in the forms and they deposit the money back to your account. The bank only normally forcefully acquires units from you if they are shutting down the managed fund.

I think they work best if you're prepared to commit a regular amount - even if its a small amount $25 per week. It gives it a kick along.

I had mine with the CBA, I think one was a growth fund (higher risk/higher reward) and the other was balanced. They are similar to super funds in outlook and options for investors.

Let me know if you end up giving it a go. I hadn't thought about them in years and you've re-inspired me!!

 

[NUFC Tiger]

You've got the concept pretty well. Selling units or cashing out is usually pretty straightforward, just fill in the forms and they deposit the money back to your account. The bank only normally forcefully acquires units from you if they are shutting down the managed fund.

I think they work best if you're prepared to commit a regular amount - even if its a small amount $25 per week. It gives it a kick along.

I had mine with the CBA, I think one was a growth fund (higher risk/higher reward) and the other was balanced. They are similar to super funds in outlook and options for investors.

Let me know if you end up giving it a go. I hadn't thought about them in years and you've re-inspired me!!

Thanks again Nightrain (one of my favourite G&R songs btw!) Definitely sounds like a good option for me to consider. I’m also with the CBA so I’ll check if those funds are still offered – I’ll probably try and pop into one of the branches in the city near work and check with a financial advisor next week and see what they say.

Good to know I re-inspired you – you’ve inspired me to check this out so I’m sure my parents are also thankful that you’ve inspired me to do ‘the responsible’ thing with my money . I've also got a NAB account that I rarely use so I might do something similar with those funds.

I'll let you know how it goes - cheers mate!

 

[Grizzly_82]

Inspired me to pop into the bank this week, currently have a savings account where I'm depositing $$ in each pay and already have saved a bit.

But liking the idea of managed funds and growth funds.

 

[Grizzly_82]

Out of curiosity what kind of returns could you be realistically expecting with managed funds?

I know it varies but am interested in other people's experiences if possible.

 

[Troubadour]

Out of curiosity what kind of returns could you be realistically expecting with managed funds?

I know it varies but am interested in other people's experiences if possible.

Similar to superannuation. Can be good and bad depending on the fund's exposure. An aggressive growth fund can hit 20% in a good year - the bad years can dip pretty fast.

If you check out your bank's website they may have the prospectus /pds that gives the historical performance of each fund. Check them out over the past 7 years to smooth out the extraordinary events

 

[dmc333]

Managed funds are a joke. You're only paying extra fees for clowns to guess at beating their equivalent index - something they can't do.

The only place they have any value are in small caps. If you're not investing in small caps, go find an equivalent index fund for the managed fund you were going to invest in and invest in that.

 

[bunsen burner]

Hey all,

I'm in my early 20s and have a disposable income from working full time and live away from my parent's home. I've paid off my HECS (uni fees) and have saved up about $10k in my bank account that I want to invest as I have no upcoming expenses or large purchases on the horizon.

Just wondering if anyone had any tips on what investment options would be best to consider? I've already got a few shares and have always had an interest in the stock market - would using this money on shares be a worthwhile venture?

My mum says I should look at property (though I would need to take out a loan to do that surely). A mate reckons term deposits are the way to go. Just interested in getting some advice and pointers on what's worth considering and where to start.

Cheers!

With that money: stock, specifically an indexed fund. I believe the share market will out perform term deposits.

 

[sheahen]

Put it in a high interest bank account contribute $100 per week and let compound interest do its thing

 

[sheahen]

Put it in a high interest bank account contribute $100 per week and let compound interest do its thing

 

[Lotch]

Put it in a high interest bank account contribute $100 per week and let compound interest do its thing

What kind of interest are we talking here?

 

[sabre_ac]

Don't get into debt, a mortgage at your age will limit your freedoms significantly. One of the best things about being in your 20's is you have the option of doing whatever you want, your path isn't set. If you get a mortgage you must maintain your current level of employment to service the loan, which means you can't take as many chances with your career or adventure.

From an investment perspective, have a look at the returns on real estate the past few years, then take into account the difficulty to sell and you will quickly realize that at this time people are only buying houses to live in and not for investment. Not to mention that 10k is no where near what you need for a deposit to get a house, you'll need to save at least triple that.

Pump it into a low fee index fund, its an appropriate risk and return for your age and they are relatively easy to setup (Your bank can assist).

You purchase an interest in a portfolio that is made up of shares that mirror the major index's, so essentially if you purchased an index fund when you hear on the news "The share market went up 0.5% of a percent today" so did your investment

See below for a far better definition.

http://www.investopedia.com/terms/i/indexfund.asp#axzz2LRnuRSDy

I'd also avoid managed funds, they have higher fees and rarely do better than the actual market or index funds.

 

[NUFC Tiger]

Don't get into debt, a mortgage at your age will limit your freedoms significantly. One of the best things about being in your 20's is you have the option of doing whatever you want, your path isn't set. If you get a mortgage you must maintain your current level of employment to service the loan, which means you can't take as many chances with your career or adventure.

From an investment perspective, have a look at the returns on real estate the past few years, then take into account the difficulty to sell and you will quickly realize that at this time people are only buying houses to live in and not for investment. Not to mention that 10k is no where near what you need for a deposit to get a house, you'll need to save at least triple that.

Pump it into a low fee index fund, its an appropriate risk and return for your age and they are relatively easy to setup (Your bank can assist).

You purchase an interest in a portfolio that is made up of shares that mirror the major index's, so essentially if you purchased an index fund when you hear on the news "The share market went up 0.5% of a percent today" so did your investment

See below for a far better definition.

http://www.investopedia.com/terms/i/indexfund.asp#axzz2LRnuRSDy

I'd also avoid managed funds, they have higher fees and rarely do better than the actual market or index funds.

Thanks for the tip and advice sabre_ac

So if I grasp the concept of an index fund correctly - it basically is investing into a fund that has a portfolio of shares that mirror one of the indexes? Is it kind of similar to a managed fund where someone controls the investments on behalf of the stakeholders or are the shares in the portfolio fixed? Is it called 'passive investing' because it simply mirrors index shares rather than actively assessing various options?

From that link you provided, the major benefit of this option seems to be the low management expense ratio (I'm guessing meaning once you buy in, there is minimal cost to manage this?) and that it generally offers a competitive option compared to mutual funds (just checked - is a mutual fund the same as a managed fund?).

I saw my dad on the weekend and he was telling me of something similar to what you describe (forgot the name though!) essentially, what I understood it to be was a shares fund that you invested in and then the funds are used to invest in shares on your behalf (so maybe kind of similar to a managed fund but on the ASX?)

 

[NUFC Tiger]

Put it in a high interest bank account contribute $100 per week and let compound interest do its thing

Pretty much what I am doing now - basically keep all my money in my net bank (which has a high interest rate) and transfer funds as I need them to my other linked account when I need to make a withdrawal/pay via my card.

Was just trying to see if there were any better options out there

 

[JohnW]

Don't get into debt, a mortgage at your age will limit your freedoms significantly. One of the best things about being in your 20's is you have the option of doing whatever you want, your path isn't set. If you get a mortgage you must maintain your current level of employment to service the loan, which means you can't take as many chances with your career or adventure.

From an investment perspective, have a look at the returns on real estate the past few years, then take into account the difficulty to sell and you will quickly realize that at this time people are only buying houses to live in and not for investment. Not to mention that 10k is no where near what you need for a deposit to get a house, you'll need to save at least triple that.

Pump it into a low fee index fund, its an appropriate risk and return for your age and they are relatively easy to setup (Your bank can assist).

You purchase an interest in a portfolio that is made up of shares that mirror the major index's, so essentially if you purchased an index fund when you hear on the news "The share market went up 0.5% of a percent today" so did your investment

See below for a far better definition.

http://www.investopedia.com/terms/i/indexfund.asp#axzz2LRnuRSDy

I'd also avoid managed funds, they have higher fees and rarely do better than the actual market or index funds.

Great post.

Something like this could suit:
https://www.vanguardinvestments.com.au/retail/ret/investments/etfdetailVALCIE.jsp

I do like using ETF's for large cap. (big companies)

I think activly managed funds in the mid to low cap stocks are attractive, and that the managers can add value.

Maybe look at a 50/50 split with ongoing contributions to both.

You could take a long term position with the ETF, and change the managed fund as you see fit depending on your thoughts on the market.

 

[sabre_ac]

If anyone has a better understanding, please jump in.

Thanks for the tip and advice sabre_ac

So if I grasp the concept of an index fund correctly - it basically is investing into a fund that has a portfolio of shares that mirror one of the indexes? Is it kind of similar to a managed fund where someone controls the investments on behalf of the stakeholders or are the shares in the portfolio fixed? Is it called 'passive investing' because it simply mirrors index shares rather than actively assessing various options?

Your pretty much there, the only slight correction I would make is that its not really managed. Once the fund is setup, it's left alone (Unless of course the index changes). There is no trading or extensive research into the companies held within the portfolio which limits the cost significantly.

From that link you provided, the major benefit of this option seems to be the low management expense ratio (I'm guessing meaning once you buy in, there is minimal cost to manage this?) and that it generally offers a competitive option compared to mutual funds (just checked - is a mutual fund the same as a managed fund?).

The actively traded funds don't beat the market and therefore don't beat the index funds period. SOME do occasionally but very few (less than 10%) beat the market consistently or over the long term.

The advantage of the actively traded funds or non index funds that I can see are as mentioned those who have access to private placements (Investments not offered to the public) and the option to buy overseas investments (However these have not beaten the Australian index funds). The "richest" people I know have a mix of the index funds and the privately managed but they have the advantage of significant purchasing power, have strong personal knowledge of how investments work and more often than not invest in the industry they are experts in.

At your age and with 10k of hard earned money, I'd recommend the index fund or at least the majority. You could take1k or 2k and doing some of your own research and then investing in companies that you like to gain some experience in the market. Prepare to get burned though, its not a gentle education.

 

[Sanders]

Pretty much what I am doing now - basically keep all my money in my net bank (which has a high interest rate) and transfer funds as I need them to my other linked account when I need to make a withdrawal/pay via my card.

Was just trying to see if there were any better options out there

Would recommend a little research into 'real' interest rates

 

[NUFC Tiger]

Would recommend a little research into 'real' interest rates

Like the RBA one? or do you mean something else?

 

[NUFC Tiger]

Great post.

Something like this could suit:
https://www.vanguardinvestments.com.au/retail/ret/investments/etfdetailVALCIE.jsp

I do like using ETF's for large cap. (big companies)

I think activly managed funds in the mid to low cap stocks are attractive, and that the managers can add value.

Maybe look at a 50/50 split with ongoing contributions to both.

You could take a long term position with the ETF, and change the managed fund as you see fit depending on your thoughts on the market.

Thanks JohnW - this sounds like a promising area to consider.

Just reading on the link you provided and the people they suggest it might be best suited to 'long term investors (usually seven years plus)' - does that mean people who are investing with a long term focus or does it mean the ETF is targetted more at experienced investors?

 

[NUFC Tiger]

If anyone has a better understanding, please jump in.



Your pretty much there, the only slight correction I would make is that its not really managed. Once the fund is setup, it's left alone (Unless of course the index changes). There is no trading or extensive research into the companies held within the portfolio which limits the cost significantly.



The actively traded funds don't beat the market and therefore don't beat the index funds period. SOME do occasionally but very few (less than 10%) beat the market consistently or over the long term.

The advantage of the actively traded funds or non index funds that I can see are as mentioned those who have access to private placements (Investments not offered to the public) and the option to buy overseas investments (However these have not beaten the Australian index funds). The "richest" people I know have a mix of the index funds and the privately managed but they have the advantage of significant purchasing power, have strong personal knowledge of how investments work and more often than not invest in the industry they are experts in.

At your age and with 10k of hard earned money, I'd recommend the index fund or at least the majority. You could take1k or 2k and doing some of your own research and then investing in companies that you like to gain some experience in the market. Prepare to get burned though, its not a gentle education.

If anyone has a better understanding, please jump in.



Your pretty much there, the only slight correction I would make is that its not really managed. Once the fund is setup, it's left alone (Unless of course the index changes). There is no trading or extensive research into the companies held within the portfolio which limits the cost significantly.



The actively traded funds don't beat the market and therefore don't beat the index funds period. SOME do occasionally but very few (less than 10%) beat the market consistently or over the long term.

The advantage of the actively traded funds or non index funds that I can see are as mentioned those who have access to private placements (Investments not offered to the public) and the option to buy overseas investments (However these have not beaten the Australian index funds). The "richest" people I know have a mix of the index funds and the privately managed but they have the advantage of significant purchasing power, have strong personal knowledge of how investments work and more often than not invest in the industry they are experts in.

At your age and with 10k of hard earned money, I'd recommend the index fund or at least the majority. You could take1k or 2k and doing some of your own research and then investing in companies that you like to gain some experience in the market. Prepare to get burned though, its not a gentle education.

Thanks again for the info and clarification Sabre - just one point, you mentioned that once it is set up, it is left alone. Does that mean you can't make further contributions to the fund once it has been set up or do you just mean that it basically manages itself? Also, is an index fund similar to a managed fund where funds are pooled from multiple investors - or would the fund (once set up) just be for myself?

 

[JohnW]

Thanks JohnW - this sounds like a promising area to consider.

Just reading on the link you provided and the people they suggest it might be best suited to 'long term investors (usually seven years plus)' - does that mean people who are investing with a long term focus or does it mean the ETF is targetted more at experienced investors?

Talking about time frame.

As per Sabre AC has said, ETF or index funds are quite simple(on face value). The fund simply replicates your chosen index and exposes you to that index's movements.

In my opinion an ETF would form the foundation of your investing while keeping aside some money to invest in other sectors. You could feel uneasy about the economic conditions and place the money kept aside into a term deposit which would reduce the overall risk of your portfolio or you could place it in higher risk/growth sectors if you think they will head north. All while keeping the inital amount in the chosen index fund/ETF.

 

[NUFC Tiger]

Talking about time frame.

As per Sabre AC has said, ETF or index funds are quite simple(on face value). The fund simply replicates your chosen index and exposes you to that index's movements.

In my opinion an ETF would form the foundation of your investing while keeping aside some money to invest in other sectors. You could feel uneasy about the economic conditions and place the money kept aside into a term deposit which would reduce the overall risk of your portfolio or you could place it in higher risk/growth sectors if you think they will head north. All while keeping the inital amount in the chosen index fund/ETF.

Thanks for clarifying that up. That sounds like what I was planning to try and do - have 1 investment that is relatively safe/stable and provides fairly regular returns and then maybe after a while, go for another more risky/higher reward investment to go with the 'safe' one.

 

[JohnW]

An ETF tracking the top 200 stocks on the ASX would be considered fairl risky. Do not think that an ETF is "safe", to me safe investments are cash in bank, term deposit, government bonds. Stock (bluechips or others) I would not class as "safe".