Interest Rates

With interest rate increases of late, I have come to realise that I need to do something about my high interest bills every month.

After some thought I have come to understand that on my investments the interest rate rises, whilst annoying and a hassle, are hardly deal breakers. I can quite simply factor them in and manage them.

But the real problem has come about because I have realised that our own home is to highly geared and can be a major threat to our future well being. I have the funds to see out the next 12 months easily enough, but I'm a proactive type of person and like to tackle issues head on, rather than let them fester and become bigger by ignoring them.

So the question becomes have I made a mistake in taking on such a big mortgage in our own home. The answer is both Yes and No

YES

I have gotten a house and a mortgage that if I had no investments there is no way we would have gotten the finance in the 1st place.

The current repayments are beyond the ability of my wife and I to pay for

NO

If I sold all my investments we could afford it.

I really like the area, and would be a great place to live for a long time and raise a family.

So the question remains what am I going to do about it?? that is what I'm considering at the moment. I can see multiple options ahead

1) sell the house
2) sell one or more of my investment property's
3) sell some shares
4) refinance
5) work alot more to afford it

I keep going around in my head that the investments with the greatest potential for growth in the med-term is my share market investments. And also I really hate the idea of ever selling property. However I think it be become important and I would rather do it on my terms than being forced on me.

I think the desicion has been made in my head that I will sell the apartments, reduce my debts the when how will be made abit later. I have time.

I think personally I have reached the point over the last 2 or so years that I have expanded rapidly and I need to pause and consolidate, before expanding once again. Get myslef on a secure footing again.

Work

I haven't written anything for awhile, because I have been working alot lately and not had the time and energy to write anything down.

I'm currently on holidays in Sydney (visiting family) I decided to pay for the Holiday by working a 2nd and 3 rd job over a short period to pay for it, rather than going into debt for it. This has got me to thinking about my strategy's....

It's strange I enjoy working, I enjoy starting a specific job, working at it and completing it. I get a sense of accomplishment. But I hate that fact I have to do crappy menial work. But then I guess most people hate there jobs. I'm particularly lucky in that my main job is one that I quite enjoy and is challenging and rewarding, whilst giving me great flexibilty in work hours.

At the moment I can earn more money by me working that I can by investing, this is short sited of me, but unavoidable. I intend to change this over time, however Rome wasn't built in a day. I strongly believe that without a strong foundation of a good work ethic, creating wealth would be even more fraught with troubles.

I have my 10 year plan in place, and that is what I'm working towards however slowly it seems at times.... I just have to maintain focus.

Property

Property is where I cut my teeth in investments, where I learned the basics and after awhile I started to understand an Investment's are all the same, just the terms and names of things are different ie. rent = divended.

Property can by quite a forgiving investment, just hold it long enough and it'll go up, as long as it's in a reasonable place.

The Pro's of Property

High leverage ability
Secure funding (loan doesn't reduce like margin loans)
Easier access to funding
Can increase value and rent by improvements to place (within parameters for area)
Control of asset
Can shop around different lenders
Can re-finance to pull money out
Can negative gear against tax


The Con's of Property

High entry and exits costs
Length of time to sell (liquidity)
Can't increase value of place above surrounding area
At market forces for rent, and interest rates
Ongoing costs can be high (rates, insurence ect...)
Property managers take a high % of rent

For the next Property I buy I'm gunna do what I have never done before and search for the a great buy, hopefully a development potential site, that price hasn't been already factored into it. Or a cash flow positive place, yes there are out there, just takes alot of looking and imaginative think to create one.

I think in future property whilst still being important, it will be the base for me to secure funding for other investments, rather than being everything. I shall always be in it, as well as other markets

Diversification??

The basic idea of diversification is to own many assets, so that if one goes bankrupt your entire wealth isn't destroyed. By spreading your risk to many company's you reduce over all chance of losing everything.

This is basically accepted as a sound investment strategy and for the most part I agree. However it does have one down side in that, If one or two assets boom and make incredible returns, the benefit to your overall portfolio is not that much. That's the risk you take in return for limited loses. Diversification averages the returns both in good times and bad times.

For the average person who has limited knowledge/time/interest in investments this is a excellent strategy and one I highly recommend. In the likes of ETF's or LIC's is great.

For example if you own 20 stocks, and 5% of your portfolio in each. One has a return of 200% for the year. It only affects your total portfolio by 15%.

What I do is, what I call focused or limited diversification (I don't know if I made that up or read it somewhere) I try to limit the amount of stocks I have, and put enough money into the ones I believe will do well, to actually make a difference to me.

If I thought XYZ company was about to boom, and I bought $500 worth of stock, and it returned 100% for the year. I would have $1000 . Whilst this is great and is a fantastic return, the difference that money can make to my life is minimal. However if I put 50% of my portfolio in it the difference to my life is huge.

I try to limited myself to 6-8 stocks and put enough money in to each one that it makes a difference to me. However I do ALLOT of research and reading before making investments and buy with a set period of time for that investment. That is my way of reducing the risk of loss.

The dark before the dawn

Life eternally ebbs and flows in different directions, whether it's your personal life, relationships, business, job, investments or family. They all provided moments of sheer joy and at other times abject sorrow. Sometimes it seems the darkest just before dawn. When all hope is lost there is nothing but frustration and despair ahead.

That is the moment that as a individual, it is most important to fight through, to say 'I will not surrender' these moments is what makes us grow and become stronger or destroy us as a person. But it's at the darkest places in our lives it's the hardest to ever see a positive end.

It is only in hind sight that we later see that our darkest moment was also the closest moment in time to a new dawn. When life flowed back the other direction as it always does.

This blog is about my investing and finance so I'll focus on that aspect. At the moment interest rates are rising, share markets are tanking. Our living expenses are rising. Things are starting to look tough. It would be easy to sell up and remove these problems and take a loss. There are always problems in any business or endeavor, the challenge is to see through them and find solutions, which are always there.

But right now I look at all these different options and ways I could go. As different markets tank, and my maturity as a investor continues, I see so many opportunities available but I have no cash. In the words of a young Warren Buffet "I have more ideas than cash" So which way do I turn, what do I do???

And here's what I keep coming back to STICK TO THE PLAN, I've done things in last 8 months for a reason, according to a plan. Mostly which is in my head, but allot is written down. One thing my research and common sense tells me, is that jumping from one thing to the next is the easiest way of achieving nothing.

So sometimes the hardest thing to do, is to see all these opportunities and to do nothing about them. Mainly because I have no cash at the moment. But also because I have a plan with what I want to do and how I will get there. I also want to avoid over diversification, having money spread to thin. I do what I call 'focused diversification' (I'll write on that later)

Controlling my emotions and impulses when it comes to investing is the greatest challenge to wealth creation I face. Once I can truly master this I will be ready for the next level.

Sometimes I wonder is this blog to vague or cryptic. My ideas just sort of come to me, and they make sense to me when I'm writing it. But I wonder do they make sense to others???

Direct or Managed Investments

This is a age old question for investors, there is no right or wrong answer, it all depends on your circumstances.

Do you have more time than money or more money than time?? Do you like doing research or getting some else to do it?? What sort of returns are you happy to accept?

My view is that I like to remove as many people as possible between me and my investments. The reason is that the more people taking a small cut of your money the less left for you. Here's a worst case scenario;

Me -> Financial Planner -> Manage Fund Company -> Managers of Fund -> Tax Man-> Asset

All those people are earning some income from you. You can never remove the Tax man from it, but you can do things to reduce his cut.

I like to have ;

Me -----> Tax Man ----> Asset

Simply more returns for me, however this means I'm responsible for the total management of the asset. When I do have people working for me I make sure I get value from them. And I like to pay them direct so I'm aware of what they cost. Managed Funds and Financial Planners there costs are generally hidden from you or hard to fathom. I'm not against getting any help, far from it. Just that I like to know what I'm dealing with.

So are all managed funds bad, NO, however I prefer ETF's (Exchange Traded Funds) or LIC's (Listed Investment Companies) because of the much low fee's . I would never invest in a managed fund unless it could give me exposure I couldn't easily get.

As you may have guessed I'm a sort of hands on investor. I enjoy the process and I get hints and tips from all over the place. So I'm not just sitting in my office spinning ideas out of my head, 98% of the time I'm re-using some else ideas and thoughts, making them fit my needs. Only time will tell if I'm full of shit or there's something to what I think!

So how am I going to achieve what I said??

My 1st goal is to pay off my house, which I owe $550k on it. I have invested about $180k in hi-growth stocks, that should take off over the next 2 years. I have invested in companies like:

Equinox Minerals (EQN on the ASX) it has a massive copper mine about to commence production later this year. It has a projected 37 year life. This is what i like investing in. The transition from cash burning developer to actual producer. It should be in full production sometime in early 09. The EPS and hence the share price should go up allot, my prediction is in 2-3 years it be somewhere between $15-$22. Or it mostly likely be subject of a takeover. It's currently trading at $5.10 - $5.50.

Another one is Aim Resources (AIM) they have a zinc mine in Africa about to go into production this year, and full production next year. They are currently at about 0.10c. My prediction is that in 2-3 years they should be somewhere in the 0.30c - $1.50 range. Huge upside.

Another one is IBA Health (IBA) they are a e-health company that have just completed a company defining take over . They have long term secure earnings in a growth industry. We are all getting older . They are currently trading on a very low PE, because of the market volatility and the market is waiting to see how the company performs.

These are 3 of the 7 companies in my high growth portfolio...

Am I an expert?? NO! Am I guaranteed results? NO!
Ambitious, Brave, Foolhardy, Stupid, Dumb, Brilliant, well researched, Confidant and just plain dreaming are just some of the things I say to myself.

Life is a journey, the only thing guaranteed is that if I don't try, I won't succeed!

The best of the best scenario is that this portfolio with be worth $1.2M+ in 2-3 years. However back in the land of reality, I'm am quite confidant that I will not lose any money over the entire portfolio. If one of them is successful I should come out even, more than one I'm ahead. If it gets to pay out my house FANTASTIC!! It beats paying off a house over 30 years, and being a working slave!!

My view on asset classes

In the future I intend to have 4 distinct income streams, think of them like 4 different business, which I can withdraw a bit of money from each, when needed. To provided diversification and exposure to other assets.

If I was only in property, the booms are usually 5-7 years apart. That is quite some time to wait. Where as the share market can give you exposure to most asset classes around the world from one place.

In the first box -

Property

This is the best source of leverage and secure lending against.
Pick up quality property's at good prices
My wife wants to get into renovating/building/developing
Try never to sell

The second Box -

My wife's share portfolio, with companies that provided good long term secure earnings that pay out increasing dividends year after year.
Never sell

The third box -

My High growth share portfolio, invested in companies with a proven resource or service that is for a large increase in sales.
Sell after about 2-3 years

The fourth Box -

This bit is abit more fluid not really decided on the format yet, but am leaning towards limited options trading to provide cash flow.
Monthly turnover.
Am a couple of years and alot of research and learning away from starting that.


The point of having a few different boxes, one should be chugging along, one maybe struggling , maybe one booming. Over the years I can pick and choose which to take a income on from that year. It also provides synergy to back each other up, and can transfer funds between, if required or opportunities arise.

Leverage - The Greatest Double Edged Financial Weapon!!!

Whats the difference between a saver and an investor? or a wealthy person and a person on track to be a pensioner after 40 years work.

Leverage

It's the single greatest tool for creating wealth, with the exception of your own financial education. Nothing is more important than increasing your knowledge base. Once you have the foundations of knowledge. Leverage can assist you to jump to the next level.

So what is it??

Leverage in financial terms means using given resources in such a way that the potential positive or negative outcome is magnified.


It is so much more than just borrowing money. Leverage is using other peoples money (OPM), other peoples time (OPT), other peoples knowledge (OPK)

We can use this is so many ways, I'll mention just a few;

• Use a Property Manager to manage your Investment properties
• Use a buyer's Agent to find quality investment property's
• Use a good accountant to get maximum tax benefits
• Read books to acquire other peoples experience
• Network with like minded people to exchange other ideas
• Use a good stock broker to find opportunity's in share market
• Borrowing money to fund investments

Whilst leverage can be a great tool, and can also be the worst thing you have ever used and leave you screaming at yourself and any one else and dirt poor again. For this reason you should always tread the waters carefully , when using leverage to assist you, take it easy and go no further than that is comfortable each time. Don't rely on someones knowledge until you are comfortable and do some research yourself. The same with borrowing money to invest always do your due diligence.

There are many many people out there that would love nothing better than to separate you from your money. Be a good custodian of your wealth and it will flourish. Hand over responsibility to other's and it will flitter away.

Wealth is constantly being re-distributed from the dumb, silly and uneducated to the smart operators and financially knowledgeable people.

Financial Education

We as a society are at a tremendous disadvantage to the few who are financially literate. Why is this in a highly educated society like Australia? (you could name virtual any western country instead of Australia)

We are taught in schools and university's to read, write and arithmetic, we are taught to study hard and get a good job. So we can work for someone else. We are never taught to create wealth and energy for ourselves.

But basic financial literacy isn't that hard, nor is it a highly complex thing (although financial people like to use weird words to describe things, I think to keep the masses in confusion)

So where to start??

I know where not to start, that's in any program or group that charges thousands of dollars for a weekend course in Property, options, foreign exchange, day trading any any other thing they can dream of. Just think if they are truly making the sort of money they claim, why are they wasting there time teaching you, not sun baking on a island somewhere??. Because they make there money from scamming average people out of there money, with get rich scheme's. Do these simple things and make thousands of dollars for little effort they say.

Here is one of my golden rules..

The more people between you and your asset/investment the less money you make!

Most knowledge can be found for free on the internet or my personal favorite your local library, which is a tremendous resource for free. There is very little that any thousand dollar course can teach you about, that is not in your local library. Just search for any subject go get a few books read them over some time, then go get some more. They can even order books in for you from other library's, just ask!! Start with basic books, then work your way up.

The most important things is to take responsibility for yourself!! Understanding the basics in the previous post is vital. If you can't save 10% on 30k a year you don't have the discipline to save 10% on 200k a year. In fact many high income earners are struggling under the weight of there debts and obligations. If you are struggling on 40k a year a 10k pay rise may seem the solution to all your problems, but in 12 months time 95% of people will be in the same struggling position. Which leads to another golden rule of mine...

If you can not make saving money a habit, you will never be rich!!

Make saving 10% of your income a habit that you do every time, this gives you the disciple to achieve many things. Trust me before you know it, you will not even notice the money gone!! Then when you have a reasonable amount of money in savings you can invest it, and save some more. There's nothing like the feeling of security in having income and assets the make money while you sleep.

This is why alot of Lotto winners end up broke? Because they know how to spend money but not make it (without working for it) and the sum total of there investment ideas is to put it in the bank and live off the interest.

Financial education is vital because we all live with money, use it daily, and require it to live. Just learning to manage your own money and personal situation will give you confidence in your own life and free you do do some things that you want to do. Whatever they are.

I personally don't have a much of a desire for wealth in itself, but a I have burning desire for choice in my life! I don't want to work for 45+ years and retire on less than my average wage. I want to have the ability to choose my own destiny. That's what drives me. I want to go to Uni and get a degree in History for no other reason than it interests me, I want to spend lots of time with my kids, I would like to learn to sail and travel the world, I want show my wife Europe and the wonders that the world has to offer. I would like to improve the life of people less fortunate than myself. This is what drives me! This is what motivates me, making money is a by-product.

The fundamentals of a secure future

What do I think are the keys to a financially secure future, they are as old and timeless as money itself and have been written about endless in so many books. But maybe because they are simple and boring most people ignore them and focus on the next best thing or a get rich quick scheme.

Here is what I think is the fundamental basics

1. Save at least 10% of your income (before paying any bills)
2. Live on less than you earn
3. Invest in secure assets that grow over time
4. Reinvest the returns

Thats it in a nut shell, not complicated or sexy or even exciting. The only hard part is number 3, finding good assets to invest in. The rule of thumb I use is will this company still be selling it's products or services in 10 years time or will this property still be a good rental in 10 years. I'll talk more later about finding quality assets.

Over time this method virtually guarantees results because to do this you will become disciplined saver, live within your means, and have assets that independent of you appreciate in value.

There are 2 other parts that I'll write about later, Financial Education and Leverage these are the keys to unlocking future wealth. But without the basics everything else becomes meaningless. You must build a secure foundation before building wealth.

Where do I want to be.....

This is the interesting bit, the future, my plans and ideas. I have two goals one in the short term and one long term.

My mission statement or goal...

1) By early to mid 2010 I shall have paid off my house.

2) By age 40 (2017) I shall have a passive income of $100k.

This is my basic Financial plan

Shares
- 10% savings each week, when it reaches 1k, transfer it into share trading account, and wait for opportunity’s
- Leverage and High growth is primary focus (about 80% of my funds)
- Secure Blue Caps with good yield (about 20%)
- My wife's share portfolio look to buy high yielding good cash flow equities.

Property

- Look to buy a property when I can put about 25% deposit in, and get about neutral cash flow.
- Be selective, look for properties that I can value add to.

Business

- around 35-36 look to purchase / start a business
- May be online business or options/trading business
- Do ample market research and gain knowledge of what I'm doing

Investing Strategy

1. Income
2. Leverage
3. Capital Growth
4. Withdraw original capital and re-invest

Where am I Now....

Currently I have 3 Investment properties (2 apartments & small duplex) currently worth about $700k with mortgages of $520k and weekly rent's of $525. They are collectively losing about $13k a year (negatively geared) . The rents are due to go up soon, to close the gap.

I also have a share portfolio worth about $140k with a margin loan debt of $65k. Due to current share market volitility it's down about 30k from November. My portfolio is made up of 80% high growth companies and 20% income producing companies.

In that portfolio i look to invest primarily in growth companies that have a proven product, service or resource, and are 1-3 years away from massive expansion in there EPS.

I also have a house, my wife and I live in valued at about $700k with a debt of $550k. My goal is to have this paid off in 2-3 years.

My wife is building a small share portfolio as well at the moment it's worth $9.5k with a Margin loan debt of $3k. She is quite conservative. So I'm using the value investing model for her. 80% Income producing companies and 20% growth companies. Only investing in companies with long term secure earnings, that pay out a good percentage of profits in dividends.

Thats where we stand at the moment...

Where have I come from....

At the moment I'm 30 (turning 31 in 4 days!!) I grew up in an average middle class life in Perth, Australia. In one form or another i have been working since I was 10 years old. Odd jobs to part-time work, to full time work.

I bought my 1st Investment property when i was 19 (i went half's in a small 2 bed apartment with my brother). Over the following years i bought and sold some more properties, without actually making much money. I also put some money into the share-market for some hot tips that where a sure thing. Needless to say overtime, they all whittled away to nothing. I also put $10k into a online Currency program (that I now know was a Ponzi program) and lost that in short order.

As you can see I was doing all the classic things for losing money not making money. I thought I was smart for trying all these things!!
Looking back now, I can see I was wandering about in the dark without much of a clue as to what i was doing!

The online Ponzi scheme i got involved with, was the wake-up call I needed to start to think about Investing and money that I needed. Even now the $10k i lost in that scheme, has lead me to make 10 times that. That was the moment I started to see what I was doing. Chasing the next great thing that would solve all my problems for me. I was not taking responsibility for my own actions!!

I was the only person capable of making myself successful. It would have to begin with my own education. Over the next few years I started to learn about finance, property, money. It's a slow process sometimes. I was lucky one of my friends was a mortgage broker and he explained alot about how to get money from banks, what they where looking for, and how to use equity.

I read lots of books on property (this was my only focus in my twenties) started to buy a couple better properties, although they where far from perfect ie now i wouldn't of bought them.

In Perth where i live we had a massive property boom over the last 3 years property prices have pretty much doubled. So this set me up in quite a good spot. At the height of the boom I had 1.6 million in porperty with debt's of 1.3 Million. Quite high LVR (Loan to valuation ratio). I have since sold a couple to pay down debt and to buy our future family house.

I have been told by more than one person I was just lucky to get that sort of boom happen to me.Yes i was lucky to have prices double in such a short time!! But on the other hand was it luck to have positioned myself in investments that had the possibility of booming?? You have to make your own luck!!

Unsuccessful people make excuses and have all sort's of valid reasons why they didn't do something. Successful people just do it.

The Beginning, It all must start somewhere!!

Welcome to my Investing Blog, this blog's purpose is to crystallize my thoughts on Investments, Money and Economics. To force me to write down my plans, execute my investing life according to a plan, to judge over time how well I do and how much i deviate from my plan. To also see how much it evolves over time....

This blog is NOT written for members of the public, however I'm obviously writing in a public sphere so it will be read by people if they stumble across it, and I welcome that. Feel free to make any comments you may have or ask any questions. If you feel this blog has something you think someone else may get benefit from, feel free to link it. At this stage I will not make any attempt to publicize the location of this blog. It is merely for my own benefit, maybe down the track I may change my mind.

I have a passion and a deep interest for Investing, Money, Finance, Economics, Politics, International Relations and History. I am all self taught, i have no formal skills, training or qualifications to make me a expert on anything. I work a normal middle class laboring job on a average wage.

Being "rich" is not my motivating factor I see it more of a challenge, I enjoy forcing myself to learn something new and create wealth with merely my brain, to think outside the square, to put all the little bits of knowledge and snippets of ideas into a coherent plan. To see through what people, companies or governments are saying and try and decipher the truth (well at least elements of it)


So over the following post's (however long it lasts) I shall write down where I wanna go with my life and where i started from and where I currently am. I shall try to be as honest and open about the different investments i make, As long as i don't give any personal information away.