Double Gearing

By Jason Fittler

I often wonder if the founders of Storm Financial really thought about the negative side of naming their business Storm, given the now destruction it has caused. One of the fall outs of the collapse of the Storm Group is the new legislation on gearing.

First you need to understand the model,

1.    borrow as much as you can against the equity in your home.
2.    invest these funds into index funds and then borrow as much as you can against this investment.
3.    if you have any capital growth, borrow against this equity as well.

This is called double gearing. 

The government has taken steps to make sure that this structure is never used again. It is obvious that this is a high risk strategy, in positive markets you have great gains and in negative markets you risk being wiped out.

In turn, gearing is now considered a bad strategy; this could not be further from the truth.

Gearing is a genuine strategy to improve your overall return if used correctly. The issue with Storm was not the strategy it was the adminstration and products used to execute the strategy.

In the current market we are currently coming off a very low cost base, those of us who have used a gearing strategy over the past 6 months have done very well for themselves. But how do you gear up your portfolio while limiting your down side?

Warrants – in this market my favourite product is the self funding instalment warrant over an index fund. This product gives you the protection of a stop loss, a low interest rate the same as a margin loan, the benefit of better up side in a rising market and the benefit of lower fees.

We will be releasing a video on our web site in the coming weeks to talk about gearing through self funding instalment warrants, specifically in relation to index funds. If you would like to take advantage of this product make sure you take the time to watch. It will only take around 10 minutes, but I guarantee it will be the most productive 10 minutes you will spend that day.

PS. If you would like a jump start on warrants, give us a call (07) 4771 4577.

If Direct Shares Are Not For You! Read On

There is no dispute that the share market over the longer term provides the best return. For those who disagree see the below chart. Red is the Australian Share Index Accumulated and Blue is the Property Accumulated index.

Most people own their own home as such they are already invested in the property market and will enjoy the benefits of any growth in the sector. But this is not enough, you need to spread your investment risk and also be invested in the share market as well.

As you can see from the below chart, Australian shares do provide the best return. However it can be very difficult deciding which shares to buy when to sell etc. For many, would be investors this decision proves to be too much, and they never get started.

This does not need to be the case; there are simpler ways to get started in the share market.

The best and cheapest way is through index funds. An index fund will give you exposure to the whole market. As such you do not need to make any decisions on when to buy or sell, this is all done for you. Add to this that index funds provide the lowest fees and clearly this is a great place to get started for the new investor.

When is the best time to get started?

The general rule is to buy low and sell high, the best time to get into the market is when the market is low. Unfortunately this is normally when people become emotional about investing and are selling.

Right now is a great time to invest in an index fund, the market is looking very cheap and is in fact the cheapest it has been since 1984. Getting into an index fund right now will yield fantastic results over a 3-5 year period.

Next step.

If you agree that you want to have more money in three years than you do today, if you own your own property and if you do not have a lot of experience in the market then now is the time to be buying into an index fund.

For little effort on your behalf you will yield great results.

For more information call us today on 07 4771 4577.

Jason Fittler

The Secret to Achieving Great Results... be a Contrarian

contrarian |kənˈtre(ə)rēən; kän-|

noun; a person who typically acts or thinks in a way contrary to popular or accepted opinion; specif., an investor who seeks to make a profit by acting in opposition to majority opinion, prevailing wisdom, etc., as by buying a company's stock when it is out of favor with the majority of investors

adjective; opposing or rejecting popular opinion; going against current practice :

When investing whether in Property, Shares, Managed Funds or Index funds, the small investor has no control over the direction on the market. It is like being on a mighty river in a small boat; you will simply be swept along with it.

As such it is important to go against the trend and invest in times while there is a little uncertainty if you wish to achieve great results. Take a look at the below charts.

Would you be comfortable investing in this market.

How about this market?

When we put these two together you have the following chart. My guess is in hind sight you would have picked the part circled to buy in. The problem is that we do not invest in hind sight we invest in real time. As such the truth is that most would not have bought in until many years later. 

The Message:
For the small investors we need to invest against the trend in order to make large profits. We need to take a little more risk as long as that risk is calculated.

“All progress is made by the unreasonable man.”

So if you are ready to make money give us a call so we can discuss your options.

Phone (07) 4771 4577

Jason Fittler

Index Funds

We can save you money.
I have heard that some people are charged as high as a 5% entry fee and an ongoing fee of 1% per annum. There is a better way...
What are they? Should you be invested in them?

Index funds are a simple form of investing in the share market. They take away any need for you to make a decision on what shares you should hold, when to buy and when to sell. Buying into index funds is simply an “invest and forget” strategy, which over the longer term will produce you overall a good result.  

The only real trap with this sort of investing is the fees associated with the investment. Due to the nature of this investment your adviser can not add much value in terms of advice and as such their fees should reflect this.