Hello SB brains trust, I am after your humble opinion!
I started my first job out of university as a mechanical engineer doing fifo in and out of the Pilbara. Whilst I have been doing my best to spend my money on new kites and holidays I’ve managed to put some of it into the bank, approx 40k so far. Given the declining interest rates at the banks I'm looking elsewhere to invest it but I'm not sure what is a better option is in the current economy.
Property is overpriced and I'm not interested in paying a mortgage for 20years, I'd much rather stay mobile as I'm interested in travelling for work (and settling down who knows where and when). Shares might be an option but I'm not sure what approach to take (long term investments or short term trading?). What else is out there? (Other than investing in Stabber Kites Inc or tin foil hats).
I'm currently back living with the rents in Perth and have no hex debt. My investment goal would be to take higher returns than what is offered by the banks on savings accounts. Perhaps plain old fixed deposits might be an option??
Cheers!
David 
shares you could go an index fund all ords top 50, asx200 (there are exchange traded funds too)...takes the guesswork out of everything. (or for geared there is a geared colonial index fund) or a managed fund.
if you go to a broker they will want to split you up over a whole heap of different shares and take their up front cut and trailing commision. just by yourself or go through neville ward direct if you want a managed fund (or non exchange traded fund) or some other online fee free wholesale broker where they just send you the prospectus (with their stamp on it) and you do away with all the fees and they just get the MER. Best way to go. the sharemarket is still sell down from it's high of a few years ago so you could do a lot worse than buy in now.
but a house will allow you to live with a much higher level of debt, and therefore the potential to earn more over the long term.
I guess perth might be a bit hot, but I reckon as a young bloke with some extra cash you can't go past buying a house where you plan to live and renting out the rooms to uni chicks. You only have to pay your portion of the total rent of the house plus the repayment shortfall., which with the right property would be less than rent by yourself. You have the added bonus of socialising with a lot of girls - knew a guy who did this from high school. Was always very nice to his female housemates so they were always setting him up with their friends.
Yeah,.. but don't tell them that you're a kiter or they will set you up with all their ugly sisters. 
Avoid financial advisors like the plague, they are all out to improve their financial position.
Look up best yielding ASX stocks in the ASX largest 50 companies and buy a couple in
the top ten on the list. Managed funds will milk your returns by half, so also avoid them.
DONT aim to beat the returns expected on any investment, that's called greed and will
always fail you. There are no quick bucks in investing, be patient and forget buying and selling
for profit, you can't afford it with 40k to play with. Buy your couple of stocks and wait, the
ASX hit 6800 then crashed to 4000 odd, its still just over 5000 so buy a few stocks and wait
good luck
I'm with Boofta. Check out a company called Australian Foundation Investment Company and others of it's type.
Buying a share in AFI Co is like buying the ASX50. Your 40k will buy you diversity, which will minimise the variability of dividends. Afi co is a boring stodgy unexciting option.
A shareholding in one co only, makes tax time easier and cheaper.
Oh as someone said, don't take financial advice from the internet or taxi drivers.
Max out the super.
Mortgage equates not immobility, as you state.
The number of years you might stay in the current workplace might make it palatable even you think it's overpriced - we all have thought that for the last 25 years anyways.
A scenario is you buy, have a mortgage, meet a lady in 3-5 years or change job, and move out. Then you sell and the mortgage will have been the rent, more or less.
You're an engineer - figure out the maths yourself, including probabilities for the market crashing (low), for the market increasing, you moving away in 2-5-10 years, and so on.
Google "Barefoot Investor", simple independant investment advice. Based around long term buy and hold share investment, wish I had started this when I was younger.
Fixed deposits wouldn't be the worst option in the world. Whilst your investment would only grow slowly compared to other means, it's very safe and essentially a guarenteed return.
Five years ago i bought $10 400 worth of ANZ shares. After reinvesting the dividends and the share price climbing slowly, in an avergae market, they are now worth $16 000.
So I'm up $5600 after five years for an outlay of $10 400. I'm not telling you this to gob off, or saying you should buy ANZ shares, it's only as an example. There's much better potential in the share market than this if you can find the better performing companies.
I have limited knowledge of the share market but by buying shares in a "safe" company, I have learnt alot, and made some money, just by being in it. Plan to put more money in oneday when I can. Unless you have lots of time on your hands to properly check out companies on the share market, my opinion is the long term stratgey with larger companies is generally a better bet.
Property, physical gold, shares, businesses. These and lots of others can all be great and also be bad investments. After all the advice you get from financial advisers, the guys at the pub, seabreezers, one of the best thing you can do is to make up your own mind on what works for you.
22yo & you already have $40k to 'play with'?...(b@stard!)
If you don't need/want to see it for a decade or 2 - go with a good fixed deposit from a guaranteed bank. Otherwise if you have all the toys you need, the time to play with them (I'm beginning to dislike you more as I type this), and a safe income for the next few years - I got nuthin' - never been in that situation myself! 
Good on you for putting in the hard-yards at a young age, make sure you get good advice & keep enough coin to have some fun whilst you're young though.
spookyluke
Tax is ya big killer in shares, on your 5600 your actually only up 3900 roughly .Our budding engineer friend here would more then likely be in the higher tax margins again at 37 cents in the dollar .Being of the younger age group you should be looking at the long play because he has plenty of time to make/let it grow property is no less risk then shares but it does allow you much greater leverage and should be more tax effective. Useing a PAYG withholding tax variation helps reduce the weekly out lay to only a few dollars $50 - or +
leverage property 40k = 90% lvr = 400k property investment @7% return = $28k per year after 5 years you buy 1 or 2 more properties
leverage shares 40k 70% = 68k investment @20% return = $13.6k per year.
both are investments think of them as such both need a longer term approach to appreciate the full value
Death and taxes the TAX man will get you before and after death does
Select to expand quoteDarkspi said..
spookyluke
Tax is ya big killer in shares, on your 5600 your actually only up 3900 roughly .Our budding engineer friend here would more then likely be in the higher tax margins again at 37 cents in the dollar .Being of the younger age group you should be looking at the long play because he has plenty of time to make/let it grow property is no less risk then shares but it does allow you much greater leverage and should be more tax effective. Useing a PAYG withholding tax variation helps reduce the weekly out lay to only a few dollars $50 - or +
leverage property 40k = 90% lvr = 400k property investment @7% return = $28k per year after 5 years you buy 1 or 2 more properties
leverage shares 40k 70% = 68k investment @20% return = $13.6k per year.
both are investments think of them as such both need a longer term approach to appreciate the full value
Death and taxes the TAX man will get you before and after death does
not to mention the high possibility of a margin call if you are leveraging into shares
Select to expand quoteDarkspi said..
spookyluke
Tax is ya big killer in shares, on your 5600 your actually only up 3900 roughly .Our budding engineer friend here would more then likely be in the higher tax margins again at 37 cents in the dollar .Being of the younger age group you should be looking at the long play because he has plenty of time to make/let it grow property is no less risk then shares but it does allow you much greater leverage and should be more tax effective. Useing a PAYG withholding tax variation helps reduce the weekly out lay to only a few dollars $50 - or +
leverage property 40k = 90% lvr = 400k property investment @7% return = $28k per year after 5 years you buy 1 or 2 more properties
leverage shares 40k 70% = 68k investment @20% return = $13.6k per year.
both are investments think of them as such both need a longer term approach to appreciate the full value
Death and taxes the TAX man will get you before and after death does
For me, property is hands down a better option. Great points about property being potentially more tax effective, and the greater leverage options have huge potential if you want to build some serious wealth. Cherub's after flexibility, so property may not be suitable. At this stage anyway.
Nice work Cherub for checking out options early on in your working life. Keep a focus on your money always and it will serve you well in the future.
My first investment would be in some financial education. Barefoot investor is great. Noel Whittaker is boring but very sensible. Leave Robert Kiyosaki (Rich Dad, poor Dad) on the shelf.
Figure out your own risk profile and likely investment duration then decide what suits you.
I prefer shares - you can buy any amount, no need to get a mortgage and can diversify quite well within them. Also quite liquid - if you need the money you can sell your shares and have the money in your account within a week although obviously you will then lose the (probably over-rated) ability to time the market. A mix of big companies like the banks, big retailers, mining stocks, health stocks should give you a combination of decent capital growth plus income as dividends which can / should be used to build your share portfolio. Be aware of capital gains tax - basically you pay your marginal rate on half of your capital gains. If you're likely to ever have a year of low earnings it's a good time avoid CGT but only IF all other indicators say sell (ie you have something better to do with the money). To some degree you need to be aware of but not worried by market fluctuations, you're young so shouldn't be too concerned if todays value of a particular stock drops as long as the fundamentals are still good.
Property is the other big one but you'll have to borrow money for it and will be stuck either managing the property yourself or dealing with real estate agents. If you negative gear it's a great way of avoiding tax but you're then relying on capital gains which are far less consistent than a selling agent will tell you. I've seen a few people get burnt quite badly by bad tenants so am quite wary personally, but then loads of people have had great luck with property.
Managed funds are good if you're lazy or a bit dumb. Mostly the management fees eat up your profits and they're not a whole lot 'safer' than the share market as a whole. Index funds are a halfway point between picking your own shares and managed funds.
Select to expand quotetmurray said..
My first investment would be in some financial education. Barefoot investor is great. Noel Whittaker is boring but very sensible. Leave Robert Kiyosaki (Rich Dad, poor Dad) on the shelf.
Nice tip.
A must read book is "The Intelligent Investor" by Benjamin Graham. It's all about value investing. Start with the first edition. Later editions get bogged in technicalities.
Warren Buffet (Berkshire Hathaway) has been asked to write a book about his methodology and philosophy. He claims there is no need and refers to The Intelligent Investor. Graham was Buffet's University Tutor/Lecturer. They went into business together and the rest is history.
Look into it. A PC and the internet gives you a capacity for analysis that Buffet & Graham could only have dreamed of.
"Modern Portfolio Theory"
Background
Modern portfolio theory has it's genesis in the work of Harry M Markowitz*. Markowitz attempted to quantify a conventional wisdom, that an investor should not place all their eggs in one basket.
Modern portfolio theory demonstrates how 'variability of returns' can be reduced through diversification.
Anyone privileged enough to receive a University education in the field of finance, will be steeped in modern portfolio theory.
Modern portfolio theory is the raison d'etre behind the funds management industry.
Assertions
Fund managers often claim diversification will reduce risk.
Modern portfolio theory contends 'variability of returns' can be minimised by diversification.
Moving forward
Risk and variability of returns are not the same.
Investment objectives of 'preservation of capital' and reducing 'volatility of income' are not the same.
Markowitz
Markowitz contended some portfolio's were 'efficient' and others 'inefficient'.
An inefficient portfolio is one with excessive variability in returns, for a given performance threshold. An efficient portfolio is one in which variability of returns is minimised, for a given performance threshold.
Markowitz demonstrated the concept of efficiency, using simplified mathematical models.
Practically speaking
This author contends Markowitz's models are impractical for the following reasons;
-Collation of data sets required for Markowitz's methodology, is logistically impractical.
-Data sets required are not readily available in the public domain.
-Commercially available data sets are prohibitively expensive, and require considerable labour in application.
-Markowitz combined mathematical concepts such as mean, standard deviation, correlation coefficient and ??????????????? probability.
-Markowitz's model requires the user to exercise judgement as to likely stock performance. Model outcomes are heavily influenced by user judgement.
-Are you a proven performer in footy tipping contests, limited to eighteen teams?
Rear view mirror
Harry Markowitz was a successful academic, widely published in journals such as 'Naval Logistics Quarterly'. Markowitz never made a living allocating capital among alternative assets, he enjoyed the luxury of a steady University salary. While his contribution to the field of funds management is undoubted, his work should be viewed from the perspective of those with a long term track record, in capital management.
Other names worth investigating include;
- Warren Buffet
- Benjamin Graham
- Peter Lynch
- John Templeton
* Markowitz, H. Portfolio Selection: Efficient Diversification of Investments,
John Wiley & Sons, New York, 1959.
Buffet's Tenets and Graham's Margin of Safety
Business Tenets
Is the business simple and understandable
Does the business have a consistent operating history
Does the business have favourable long term prospects
Management Tenets
Is management rational
Is management candid with shareholders
Does management resist the institutional imperative
Financial Tenets
Focus on return on equity, not earnings per share.
Calculate owners earnings.
Look for companies with high profit margins.
For every dollar retained, make sure the company has created at least
one dollar in market value.
Market Tenets
What is the value of the business
Can the business be purchased at a significant discount to its value
Source: The Warren Buffett Way. Hagstrom, R.G. Wiley 1995.
Buffett's views on investment are much published. His views conflict with 'modern
portfolio theory'.
Read around, you be the judge.
Graham
Benjamin Graham has a proven track record as a fund manager.
He was criticised for being a pure empiricist and not mindful of qualitative matters. Buffett's first two tenets touch on qualitative matters.
Buffett cites Benjamin Graham's concept of Margin of Safety as the cornerstone of
investment decision making.
* Graham, B. The Inteligent Investor, Harper Collins, New York, 1949.
Okay some riskier stocks atm: LYC, PDN, MBN, SWE, SHE, ERA, CZN. IMHO Paladin and Lynas are great buying at their current price.
Some bio stocks that are really looking like goingf places: NEU, AHZ (although you may ahve missed the boat on this one as it's gone crazy ove rthe past fortnight)
Remember though do your own research - having a balanced portfolio of blue chip boring stocks that give some decent dividends and then some of the above risky stocks that make investing just that little bit more exciting.
Oh, Commsec or any e trading site only charge around $20 - $30 per trade compared to Stock broker fees based on a percentage of the trade.
stick to blue chip shares, buy them when they are down and hold for many years. check graphs over the last few years, they are a bit cyclical. check latest reports on them and sit back after that.
I bought after the GFC it went up 30%, then broker started getting me into some not so blue chip shares and lost 50%. what a joke.
Lyc was a dog, may be ok in the future but so could going to the casino and putting it on heads.
Try an LIC. (Listed investment company)
You buy them on the share market, and they give you exposure to a strategic mix of shares. Think of them as a managed share fund, but with a much lower % fee.
Milton is one, ARGO is another. There are a few others.
Some great (and earnest) replies. Taking everything with a grain of salt obviously but there are some interesting ideas - thanks for the recommendations!
I've had a look at barefoot investor and think I’ll dig around a bit more on the site before acting on anything.
I like the sounds of a LIC, blue chips and perhaps after some time pick up some individual stocks - any particular bit of reputable media that people subscribe to for advice with current going on's? I saw a few guys at work use Bell Direct for buying and selling, sounds like they get cheap trades and access to market reports too. Will ask them a bit more closely about it.
I wasn't very keen on property initially but you've made a compelling argument so I wont cross it off the list just yet, will take a lot more research to pick something that suits me and is a good investment, obviously also because it’s a lot of money...I don’t think I could live far from the beach and that instantly makes property a lot more expensive or further away from the city/airport.
Cheers!
The 'www.intelligentinvestor.com.au' site is an interesting source of advice (and investment products). Did a paper trial on the Rivkin report for a while and never made a cent.
Select to expand quoteIssa said..tmurray said..
My first investment would be in some financial education. Barefoot investor is great. Noel Whittaker is boring but very sensible. Leave Robert Kiyosaki (Rich Dad, poor Dad) on the shelf.
Nice tip.
A must read book is "The Intelligent Investor" by Benjamin Graham. It's all about value investing. Start with the first edition. Later editions get bogged in technicalities.
Warren Buffet (Berkshire Hathaway) has been asked to write a book about his methodology and philosophy. He claims there is no need and refers to The Intelligent Investor. Graham was Buffet's University Tutor/Lecturer. They went into business together and the rest is history.
Look into it. A PC and the internet gives you a capacity for analysis that Buffet & Graham could only have dreamed of.
My tips, for what they are worth....
My first tip is don't ask for investment advice on an internet forum. Opinions will vary, and some posts are wise and others are not.
Given that you have already asked for investment advice on this forum, my second tip is to spend some money on upskilling yourself. Books like the ones mentioned above by Noel Whittaker (Making Money Made Simple) are a good start then you can progress into Benjamin Graham's books if you decide to invest in businesses (shares). Roger Montgomery has a great book called Value Able, and his style is derived from Graham's. Actually, google Roger Montgomery and watch some of his presentations - he is a great orator and breaks things down so they are so easy to understand
My third tip is that if you are going to invest in businesses that you need to know the business very well and have a self assessed estimated value on what the shares in the business are worth. If you don't have an opinion on what it is worth, how do you know if you are buying in at an expensive price? Ideally when investing in businesses you require a "margin of safety" (Benjamin Graham), that is you are buying the shares below their intrinsic business valuation. Unless you have valued the business you are about to buy into you are speculating, not investing.
My fourth tip is that if you are going to invest in businesses, and are not prepared to put in the time to do your own research on individual companies, employ someone who can. They are called fund managers. There are great fund managers and there are fund managers that are not. Just like there are good and dud mechanics, teachers, lawyers etc. Ideally you would look for fund managers whose interests are aligned with their investors - they typically have most of their own wealth invested in the fund along side their investors, and they focus on investor risk (permanent loss of capital - ie: minimise the risk of losing money) instead of the risk of underperforming a benchmark (like the ASX200). A fund manager who invests in this style will charge 1% or so per annum which is a small price to pay for their capital management and expertise. Google the likes of Rhett Kessler at Pengana, Roger Montgomery at Montgomery Investment, John Abernathy at Clime, Hamish Douglas at Magellan, Simon Trevett at Platinum - their results are impressive, especially during the GFC, and most of the time they are not fully invested as they are selective on deploying capital. These are starting points for your research, education and decision making and are not recommendations for investment.
First Home Saver Account
Government run scheme for higher interest yielding accounts for purpose of home purchase
moneysmart.gov.au
Shop around for intro rates for high yielding accounts ie Rabo currently has 4% for new funds in cash management accounts. These rates are more attractive than Term Deposit and allow for funds to be accessed at anytime. Take into account any Terms & Conditions such as regular monthly deposits.
Be wary of investment advisors, they are a lot of scammers like storm financial, they tend to give you advice which gives them the best comission.
Select to expand quoteLittle Jon said..
Be wary of investment advisors, they are a lot of scammers like storm financial, they tend to give you advice which gives them the best comission.
I remember a few a years ago I accepted an invitation to a free personal financial planning session from the bank I had my accounts at. (One of the Big 4.) I decided to go along, and some kid who was so young he must have been wagging school told me to borrow $250K against my house and invest in a share fund (the bank's of course). Over the next two years the market dropped to less than half it's value.
I didn't follow his advice, but I hope he feels bad for all the people who did.
Select to expand quoteHarrow said..Little Jon said..
Be wary of investment advisors, they are a lot of scammers like storm financial, they tend to give you advice which gives them the best comission.
I remember a few a years ago I accepted an invitation to a free personal financial planning session from the bank I had my accounts at. (One of the Big 4.) I decided to go along, and some kid who was so young he must have been wagging school told me to borrow $250K against my house and invest in a share fund (the bank's of course). Over the next two years the market dropped to less than half it's value.
I didn't follow his advice, but I hope he feels bad for all the people who did.
A big benefit for consumers is the new legislation commencing 1.7.13 that bans commissions on investment products, and percentage based payments on leveraged (borrowing) strategies. But with the banks owning more of the Financial Planning force each year, and a chunk of the available investment platforms being owned by the big 4, it is a lucrative pot of money to chase for them.
A good Financial Planner can be invaluable in helping to define your goals and invest accordingly....but there are planners, and there are planners. If you are going to use a Financial Planner:
*ask around who your friends or family use, and why they are happy with them. That is a good starting point.
*shop around, ask the planner what their investment philosophy is......if they look at you blankly walk out the door. A good Planner should be able to clearly articulate their investment style and beliefs, and illustrate quite clearly why they invest that way. You need to be able to communicate with this person, and understand WTF they are talking about. If they dont have the communication skills that allow you to understand their strategies, thoughts or reasoning, walk out the door.
*find out their background. Been planning for how long, what is their eduction.
*seek out an independent Financial Planner where possible. That way you will get no asset/product bias, and more than likely a more appropriate strategy/asset. NAB owns MLC, Westpac owns BT, CBA owns Colonial etc etc - you go to those institutions you will be sold those assets....no brainer. In saying that, I have met some really talented bank Planners
* your planner should be eating their own cooking.......meaning they should be investing alongside their clients. My core share portfolio is the same as my clients - I change it in mine, I change it in theirs. Don't be afraid to ask to see your potential adviser's portfolio, or proof that they themselves are successful investors, or at the very least that they are following their own advice. I have been asked this by individuals (becoming clients) on several occasions about my financial position and investments and am not offended by this.....mind you some may be.......
*get several opinions - usually you will test drive several cars before you make up your mind, test drive a few advisers - initial and second meetings should cost you zero - it is your money, you have to be comfortable. If you are not being told enough information, or are being told that you need to commit and pay $$ before you know more.........walk out the door....
There are good teachers, lawyers, mechanics and administrators (etc), and some really lousy ones, and it is the same with Financial Planners, but please don't write us all off.
Buy a rental property mate. By the time you are 30 you will have plenty of equity to get another. At the rate you are saving, between the rent and what you're putting in you'll be laughing. Having property and cash in the bank buy the time you're 30 means the world is your oyster. Then do what ever you want, you'll be able to afford it. Shares fall, property prices fall but rent will always pay.
Oh yeah, I also meant to say well done on the saving and forethought. I will be a proud man if my kids have the financial responsibility that you show.
