Unit 16 Advanced Graduate Strategy
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This document outlines an advanced graduate strategy for personal financial planning. The strategy involves: 1. Saving $5,000 into a savings account and $5,000 into a managed fund. Taking out a $10,000 margin loan secured by the managed fund to invest more. 2. Using the margin loan to continue investing in the managed fund up to a $100,000 portfolio over several years. 3. Buying a $300,000 property with no deposit using the First Home Owners Grant and parental guarantee. Renting a room to offset mortgage repayments. 4. Continuing to invest savings and distributions to build the portfolio to $300,000 while increasing the margin loan,
Unit 16 Advanced Graduate Strategy
- 1. GENC3003Personal Financial PlanningAndrew Hingstonandrew.hingston@unsw.edu.auUnit 16: Advanced investment strategies
- 2. 2Chunks of a piePlan to beGenerousPlan to beContentPlan for theFuture1. Plan to be GenerousTaxes support the communitySupport family and charities2. Plan for the future House paid off
- 3. Super for financial independence
- 4. Insurance to protect family and assets
- 5. Plan for death
- 6. Save for big expenses
- 7. Invest savings by time horizon: - fixed interest - shares, property - managed funds3. Plan to be content Manage your living expenses
- 8. The residual pie … not the first part
- 9. Focus on contentment … not upgrades
- 10. Focus on people … not possessions
- 11. Track expenses … cut back by 10%
- 12. Never pay interest … except investments4. Grow your pieCash flow from labourCash flow from investments
- 13. 3Advanced graduate strategyGraduate from uni on salary of $40k+Save $5,000 into savings account as “savings buffer”Then save extra $5,000 and invest it in managed fund that invests in shares and start a regular savings plan into fundAfter managed fund has built to $20,000Apply for “margin loan” for an extra $10,000 with your existing managed fund units as “collateral” for the loan (33% LVR)Apply to “capitalise” the interest which means that the interest on the margin loan will be added to the loan each monthInvest margin loan into managed fund = $30,000 investedKeep adding savings to managed fund and maintain margin loan at 33% of total amount invested (LVR = 33%)
- 14. 4Remember to claim the interest on your margin loan as a tax deduction each year (effectively reducing the cost of that interest by your marginal tax rate of 31.5%)Continue building your managed fund savings to $67,000 + margin loan of $33,000 = $100,000 investedBuy $300,000 unit or townhouse to live inReceive First Home Owners grantApply for parent guarantee so no deposit requiredRepayments ~ -$26,000 p.a.Rent out one room +$8,000 p.a. (net $18,000 p.a.)
- 15. 5You will be able to save less now that you have a mortgage … but you will also be receiving about 5% distributions and tax benefits from geared managed fund (~$5000 per year) … net home loan repayments ~ $13,000 (26,000 – 8,000 – 5,000)Continue adding savings to managed fundAs managed fund goes up (and down) in value over time, so will the proportion that you own (value – loan = your bit)With more experience, higher income and higher cash buffer, consider increasing your LVR to 50% by buying more units in the managed fund using the margin loan.
- 16. 6Build up managed fund portfolio to $300,000 (you own $150k + margin loan of $150k).The time this takes depends on how the sharemarket performs, your income and how well you can save!Probably about 5-8 years5% distributions and tax benefits now = $15,000Home loan repayments (per year):$26,000 in loan repaymentsLess $8,000 or more in rentLess $15,000 in managed fund and tax benefitsNet repayment = $3000 per year ($57 per week)
- 17. 7Now you will be on a higher salary at work and have much lower “net” mortgage payments and so you can now choose one of the following (or a combination):Make extra repayments into your mortgage and pay it off completely within 5 years, and/orMake extra savings into your managed fund (and also increase the associated margin loan to keep borrowing rate at 50%) and go for “financial independence”, and/orConsider upgrading your property to buy a 4 bedroom house in Sydney for family reasons, and/orImproving your lifestyle … buying a new car, go on a few nicer holidays, renovate your property …