I've decided that a good round number to start walking the investment path is about $3000. That should give me the ability to buy into my first managed fund (as long as I can find a decent one with good(ish) returns for around the $1000-2000 entry mark) and the remainder amount is going to be going into some stocks.
I won't be, obviously, buying into the same company with the full amount of stocks-allocated funds - that would be the dumbest move this side of shagging a vacuum cleaner - i intend to make sure that I spread myself around a bit (way-hey!).
Which leads me to this post's topic - Diversification. And why you're a fuckwit if you don't partake in it.
So.. Eggs. One basket. You know the score.
Oh, you want more than that?
..........
If I must...
Why do people insist on throwing all their money at one area of investment and then acting all surprised when everything goes batshit? I've already explained my thoughts and feelings towards the property market and why I won't be going in that direction any time soon (besides the fact that I don't have any money), but there are a HUGE number of people that are just chucking all their money at investment properties and mortgaging themselves up the wazoo just to buy another apartment in the city.
You really can judge the mood of the economy (or, more accurately, the average investor) by watching what kind of TV shows are being made. It used to be that there were heaps of shows about buying houses and completing home improvements. This was, I feel, the ultimate time to watch complete knuckledragging idiots doing up apartments in one building and, ohhhhhhh the laughs that came about from watching some bimbo who clearly just wanted a music career attempting to tile around a bathroom sink. This, I think, was the period in time when the normal average investor thought that buying a house was a top-notch idea and should be completed at all costs.
Then, there was a few shows about which areas to buy in and how some areas are going to "have an explosion of price". Here's my take on that bullshit - I think that the real estate agents simply found an area that was a total hole, said that it was the next place that will experience a price increase. Therefore every fool would buy there. Low and behold, supply suddenly can't keep up with demand and there was a price increase! When you think about it that way, it's almost bloody price-fixing!
But, of course, some people buy an investment property in the hope that they can renovate (or simply hold onto it for a little while) and then sell it to someone else for a higher price. Which, to me, begs the question: aren't all the houses in certain areas renovated by now? And, curiously, if they aren't, doesn't that mean that people are, therefore, buying a house that has already been renovated and are then renovating it again?
The other side of the property investment coin (and I mean this purely in the residential field), are the people who want to rent out their apartments or houses. The problem (as I've discussed before) seems to be that once the arse falls out of the whole market, the renters will be snapping up the complete bargain-basement houses and apartments at mortgage repayment prices that are cheaper than they would be paying in rent (because, of course, the landlord needs to both pay off their mortgage on the place and make a profit).
The side effect of all of this is, simply, that the investors in the residential property market have got a fairly hefty amount of their eggs in the one basket. I mean, sure, they might have a good number of the oval, yolky wonders in other areas like shares and managed funds, but there's still a shit load to go wrong if the housing market fails.
So, I'm planning to keep my investments in a few specific areas to start off with. We've obviously got the ol' trusty favourite of the high interest savings account. Now, this is where my investment journey is beginning, as I previously mentioned. This will also be a steady staging area for funds that haven't been committed to a specific investment strategy.
Next up, we have the traditional area of term deposits. Although these are, quite possibly, the most boring of all investments (watching paint dry is more thrilling than watching a stagnant pile of money "mature". Christ, even the description of the end of the term is boring - Maturity). But, it is a certain provider. The share market gives averages from historical data. As do mutual funds and managed funds. But the good old term deposit will tell you specifically how much return you will get, and the precise date to boot. Term deposits are probably going to be something that I mainly use during times of either crisis in the sharemarket (America bominb another country to buggery) or during times when the whole thing goes quiet (around christmas and new years). That way, I can still be sure that my spare money will attract a return - even if it's not super high.
After that, we start to get to the meaty part of my investment strategy, which is to invest in stocks and managed funds that are able to provide a return in dividends. The reason I'm not looking to make money in trading stocks is because I would much rather just be able to live off a steady(ish) income and spend my days persuing hobbies instead of having to keep checking the prices of certain stocks and shitting my pants if one of them drop massively.
I actually read something the other day from a website I read called The Motley Fool - www.fool.com - (it's a US centric site but gives me a lot of good motivation about investing and is one of the sites I've been reading for a longer term period). What I read the other day though, was about a guy who (although starting with a lump sum from a young age) managed to accumulate a sizable share portfolio in 14 different stocks. This gave him an annual return in dividends of around the US$140,000 mark. Which is certainly nothing too shabby.
I don't see myself getting to that point - although, I obviously wouldn't complain if I did - but there was one remark that the man was quoted as saying that really struck home for me and my plans. He basically said that he wanted a steady income from his investments so that he didn't have to work.
Bingo.
That's precisely what I am seeking, but it doesn't have to be on the same scale. If I was clearing around AU$60,000 after tax from investments, I would consider myself very fortunate and would, most likely, stop working and live comfortably and be able to spend time just with hobbies and charity work.
But, obviously, that's a very long term investment goal. Right now, the main goal is to make my investments give the best possible returns that they can give and then re-invest that back into the whole cycle and build up as quickly as possible.
Over the coming posts, I will be looking into high dividend yielding stocks in the Australian market and assessing whether they are something that I will be putting my own money into.
After all, my fiancee's tax has been paid up early (YAY!) so I can start to look at where to invest my money.
I must say however, the whole process is rather daunting. I've looked into managed funds before and looked at certain company stocks but never really had the money to go ahead and move with the thoughts and assessments. Now that I really can look at a good move and follow it through from inception to investment, I believe that I really can start to work towards some wealth.
I'll keep you updated.
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