Overwhelmed by too many options + too much cash [Archive]

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whirly

15-12-2009, 10:15 AM

15-12-2009, 10:29 AM

Current Position
30% Bonus Bonds

I like bonus bonds when I need to take a pause for a month like now, but prefer smaller amounts long term.Just out of interest, what is the average return you have received on your bonus bonds, and what is the actual average (do they disclose this?).

Why not put some corporate bonds in there as well. ie. Trust power is about to offer some at 7.5% which would be better than bank rates?

whirly

15-12-2009, 10:46 AM

Hi CJ

average return I have received on my bonus bonds is only about 2.5% tax-free.

The actual average for 2009 was 4.26% See prospectus here http://www.bonusbonds.co.nz/pdfs/prospectus.pdf

I like BB's short-term to hide cash from my wife. There is the slim chance of a better return than I get and someone somewhere benefits every month in a big way. I often buy them the day before end of month and sell as soon as they are elegible for the next draw.

Thanks for the tip on corporate bonds i will add them to my homework.

Phaedrus

15-12-2009, 11:37 AM

A - wait patiently for ASX and NZX to decide which way they are going to head. Then go shopping.

The NZSX50 and AllOrds "Market Strength" charting systems that I use to regulate my exposure to the NZ and Aus markets both discourage buying at the moment.

15-12-2009, 12:20 PM

I like BB's short-term to hide cash from my wife. Sounds like some wife. Something like this:
http://www.stuff.co.nz/sunday-star-times/news/3155214/10k-a-month-dumped-wife-speaks-out

Snoopy

15-12-2009, 07:50 PM

Ok Nice position to be in I know - Im gonna put some thoughts to paper and then see what can be made of it all.
Please Discuss-

Current Position
0% Shares
55% Fixed term deposits – Banks
30% Bonus Bonds
15% Cash

I’ll be 100% cashed up by xmas though I aim to keep within the following parameters:

55% Shares – predominantly ASX and fewer NZX
30% Fixed term deposits - Banks
5% Bonus Bonds
10% Cash

I like bonus bonds when I need to take a pause for a month like now, but prefer smaller amounts long term.

Cash gets spent by my whole family faster than I can count. Maintain cash for emergency/rainy day/opportunities. My wife thinks “cash is BS. Cash is for spending; if you don’t spend it I will!”

I am going to throw a few ideas in here, complete with my own bias. So make of it what you will Whirly.

I don't know whether I would describe your position as 'lucky' Whirly. You have really gone extreme here, albeit with a conservative bias. From a long term investment perspective the goal of having everything in cash is a dreadful position to be in. Long term, cash is the worst income producing asset that you can own. Now you might not think that, given the high cash interest rates that New Zealanders have been used to getting in recent years. But I reckon 2.5%-3% going forward will become the norm. And that means after tax your 'cash' probably won't even keep up with inflation in your spending power.

So how to get you out of your desperate :-) position, Whirly?

Before I go on here, I would like to point out that although you have given us a very good idea of your current position and also where you want to get to, you haven't said anything about how you or your wife might ultimately want to spend the money or what your time frames for such spending might be.

As a rule IMO, any money that you *know* you are going to spend at a fixed time you should not have in the sharemarket at all. Having just panned cash as an investment option, I always like to have a strong wack of cash on hand for those unexpected events. Those being an unexpected medical bill or an investment opportunity that the market presents to you by behaving irrationally. However, there is an alternative to having just plain vanilla cash. If you have enough, you can spread out your 'cash money' into staggered term deposits and arrange it so that one of those term deposits matures every month. That way you will benefit from higher longer term interest rates, and you know that you will have a certain amount of money available every month, should you need it (even though it is not strictly cash by the conventional definition of that term). However, each term deposit will have to be at least $5,000, or preferably $10,000 to get the best interest rates that the banks are offering. So you need a certain amount of fixed interest capital to make this alternative cash strategy work.

I understand the lure of Bonus Bonds. Having a monthly chance to win 'the big one' , while retaining your capital has some appeal. However, there are always alternatives. Have you considered Whirly, having a dedicated 'big win' term deposit , and spending the interest you get on Lotto tickets? That is another way of conserving your capital, and you may find you get better odds than Bonus Bonds offer. I haven't done the comparative calculation myself.

Some thoughts
Fixed interest rates really low but govt guaranteed.

Are fixed interest rates low? I took out a term deposit at 4.5% last month. What is inflation? Under 2%? Yes I know that a few years ago I was getting 6.5% or something on my bank term deposits. But IIRC inflation was around 4% at the time. So in real terms I am no worse or better off now.

I have been fortunate over the last two years in that I moved to cash in the slide but my gains have been modest due to re-entering too conservatively it would seem.

Should I -

A - wait patiently for ASX and NZX to decide which way they are going to head in 2010. Then go shopping as per my plan.

B- go shopping now

C- change the balance of my portfolio and go shopping.

Shares - I use TA to time entry and exit points. I am constantly reworking my rules.

DOW – Hitting major resistance. I was surprised to see it return to these levels this year.
ASX – Treading water waiting for a lead from DOW?
NZX – maybe its the NZX that’s doing the leading? Down!

Oil – who knows? Probably up.
Gold – not a fan. Only bling!
Property – not unless I can pay cash for it.
I am considering replacing some of my fixed term investments with a property trust eg. PFI.

If you read this far – thanks.

Whirly

I am probably going to annoy you even more if I comment on that last bit Whirly. Suffice to say that I don't try to time the market direction in advance myself.

Don't do much investing in property either, outside of the family home. But I have read that PFI has a managment arrangement that is better aligned with shareholder returns than most. PFI might be worth looking into a bit more, particularly if some predict that the commercial property market has yet to bottom. If you have a long term perspective, there could be a window of opportunity to pick up some PFI shares at a bargain price coming up.

SNOOPY

whirly

15-12-2009, 09:22 PM

I am going to throw a few ideas in here, complete with my own bias. So make of it what you will Whirly.

I don't know whether I would describe your position as 'lucky' Whirly. You have really gone extreme here, albeit with a conservative bias. From a long term investment perspective the goal of having everything in cash is a dreadful position to be in. Long term, cash is the worst income producing asset that you can own. Now you might not think that, given the high cash interest rates that New Zealanders have been used to getting in recent years. But I reckon 2.5%-3% going forward will become the norm. And that means after tax your 'cash' probably won't even keep up with inflation in your spending power. SNOOPY

Yep, I dont mind holding some cash but it seems silly to have so much when I hope I won't be needing it for a long time.

So how to get you out of your desperate :-) position, Whirly?

Before I go on here, I would like to point out that although you have given us a very good idea of your current position and also where you want to get to, you haven't said anything about how you or your wife might ultimately want to spend the money or what your time frames for such spending might be. SNOOPY

My time frames for spending it are considerably longer than my wifes. Lol. I'm comfortable with the cash being tied up for a considerable 10+ years. Though, I have previously never held a share for more than about 18 months.

As a rule IMO, any money that you *know* you are going to spend at a fixed time you should not have in the sharemarket at all. Having just panned cash as an investment option, I always like to have a strong wack of cash on hand for those unexpected events. Those being an unexpected medical bill or an investment opportunity that the market presents to you by behaving irrationally. However, there is an alternative to having just plain vanilla cash. If you have enough, you can spread out your 'cash money' into staggered term deposits and arrange it so that one of those term deposits matures every month. That way you will benefit from higher longer term interest rates, and you know that you will have a certain amount of money available every month, should you need it (even though it is not strictly cash by the conventional definition of that term). However, each term deposit will have to be at least $5,000, or preferably $10,000 to get the best interest rates that the banks are offering. So you need a certain amount of fixed interest capital to make this alternative cash strategy work. SNOOPY

I've had some six month and twelve month terms that are expiring next week at same time and think it timely to review my strategy.

I understand the lure of Bonus Bonds. Having a monthly chance to win 'the big one' , while retaining your capital has some appeal. However, there are always alternatives. Have you considered Whirly, having a dedicated 'big win' term deposit , and spending the interest you get on Lotto tickets? That is another way of conserving your capital, and you may find you get better odds than Bonus Bonds offer. I haven't done the comparative calculation myself. SNOOPY

Ha ha - yeah BB's are pretty silly from an investment perspective. This is an area of my portfolio that perhaps should be addressed as it is nothing more than gambling and I appreciate the fact that it is merely spending the interest on a lottery ticket.

Are fixed interest rates low? I took out a term deposit at 4.5% last month. What is inflation? Under 2%? Yes I know that a few years ago I was getting 6.5% or something on my bank term deposits. But IIRC inflation was around 4% at the time. So in real terms I am no worse or better off now. SNOOPY

Interesting point you make here. It seems that the CPI that exists in this house is increasing at a much faster rate than that.

I am probably going to annoy you even more if I comment on that last bit Whirly. Suffice to say that I don't try to time the market direction in advance myself.

Don't do much investing in property either, outside of the family home. But I have read that PFI has a managment arrangement that is better aligned with shareholder returns than most. PFI might be worth looking into a bit more, particularly if some predict that the commercial property market has yet to bottom. If you have a long term perspective, there could be a window of opportunity to pick up some PFI shares at a bargain price coming up.

SNOOPY

Thanks for your reply Snoopy. I hope others post their ideas too.

whirly

15-12-2009, 09:27 PM

Sounds like some wife. Something like this:
http://www.stuff.co.nz/sunday-star-times/news/3155214/10k-a-month-dumped-wife-speaks-out

Haha Yeah I read that...but not quite on that scale sorry. And your more likely to find us on a whitebait stand than a superyacht ;)

whirly

15-12-2009, 09:29 PM

Snoopy

15-12-2009, 10:22 PM

Yep, I dont mind holding some cash but it seems silly to have so much when I hope I won't be needing it for a long time.

My time frames for spending it are considerably longer than my wifes. Lol. I'm comfortable with the cash being tied up for a considerable 10+ years. Though, I have previously never held a share for more than about 18 months.

10 years is too long to have a substantial part of you portfolio in cash I think.

I always think it incongruous that some financial advisors advise people 'never to trade' and just put their equity exposure with a professional manager in a managed fund. Whereas once the cash is deposited within that managed fund, the so called experts in 'long term investment' proceed to trade furiously on their unit holder's behalf!

I don't think I have ever held a share for less than 18 months, so as you can see Whirly, we have a different approach to things

I've had some six month and twelve month terms that are expiring next week at same time and think it timely to review my strategy.

I have noticed over the years that banks try to push you towards the 'best rate' at reinvestment time. Inevitably it does seem you end up with all of your term deposits maturing at the same time if you take their advice! That's why I usually put up with a slightly sub optimal interest rate and have my term deposits mature when *I* want them too.

Ha ha - yeah BB's are pretty silly from an investment perspective. This is an area of my portfolio that perhaps should be addressed as it is nothing more than gambling and I appreciate the fact that it is merely spending the interest on a lottery ticket.

I wasn't meaning to be too sarcastic about Bonus Bonds. If you don't have enough money to get a decent term deposit interest rate, I think that holding a little bit in Bonus Bonds or something equivalent can make sense. I do consider Bonus Bonds a legitimate investment because the prize pool is known and the amount in the kitty is roughly known. So you can calculate an 'expected return' (in statistical jargon). Whether Bonus Bonds are a 'good' investment depends on how the total annual prize pool divided by the total funds invested stacks up as an equivalent interest rate.

Perhaps my idea of ring fencing a term deposit and buying Lotto tickets with the interest proceeds may sound like 'pure gambling'. But it was meant to be a legitimate suggestion. You can do a similar 'Total prize pool' / ' Funds invested in the draw' calculation and find out how it stacks up against your Bonus Bonds as a legitimate investment calculation.

SNOOPY

Snoopy

15-12-2009, 10:39 PM

Interesting point you make here. It seems that the CPI that exists in this house is increasing at a much faster rate than that.

Yes I know that actual household cost inflation somehow always manages to exceed the the published inflation rate! The power bill is particuarly bad in this regard.

Everyone uses power. So I consider it wise, as a hedge against rising power prices, to always own a power company share, no matter what the market is doing. It doesn't matter if the share you own is not the company you deal with. That's because power is a commodity type product.

If the power price goes up then you get socked in the pocket with your power bill. But the power company you hold shares in will, at the same time, start creaming in the profits and distribute your share of those to you as an increased dividend. In turn that will help you pay your higher power bill.

You can widen the argument to other products and companies and effectively 'hedge your lifestyle' with the shares you hold.

SNOOPY

Lego_Man

16-12-2009, 10:28 AM

Have you considered NZX yield stocks as opposed to Cash?

AMR

16-12-2009, 02:03 PM

Have you thought about some high yielding investment properties?

The smallest CBD apartments are going for around 10% net...but whether you can consider them a liquid instrument...

STRAT

16-12-2009, 08:01 PM

. From a long term investment perspective the goal of having everything in cash is a dreadful position to be in. Long term, cash is the worst income producing asset that you can own. Now you might not think that, given the high cash interest rates that New Zealanders have been used to getting in recent years. But I reckon 2.5%-3% going forward will become the norm. And that means after tax your 'cash' probably won't even keep up with inflation in your spending power.

SNOOPYYup so go buy a big new boat and a BMW with enough Oomph to tow it :D

whirly

17-12-2009, 11:48 AM

Perhaps my idea of ring fencing a term deposit and buying Lotto tickets with the interest proceeds may sound like 'pure gambling'. But it was meant to be a legitimate suggestion. You can do a similar 'Total prize pool' / ' Funds invested in the draw' calculation and find out how it stacks up against your Bonus Bonds as a legitimate investment calculation.

SNOOPY

Im not sure I worked this out right. The figures for 2009 are $189million prizes paid and Funds invested = 589million

So roughly a third of whats invested is paid out. I think one would need to be getting a high return on bank deposit for this too work and if thats the case I might as well take the bank interest and be happy.

I get 2.5% tax free on BB's on average.

W

whirly

17-12-2009, 11:52 AM

Yes I know that actual household cost inflation somehow always manages to exceed the the published inflation rate! The power bill is particuarly bad in this regard.

Everyone uses power. So I consider it wise, as a hedge against rising power prices, to always own a power company share, no matter what the market is doing. It doesn't matter if the share you own is not the company you deal with. That's because power is a commodity type product.

If the power price goes up then you get socked in the pocket with your power bill. But the power company you hold shares in will, at the same time, start creaming in the profits and distribute your share of those to you as an increased dividend. In turn that will help you pay your higher power bill.

You can widen the argument to other products and companies and effectively 'hedge your lifestyle' with the shares you hold.

SNOOPY

I like this idea and use it to justify owning both a big thirsty car and buying oil stocks when I feel like it.

Reminds me I must buy some Monteith shares for over summer. :)

Hoop

21-12-2009, 10:54 AM

Ok Nice position to be in I know - Im gonna put some thoughts to paper and then see what can be made of it all.
Please Discuss-

Current Position
0% Shares
55% Fixed term deposits – Banks
30% Bonus Bonds
15% Cash

I’ll be 100% cashed up by xmas though I aim to keep within the following parameters:

55% Shares – predominantly ASX and fewer NZX
30% Fixed term deposits - Banks
5% Bonus Bonds
10% Cash

I have been fortunate over the last two years in that I moved to cash in the slide but my gains have been modest due to re-entering too conservatively it would seem.

Should I -

A - wait patiently for ASX and NZX to decide which way they are going to head in 2010. Then go shopping as per my plan.

B- go shopping now

C- change the balance of my portfolio and go shopping.

Some thoughts
Fixed interest rates really low but govt guaranteed.

I like bonus bonds when I need to take a pause for a month like now, but prefer smaller amounts long term.

Cash gets spent by my whole family faster than I can count. Maintain cash for emergency/rainy day/opportunities. My wife thinks “cash is BS. Cash is for spending; if you don’t spend it I will!”

Shares - I use TA to time entry and exit points. I am constantly reworking my rules.

DOW – Hitting major resistance. I was surprised to see it return to these levels this year.
ASX – Treading water waiting for a lead from DOW?
NZX – maybe its the NZX that’s doing the leading? Down!

Oil – who knows? Probably up.
Gold – not a fan. Only bling!
Property – not unless I can pay cash for it.
I am considering replacing some of my fixed term investments with a property trust eg. PFI.

If you read this far – thanks.

Whirly

Hi Whirley
Yes indeed ..it was a nice position to be in...your very conservative investing strategy has pay off well these last 2 years...Congratulations are in order.

Everything in life situations changes over time and one has to continuously adapt to meet those changes.

I don't know Whirleys personality, but from an investment point of view and information from the post, I will have a guess.....
I think Whirley is an ultra safe person when it comes to money. Whirley is not a person who lives on adrenalin or steroids so avoids risk at nearly all costs, even to the point when the rewards become minimal. Whirley doesn't like losing sleep over uncertainties so tends to invest in areas where there is clear result to be seen in the future. Uncertainty as well as risk worries Whirley.

Why is Whirley writing this post??....Whirley is an intelligent person and has an open mind and so can clearly see that the investment world is always changing. These latest changes (both the market and personal lifestyle costs) has upset Whirley's successful investment strategy. Whirley has been kicked out of that comfort zone. This new World change isn't catering for Whirley needs at this moment in time. To afford the current lifestyle Whirley is being forced to adapt and accept a higher risk strategy, something which creates future uncertainty and this makes Whirley uncomfortable.
Whirley being kicked out of this mildly successful comfort zone has caused a dilemma, for Whirley now has to adapt and venture into areas which Whirley is not use to, nor likes to be in.

Again, as many times before in history the rapid gains being made in Equities is luring Whirley into the uncertain world of the Stockmarket, because Whirley knows much opportunity has been lost from not being in it, but Whirley perceived risk was too much before and therefore was not in, uncomfortable by the thought that the stockmarket could easily turn against Whirley because many of the World economies were still in deep recession.
Whirley knows the stockmarket, Whirley has been here before. Whirley has made money in the Stockmarket in the past, because Whirley enters the stockmarket at the middle/late stage of its Bull Cycles. However, Whirley is uncomfortable in the Stockmarket and any signs of trouble Whirley is gone and returns to the safe haven of Banks when their interest rates have by then increased back up again...and back into Whirleys comfort zone.
.
.
Solution:

If the profile I have written is similar to you ..then you have supplied your own solution...go back and do exactly what you did that last time you were kicked out of your comfort zone, which is probably a mixture of A, B, and C. Only change it if that past strategy you used was not successful. You know how the sharemarket works and only you know that level of risk v reward that you are comfortable with. If your living costs are the dominate factor then stretch (tweak) the risk v reward a bit higher and test your upper limit of your comfort zone and try to hope you become use to this new heightened risk/reward area.
The key point is ...you have been successful these last two years and to keep that successful momentum continuing you do not want to apply radical surgery to your current money making Investment Strategy.. Adapt slowly to ensue that successful momentum keeps happening, try to build on it....Sure..we all have to slowly adapt to a changing world but remember two things..when the world changes slowly you can afford to adapt slowly..and that famous saying .."if it aint broke, don't fix."

People usually suggest methods that work for them..remember.. the methods you finally adapt must suit your persona. Creating a new uncomfortable investment strategy usually leads to bad decision-making as your emotions become a dominant player.
To make successful decisions discipline must always overrule emotion.

Hope this helps
I'm off now to do B :)

Stranger_Danger

21-12-2009, 04:39 PM

From what I've read from Whirly, the best way to make money and preserve capital long term will be getting rid of the wife!

whirly

22-12-2009, 10:10 PM

Thanks Hoop and everyone else who has contributed to this thread and ST over the year.

Hoop I think you have made a pretty accurate assessment of Whirly. I like the idea of extending my comfort zone a bit. I'm not sure I need to change anything much I just need the courage to adhere to my plan. I've actually spent time tweaking my plan only to come back to a similar structure to my OP.

On doing this exercise and getting a few ideas and spending the time considering a few options that have been mentioned I do feel more confident though, especially after reading Hoops post.

So yep when my indicators start triggering for 2010 I'm going shopping.

cheers all and merry christmas

Whirly:)

tobo

02-01-2010, 05:27 PM

Not knowing how BBs worked, I looked them up.
It seems that it is essentially a conventional investment trust fund run by a conventional fund manager for a conventional fee (in this case ANZ) and it appears to distribute all earnings (after management fees deducted).
Obvious difference is that distribution not based on funds invested but by lady luck. And tax free.

Prospectus shows historic performance : Net return (Earned)
2009 $101,130,000 4.26% Y/E 31 Mar
2008 $53,469,000 4.40% 6mths/E 31 Mar (% expressed as annual)
2007 $92,469,000 3.85% Y/E 30 September
2006 $80,021,000 3.50% Y/E 30 September
2005 $76,214,000 3.28% Y/E 30 September
2004 $71,839,000 2.98% Y/E 30 September

And not taxed (ie "after tax"), but you'd need a very large investment to smooth out the luck aspect of the distribution.

Whirly, if you've been getting about 2.5%, maybe you'll get more next time round.;)
(Gosh didn't they do well to smooth over the 2007-2008-2009 GFC)

Discl: not for me (too much of a control freak)
Aus Equities; NZ real estate