How's this for a newbie investment plan?

Hi

Thanks for checking out my post. Over the last few months, I've started thinking about finance & investments etc, doing research here and there, and starting to think about how I can start investing to make my money grow.

A brief background on myself: I'm 24 (going on 25 shortly), earn 60k a year (before tax), and have very few fixed expenses (being rent, food, and internet. Work pays for my car). I have about $14k in savings, and am planning on putting $5k of this into a Vanguard index fund soonish.

I also recently learnt about margin lending, and am considering taking up a $20,000 loan to re-invest. I know to some people $20k isn't much, but for me it feels like a lot of money, and I'm comfortable with this amount becuase I'm sure I could pay it back in about 2 years (i.e. not long). I also have some savings similar to this amount, which can provide me with a buffer from the risk.

Also, regarding investing the $20k if i was to arrange a margin loan... I'm not an experienced stock trader at all, so I am assuming my best bet here is to take the advice of stockbrokers? I'm also considering putting a few grand into some of the banks at the moment, due to their bargain value at present and should rebound in 12-24 months......?

Anyway... that's probably not the world's most sophisticated "investment plan" but I'm only young and figure getting started now is probably a good idea. I'd love to hear any feedback, comments and ideas you may have, they'll all be taken seriously.

Cheers.

Bananaman1983 said:

Hi

Thanks for checking out my post. Over the last few months, I've started thinking about finance & investments etc, doing research here and there, and starting to think about how I can start investing to make my money grow.

A brief background on myself: I'm 24 (going on 25 shortly), earn 60k a year (before tax), and have very few fixed expenses (being rent, food, and internet. Work pays for my car). I have about $14k in savings, and am planning on putting $5k of this into a Vanguard index fund soonish.

I also recently learnt about margin lending, and am considering taking up a $20,000 loan to re-invest. I know to some people $20k isn't much, but for me it feels like a lot of money, and I'm comfortable with this amount becuase I'm sure I could pay it back in about 2 years (i.e. not long). I also have some savings similar to this amount, which can provide me with a buffer from the risk.

Also, regarding investing the $20k if i was to arrange a margin loan... I'm not an experienced stock trader at all, so I am assuming my best bet here is to take the advice of stockbrokers? I'm also considering putting a few grand into some of the banks at the moment, due to their bargain value at present and should rebound in 12-24 months......?

Anyway... that's probably not the world's most sophisticated "investment plan" but I'm only young and figure getting started now is probably a good idea. I'd love to hear any feedback, comments and ideas you may have, they'll all be taken seriously.

Cheers.

Click to expand...

With the current state of the market, and your little experience in trading or investing I would not get a margin loan. You are setting yourself up for failure.

http://www.theaustralian.news.com.au/story/0,25197,24335194-5001942,00.html

An article today talking about how even the best of traders are having issues. I would not risk someone else's capital.

One huge error in that article is expecting markets to return to normality.

When were markets ever normal?? Who claims that they should be 'normal'??

By the way Bananaman, your plan sucks. If you haven't learnt enough to not follow brokers tips, your not ready to invest in anything. Taking a margin loan just means you will lose other peoples money.

Chuck your money in a savings account, keep adding to it, and read read read, this forum and a few good books that are mentioned in many threads.

brty

The last thing a beginner needs is a margin loan. That would be a recipe for disaster. I’ve often read that most successful traders took 5-10 years to become consistently profitable. You shouldn’t be even thinking about margin loans until you get a few years of experience first, and are producing consistent profits with your own money. Only then should you consider using leverage.

Bananaman1983 said:

I'm not an experienced stock trader at all, so I am assuming my best bet here is to take the advice of stockbrokers?

Click to expand...

No. That’s a sure way to lose money. Just think about it – if a person was successful at trading, why would he waste his time working for a stockbroking firm instead of putting his money where his mouth is and trading his own account?

The best thing you could do, in my opinion, is to read as many books on trading as you can get hold of first, before you invest any money in the market.

If you dont know what your doing then dont take on debt.

Learn first, and budget at least 2 years (maybe more in these conditions) of not being profitable, which you can put down to experience...

Nah mate dive in its all good in here. Everyone wins..... especially newbies with borrowed money........

Margin lending is a double edged sword. People get cut for sure.

Think about it. People have the cost of the loan to start with and then if it goes down, which is very likely for a beginner, the hassle of paying it back.

Before jumping in the deep end , work out for yourself if you want to be a trader or a long term investor or somewhere in between...

only then can you really work out what is best for you...

If you want to be a long term investor than a limited margin loan may suit you , depending on how how set it up, or if you are a new to it and want to trade, don't touch it till you have a lot more experience.

The worst mistake you can make is to just jump into any investment/trade because it seems like a good idea. Have a plan about what you do... Thats the most important part!!!

Bananaman1983 said:

I'm also considering putting a few grand into some of the banks at the moment, due to their bargain value at present and should rebound in 12-24 months......?

Cheers.

Click to expand...

What if the banks are worth half of what they are worth now in 12 - 24 months? What if the banks don't exist in 12 - 24 months?

If you want to become a trader join the chartist. As a new trader you get a proven positive expectancy system that you can start trading as soon as you organise your trading account.

If the market continues to fall and you have a margin loan, you can get major losses.

I suggest you start up an account with, say, Commsec and buy a variety of shares. A mutual fund can be a good idea but remember you'll be paying fees to managers every single year. If you buy shares directly you pay brokerage fees once ($20) and then it costs you nothing to hold onto those shares.

Growth funds are always good for long term, also you could look at the protective put strategy over shares.

Bananaman1983 said:

I'm also considering putting a few grand into some of the banks at the moment, due to their bargain value at present and should rebound in 12-24 months......?

Click to expand...

Why are the banks 'bargain value'? Is it because:

a) The property market is looking shaky and banks do well when people aren't buying houses and LVR's are being eroded?

b) The economy is looking shaky and banks do well when people lose jobs and can't afford to pay back their loans?

c) There is a global credit criss and banks do well when they can't access cheap funds?

d) The price of bank shares have fallen and they are now trading on low historical PE's so they must be 'bargain value'

I opened a CFD account 2 years ago, boy that has been expensive especially in the beginning, back then the share market was going op, now it is all over the place
I am not losing money at the moment, but I am learning so when the market gets more consistent or trending hopefully I will be in a better position that I was 2 years ago, but I do not expect any big improvement for the next 2 - 4 years but that is ok with me I am here to learn

at the end of the day up to you what you wish to do mate,
sure its not pretty at the moment, but there is some opportunity about.

cheers

jonny

CFD is a definite NO NO, dont even go there unless your a seasoned pro.

Your plan may work bannaman only if you dont excessively gear your margin account but you will also have to keep paying down the margin loan by topping it up every month. Keep your margin to say something managable like 25-30%... this should give you plenty of buffer. Topup the account with $1000 a month to pay it down and also reduce your margin, over time your equity will grow and as the market recovers your available funds will also grow.

please DYOR, im not a financial planner.

Cheers

N1Spec said:

CFD is a definite NO NO, dont even go there unless your a seasoned pro.

Click to expand...

Whats the difference between CFDs and margin lending? Its all gearing.

If you have safe risk management then it seems the same to me...

Bananaman1983 said:

Hi

Thanks for checking out my post. Over the last few months, I've started thinking about finance & investments etc, doing research here and there, and starting to think about how I can start investing to make my money grow.

A brief background on myself: I'm 24 (going on 25 shortly), earn 60k a year (before tax), and have very few fixed expenses (being rent, food, and internet. Work pays for my car). I have about $14k in savings, and am planning on putting $5k of this into a Vanguard index fund soonish.

I also recently learnt about margin lending, and am considering taking up a $20,000 loan to re-invest. I know to some people $20k isn't much, but for me it feels like a lot of money, and I'm comfortable with this amount becuase I'm sure I could pay it back in about 2 years (i.e. not long). I also have some savings similar to this amount, which can provide me with a buffer from the risk.

Also, regarding investing the $20k if i was to arrange a margin loan... I'm not an experienced stock trader at all, so I am assuming my best bet here is to take the advice of stockbrokers? I'm also considering putting a few grand into some of the banks at the moment, due to their bargain value at present and should rebound in 12-24 months......?

Anyway... that's probably not the world's most sophisticated "investment plan" but I'm only young and figure getting started now is probably a good idea. I'd love to hear any feedback, comments and ideas you may have, they'll all be taken seriously.

Cheers.

Click to expand...

Bananaman,

I am in a very simlar position to yourself. After spending many hours reading posts here in ASF I came to the conclusion that trying to go it alone with a rough plan that will probably lose all my hard earned money is not a good way to start out. Two of the most important things I learned here was to always protect your captial, and only invest what you can afford to lose. As for the margin loan, forget it until you are more experinced, even then I would suggest you think about it long and hard.

I suggest that you take a look at the Chartist run by Nick Radge, it costs around $70 a month to subscribe, which by the way is very cheap! He advice is priceless! You will be much better off starting out like this rather than throwing your money into the market blindly.

Good luck

Bananaman,

Ready? Here goes.:bananasmi

I'm not allowed to give you advice on these boards, please don't take what I say as advice, I will not held responsible..yadda yadda yadda...

Now that is out of the way...

1) With no plan....you plan to fail. - Speak to as many people as possible - but be aware of what their background is - that goes for these boards as well. Would you really listen to what some guy down the pub says you should do? Do your homework and decide yourself and formulate a plan after investigating well. Part of this is also KNOWING how much you have to invest...so learn to budget and find out exactly what your disposable income is and make a provision for investment in your budget.

2) Are you trading....or investing? They are very different animals. If you are trading.....I would add my voice to the others I see here and say that you are not experienced enough...Sorry. Trading is an art form and just like any artform takes time and effort to become good at. Enjoy the Journey however. Investing however is something that the earlier you start the better off you are...because of the compounding effects of your passive investments over time. But investing basically means picking some good quality stocks, keeping an eye on the news occasionally and maybe checking things over every six months or so, rather than being glued to your etrade screen feeling your blood pressure rise because a stock isn't doing what you expected in the next six hours.

3) Margin Lending... Would be applicable if you are investing...but probably not if you are trading. Just remember the following lesson...you can be OVER LEVERAGED. Play it safe for the next 12 months and only borrow a third to a half of what you are capable of. Here I will whisper in your ear something very important for you to consider...Structure. You can save yourself literally tens of thousands of dollars over time if your investments are in the correct entity...get professional advice for this. I would suggest you look carefully into the area of trust structures.

4) Full service brokers - Having been a full service broker I have this to say...Brokers want to deal with ten clients with 5 million each. Not 1000 clients with 50 K each. If you have 50k to spend....you'll end end up with some guy who's ink is barely dry on their Commerce degree, who hasn't seen a corrective market since he got out of Uni and probably does not really know how to handle the market we have right now....so he'll follow the company line, which means following what the analyst says...lets hope his commerce degree is dry eh? . You want some old fart who's been around since '87 to watch over your portfolio...but you won't be interesting to him until you have a couple of mill floating around.

5) Index fund you say? hmmm....you can replicate any index you choose with an investment in direct equity with very little effort....why are you paying some index tracker a management fee for what you can do yourself for a cheaper rate?

Good Luck

Sir O

Sit it out until we are at least 15% up from here ... there should still be money to be made and the risks will be a fraction of what they are now.

Nice and simple rule and a good way to start ... trade the momentum instead of knife catching or bottom picking.

Hey

Thanks to everyone for their input. I'm a little surprised that the majority of replies are against it... but there you go, good thing I asked =)

That said, I'm not ruling this out 100% yet. I think Sir Osisofliver & N1Spec might be a little more in tune with what i'm trying to start up.... i.e. a long term investment plan, rather than trading. You're right, I have no idea on how to trade, and me trying to pick stocks in this current climate would be financial suicide.

What I was trying to set up, was an investment that would take me approx 2 years to pay off, I would expect to dip & lower before it starts to rise again (due to volatility) and would borrow $20k on $15k of savings... this would provide me a lot of margin?

So a couple of questions....

1) Is margin lending a bad idea for me because I'm an inexperienced trader & stockbrokers can't be trusted, or because the market is just too risky at the moment, or other reasons?

2) someone asked my why I thought banks presented great value at the moment. The answer is d) because their share prices are on a low. Is that not when you're supposed to buy shares? Especially given that the banks are still running profitable businesses with cash flow coming in etc.

3) I thought the role of stockbrokers was to provide advice. Obviously you could get full service brokers to manage a portfolio for you, but I wouldn't bother with that, would just want a hand with some long term stock picks. The consensus here was asking stockbrokers for advice is a bad idea. Why is this the case?

4) Given that a few people think my idea sucks.... what WOULD you suggest then?

Thanks for all the feedback, keep it comin.

Cheers.