Bonds, Shares, Property....

[MrMonkey]

Stack of cash. What to do with it?

Term Deposit rates are rather dismal....

Need to shove it into something to hedge against inflation and also earn an income.

* Bonds

I see some banks are wanting to raise 1.2bn through bonds soon? Any thoughts?

* Shares

Bit dicky with shares and handing over cash to some broker to 'invest' for you, hard to know really what's going on there and where it will go. Thoughts?

* Property

Rental market in Auckland is starting to heat up with a fizz in real estate...time to opt into that train now or has it left the station or indeed not even going? I see with less affordable apartments in the inner city/burbs people are starting to look in the hub burbs i.e. Te Atatu, Pt Chev etc...is it time to buy a couple of these 'brick & tile' jobs and rent them out to get a return and potential long term capital gain over 5-10 years?


Thoughts appreciated.

[Halebop]

Need to shove it into something to hedge against inflation and also earn an income.

* Bonds

I see some banks are wanting to raise 1.2bn through bonds soon? Any thoughts?

Bonds, even indexed ones, tend to provide poor real returns and aren't much of a hedge against inflation. Often they are subordinated and hived off into a non guaranteed subsidiary so you are taking an equity risk without an equity reward. I'm with Buffett on this one, I'd prefer my equity risks to provide equity rewards. With low interest rates globally, the downside risk of a rising yields would have to outweight the pathetic returns they offer.


* Shares

Bit dicky with shares and handing over cash to some broker to 'invest' for you, hard to know really what's going on there and where it will go. Thoughts?

Handing money over to a broker implies a discretionary account or managed fund. Most share investors on this site would buy and sell on their own account and only have themselve to blame or credit for performance. In the long run gross equity returns typically outperform other passive investment categories. I do think this is a stock picking and timing market though and this requires superior skills sets and correct strategies to deliver superior results.


* Property

Rental market in Auckland is starting to heat up with a fizz in real estate...time to opt into that train now or has it left the station or indeed not even going? I see with less affordable apartments in the inner city/burbs people are starting to look in the hub burbs i.e. Te Atatu, Pt Chev etc...is it time to buy a couple of these 'brick & tile' jobs and rent them out to get a return and potential long term capital gain over 5-10 years?

In terms of capital gain the broad residential property category has underperformed in the last 5 or 6 years and even during the next recovery will underperform recent (say 20 year) historical norms due to demographic pressures. I'd expect yield investors in small dwellings and major metropolitan markets to do best as they gain a double benefit from the ascending trends first home buying demographics and aging Baby Boomer downsizers. At some point interest rates would have to rise from the current stimulatory lows, squeezing cash flow for the heavily leveraged.

The growing demographic bubble of retirees will increasingly chase yield and less hassle so I'd expect Commercial Property/Property Trusts to perform adequately, however valuations finished the GFC on still a fairly high base (despite write downs) so this may mitigate future rewards. For patient capital it may be better to wait for an interest rate inspired shakeout.

[MrMonkey]

Brillant summary Halebop, much appreciated.
"For patient capital it may be better to wait for an interest rate inspired shakeout."

So...the question then is what does one do with cash burning a hole in the pocket than needs to be shoved into something asap to yield something worthwhile. Select a TD i.e. Rabobank, and just wait and see?

[Halebop]

So...the question then is what does one do with cash burning a hole in the pocket than needs to be shoved into something asap to yield something worthwhile. Select a TD i.e. Rabobank, and just wait and see?

Depends on your strategy. Something is always delivering capital gains or spinning off a higher yield somewhere. The question is one of commitment and certainty. In 2007 it was pretty easy to see that markets were overheated and so an easy decision to opt out (although if you read some historical threads it wasn't so easy for everyone to see in the heat of the moment). Right now there are lots of mixed signals so certainty comes at a premium. But it is very hard to sit on your hands (and cash) while other people appear to be doing things with their money. Buffett, who is quite skillful at doing nothing when markets dictate the wisdom of inactivity provides insightful commentary on this if you want to read his letters to shareholders.

I personally have the highest % share market exposure since around 2007 (balance in low yielding cash). My strategy was very simple; there is a wall of cash about, the news wasn't so bad and investors were frustrated with low yields. So figured a bit more money would move towards riskier asset classes chasing yield. Guessed shares would be favoured over real estate for liquidity. Once this strategy was established my consequent actions and behaviours were set. Initially I purchased growth shares, because growth in a low growth environment comes at a premium. Now with a broader recovery underway, even if it is only temporary, some growth shares have been lagging a little because people can pick up growth from value shares while a re-rating occurs. I'd suggest/caution this won't last but it can still be exploited in the interim.

My advice is set your strategy and behave accordingly. My comments in the first post are just one perspective.

[buns]

Warriors 12 and under.

[MrMonkey]

Thanks Halebop & David B for the thoughts. Indeed lots of food for thought. Lots to think about and look into. Its rather mixed out there and we are in need of something to throw cash into without too much risk to get a decent return better than current Term Deposits.

[Financially dependant]

Thanks Halebop & David B for the thoughts. Indeed lots of food for thought. Lots to think about and look into. Its rather mixed out there and we are in need of something to throw cash into without too much risk to get a decent return better than current Term Deposits.

Get used having cash in the bank as this is part of the education to human behaviour around investing, if you are comfortable with waiting for the best opportunities to come along.... then cash in bank is a good default position to have.....

I like shares but it has taken me a lot of time to figure out the good from the bad....and still learning...

[POSSUM THE CAT]

Mr Monkey Notice saver accounts with Kiwi Bank are at the moment a better investment than Rabo Term deposits in my opinion. I have shifted nearly 30grand out of Rabo in the last3 months

[darksentinel]

MrMonkey: a lot comes down to your personal circumstances: age, experience, income, job prospects, debt, expenses looming (travel, kids, boat, etc) are just some of the things that should affect your decision. Also, are you after some kind of regular return (such as dividends)? And how long a period are you looking to invest for? How much time would you want to spend managing your assets/investments, and how regularly?

E.g. for me I want to buy a house, so have pulled almost all my money out of the sharemarket and to me this is currently more important than riding the current upwards wave on the NZX.

You may also wish to consider commodities (some on this side will welcome you to the worlds of e.g. gold and silver trading) and FOREX.

On another note, Auckland rents are at record highs with rental income sometimes exceeding landlords' mortgage repayments.

[MrMonkey]

MrMonkey: a lot comes down to your personal circumstances: age, experience, income, job prospects, debt, expenses looming (travel, kids, boat, etc) are just some of the things that should affect your decision. Also, are you after some kind of regular return (such as dividends)? And how long a period are you looking to invest for? How much time would you want to spend managing your assets/investments, and how regularly?


No debt across the board that needs servicing. The cash investment's have in the past added cream on top of our usual income from our other property and business activity as most of that goes directly back into the businesses/property's in question. Asset heavy portfolio (all debt free) but have a stack of cash of decent size that we need to see at least decent return on. We shy away from shares usually and stick with the more reliable bank deposits but would like to if we can find something a little more lucrative.

[777]

While your money is in the bank make sure you take advantage of PIE investments. Less tax is better for net return.

[MrMonkey]

So in a nutshell all you out there reckon that if you have a stack of cash, just sit tight on our hands and wait and see what happens is that it?

[POSSUM THE CAT]

Mr Monkey why not try buying a few shares in a bank. I have done very nicely out of gradual purchases since 1998 others will offer shareholders slightly cheaper mortgage interest rates. At one time Iwaseven offered a special shareholders term deposit. Dividends give a better yield than term deposit interest rates.

[MrMonkey]

Mr Monkey why not try buying a few shares in a bank. I have done very nicely out of gradual purchases since 1998 others will offer shareholders slightly cheaper mortgage interest rates. At one time Iwaseven offered a special shareholders term deposit. Dividends give a better yield than term deposit interest rates.


Got any links to more info

[Sideshow Bob]

Warriors 12 and under.

Never bet on or against the Warriors.......

[POSSUM THE CAT]

Mr Monkey use the ASX or NZX web sites check historical prices & dividends

[MrMonkey]

Mr Monkey use the ASX or NZX web sites check historical prices & dividends


Hmmm


6-7% div return

Shareprices seem relatively stable..ish

Better return that TD yes but whats the risk of the share price blowing out and you loose the capital and the div that goes along with it?
Thats the question huh but all seems well....I suppose?

[kiwitrev]

Hi MrM
With any type of investment there is always risk. Old adage higher return higher risk. At the end of the day one has to be comfortable with the amount of risk one is prepared to take on. Depending on what you call 'stack of cash' if the objective is to preserve capital govt. stock is always a choice although I don't participate in it. We all have our favourite plays and no one is in a position to recommend to you how to invest your funds.

[POSSUM THE CAT]

Mr Monkey you can spread the risk over several large & small banks. Even term deposits will be useless if any crash is big enough to crash all the banks. but the choice is yours. You could even bury it in the garden & water it every day & hope it grows

[darksentinel]

http://www.topyields.nl/Top-dividend-yields-of-NZX50.php is a useful resource if you want to beat term deposits via dividends.
Take a look at the list, and do some research on the companies.

[MrMonkey]

Cheers guys

[ynot]

Can someone fill me in on how corporate bonds work. It was suggested earlier in the thread they are not a great return, what am I missing here, I'll use ANZ offering as an example expiring 03/2015 paying 8.5%. If you do the term is that not what u get?

[POSSUM THE CAT]

Ynot bonds have various rankings. Some are first ranking others are equal with the banks others are subordinated unsecured bonds.

[ynot]

So how does my example stack up?

[POSSUM THE CAT]

Ynot tell me the details of the issue. If you can still find the prospectous for the Z Energy & the Trust power offerings it will give you some idea. I considered the Z Energy offer but would not touch the Trust power offering. I cannot even find anything in my broker's bond listing that ties in with your examplle

[winner69]

So how does my example stack up?

If they are the ones already issued buying on market today only gives you a yield of about 4% irrespective of the coupon rate.

We're they like the ABN080 bonds?

[ynot]

Yea thanks guys I'm awake now. Thought 8.5 sounded a little too good! So would the Z offer at 5.9% mature 2016 be a typical example for 4 years? Actually I was thinking more 2 years. Is there a list of offerings somewhere ?

[winner69]

https://www.nzx.com/markets/NZDX/bonds


Try the NZX site link

You to decide whether 5.90% with Z is a better bet than 5.00% on term deposit with the banks ......it's a risk v reward game

Could even screw more than 5.0% out of Rabobank .....or better stil get in on the ground floor when they raise the money in the first place and not having to buy on market

[POSSUM THE CAT]

Ynot check with your broker

[kiwitrev]

ynot
For trading bonds on the secondary market you can refer to either ASB Securities or Direct Broking under fixed interest. A complete list of all bonds are listed on either site. I can't find the ANZ example you referred to but ANZ do have a bond maturing 6/2014 with a coupon 8.5%. None sold today but buyers are offering 3.9%. Direct Broking have a bond calculator on their site from which you can work out the cost of a trade. So for the ANZ ANB080 bond as an example, if you were buying $100k at 3.9% you would pay about $108k to secure plus interest for any part of the current interest period (paying a premium to secure the 8.5% for the life of the bond). You would receive interest payments on 100k @ 8.5% from ANZ.

[kiwitrev]

As an example of stagnant interest rates Truspower are offering a new issue at 5.63% to replace the expiring bond maturing in December at 7.6%. Looks like punters looking for yield are going to have to pay more than current rates on the DX with little if any new issues in pipeline.

[Valuegrowth]

Will there be some opportunity if asset prices fall as predicted by some market watchers?

http://www.bloomberg.com/news/2015-01-06/gross-says-good-times-are-over-with-markets-set-to-fall.html

Bill Gross Says the Good Times Are Over