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,

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 …