$200K to invest. Property at 80% LVR vs Shares at 50% margin loan vs Gold unleveraged?; Which will give the best risk adjusted return over next three years?
You have no idea what the term "risk adjusted return" means, do you???
To the OP, with only a 3 year investment horizon, all three options carry high risk.
* Sydney property - with that 3 year timeframe you are talking about a "flip" play only. It *could* work in the right area of Sydney in the next 3 years, but there are no guarantees, and if you don't pick the right property / area, the transaction costs could easily wipe out any nominal profit you might make. Rent income of course will basically offset your 80% LVR financing costs. Would have been better to have bought a year ago for this strategy - aint hindsight wonderful??
* Shares - timing wise this is probably the most likely option to give you a solid return over 3 years, with minimal downside risk (but still always the possibility of a big correction of course, I just don't think so at this stage in the cycle for a while now), plus you get the dividend stream. at 50% LVR, you would be cashflow positive as well by a fair margin, although margin loan interest rates are not as good as mortgage rates (which property owners are able to use for leverage share purchases).
* Gold - riskiest of all in current environment IMO over the next 3 years. The gold bubble clearly topped out/burst 2 years ago, so I reckon Gold will range trade for many years now. Plus no income stream, large buy/sell spread for physcial, and incredible volatile price all = lowest likely risk adjusted return profile.
PS: The above is not financial advice, just the ramblings of a 40-something mid-career Sydneyite..... and it's probably worth about what you paid for it! :pop:
A good response Sydneyite - you're not as property mad as I thought!
My thoughts: Agree with Sydneyite that a 3 year horizon is too short to give a high probability answer to the best investment.
Property - I think Australia wide is generally overpriced at the moment, however Sydney less so than some other markets. Given the transaction costs though it is unlikely you'd make significant money over a 3 year horizon. Shares - over the very long term virtually always outperforms property (unleveraged) and there are stock picking methods to outperform the general stock market. Over the very long term the one single ratio that has been shown to be the best predictor of future performance is the p/e ratio, however by using multiple filters and combined ratios gross geometric average returns of 20-22% have been historically proven to be achievable, and with a lower standard deviation than the whole market, the risk adjusted return being almost 3x that of the whole market. Personally I think the Aus sharemarket will suffer one more bear market during the next 18 months, at which time it is likely to be a great time to load up on quality shares for the long term. Once again though over a 3 year horizon starting now there are no guarantees, the lower the share market is the better your odds are over the medium to long term. Gold - this is definitely speculative. Over the last few months I've taken some small speculative positions in gold mining companies, which are currently on average around 35% up. The risk/reward ratio for me at the moment is worth it for a small amount of capital, but I certainly would not invest your entire net worth in gold. Edit: Unless you are confident of a financial Armageddon scenario, even then I would only put a maximum of 50% in gold.
A good response Sydneyite - you're not as property mad as I thought!
My thoughts: Agree with Sydneyite that a 3 year horizon is too short to give a high probability answer to the best investment.
Property - I think Australia wide is generally overpriced at the moment, however Sydney less so than some other markets. Given the transaction costs though it is unlikely you'd make significant money over a 3 year horizon. Shares - over the very long term virtually always outperforms property (unleveraged) and there are stock picking methods to outperform the general stock market. Over the very long term the one single ratio that has been shown to be the best predictor of future performance is the p/e ratio, however by using multiple filters and combined ratios gross geometric average returns of 20-22% have been historically proven to be achievable, and with a lower standard deviation than the whole market, the risk adjusted return being almost 3x that of the whole market. Personally I think the Aus sharemarket will suffer one more bear market during the next 18 months, at which time it is likely to be a great time to load up on quality shares for the long term. Once again though over a 3 year horizon starting now there are no guarantees, the lower the share market is the better your odds are over the medium to long term. Gold - this is definitely speculative. Over the last few months I've taken some small speculative positions in gold mining companies, which are currently on average around 35% up. The risk/reward ratio for me at the moment is worth it for a small amount of capital, but I certainly would not invest your entire net worth in gold.
investing in gold shares is investing in the stock market, not in gold. Investing in gold futures would be investing in gold.
investing in gold shares is investing in the stock market, not in gold. Investing in gold futures would be investing in gold.
Yes it is the stock market - the key driver of the company share price for producers though is the gold price. The difference being that if the gold price falls below production costs for too long, the company could collapse, on the flip side as the gold price moves above production costs profits rise (and therefore share price rises) at a much more dramatic rate than the underlying gold price. So performance is linked to gold, with much higher risk/reward profile. I did buy and sell GOLD (at an 11% gain) which is physically backed by gold but decided to move the funds into a position more highly leveraged to the price of gold.
You have no idea what the term "risk adjusted return" means, do you???
To the OP, with only a 3 year investment horizon, all three options carry high risk.
* Sydney property - with that 3 year timeframe you are talking about a "flip" play only. It *could* work in the right area of Sydney in the next 3 years, but there are no guarantees
* Shares - timing wise this is probably the most likely option to give you a solid return over 3 years
* Gold - riskiest of all in current environment IMO over the next 3 years. The gold bubble clearly topped out/burst 2 years ago
PS: The above is not financial advice, just the ramblings of a 40-something mid-career Sydneyite..... and it's probably worth about what you paid for it! :pop:
Of course I know what "risk adjusted return" means , and at it's heart is the amount of money you will need to prop up your overleveraged properties in the worst case senario, ie: Interest rates shooting up and house prices tanking. You do not calculate this with gold because gold has no risk unless you buy it with leverage. You pay for it once and it's yours, whereas your property can be taken off you legally by several means. Foreclosure the most obvious of these.
Now go back and re-read the OP's post. He said
Quote:
Which will give the best risk adjusted return over the next three years?
He did not imply he would sell after 3 years. Surely you know the difference between returns on property over time and the profit of selling a property, he could have meant either.
Your opinion on shares is wishful thinking at best and your analysis of the gold market is flawed based on numerous points I wont go into. The only thing in your post that has a measure of reality to it is the final paragraph where you admit your advice isn't worth a pinch of salt. Thank you for your honesty.
propertymogul
10 Sep 2013, 01:17 PM
Guest
10 Sep 2013, 12:29 PM
investing in gold shares is investing in the stock market, not in gold. Investing in gold futures would be investing in gold.
Yes it is the stock market - the key driver of the company share price for producers though is the gold price.
Why don't you guys stick to what you know best, buying property in a bubble, and leave the important matters to those of us who actually know what we are talking about. Gold went up for ten years without a down year and gold stocks languished the entire time.
Here, go educate yourself, and don't bother coming back until you have something to offer. P.S. Good luck with your gold stocks, you'll need it.
Quote:
For nearly eight years now, shares of gold producers have underperformed in a very bad way, which is remarkable because until recently these companies were operating in the most favorable gold price environment imaginable. This year will probably be the first time since 2000 that gold will have a negative annual return. Gold mining companies, however, have managed to underperform gold in both good gold markets and bad http://www.forbes.com/sites/nathanvardi/2013/07/01/how-gold-miners-became-a-terrible-investment-2/
Gold has gone up a lot over the last 10 years but there is no mass psychology at play in the western world to purchase it as yet. And this is important, because most of the wealth of the world is in the western world. But as mel's comments above clearly show there is a mass psychology against buying it, one that derides Gold as a barberous relic. Of course people like mel would not have been around telling you to buy 10 years ago. The gold bull caught nearly everyone by surprise and those that missed out on the earlier gains are even more anti-gold now because they missed out on big profits, and that's a mass psychology in itself.
It is a common misconception that gold investors buy and never sell, but in reality many of us sell off portions from time to time to cover our capital investments and to diversify. Personally I think land is a good investment, I just think suburban land is not.
you know i love you Goldy and you know i was stirring with that comment.
Given the run up in gold prices i see buying gold today as a form of speculation or gambling in the same way someone might buy a GTHO Phase III in anticipation of further gains.
Personally i enjoy gambling, respect golds history and am fond of the GTHO but wouldn't buy either one at the moment.
you still haven't told me why there will be a mad rush into gold eventually. Why would all those dollars chase gold over shelter, water, food and energy in a SHTF scenario?
I have $200K to invest. I was thinking one of these options:
1. Property at 80% LVR (Sydney or Melbourne)
2. Shares with 50% margin loan (probably an index fund)
3. Gold unleveraged? (or maybe silver?)
Which will give the best risk adjusted return over the next three years?
Or can someone suggest something better?
Thanks,
Wesley.
Gold is the more volatile of the 3 asset classes and therefore carries the greatest risk. However, your decision to gear up on property and shares changes this.
A relatively small correction in property would wipe you out as would a 50% fall in share prices. Unleveraged gold is therefore probably your best bet but it still carries a substantial risk.
I have $200K to invest. I was thinking one of these options:
Option 4) Pay CASH for a regional property in an area with good fundamentals and pocket $250 a week
Ignore posts by The Whole Truth · View Post · End Ignoring The forum fuckwit goes RRRAAARRRGGHHhhh - But not a fuck was given..................by anyone.
Of course I know what "risk adjusted return" means
Everything you have written on this thread suggest otherwise...... why the hell did you start going on about counterparty risk with reference to risk adjusted returns???
Quote:
and at it's heart is the amount of money you will need to prop up your overleveraged properties in the worst case senario, ie: Interest rates shooting up and house prices tanking. You do not calculate this with gold because gold has no risk unless you buy it with leverage. You pay for it once and it's yours, whereas your property can be taken off you legally by several means. Foreclosure the most obvious of these.
Again, you are just showing your ignorance. The leverage adds volatilty to the expected return yes and therefore decreases the expected risk adjusted return, but it still may result in a better profile than say buying gold outright - leverage alone does not automatically mean lower risk adjusted return!
Your statement that because you buy gold outright it has no risk is complete bollocks! Again you are just showing off your ignorance with that one.
Re property confiscation etc - you know gold ownership has been outlawed in the past, and it can and has been confiscated in the past as well don't you? it can also be easily stolen.....
Anyway, you are great example of the old maxim - "a fool and his money......" etc.
Option 4) Pay CASH for a regional property in an area with good fundamentals and pocket $250 a week
Frank Wise advice indeed as yield is paramount. Mmmm...Toowoomba maybe or are you still spruiking Rocky?
Given that property is a long term investment, I tend to speculate in PUTS and shares. SSM:AU were always going to rise 25% after a Lib win and since I got them at 13.5cents. I am well ahead at 30% for 10 ten days... Still looking for the other 30% yet.... :-)
Speculation, as 20% of your capital is very wise if you know what to buy... Flight Centre maybe as a less speculative investment where some carry far more risk and that is the basis for any investment really, risk versus return.
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