Time may be running out for investors who use Low-Doc loans.
From 1st December, many investors wanting to refinance an investment property with a low-doc loan will face a major challenge.
Australia’s leading mortgage insurer, Genworth Financial, has announced that from 1st December, it will no longer insure low doc investment loans which are being refinanced.
And, the banks don’t usually like to lend more than 60% of the property value without mortgage insurance.
That means that the banks who use Genworth to insure low doc loans won’t want to lend more than 60% of the value of the property.
Also, Genworth will not insure low doc loans which involve equity release, cash out or debt consolidation.
And, they will also now require low doc borrowers to have an active ABN for at least two years and to provide 12 months BAS statements from the Tax Office.
Commonwealth Bank has already indicated it will follow Genworth’s policy.
Other lenders who use Genworth to insure low doc loans are expected to issue similar policy statements soon.
So, if you are planning a low doc refinance of your investment property you have until one minute to midnight on 30th November to lodge an application, according to a CBA release.
The other big mortgage insurer, PMI, has already refused mortgage insurance for investors taking cash out of a property. Don’t be surprised if PMI now follows Genworth’s harder line.
If you have been delaying refinancing an investment property, don’t delay any longer. You should act now. Next month, the opportunity will have passed you by.
Jamie McIntyre sent me an email a couple of days ago about how some people are taking advantage of the current stock market conditions … and making some really good money. I wanted to share the information with you to make sure that you do not miss out on the opportunity …
The information in the video is just an example and is not financial advice. You should always seek independent financial advice before investing.
Jamie McIntyre is an employee of 21st Century Investment Services Pty Ltd and an authorised representative of Romad Financial Services Pty Ltd (AFSL No 238 032). Jamie has been certified by Romad as being qualified in the areas of derivatives, securities and managed investment products. He is currently authorised to provide general advice and dealing services in Derivatives, Deposit Products, Managed Investments and Securities (ASIC No. 321 315). 21st Century is a corporate authorised representative of Romad and is currently authorised to provide general advice and dealing services in Derivatives, Deposit Products, Managed Investments and Securities (ASIC No. 321 314)
I was reminded of an interview that Jamie McIntyre gave. He was interviewed by Andrew Clacy. It is not a brand new interview but re-watching it reminded me that he has some great messages in it and it is an opportunity to hear his story of what he actually did to turn his life around when he found himselfwith nowhere to live (he was sleeping on a friend’s couch) and with over $150,000 in debt.
So, I hope you enjoy the interview. I have split it into three parts because of YouTube’s limit on how long videos can be.
OK, so you are looking for the best way to invest money. Well, let’s start with a basic question: what is investing?
Well, an investment is something where you put in (invest) something and you are doing it so that you can achieve a “profit” (usually money). Now you could be (and probably are) investing money. But don’t forget the other things that you will be investing too: your time, your knowledge and, probably, other people’s money, time and knowledge too. So it is not just about putting money in. And therefore, to find the best way to invest money for you, you will need to answer three basic questions:
1. Where am I now?
2. Where do I want to get to?
3. What is the gap between the two?
So, let’s quickly look at these:
Let’s start with “where you want to get to”. And, what I mean by this is “what do you want to get out of your investing?”. So, you might be thinking about questions such as:
Am I looking for regular income from my investments? Maybe every month?
Or am I looking for occasional “big wins”? How often? What’s “big” for you?
Or am I more interested in my investment fund growing
What return do I want for my money?
Or am I more interested in making sure that my investment fund is still there whenever I might need it in the future? Maybe it just needs to keep pace with inflation?
Am I looking at investing as becoming a full time job for me? Part-time? How much time?
Maybe you are more interested in the fun and thrills of it than the financial rewards?
Or possibly you have always wanted to learn how to invest in something and your goal is more about learning than getting financial rewards. So you see it as a great hobby?
So, do you see investing as providing your sole source of income? If not, what else will you be doing?
The more you think about this the more questions you will be able to come up with. Picture yourself as the investor that you want to become and describe that picture. Write it down. Get it clear.
And, to answer the questions “where am I now?” you will want to answer questions such as:
How much cash do I have?
How much spare time do I have?
What do I have knowledge and experience of
What am I interested in
Who do I know that might be able to help me?
Am I saving money now?
And then, in answering “what is the gap between the two”, consider:
Do I want to do this all myself or will I ask other people (”experts”) to do some (or all) of the investing for me?
What is my attitude and approach to risk? What am I prepared to “lose”?
How much time will I put into investing?
Who can I turn to, to learn to become great at this?
One of the questions that I put above in the “where am I now” section is “am I saving money now?” I want to stress the importance of this. If you are not following sound “money management” principles and are not saving money now, then you will not be a good investor. Full stop! So, the very first step is to start an automatic savings plan. It doesn’t need to be a huge sum to start off with. 10% of your income would be good but start with as much as you can and make sure that every month, come what may, you are regularly saving. Because, if you can’t keep hold of some of the money that you get now, then you will not be able to hold on to any investment returns and you will end up back where you started. After all, the number one way to make money is to keep more of your earnings than you spend! So get this bit right first.
And, while I’m stressing points, I want to stress another one too. Investing is work! It can be enjoyable work, it doesn’t need to be full-time work, it can be well-paid work … but it is WORK. And, if you are not interested in doing it because you would rather play computer games all day then look for somebody else to do the investing for you. And, before I put you off the idea of investing totally, there are some strategies that you can make very good returns with by only investing less than an hour of your time each month. And, investing can be great fun (in fact if it isn’t great fun for you then you’re investing in the wrong things). But, it is IMPORTANT WORK that needs to be done and, like all work, there will be some things that are less fun than others and, sure, you can adjust your working hours BUT there will be times when your “new job” (being an investor) has to take priority. If you do not approach it in that way then you will lose more than you make and you will fail as an investor.
Sorry for ranting on there but these are important points. Some people (I’m sure you are not one of them) think that investing is a passive activity where you simply drop a bit of money in and you sit on the beach and once every blue moon you take profits out to pay for your bar bill. It’s not! Or, at least, if this is what you want your investing to be, then you need to find somebody really good to do your investing for you and you need to recognise that you will have to pay them well … because you will want continued great returns so that you do not need to think about anything except when your next bar bill is due.
So, becoming an investor is not about giving up work, it is about changing your work from an arrangement where you give up your time for money to an arrangement where you give up your money to make more money … and that takes some of your time to do it well … maybe less than your former “day-job”. When I started investing, I used to travel most weekends around the country looking for good investment properties. That took up heaps of time. In fact it took up most of my time that I was not working. BUT I enjoyed it so I was VERY happy to be doing it. And as I started to make money too, it got even better!
So, finding the right investment strategy is very similar to finding a new job. And, with any new job, you will not be an expert on day one. So, you should expect a learning process up front. Of course, you can accelerate that learning process by using experts to do parts for you or by using effective and relevant training programs. And I would strongly encourage that.
I also have an opinion that you will not really learn how your investment strategy works until you have lost money from it. So, my STRONG suggestion is to start with risking a very small amount of money and get a number of results (good ones and bad ones) before you slowly and steadily grow your risk amount … after you have learned the major lessons. By the way, the amount you are investing and the amount you are risking should NEVER be the same. That is a topic for another day but please, always risk only a very small amount of your investment funds and NEVER more than you can afford to lose. Because, investments are NOT always successful. You will “lose” as well as “win”. The goal is to “win” more money that you “lose”. But, there will be “winning streaks” and “losing streaks”. So, plan for them, and make sure you have experienced them with a very small amount at risk before you move on to increase your risk.
Sorry, maybe I’m making it all sound too much like hard work? Maybe you think investing is not for you after all? Maybe you feel you should decide to enjoy the “day job” after all? I’m sorry if that is the case. That is not my point. Investing is great fun. It can be done (and usually is done) part-time. There are many things to invest in, so you will be able to find one that you are interested in. And the results can be fabulous. And, when you are investing well, you will get a great sense of achievement from watching your investment pool getting bigger. BUT, it is not a way of getting rich quickly and it takes knowledge and skills that we are not taught at school.
So, let’s move on. Let’s say that you are now spending less than you earn, you’ve got an automatic savings plan in place and you are now looking to start your new career as an investor. You’ve got a very clear picture of what you want that new life to look like and you have a full inventory of your current resources and skill levels (warts and all). That’s great! What do you do now?
Well, 80% of your success as an investor will come from your mindset. The other 20% comes from the strategies, tools, techniques etc. So, strange though it may seem, choosing the investment strategy is not actually the most important thing! Instead, the most important thing is to build up what has been called the “Millionaire Mindset”. So, the first thing I want you to do is to commit to continual improvement. There are many books and training courses that you can use to help you to achieve this. A few of the ones that I know about and can recommend are listed down below. But recognise that this is the start of a journey, not a task to be completed in the next couple of days. A “Millionaire Mindset” is one where you are constantly looking for new sources of knowledge to grow and improve.
But, I hear you ask, that’s all very well … but when do I start making some money? Well, how about now?
Recognising that 80% of your success comes from your mindset, then it actually doesn’t matter too much what strategy you choose to start off with! Yes, I really did say that! The key is to get started and then improve and change over time. And what I encourage you to do at this point is to pick an investment strategy that you already know a little bit about. Maybe that is a simple one like “buy shares and wait for them to go up in value” or “buy a second property and rent it out”. BUT, before you actually start investing real money, then please do two things:
1. Start researching that strategy. And I want you to start with one point of research in mind … how do I limit my risk? So, if you are going to buy shares and wait for them to go up in value, then find out what you can do to protect yourself when their value goes down. You will probably find (as in this example) that there are many things you can do which leads us on to …
2. Paper trade. Practice your investing on paper until you know exactly how well (or badly!) your investment strategy works. As you practice it, right down the rules that you are creating for yourself such as when to invest, when to exit from your investment and how much to risk etc. You will learn heaps from this so do it thoroughly. For some investment strategies you can buy software that allows you to practice many months of investing/trading with a few clicks of your mouse.
By the time you have become comfortable paper trading, your research and “mindset building” will have introduced you to other investment strategies. So now you have a choice … do I keep going with the investment strategy that I have practiced or do I go for the new super-dooper one that I just read about in the latest copy of your favourite investing magazine? Only you can decide that. But keep learning and improving and don’t change one investment strategy until you have proven to yourself that the new one is really better for you.
The Australian Government has decided to double the first home buyers grant to $14,000 for those who buy an established home and to triple it to $21,000 for those who buy a newly built home.
This is fabulous news if you are an Australian property investor. If first home buyers start buying then the demand that they create will start a wave of property price increases.
According to domain.com.au: “When the $7K first home owner’s grant (FHOG) was introduced on July 1, 2000, median prices for houses in Australian capital cities rose by an extraordinary $32,000, on average in the following 12 months.” They put those words in bold (and used “extraordinary”). And, I think they did that for a VERY good reason. Because, if my research is right, median house prices then were between $100,000 (Adelaide) and $275,000 (Sydney). So, that’s roughly a 17% increase in value!
If that were to happen this time and if you had bought a property with only 20% of your own money (and 80% home loan), then your cash investment will have grown by a whopping 85%!
Liz reminded me that 2000 was also roughly when the sub-prime lenders were starting. And that they made home loans more accessible and their actions probably also contributed to the house price increases. So, maybe 85% is more than we can expect this time around. But what if it was only half of 85%? How would a 40%+ return on cash invested sound to you?
Of course, it may not happen. BUT, if it does happen, then the people that make most money will be the ones that are ready to pounce onto great bargains. They will have their finances organised and home loans pre-approved, they will know where they will invest and they will know exactly what strategy they will use to get the maximum out of their new investment property.
So, what do you need to do to get ready? Because, whatever it is, you might want to start getting ready now …
We are experiencing unprecedented craziness in the world’s financial markets at the moment … and you might think that I have an opinion or two on it. Well, I do! But I was just lucky enough to catch a video that neatly summarises what I think. So, I thought you might be interested in watching it. You can see it at:
1. The video is about 15 minutes long. The first two thirds contains the stuff that is important for you to see. The last third is a sales pitch for an Internet Marking product: Mass Control. I have no information on this product and am not recommending it and am not encouraging you to buy it. It may be great … I don’t know! I am giving you the link so that you can watch the first two thirds. It is up to you, whether you want to watch the last third.
2. The video is not totally politically correct and sometimes controversial and I do not agree 100% with what is said. Nevertheless, I DO totally agree with the underlying messages.
So, go and watch the first part of the video - it contains some important stuff.
A friend sent me a link to a recording of an interview that was on the ABC recently about Short Selling.
I have been surprised by the global knee-jerk reaction of banning short selling. It strikes me as simply caused by confusion and misunderstanding. Now is the time when people SHOULD be considering using short selling … not stopped from doing it.
In the Interview, you will hear Sinclair Davidson talk about some of the misunderstandings. It makes for an interesting listen!!
By the way, on one thing I totally disagree with Mr Davidson. I firmly believe that everybody should have access to the education and the ability to invest in whatever way they want. I do NOT believe that certain investing methods and techniques should be excluded from people and only allowed to be used by so-called professionals. Evereyone has a responsibility for looking after their own investments and they should be able to use whatever strategies they want … and they should also be allowed to learn how best to use those strategies.
Anyway, … here’s the link to the interview … I hope you enjoy it and learn something from it too!
I got a great question from somebody this week and I thought it was worth sharing …
Question:
“Re share renting, what would have happened to buyers when they got in last year (especially Oct-Nov) before the crash, surely they would have lost a lot of money as a lot of blue chip companies haven’t recovered.”
Answer:
Thanks, that’s a really good question!
It is certainly true that if somebody bought, say, Commonwealth Bank shares that were trading at around the high $50s and low $60s in November and December and they simply held on to them, they would now have an investment that was only worth low to mid $40s - not a great investment!!!
This is not the sort of investing that we encourage people to do!
An investor’s prime responsibility is to preserve his/her capital. Therefore, we encourage people to go through a careful process before investing a cent. This process includes the following steps:
1) Risk management
This covers a few things but as far as your question is concerned, the key thing is to be absolutely clear on how much you are prepared to risk on any investment. So, let’s say that you were poised to invest in CBA when it was near the top of the market at $60. Your risk management process would have helped you to determine what price you would exit from that trade if it went against you. I do not know what the situation was back then but let’s say that you had worked it all through and your exit was at $58. You would then set it up so that you exited when the price dropped to that level. There are a few different ways of doing that. Either: just make a note of it and watch the price and then call your broker if the price hits $58 or set a stop loss or buy insurance at that level etc.
Now, of course, the premium you received for renting out the shares would offset your loss. I don’t know, but you might actually still have made a small profit in this example.
2) Share selection
Another key to success is determining the criteria for when you will enter a trade. In my opinion this is not as important as your criteria for when you will exit, but it is still important. So, you would have been looking for particular circumstances to occur to indicate to you that this was a good time to rent this particular share. There are many different criteria that people use. However, one of the goals of all of these is to attempt to minimise the number of times that you lose money. In other words, for share renting, you are looking for a trigger to suggest that the price might be going up. Or, at least, not going down. I do not know whether CBA would have triggered an entry at the peak or not as that depends on how you would choose to select the share. But hopefully, overall, the number of times that you would buy at the peak would be minimised. After all, as a private investor one of the huge advantages that you have over the funds managers etc is that you do not have to invest! You can wait to look for the right time to invest and leave your cash sitting in the bank while you wait for your criteria to be met.
3) Trading plans
In my opinion, the third key to success is to have a trading plan. What this means is that you have worked out in advance exactly how you will invest. That includes things such as how many trades to have open at any one time, how much to risk on any trade, your criteria for entering and exiting trades etc. Now, for this to be a proper trading plan, you should have tested it first. These days it is very easy to automate the testing so that you can thoroughly test your trading plan in all market conditions. The software that we recommend has 6 years of stock market data to test against. This means that you know how your trading results will look in any market. So, the recent bear market would have been one you would have tested for.
As a result of testing, some investors have a second trading system that they swing into operation when triggered by a shift in market sentiment. Others might choose to leave their money in the bank. Others will still look for the opportunities but will understand that there are likely to be less of them.
So, overall, yes, it would have been possible to lose money in the recent bear market. And, I know that some people have lost money. However, we encourage people to approach investing as a business. Businesses have income and expenses. One expense of an investing business is the trade that goes against you. And, like a good business manager, one of your tasks is to minimise your expenses through good management.
By the way, some of the most successful investors get it right less than half the time. More than half of their investments go “the wrong way” and they lose money. However, they have set themselves up so that the few that go the right way make heaps more than the ones that go the wrong way.
Anyway, this turned out to be a much longer answer than I thought I would be typing! I guess it really WAS a great question! I hope my answer makes some sort of sense. Let me know.
I caught a press conference on the TV recently where Warren Buffett was asked: “Which was the most important lesson that you learned from your tutor Benjamin Graham?”
His answer was:
“The 3 most important lessons I learned were all from the same book The Intelligent Investor - it was written first by Graham in 1949 - they appear in chapters 8 and chapters 20.
The first is to look at stocks as pieces of businesses, not as little items on a chart that move around, not as ticker symbols, not as something that might split next week or next month or something of the sort but rather to look at the business, value the business, divide by the shares outstanding and decide whether you really want to own a piece of that business at that price.
The second one was his commentary about your attitude toward the stock market, that it is there to serve you rather than to instruct you, and he used a famous Mr Market example of that but that attitude is fundamental to making money in stocks over time.
And then the final item he talked about was a margin of safety, that when you buy a stock that you think is worth $10 you don’t pay $9.95 for it because you can’t be that precise in estimating its value so you leave a considerable margin of safety for both what you don’t understand and for the vagaries of the future.
And those 3 ideas which I learned when I was 19 years old have been the bedrock of everything I’ve done since.”
Following those principles has certainly worked for Warren Buffett!
Many people believe that you have to have a lot of experience to make money through investing.
But the reality of it is that “new” investors can do very well, very quickly. And, people who have been investors for many years can go and lose the lot - sometimes overnight!
The secret to success does not lie in “time”. It lies in gaining the knowledge of what to do, and … actually taking the appropriate actions!
That knowledge can be applied quickly. With the right training, many people have been able to give up their day jobs and live off their investments within 90 to 180 days of starting their training.
For instance, Eloise and Gary Andrews retired only 4 months after they started their training, making over $50,000 per month.
So, what sort of training do you need in order to be able to make money quickly from investing?
Well, you’re probably thinking that you need to know secret stock trading or property investing strategies, or maybe you need access to a secret guru who gives out share tips in exchange for large sums of money.
No, that’s not it!
The most important thing that you need in order to make money through investing is the right attitude!
Yes, 80% of success in investing comes from having the right mindset. The other 20% comes from knowing good strategies and techniques etc.
So, far and away the best thing you can do to become really successful in making money through investing is to get the right mindset - the “millionaire mindset”.
So, what does the millionaire mindset look like?
Well, there are a few things that are important. Having a millionaire mindset means that you:
can control your emotions to overcome fear, doubt, frustration or anger
respond to life’s events rather than reacting to them
have a focused, clear mind
let go of what other people think of you
keep your energy vibrating at a level that ensures money is attracted to you like a magnet.
So, if you want to make money through investing, focus most of your energy on getting the right mindset and you will be 80% of the way there.
But what about the other 20%?
Well, yes, good strategies and techniques can take you the rest of the way along your journey to wealth.
So, what does a good strategy/technique look like?
The most important thing about it is that you have to enjoy doing it! There is no point in investing in property if you do not like looking at houses - you will do it badly!
Secondly, it needs to fit into YOUR lifestyle. Maybe spending 2 hours trading US Futures every morning before everyone else gets up is the best thing for you, or spending a morning each month reviewing off the plan properties to invest in. It has to match YOUR lifestyle.
It also has to match your risk profile. There is risk involved in everything and everyone views risks of things differently. If you believe that one type of investing is riskier than another, then, for you, that will be true! Pick something that you feel is low risk - and it will be!
Learn from the experts. There are great teachers who can show you what to do. Invest your time in finding out what they teach. They will help you to look at things differently - e.g. buying shares and then “renting them out”.
So, look for these ideas and consider whether they would be right for you.
And, the good news is that there is no shortage of different techniques and strategies that you could do. And, what you will find, is that the more you look for these great techniques and strategies, the more you will find!
One word of warning though … only 4% of people reach retirement age with incomes of over $35,000 and only 1% is a millionaire.
So, … maybe doing things differently to “most people” is a thing to consider? - As Warren Buffett said “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” It seems to work for him!
Look out for #3 in the series - You Need To Have A Lot Of Money To Become An Investor
