Safe places to park money?

[Rocker]

I always surprised at the statements about how Australia will do just great when everyone else around is falling down because Australia is tied closely to China. Does everyone of these people think Australia and China exists in a vacuum. China is only doing well cause they're an export country and exports are drying up as their two largest customers USA and Europe are not in a buying mood.

Can someone please, without parroting the usual rhetoric of the polies and smut peddlers, explain how is China going to continue on without most of its source of income.

Toolin,

The reason that the Chinese and Indian economies are still in quite robust shape is that their growth is primarily dependent on internal demand rather than on exports to the US and the West. Moreover, they have huge amounts of savings. And they are still planning massive investment in infrastructure, which will require imports of Australian raw materials.

I personally trust Warren Buffet, when he says that the average investor should invest in index funds linked to the whole of the stock market, and that the time to buy is when there is blood running in the streets, even if some of it is your own.

Over the past few months I have been putting savings into an an interest-bearing deposit account at my bank, while the stock market was clearly still declining, but today I believe that we are close to a bottom, so I have started to buy index-fund units again.

This chart which shows the performance of various index funds over the past 38 years is instructive: http://www.vanguard.com.au/Personal_...art/index.aspx

Rocker

[Toolin Around]

That's the same rhetoric everyone is parroting. That China has an insatiable appetite like a black hole. All the oh so well learned economists forgot to ask the chinese how they'll take the slow down. The chinese, contrary to popular belief, are just like you and me. When things get tough they'll do just waht you and I will do, irrespective of what economists will say, they'll tighten up their belts and only buy what is needed. Who here's going out to buy an new Holden or made in australia top f the in fridgethis weekend? Come on hands up... just what I thought... no one. So why should the chinese or indians. If anything they're in a position to tighten up more as they can still remember how to live a much more frugal life style than any western nation.

No country exists in isolation. All countries need exports to succeed. The two most basic rules that everyone has ignored.

It appears to be the case as the last few days the news is starting to role in that China is in fact pulling back.

This injection of 14000 or 21000 for a house isn't going to work either. Who's gonna go a few hundred thousand in debt if they know there's a good chance they could loose their job in the next few years. And what banks gonna lend them the money knowing it; coupled with the banks believing houses will depreciate in the next few years anyways. And the 1000 for pensioners to blow over christmas. How many of these pensioners have the money to blow - few if any that could actually make a difference. Most if not all of them remember hard times and will tighten up and put it under the mattress. All I can say is these are a bunch of hail mary passes thrown in desperation by the government. Next the government will say everyone have another baby to save the economy.

[Toolin Around]

What I'd really like to know is this.

They say the ones that really orchestrated this financial melt down pulled out years ago as they knew what the end result of what they were doing. The ones in place now were the late comers to the feeding frenzy and weren't smart enough to get out in time. So now they'll take the fall for this mess. And the real perpetrators are sitting back thinking up other scemes to play god with.

I'd like to know where the originators are putting their money. Not their play money but the nest egg they all hide away for when things start to unravel. Any ideas

[Ashore]

They say the ones that really orchestrated this financial melt down pulled out years ago as they knew what the end result of what they were doing.

The financial melt down came from greenspan keeping U.S. intrest rates too low for far too long after the 2000 credit squeese and the sept 11 bombings , money was leant to people who had no way to pay it back , no jobs , no assets to say it was orchestrated I feel is just another conspiracy theory , new world order etc , but If it was orchastrated then the only ones big enough to do that could afford to buy a small country each and the way their finances are worked out by their accountants , or mabye they just sit on cash untill share prices fall then buy in low , espically minerals ,oil , and food production .Minerals because the proven assets are in the ground , oil and food cause their necessaties

[Rocker]

That's the same rhetoric everyone is parroting. That China has an insatiable appetite like a black hole. All the oh so well learned economists forgot to ask the chinese how they'll take the slow down. The chinese, contrary to popular belief, are just like you and me. When things get tough they'll do just waht you and I will do, irrespective of what economists will say, they'll tighten up their belts and only buy what is needed. Who here's going out to buy an new Holden or made in australia top f the in fridgethis weekend? Come on hands up... just what I thought... no one. So why should the chinese or indians. If anything they're in a position to tighten up more as they can still remember how to live a much more frugal life style than any western nation.

No country exists in isolation. All countries need exports to succeed. The two most basic rules that everyone has ignored.

Toolin,

Although it is true that the global crisis will have some effect on China's economy, the effect will not be disastrous, as the recent IMF report says. See this item in the Chinese People's Daily: http://english.people.com.cn/90001/9...4/6512394.html . The reason is that a large proportion of China's, and India's, growth is fuelled by internal demand. It is not the case that every country has to export to survive. Successful economies like Singapore's export very little. China's middle class, which has ample savings, numbers 300 million, equivalent to the entire population of the US. It is this middle class which will ensure that China's growth slows only moderately over the next two years from its current rate of almost 10% per year to about 7 1/2%, which is still a very healthy growth rate.

I also think that, once the American Presidential election is over, there will be a gradual resumption of confidence in the US, assuming, as seems almost certain now, that Obama is elected President.

As I understand it, the secret of successful investing is to avoid succumbing to greed in good times and to fear in bad times.

Rocker

[damian]

It sounds like you've already made up your mind so I suppose it's useless trying to tell you otherwise.

Trade is not necessary, unles YOU buy into the globalisation nonesense. The fact is countries, villages, individuals have existed quite happily throughout history without trade. Trade is nice, like ice cream, but neither is essential.

Approximately 1/3 of china's gdp is exports. Coal and iron ore were about 55/tonne in 2000, they are now 150/tonne. They won't increase 30% a year anymore but we ain't going back to 50/t either.

Unfortunately as I've said before Australia has become an country divided. There are people like me with no debt, lots of capital and assets, marketable job skills who do very nicely thank you. There are other people who are in debt up to their lower lip and barely hanging on now. This will send them under.

Unfortunately people all over the world are quick to claim their adult rights. Many of them don't have the intelligence and "smartz" if you like to go with it. They hear what they want to and rail against people like me to tell them what they don't want to hear. Then they are just as quick to duck their adult responsibilities when the inevitable happens. And they vote.

Regardless, the outcome is quite sad.

Edit: Probably the biggest thing that is different for us is not our links with china but our lack of government debt. The importance of this cannot be overestimated. A smart government (snigger) can use it's borrowing power to both shelter the economy and population and also take the opportunity to build infrastructure we actually need for the future. Some of what Kevin-o-heavens is doing is good, much I disagree with, but it's probably as good as you can expect.

[Greg Q]

pulling back.

This injection of 14000 or 21000 for a house isn't going to work either. Who's gonna go a few hundred thousand in debt if they know there's a good chance they could loose their job in the next few years. And what banks gonna lend them the money knowing it; coupled with the banks believing houses will depreciate in the next few years anyways.

Yeah, if you think that credit is going to ease somewhat it's still going to be very tight. AND, we have another chapter in the unintended consequences of social engineering: The housing suppliers are trying to jack up their prices according to one news story I read yesterday. The first time around the grant got multiplied by the average gearing rate and added 60 thousand to prices in a few months. This time of course people with minimal deposits won't be able to get easy credit anyway. Beats me why the government is so keen on keeping house prices unafordable. Oh! I know why! They don't want to wear the bursting of a bubble in real estate.

[Studley 2436]

Best place to park your money. Bank deposit fits that description. Good place to be while you look around for something better.

There are surely some really really good stocks there though. I have heard of P/E (Price Earnings) ratios of 10 which is a brilliant ratio to buy at.

It might not be the bottom yet but if PE's are 10 then you won't go badly wrong. The thing of course is do they have earnings? Can they pay dividends? I think you get better dividends which is basically your interest on a bank stock than you do by making a deposit. What's more the dividends are Franked so you don't have to pay tax it has been paid already. The only difference then is the security between a stock and a deposit. If you get 5% dividend and the stock doubles you are effectively getting 10% but it can go the other way. You get stocks that have grown over time like most of the banks there are ones that just seem to tread water, like Qantas and Telstra. Information is everything so if you have that bent and want to spend an hour each day reading the business pages then go for it otherwise there are other things as mentioned by others.

Talking about where to park money some mentioned housing. I would be cautious on this though because there has been a huge boom in housing. There might be much more in the correction there as well. It might be 50% but there is no way to know it might just be in a holding pattern for the next few years, of course people do need to live somewhere so it will only fall so far.

The thing with stocks is liquidity. You can sell and buy them very quickly. You can't do that with a house. So the sharemarket can shoot up and down several percent in a day. It can crash too as it did last week then bounce as it did on monday (dead cat bounce me thinks) but you can get in and out of it quickly. You can't do that with housing, which means adjustments take much longer to happen.

So to summarise, deposits are good at the moment. Sending your money to a foreign bank is foolish as we have the banks that didn't need to be bailed out. Gold seems to have been very strong the past year and is at high prices so I think you have missed that one. Housing is likely to fall further but has no liquidity so is a bad investment right now. Stocks have some upside in them but be prepared to put in the effort to get them to work for you.

Studley

[bitingmidge]

Best place to park your money. Bank deposit fits that description.

Provided inflation doesn't ramp up as a result of the artificial spending created by government handouts!

The housing suppliers are trying to jack up their prices according to one news story I read yesterday.

I love the way these stories happen and the way people believe them! When was the last time you took a pay cut? Well guess what? Construction workers want more too, that means builders have to charge more! Take a drive around the western suburbs of Sydney and see if any of the real estate agents are being rushed off their feet.

I build the odd house for sale, have one on the market right now as a matter of fact. Sometimes I do better than bank interest, sometimes I don't, at the moment we'll be lucky to break even. That happens. It's a funny thing how selling price seems to relate to costs of production!

They hear what they want to and rail against people like me to tell them what they don't want to hear. Then they are just as quick to duck their adult responsibilities when the inevitable happens. And they vote.

Regardless, the outcome is quite sad.

.. and then they tell you you were lucky when the washup is done!

I don't share your sadness I'm afraid (and no I'm not being overly harsh), there is only so much one can do. There are books, newspaper articles, even television shows from which people can get simple guidance, but the fact remains historically that fewer than 10% of the population is prepared to take the advice that's available.

Everyone wants a quick fix, and when they don't find it, they buy a tele, and look out the window at those who are taking risks, working a bit harder, and saving a bit, and tell them why it won't work!

The fact that most people are allowed to vote worries me, but none the less, our Prime Minister and the Leader of the Opposition are two of the wealthiest politicians in our history, I suspect they are not wanting to let go of their wealth in a hurry..

That's the same rhetoric everyone is parroting.

And that, dear Toolin, is the same rhetoric everyone else is parroting!

Times are difficult, that's a given. I'd rather be here than in Iceland or Zimbabwe or the USA, so I make do with what I have.

It's very likely that company profits will be down for some time, so share dividends will be as well. But guess what?? Share prices are exceedingly cheap and there are many, many strong companies with little or no debt and few competitors. They have what Warren Buffet refers to as a "moat", a big ring of protection in times like this. I haven't bought any, but I'm plucking up the courage to do so, and will regret it if I don't!

I have not doubt times are changing, but they've changed before.

Your money is safe in the bank until 2011, so you have to decide if you want to have the same amount (or less after inflation) in 2011 as you have now, or do you want it to grow?

You have to decide why you want any money at all I suppose.

I want to continue to provide a living for myself, so I will continue to take moderate risk, I may not build another spec house for a while, but I'll buy shares and move house and generally keep moving stuff around, and I'll try to find bargains in the marketplace.

If history repeats itself, sometimes I'll lose, other times I'll win what I've lost and a bit more, and we'll eat again till next time!

It doesn't matter how bad things may seem, in the great depression unemployment was somewhere between 16 and 25% . That means 75-84% of people were still employed!

Good luck!

cheers,

P

[Greg Q]

Provided inflation doesn't ramp up as a result of the artificial spending created by government handouts!



I love the way these stories happen and the way people believe them! When was the last time you took a pay cut? Well guess what? Construction workers want more too, that means builders have to charge more! Take a drive around the western suburbs of Sydney and see if any of the real estate agents are being rushed off their feet.

I build the odd house for sale, have one on the market right now as a matter of fact. Sometimes I do better than bank interest, sometimes I don't, at the moment we'll be lucky to break even. That happens. It's a funny thing how selling price seems to relate to costs of production!

Overnight? You are willfully being a mongrel about my post. Builders who rub their hands in glee and jack up their prices overnight are not reflecting sudden increases in cost, they are reflecting greed. Good luck with your house.

[bitingmidge]

[QUOTE=gregoryq;824970]

Overnight? You are willfully being an ashole about my post. Builders who rub their hands in glee and jack up their prices overnight are not reflecting sudden increases in cost, they are reflecting greed. Good luck with your house.

Thanks, and yes it was wilful, but I haven't actually seen any builders wor rub their hands in glee and jack up prices overnight. If prices are being jacked up at the moment, it's to recover lost margins I'm afraid, but I don't think they're being very clever.

Do you actually know any builders who have done this??

I'd be happy to have them "outed".

Let's say they are sitting on an unsold house worth $450,000. Their interest costs would amount to roughly 8 or $900 dollars per week. If they've been sitting on it for say six months, which seems to be about the norm, the interest component is about the same as the first home buyers grant.

If they jack up their price to match, are they being greedy or simply covering costs?

Of course there are times when profits are made, there are also a lot of times when profits don't cover wages. I'll happily unreservedly apologise for being, as you say a mongrel, if you can provide any evidence at all for this gross profiteering that's happening!

Even an advertisement for one house without naming the builder will do.

cheers,

P

[Studley 2436]

Midge I reckon Bank deposits fit the description of "Parking" money pretty well. Not much risk unlikely to make much money from it but you will get most of it back. Inflation is a really good point, if inflation is higher than the interest you are losing money. This is something accounting struggles with sadly so nobody realises the money inflation cost.

Something I did notice last year I suppose before the election, was that there was talk of a New Economy that would never bust. Likewise talk of the Mining Boom going for decades. This is akin to old saying, "I know it is time to get out of the Market when my Hotel Busboy is getting in." The whole thing went flying out of control. So there you go. Right now I am a bit concerned that the PM is jumping in much too fast to things that he might be smart to stay out of. It could end up making things much worse for us, or not, there is no way to know right now. I am sorry he just didn't keep his powder dry before deciding if action was or was not needed.

Studley

[bitingmidge]

Midge I reckon Bank deposits fit the description of "Parking" money pretty well. Not much risk unlikely to make much money from it but you will get most of it back. Inflation is a really good point, if inflation is higher than the interest you are losing money. This is something accounting struggles with sadly so nobody realises the money inflation cost.

Studley, you are right, the question was about "parking"!

Don't forget you pay tax on interest as well, so if your marginal rate is 30% you are probably about half a percent ahead of inflation at the moment, if you don't spend any of it!

Cheers,

P

[Calm]

Midge I reckon Bank deposits fit the description of "Parking" money pretty well. Not much risk unlikely to make much money from it but you will get most of it back.Inflation is a really good point, if inflation is higher than the interest you are losing money. This is something accounting struggles with sadly so nobody realises the money inflation cost.

................................

Studley

Studley, you are right, the question was about "parking"!

Don't forget you pay tax on interest as well, so if your marginal rate is 30% you are probably about half a percent ahead of inflation at the moment, if you don't spend any of it!

Cheers,

P

I am not sure what you 2 are trying to say so i will do an example of my thoughts.

SUPERANNUATION/SHARES

If you had $200,000 in Superannuation in January 2008 this was in 50% shares - 50% fixed interest (balanced) by now it is probably valued at about $175,000.
If (as i think) the share maket is about 1/2 way down in 12 months it will be valued at about $150,000
If you change it to all fixed interest (say 6%) now in 12 months you will have a value of about $185,500. then return to your 50-50 stagety and you will own 1 1/2 to 2 times as many shares as you do now.

If you had $200,000 in the share market last January you cash it in now for about $150,000 and invest it all in Term deposits of 6% for 12 months the result is $159,000, alternatively if you leave it alone and if (as i think) shares drop another 50% you have $100,000 left.
If in 12 months you then buy back into the market you will purchase $159,000 dollars worth of shares which is 1/3 more than if you hang on to them now.

PROPERTY

If you have a house worth $200,000 in January it is now worth about $185,000 in 2 years with a falling market as (i and other comentators think) the market loses upto 50% of its value the house will be worth $100,000. If you sell the house now invest the money (term deposit) for 2 years at 6% you will have $207,866.
So you can then buy 2 houses at $100,000.

If inflation is at 5, 6, or even 10% it will not effect the fact that your money will be increasing in value whereas in houses or shares it is going down. There is a distinct difference in the amount you have.

A good accountant would tell you that you should sell the family home now for $200,000, rent it back for $240 per week for 2 years, invest the money at 6% and then buy the same house back in 2 years time. - you have not moved, the house you buy back is $100,000 your $200,000 in the bank has earned $12,000 in interest, you paid $24,960 in rent, the tax on your $12,000 is $3,600 so you would have the same house and still have $83,440 in the bank. or less mortgage.

As for the argument that until you sell your shares or cash in your superannuation you haven't lost anything - thats rubbish - technicaly true but the value has fallen and therefore you can never redeem the amount that was there in January 2008.

Here is an example for you of the same thought pattern - you own a investment house for $200,000 getting $240 per week rent or 6.24% return on the investment/value - in a couple of years when the value of the house is $100,000 are you going to tell me you are getting a 12.48% return on your investment.

Sorry but accountants are aware of the calculations .

As for what Kevin07 is douing i think the inevitable will happen and teh mnoney thrown around may only pospone that. What we have seen is only the start and there is a long way to go before this episode is played out. Hang on tight the ride is going to get rough.

Cheers

[Studley 2436]

Geeze David you are an accountant aren't you? That being so I am surprised you made so many assumptions about future values of stocks and shares but failed to think of the money earning potential of companies.

Putting money into cash deposits fits the description of "parking" very well. Not much risk and not much chance of any real gains.

Right now the Sharemarket is looking very good for future gains. Not so the Real Estate market. So far as the sharemarket goes I think it is an OK time to just be on the sideline and looking for a good opportunity. There will be many there. It might make a lot of sense to run a ruler over things like Fortesque, BHP Billiton and Rio as well as the big four banks, would be shy of the Penny Dreadfuls right now but I think top companies like Wesfarmers have taken a hit and might be good value right now.

According to the rules of Accounting you can't record a profit or loss until it is realised. So if your stocks are down you have no loss until you sell. It is only a paper loss until then. So if it is down the only question is will regain or not. If it won't it is better to sell suffer the loss and put your money somewhere better. It is also good policy to take a profit when things go up. Traders have known this forever.

I said Accountants struggle with inflation and it is true. You have never seen an adjustment in anyone's books for inflation I am sure. Economists like to talk in Real Dollars but Accountants never concern themselves with that.

Making assumptions about the market and what it will do is always risky. Right now I would think a prudent investor would have plenty of cash. So far as the market I don't think it is much of a time to be getting out of Real Estate or Shares. I do think it might be a very good time to be getting into shares but a bad time to get into Real Estate.

Studley