Sunday, September 17, 2006

Newsletter September 2006

Re-tire Time Map

I recently came across the philosophy of Dr. Alan Roadburg, author of the best seller “Re-tire Time Map”.

As has been written elsewhere, he supports the proposition that the key question for the rest of your life is "What will I do with the 15-20-25 years of my retirement?"

In retirement, Roadburg says, boredom or depression will set in quickly if the available time is not utilized constructively.

Richer retirees can travel and shop extensively. Those on a
moderate income can work at a small home business, read books,
go back to college or graduate school, exercise, enjoy nature or volunteer in charitable institutions.

The important ingredient is to stay actively engaged in life and its activities.

Roadburg says that our paid work and career – up until our 60s - provide us an identity, social interaction, stimulation and routines, as well as challenges.

The issue for retirees, he says, is that we have to replace this environment, and develop competencies to function within a totally different culture.

Migrants face similar challenges when arriving in a new country. It’s very similar when you pass into retirement.

The problem is, of course, that there is very little training available for such a life-changing cataclysmic event.

Hopefully, this newsletter – and its focus on “retire laughing” – goes some way to provide for your transition into a bountiful and dignified retirement.

Philosophical insights

I truly have a blessed life, assisting people to acquire adequate resources for the 15-20-25 years of retirement. If they take action, and develop their portfolio, I keep in touch and of course our conversations are always positive. (Of course, if they don’t take action, and end up on the aged pension, I don’t ever come in contact with them again so I never hear about the pain of their regret.)

But on the positive side, I am always meeting interesting people.

Some recent thought provoking comments:

Rino told me that his grandmother always said “you’ll go forward, further and faster, if you use your brains rather than your muscles.”

Liz said “old age is not measured by years – rather you reach old age only when you can’t care for yourself.”

And Rory told me that the investment choice is simple: “you either pay interest or taxes. Which do you prefer?”

How useful is the AAPR?

From time to time, property investment magazines run with an article about the value of using the AAPR – the Annualised Average Percentage Rate – when comparing loan products.

This is said to be, by the pundits, “the true interest rate for a loan”.

And it can be, when you look at one loan product in total isolation. You simply take the interest rate, read the fine print in the documentation, and factor in the exit fees – if any – for when you might terminate the facility.

However, when comparing loan products, how do you factor in flexibility and functionality?

Is there an offset facility? Is there a redraw facility? Can I transfer the loan to another property at a later date? And if I can, what are the associated fees?

Personally, I don’t find the concept of the AAPR very useful in my professional consulting practice.

While it is important to use a funding professional to help you explore options between loan products, the key to investing is “whenever you can afford that weekly contribution, that’s when you put your next investment property in place.”

Property beats Shares

I was recently reminded of the annual Investment Report 2004 published by the Australian Stock Exchange, which revealed that the property market had outperformed shares over the previous 10 and 20 year periods.

As an example, the report detailed that, between 1994 and 2003, residential property investments generated an after-tax return of between 11.4% and 9.3%, depending on investors’ marginal tax rates.

Shares, during that same period, returned only 8.1% for those on the lowest tax rate and 6.1% for those on the highest rate.

And I’m sure that, if you have a long-term mindset (and you would have, if you’re a property investor) the same results would be as true today.

In addition to those bald statistics, of course, there is the exceptional gearing potential available to residential property investment.

For a very modest amount, say $125 per week (i.e. $6,500 pa) an investor with a taxable income on $65,000 can control an investment worth $300,000.

This is a simple savings plan, as old as time itself. The Bible urges us to tithe – i.e. put 10% of our income towards a worthwhile endeavour. And it so happens that $6,500 is exactly 10% of $65,000.

So there we are. We have it on Higher Authority: Go forth and invest!

However, remember that while you can do it yourself, you really do need an investment professional – such as myself – to ensure that your investments achieve the “least in, most out” goal.

Anyone can attempt a diet, but many people go to Jenny Craig to ensure that there will be a happy outcome.

I’m your Jenny Craig when it comes to property investment.

Until next time

Bernard Kelly 0414 778 518

P.S. your highest compliment is a Personal Referral