INVESTMENT PROJECTIONS
FINANCIAL
YEAR
ENDING
30 JUNENET
INVESTMENT
EARNINGSFRANKING
CREDITSCAPITAL
GROWTHTOTAL
EARNINGSCLOSING
BALANCE2018 $418 $143 $312 $873 $11,273
2019 $453 $155 $338 $947 $22,620
2020 $909 $312 $679 $1900 $34,920
2021 $1404 $481 $1048 $2933 $48,253
2022 $1940 $665 $1448 $4052 $62,705
2023 $2521 $864 $1881 $5266 $64,836
2024 $2606 $894 $1945 $5445 $67,039
2025 $2695 $924 $2011 $5630 $69,317
2026 $2787 $955 $2080 $5821 $71,673
2027 $2881 $988 $2150 $6019 $74,109
2028 $2979 $1021 $2223 $6224 $76,627
2029 $3080 $1056 $2299 $6435 $79,231
2030 $3185 $1092 $2377 $6654 $81,924
2031 $3293 $1129 $2458 $6880 $84,708
2032 $3405 $1168 $2541 $7114 $87,586
Assumptions: Future earning rate of fund: 4.02%
Franking percentage of earnings at 80%: 1.40%
Annual capital growth: 3%
Total return: 8.42%
Source: HLB Mann Judd SydneyREV UP
YOUR
RETURNSBorrowing, or gear-
ing, to increase the
amount being invest-
ed is a way to further
enhance returns if
the markets go up
but it also means
increasing risk levels.
Banks do not lend
against shares as
they do with, say,
property so unless
there is equity in the
home to further bor-
row against, it would
need to be a margin
loan product.
Unfortunately, any
major market correc-
tion can lead to you
having to sell shares
at the very worst
time, so margin
loans should only be
used by experienced
investors who have
sufficient equity not
to be caught with
a margin call.
There are some
products that invest
in Australian shares
and have an internal
gearing level of an
additional 20% or
30% of exposure
to the market.
So if you want to
take on some more
risk to achieve a
higher return, you
might consider this
type of investment.of risk by not having enough exposure across
the different market sectors.
SUGGESTION FOR
SOMEONE WITH $200PW
TO INVEST
Given our favourable outlook for Australian
shares, an exchange traded fund (ETF) that
tracks the market could be a good option to
generate income.
An ETF provides diversification across
asset sectors and is a more manageable way
to enter the market for those with smaller
amounts to invest initially.
For example, the Vanguard Australian
Shares ETF (ASX: VAS) is a good way to get
diversified exposure to Australian equities
via one investment. There is no minimum
purchase amount and distributions are paid to
investors quarterly. The ETF is benchmarked
against the ASX 300 index so provides a broad
exposure to the market.
Keep in mind that the risk with Australian
shares is picking the wrong ones. Choosing
your own investments requires adequate
research into each stock. This isn’t possible
for the average investor who doesn’t have the time to dedicate to
such research.
While it may be possible for experienced investors to undertake
the research, even very skilled fund managers sometimes struggle
to beat the index. For a portfolio starting at $200 a week, investing
in the index via an ETF provides diversity.
I f you were to i nvest $20 0pw i n t he Aust ra l ia n sha rema rket, v ia a n
investment such as the Vanguard ETF, the portfolio would be worth
about $62,705 in five years. This is assuming a gross annual dividend
y ield of 5.42% (i nclud i ng fra n k i ng cred its) plus capita l g row t h of 3%
a year. We have also assumed that income is reinvested each year.
This example illustrates that savings are a key
driver of wealth. Over five years you would build
a portfolio worth $63,000, which is a good level of
savings and would provide a growing income stream.Jonathan Philpot is wealth management partner,
HLB Mann Judd Sydney