Investing money....

[Mean Mr. Mustard]

Don't have any interest payments/loans... espcially in terms of credit card debt, that is just an easy way to throw a hell of a lot of money away I figure. But anyways I am off to Chapters to look into some of those books.

Thanks for the help by the way.

[Sylvanfan]

Originally posted by fotze@Feb 13 2005, 06:43 PM
So to sum up everything said here, if you can predict the future you will be successful in investing.

LOL, that is so true, and if you'd made all the good investments you ever thought of in hindsight than you'd also be stinking rich. I know years ago I was into the whole stock market thing. I had some ideas but in the end didn't quite have the gall to follow up on a lot of my ideas. For example I was going to buy big (like $50,000) into Nortel when the stock was like $35 a share figuring it would easily double. It easily did that in fact I could have held it to over $100 a share, so I'd have like $100,000 than I could have turned aroudn at that time and put it in something like Royal Bank at $50 a share in January...By March I think those shares would have been worth $75. So than I'd be up to $150,000. Then I could have put that $150,000 into Manulife Financial at like $15.25 a share. By the end of 2000 it was at like $48 a share. So that initial $50,000 I borrowed could have been like $450,000. Plus the government had revised tax laws to make capital gains taxes much less restrictive essentially only taxing 50% of the gain. So I would have made out like a bandit. Of course I've had just as many bad ideas too that I never went ahead with either. But yeah, if you can predict the future you can make a lot of money at other peoples expense.

[Calgary Flames]

You could also buy Gold coins and store them in a safe box. ALL money is backed by gold. Gold will never go down. If you're looking for a long term and interesting way to invest money... plus they're all purty like

[Claeren]

Gold can certainly go down, and if certain provisions of IMF and World Bank reform go as planned LARGE reserves of gold will be liquidated soon bringing the price down significantly in the short term. ($350/once?)

It was not that long ago (The calm and stable Clinton years) that gold was half the price it is today. Generally, special circumstances aside, the more turmoil America is facing in the world the higher the price of gold. Stability (from war, deficits, etc) for America is worth maybe $200-$300USD/Ounce. Now it is in the $400's, and if there was a run on the US currency, inflation really took hold, war escalated, an oil embargo took place, and/or interest rates went through the rough you could see gold at $800/once in a VERY short period of time. All about what you think will happen..... If you see IRan or Syria being attacked in the next 2 years gold is a VERY good buy, particularily AFTER certain institutional reserves are sold off.


Gold IS the safest place in the world to put your money.

Safe doesn't tend to equal profit though.

Claeren.

[300spartans]

Originally posted by SuperChuckles@Feb 13 2005, 01:43 PM
ALL money is backed by gold.

No.

The US dollar is not, and neither is the Canadian dollar. Money not based on the gold standard is called fiat currency.

One of the few currencies that actually has some gold backing is the euro.

[Calgary Flames]

Originally posted by 300spartans+Feb 13 2005, 03:10 PM--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (300spartans @ Feb 13 2005, 03:10 PM)</td></tr><tr><td id='QUOTE'> <!--QuoteBegin-SuperChuckles@Feb 13 2005, 01:43 PM
ALL money is backed by gold.

No.

The US dollar is not, and neither is the Canadian dollar. Money not based on the gold standard is called fiat currency.

One of the few currencies that actually has some gold backing is the euro. [/b][/quote]
Well, yeah... I guess my point is... Cash money is nothing but Paper... If you're buying gold it will always hold it's worth.

I'm just trying to think of more interesting ways of investing money.

[calf]

Originally posted by SuperChuckles@Feb 13 2005, 02:14 PM
Well, yeah... I guess my point is... Cash money is nothing but Paper... If you're buying gold it will always hold it's worth.

I'm just trying to think of more interesting ways of investing money. If I had $7000 i'd buy $7000 worth of coins

Waffles. Golden, tasty waffles. (I think that's the FG quote?)

[Calgary Flames]

Originally posted by calf+Feb 13 2005, 03:15 PM--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (calf @ Feb 13 2005, 03:15 PM)</td></tr><tr><td id='QUOTE'> <!--QuoteBegin-SuperChuckles@Feb 13 2005, 02:14 PM
Well, yeah... I guess my point is... Cash money is nothing but Paper... If you're buying gold it will always hold it's worth.

I'm just trying to think of more interesting ways of investing money. If I had $7000 i'd buy $7000 worth of coins

Waffles. Golden, tasty waffles. (I think that's the FG quote?) [/b][/quote]
Pancakes

[calf]

Originally posted by SuperChuckles+Feb 13 2005, 02:18 PM--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (SuperChuckles @ Feb 13 2005, 02:18 PM)</td></tr><tr><td id='QUOTE'>

Waffles. Golden, tasty waffles. (I think that's the FG quote?)

Pancakes [/b][/quote]
you sure? meh, waffles is funnier

[Cowperson]

Originally posted by Claeren@Feb 13 2005, 08:56 PM
if there was a run on the US currency, inflation really took hold, war escalated, an oil embargo took place, and/or interest rates went through the rough you could see gold at $800/once in a VERY short period of time.

That would put gold at about the same price it was in 1979-80 wouldn't it?

Zero growth for a quarter century.

http://www.kitco.com/scripts/hist_ch...rly_graphs.cgi

Cowperson

[Claeren]

Indeed. Interesting to note the similarities between then and now....

We shall see what influence the new economies of Asia have on things, in many ways that is the wild card. That and whether the Bush'ites can start another war... but even then Asia has to decide whether they want to finance it or not, not an easy question for them to answer for a number of reasons....

Claeren.

[V]

If you're living here in Alberta, I'd say buy a house. If you already have a house either pay this one off asap, or buy another house. Get someone else to rent it and pay your mortgage for you.

The next five years in Alberta are still going to be great for real estate.

[I-Hate-Hulse]

Originally posted by Dominicwasalreadytaken@Feb 14 2005, 01:21 AM
If you're living here in Alberta, I'd say buy a house. If you already have a house either pay this one off asap, or buy another house. Get someone else to rent it and pay your mortgage for you.

The next five years in Alberta are still going to be great for real estate.

Going to have to disagree with this one. Putting money into your house saves you what, 5 or so percent in mortgage fees? How much longer before interest rates increase, or the bubble bursts? Real estate as an investment has never been my favorite as it's illiquid. Me, I like the stock markets but my background gives me a knowledge base there.

I 'm going to echo what someone else said. Either seek professional advice with a CFP or self educate yourself. You need to take into account your goals (house, retirement, baby) and your risk tolerance to properly come out with the desired route to take.

[firebug]

Originally posted by I-Hate-Hulse+Feb 14 2005, 01:34 AM--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (I-Hate-Hulse @ Feb 14 2005, 01:34 AM)</td></tr><tr><td id='QUOTE'> <!--QuoteBegin-Dominicwasalreadytaken@Feb 14 2005, 01:21 AM
If you're living here in Alberta, I'd say buy a house. If you already have a house either pay this one off asap, or buy another house. Get someone else to rent it and pay your mortgage for you.

The next five years in Alberta are still going to be great for real estate.

Going to have to disagree with this one. Putting money into your house saves you what, 5 or so percent in mortgage fees? How much longer before interest rates increase, or the bubble bursts? Real estate as an investment has never been my favorite as it's illiquid. Me, I like the stock markets but my background gives me a knowledge base there.

I 'm going to echo what someone else said. Either seek professional advice with a CFP or self educate yourself. You need to take into account your goals (house, retirement, baby) and your risk tolerance to properly come out with the desired route to take. [/b][/quote]
Must agree with IHH here.

Putting cash equity into a home with interest rates this low is not a good idea IMHO. In fact many would be smarter to cash out some equity and invest it in something with a better return, while increasing the leverage on the value growth of the home.

THis thread has been interesting to observe. One of the reasons why the rich get richer while the poor get poorer, is that the rich are getting 10 - 15% on their 'risky' investments, while the poor are only getting 3-7% on their 'safe' ones. All a 'safe' investment does is guarantee that you will never be wealthy, and anyone can educate themselves with free books from the library on how to become a capable investor.

~bug

[Bend it like Bourgeois]

Originally posted by firebug@Feb 14 2005, 06:19 AM

THis thread has been interesting to observe. One of the reasons why the rich get richer while the poor get poorer, is that the rich are getting 10 - 15% on their 'risky' investments, while the poor are only getting 3-7% on their 'safe' ones. All a 'safe' investment does is guarantee that you will never be wealthy, and anyone can educate themselves with free books from the library on how to become a capable investor.

~bug

I don't really disagree, but I gotta point out making money is easier once you have it. It sounds almost like you're chastizing who only have 10 grand and are terrified of losing it. Maybe that's not what you meant.

What you consider a 'safe' investment will change a lot based on how much you can afford to lose the investment

There are also a lot more safe investments with 10% returns available when you can invest $10,000 or $100,000 instead of $100 or $1000.

Real estate invesment can be a great tool with 5 to 10K to invest (not a house, more like Berimar or a developer). It's not liquid and it may not be the greatest return, but if you can throw in 5 grand and get 10 or 20 out in 5 to 10 years, that's not a bad play.

[Mike Oxlong]

Originally posted by I_H8_Crawford@Feb 13 2005, 05:24 AM
If you really want to learn about investing; get a couple of books, the first one is titled "Rich Dad, Poor Dad" and there's a couple after that... great ideas on how to invest and such, as well see a professional, but whatever you do, don't diversify your portfolio!

I couldn't agree more!! Those Rich Dad Poor Dad books are the way to go. Reading them has completely changed my outlook on finances.

Stay away from Mutual Funds, they are not performing right now and the management fees are the biggest rip off in investing right now.

I think land and real estate are one of the best investments you can make. 90% of the worlds wealth has been created through Real Estate and there are now opportunities for people like us to get in on these land investments where before it cost hundreds of thousands if not millions of dollars to invest and buy land.

The very wealthy have been using land to get rich for YEARS. It is an amazing investment, especially since they aren't making anymore of it. Plus it is one of the safest investments out there. Have you ever seen land values decrease? Especially in a city like Calgary where the demand for more and more land is constant because of so many people moving here.

Let me know if you are serious about making some money and I can give you some more information on these land investments. All you need is $5000 to get going and it sounds like you have that covered. Another bonus is that they are all RSP eligible as well so you get the tax benefits of mutual funds but a WAY better return.

I didn't even have $5000 to start but I have transferred my Mutual Funds (which were getting terrible returns) into this investment. That is another option for people who don't have the cash laying around. Transfer your lousy RSP's into this land investment.

PM me if you are interested. I promise you won't be dissapointed.

[Mike Oxlong]

Originally posted by firebug+Feb 14 2005, 01:19 PM--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (firebug @ Feb 14 2005, 01:19 PM)</td></tr><tr><td id='QUOTE'>

Going to have to disagree with this one. Putting money into your house saves you what, 5 or so percent in mortgage fees? How much longer before interest rates increase, or the bubble bursts? Real estate as an investment has never been my favorite as it's illiquid. Me, I like the stock markets but my background gives me a knowledge base there.

I 'm going to echo what someone else said. Either seek professional advice with a CFP or self educate yourself. You need to take into account your goals (house, retirement, baby) and your risk tolerance to properly come out with the desired route to take.

Must agree with IHH here.

Putting cash equity into a home with interest rates this low is not a good idea IMHO. In fact many would be smarter to cash out some equity and invest it in something with a better return, while increasing the leverage on the value growth of the home.

THis thread has been interesting to observe. One of the reasons why the rich get richer while the poor get poorer, is that the rich are getting 10 - 15% on their 'risky' investments, while the poor are only getting 3-7% on their 'safe' ones. All a 'safe' investment does is guarantee that you will never be wealthy, and anyone can educate themselves with free books from the library on how to become a capable investor.

~bug [/b][/quote]
I have to disagree on that.

Real Estate is generally always a good investment because of leverage.

For example (easy math)
If you buy a house for $100,000 with a 90% mortgage you put down $10,000 of your own money. If that house goes up by 10% in a year (which isn't uncommon in Calgary) that means that house in now worth $110,000. You have just received a 100% return on your initial investment. The bank doesn't touch any of the appreciation.

However if you invest $10,000 in the stock market and the stock goes up 10% you now have $11,000, your initial investment only went up by 10%.

Even the banks know that Real Estate is a very safe investment, that is why they lend it out at the lowest rates they have. Try going to a bank and asking for money to buy stocks........

[I-Hate-Hulse]

Originally posted by Mike Oxlong@Feb 14 2005, 12:53 PM
Real Estate is generally always a good investment because of leverage.

For example (easy math)
If you buy a house for $100,000 with a 90% mortgage you put down $10,000 of your own money. If that house goes up by 10% in a year (which isn't uncommon in Calgary) that means that house in now worth $110,000. You have just received a 100% return on your initial investment. The bank doesn't touch any of the appreciation.

However if you invest $10,000 in the stock market and the stock goes up 10% you now have $11,000, your initial investment only went up by 10%.

Even the banks know that Real Estate is a very safe investment, that is why they lend it out at the lowest rates they have. Try going to a bank and asking for money to buy stocks........

Not sure if you were around Calgary during the early 80's but the boom and bust was well documented..... anyone else remember the $1 houses that could be had due to the 20some% interest rates that were being charged back then. In any economic recession, real estate WILL take a hit, just like everything else.

You rationale around leverage is correct, but if you look at all the costs (time and monetary) involved you'd see that the return isn't nearly as much.

First, the transaction costs involved greatly eat into that 10% you got in a year. These vary of course but I'll use 5% for real estate agent comission to be generous. I'll also use $500 for legal and inspection fees, which is probably far less that what it would cost. ($5,500 + 500 = $6,000)

Then there's maintenance fees and property taxes. If you live in your investment that's one thing but if you treat it as a revenue property then you have to deal with either renters or a property management fee. With the rates as low as they have been the rental market is quite saturated in Calgary, and the "cream of the crop" has already passed on renting and bought something directly. I'll leave these out for this analysis but keep in mind these would draw down the final gain/loss even more.

Next there's also interest cost. You're still borrowing 90% of that $100,000. Paying 5% on that 90,000 costs you $4,500 a year, regardless of the appreciation.

The tax implications are also something to consider. If you live in your house as your primary residence you get to realize the gain on it tax free. If you own it as a revenue property it's subject to the 50% Capital gains tax, like all other investments. I'll leave the taxes out for this. Interest will be deductible if it's a revenue ropperty though.

Finally, if you want to sell the damn place you're at the whim of the market. Who knows if it's a sellers market or not

So to go back to your example, at the end of Yr 1,

Gain on sale: $10,000
Transaction Fees: $6,000
Interest Paid: $4,500

Net Loss: $(500)

At the end of Yr 2, things improve more, with the amortization of the transaction fees. Lets say the value of the house goes to $115,000 (most value appreciation will be between in the first year, the difference between pre construction pricing and final phase pricing in condos)

Gain on sale: $15,000
Transaction Fees: $6,000 (unchanged from Yr 1)
Total Interest Paid (approx) $9,000

Net Gain: $0

So after two years, assuming a total appreciation of 15% you're only breaking even. It's probably even less if you take into account the maintenance costs and property taxes.

There are a lot of variables that can swing this to a very positive position of course. But that can be said of any investment. My point is that real estate is not necessarily the "surefire thing" as many of my friends seem to think. Not saying that real estate is bad as many people choose to go this route. Just be sure to take into account all the costs too. Leveraging can work against you too.




Different strokes for different folks. Seek expert advice.

[Mike Oxlong]

Originally posted by I-Hate-Hulse+Feb 14 2005, 08:19 PM--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (I-Hate-Hulse @ Feb 14 2005, 08:19 PM)</td></tr><tr><td id='QUOTE'> <!--QuoteBegin-Mike Oxlong@Feb 14 2005, 12:53 PM
Real Estate is generally always a good investment because of leverage.

For example (easy math)
If you buy a house for $100,000 with a 90% mortgage you put down $10,000 of your own money. If that house goes up by 10% in a year (which isn't uncommon in Calgary) that means that house in now worth $110,000. You have just received a 100% return on your initial investment. The bank doesn't touch any of the appreciation.

However if you invest $10,000 in the stock market and the stock goes up 10% you now have $11,000, your initial investment only went up by 10%.

Even the banks know that Real Estate is a very safe investment, that is why they lend it out at the lowest rates they have. Try going to a bank and asking for money to buy stocks........

Not sure if you were around Calgary during the early 80's but the boom and bust was well documented..... anyone else remember the $1 houses that could be had due to the 20some% interest rates that were being charged back then. In any economic recession, real estate WILL take a hit, just like everything else.

You rationale around leverage is correct, but if you look at all the costs (time and monetary) involved you'd see that the return isn't nearly as much.

First, the transaction costs involved greatly eat into that 10% you got in a year. These vary of course but I'll use 5% for real estate agent comission to be generous. I'll also use $500 for legal and inspection fees, which is probably far less that what it would cost. ($5,500 + 500 = $6,000)

Then there's maintenance fees and property taxes. If you live in your investment that's one thing but if you treat it as a revenue property then you have to deal with either renters or a property management fee. With the rates as low as they have been the rental market is quite saturated in Calgary, and the "cream of the crop" has already passed on renting and bought something directly. I'll leave these out for this analysis but keep in mind these would draw down the final gain/loss even more.

Next there's also interest cost. You're still borrowing 90% of that $100,000. Paying 5% on that 90,000 costs you $4,500 a year, regardless of the appreciation.

The tax implications are also something to consider. If you live in your house as your primary residence you get to realize the gain on it tax free. If you own it as a revenue property it's subject to the 50% Capital gains tax, like all other investments. I'll leave the taxes out for this. Interest will be deductible if it's a revenue ropperty though.

Finally, if you want to sell the damn place you're at the whim of the market. Who knows if it's a sellers market or not

So to go back to your example, at the end of Yr 1,

Gain on sale: $10,000
Transaction Fees: $6,000
Interest Paid: $4,500

Net Loss: $(500)

At the end of Yr 2, things improve more, with the amortization of the transaction fees. Lets say the value of the house goes to $115,000 (most value appreciation will be between in the first year, the difference between pre construction pricing and final phase pricing in condos)

Gain on sale: $15,000
Transaction Fees: $6,000 (unchanged from Yr 1)
Total Interest Paid (approx) $9,000

Net Gain: $0

So after two years, assuming a total appreciation of 15% you're only breaking even. It's probably even less if you take into account the maintenance costs and property taxes.

There are a lot of variables that can swing this to a very positive position of course. But that can be said of any investment. My point is that real estate is not necessarily the "surefire thing" as many of my friends seem to think. Not saying that real estate is bad as many people choose to go this route. Just be sure to take into account all the costs too. Leveraging can work against you too.




Different strokes for different folks. Seek expert advice. [/b][/quote]
When you are paying interest on a house it doesn't add to the cost. Your math doesn't make sense. That $90,000 mortgage isn't all of a sudden a $94,500 mortgage.

If you pay $4500 a year on interest for the first year you don't subtract that from your profits. That is a living expense cost. Either you are going to pay it if you live in the house or your tenants are going to pay it if they are paying the mortgage down for you.

Another factor you forgot in your math is the equity you gain by paying that mortgage down for a year. Granted in the first year it isn't a lot, most of your payments are going to interest. However even if it is close to $2000 that is another benefit.


This is how it should look:
Year 1
House - $100,000
Mortgage - $90,000
Investment - $10,000

Year 2
House - $110,000 (increase of 100% of initial investment)
Mortgage - $88200 (After a year of making payments you know have an additional $1800 in equity after interest payments)

Sell for $110,000
less $5000 for transaction costs
equals $105,000
less mortgage owing of $88200
Equals $16800 which is a 68% return on investment after only ONE year.

Hold it for a few years and you can see the benefits.....


As far as transaction costs go, with the internet it is getting easier and easier to sell a house on welist.com or some other similar site. Plus you can always negotiate Real Estate Comissions

I do agree that buying houses has some time involved with it and not everyone has that time. But it is a far easier market to predict than stocks.

You can watch the Real Estate market once a month and have a VERY good idea of what is going on. However you have to watch the Stock market by the hour in some cases to see where your stock is. It can fluctuate greatly over the course of a day.

The other benefit to Real Estate is that the market generally moves as a whole (in a certain region). So you know if the entire market is moving up or down. With Stocks it is a guess as to which stock is going to move up on which day. There are way too many to choose from.

And yes I do remember the Real Estate crash of the 80's. I totally agree that Real Estate can go down like other investments. However that can be a huge opportunity as well. If people are giving there houses away for $1 I would be snapping them up everywhere. Think how rich you would be right now if you had done that and the prices made it to where they are now. People always need a place to live, and even if the interest rates were sky high you would be able to rent those houses out. That is when the rental market would have been hot!

If you are looking for a Real Estate investment that is VERY profitable and doesn't require your day to day work or time then get into LAND. A lot of people are making a LOT OF MONEY off of the growth of Calgary. It is a very solid and profitable investment.

Too many people think that investments have to be either safe and have a poor return or risky and have potentially good returns.
It is possible to have your cake and eat it too.

[I-Hate-Hulse]

Mike, we agree to disagree on real estate as an "sure thing investment", particularly around carrying costs of capital.

However, there's one thing I think we can both agree on is that there are lot of variables and factors to consider in real estate, for which small subtleities can make or lose you a lot of money.

I guess I'm just trying to say that an individual person has to consider these variables as it pertains to themselves and their situation, and without doing that it's wrong to say that real estate is a surefire thing.


YMMV