1. One for the grandkids


Investing $10,000 by salary sacrificing into super could work; or simply buying a couple of shares such as CBA and BHP also works for me. Many parents and grandparents are investing this sort of money for their kids or grandkids.

Buying a share or two from those outfits mentioned above is likely to have the kids remember you fondly, but one not to miss is a first home saver account. With June 30 fast approaching, I’d consider opening one of these for the kids.

Pop $6000 into one before June 30 and then the other $4000 in early July. The government will very kindly add 17% to the account after June 30 on the first investment of $6000 and then another 17% on the remaining $4000 invested in the new financial year. You’ll need to do it in two tranches as the 17% will only apply on amounts to up to $6000 in any one year.

The account will also earn interest – make sure you check the rate (see table) – and tax is paid like a super fund, at 15% on interest earnings. The money can only be used to buy a first home. If for some reason that never happens, then the money goes into super, which is not a bad result.

There are no guarantees with investments. A 17% top-up on any new annual contributions up to $6000, plus a 15% rate of tax on interest earnings, is far from a “get rich quick” scheme, but I reckon it is a very secure “get rich slow” scheme.

If you think this is a good plan for your kids or grandkids, don’t hang around. With a fair bit of anxiety around getting the federal budget back into the black, my suspicion is that this account may disappear for new investors.

PAUL CLITHEROE, founding director of ipac securities, is chairman of the Australian Government Financial Literacy Board and chairman of financial literacy for Macquarie University. He is Money’s chief commentator.

2. Go for future value


Lots of so-called experts will tell you that the stockmarket is volatile and dangerous. But read through the lists of Australia’s wealthiest people and they almost all own businesses.

You can treat the stockmarket like a casino betting on the ‘ups’ or ‘downs’ with your $10,000 or you can treat it as a place to buy a piece of an outstanding business.

And the great thing about the stock market is that because many so-called experts are nothing more than “emotionally unstable” speculators, the market can be volatile in the short term.

This means you get the opportunity to buy small pieces of these extraordinary businesses for less than you could rationally negotiating a trade sale.

Over longer periods of time the share price generally tracks the intrinsic value of a business if the calculation is properly based on the business performance. There are very good reasons why Qantas and National Australia Bank’s share prices, for example, are below where they were 10 years ago. That’s how we have beaten the market by so much and you can too.

I gave everyone in the office here at Montgomery the opportunity to contribute their suggestions to this month’s exciting $10,000 challenge and we came up with the following five companies. As brokerage is so cheap these days, you can happily invest in (rather than speculate on) five companies that meet our criteria for quality and value.

Importantly, our valuations are based on an assumption that these companies will exceed consensus analyst forecasts, which we similarly believe are not optimistic enough. Keep in mind, however, that we could be wrong. Also keep in mind that the stockmarket could correct at any time and, while many may panic, provided nothing within the company itself had changed, we would use the sell-off to acquire more shares – hopefully any sell-off would coincide with the receipt of another $10,000!

The five companies we believe are worth including in the challenge are IMF Australia, Silver Chef, Onthehouse, BigAir and The Reject Shop.

IMF Australia (IMF)

IMF is engaged in investigation, management and funding of litigation, particularly class actions. IMF’s funding model provides legal redress and compensation opportunities to thousands. Skaffold (see page 87) gives IMF an A2 rating and its intrinsic value rises to $2.80 in 2014, well above its current price of about $1.80.

Silver Chef (SIV)

Silver Chef has grown earnings per share by 38.35%pa for nearly a decade and dividends have grown by 36%pa over the same period.

Silver Chef started life financing pizza ovens for start-up pizza shops and is now engaged in the long-term lease financing of commercial equipment to cafes and restaurants; major franchises are a growing market opportunity.

Its debts turn off a lot of investors, but understanding the nature of the liabilities in the context of a financing company assists. Using analyst estimates, the estimated intrinsic value of Silver Chef is about $5.52 in 2015, against a current price of about $7.

Onthehouse Holdings (OTH)

Onthehouse Holdings provides a real estate content platform (onthehouse.com.au) to consumers, including traditional online real estate classifieds, and software, online products and data solutions for real estate professionals. Skaffold rates Onthehouse an A3 and, while it is difficult to value, investors need to come to a view about whether management will be successful in generating returns similar to peers of circa 20% on about $4 million of retained earnings after 2014. The provision of Residex standard real estate sales data to consumers could be a winner.

BigAir Group (BGL)

BigAir Group is the leading provider of broadband services through two segments: fixed wireless (two-thirds of revenue) and community broadband. BigAir supplies business-grade fixed wireless internet services through Australia’s largest metropolitan fixed wireless network.

The company is also the largest provider of outsourced managed internet services in the Australian student accommodation market. While there is uncertainty about the impact on the company from the NBN, Skaffold rates the company A2 for quality (Skaffold’s second-highest quality score) and, although currently a little expensive, estimated intrinsic value is forecast to grow by more than 20%pa.

The Reject Shop (TRS)

The Reject Shop is an A1-rated discount variety retailer – think high-quality $2 shops. The company attracts foot traffic with remarkably cheap everyday needs such as toiletries, cosmetics and personal care. Consumers also benefit from access to affordable hardware, household cleaning products, confectionery and snack foods and seasonal gifts. Its growth profile has received a shot in the arm from the collapse of one of its competitors and the opportunity to absorb some of its sites.

ROGER MONTGOMERY heads The Montgomery Fund, www.montinvest.com, which has returned 35.72%pa since its inception in December 2010. His regular column, Value.able, is on page 89.

3. Build a stake


Let’s face it – $10,000 isn’t enough to put up with the brain damage of investing in the equities market and its notorious volatility! You might get a better return but it will be risky and painful. What I’d probably do is stick it in our Smarter Money account or something similar that’s going to earn high interest, and let it build up until I could use it to eventually put a deposit on a property.

Albert Einstein said: “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” It’s true, compounding interest is a powerful mathematical ally for any investor. But in order for it to work, you have to keep reinvesting the earnings and give it time.

So say you have $10,000, which isn’t much but it’s what you have. So say you put it into a fund earning 7.7%. In the first year you’ll earn $770. The next year you’ll earn 7.7% on the $10,770, taking it to $11,599, and then it grows from there.

If I was saving for a property, I’d take my $10,000 and commit to putting an extra $1000 into my account every quarter. So with the initial $10,000 plus the $1000 quarterly at 7.7% over 10 years, I’m looking at a lump sum of $83,300. That’s $10,000 (the initial investment) and $40,000 in additions. And the interest accrued is over $33,000! That’s a pretty smart investment with very little risk.

I’m sure a lot of people would say they’d invest in equities and that’s fine, but for me $10,000 just isn’t worth the time and effort. I’d rather keep it safe, watch it grow and put it towards an appreciating asset that can give me a much better return in the long run.

Putting $83,000 down as a 20% deposit on an investment property in an up-and-coming area is a smart bet, and with a $10,000 initial investment it’s one that will end up being quite lucrative if you invest it in the right property.

MARK BOURIS is chairman of Yellow Brick Road Wealth Management and host of Channel 9’s Celebrity Apprentice Australia.

4. Oil and gas will power on


$10,000 ... one shot. The issue is whether you can afford to lose it or not. The question you will ask yourself is: “If I can afford to lose it, how long am I prepared to put it away before I need it?” Then: “Have I got debts I need to pay down?”

Paying $10,000 off a credit card bill might sound boring but a guaranteed return of 17% to 21%, after tax, is anything but boring. And that’s what you earn by paying down a longstanding credit card debt.

Remember that, if left untouched (read paying only the minimum on your credit card bill each month), your credit card balance will double every four years or so. So first, have your cards under control. Next, what’s your tax bracket? If you’re in the lowest income bands, then $10,000 at 4% in a term deposit, when inflation is around 2%, is a pretty reasonable return.

“Four per cent, reasonable?” I hear you say. Remember here you’re investing, not punting. If you’re prepared to take the risk to double your money, take your $10,000 and stick it on the favourite in any race next Saturday. You’ll double your money – or lose the lot. That’s speculation. So you don’t want to punt, and you’ve paid your credit card debts off – and you’re prepared to sit tight for 10 years or so.

Buy energy. Oil prices have been all but stagnant in the past few years.

But with the world population rising from 7 billion to 9 billion people by 2050, and the populations of China and India increasing their wealth and demanding more consumer goods, energy will continue to be in high demand.

Yes, fuel efficiencies will improve. Yes, alternatives will be found. But right now, and for the foreseeable future, oil and gas will keep driving our economies.

Patient investors, in quality energy stocks, will prosper long term. And that remains a cornerstone of my thinking, and my portfolio.

ROSS GREENWOOD is Channel 9’s finance editor and 2GB’s Money News host. His regular column, Greenwood, is on page 64.

5. Head offshore


Everything has its season in the investing world and right now the Aussie dollar is in full bloom. The question is: how to take advantage of it?

I like the idea of investing in overseas shares but, personally, I’m not set up to invest internationally. So that leaves me looking for a good international fund. The theory is that in addition to any returns from shrewd stock picks, there’s also the chance of a significant double jackpot if our dollar falls against other currencies in the next few years.

Is it too cheeky to suggest that I’d invest the $10,000 in the new Intelligent Investor International Fund? I’m biased, of course, but I know the analysts and fund manager well and am excited by the prospect of them investing on my behalf (the minimum amount is $20,000 but you can sneak in via the monthly investment option with as little as $200 a month).

The fund launched in February and has located attractive investments in well-known international stocks such as Google, luxury brand Coach and UK supermarket chain Tesco. A Singaporean supermarket group called Sheng Siong has also been identified as good value, as have numerous Japanese stocks.

Given my conflict of interest with the II International Fund (I’m a director of the company that manages it), I’ll make my official selection Platinum Capital, run by Kerr Neilson and his team at Platinum Asset Management.

Platinum is much larger than Intelligent Investor Funds Management, which means they’re unable to buy some of the high-potential smaller stocks that the II team might identify. But that drawback is balanced by Platinum’s experience and track record.

Because Platinum Capital is listed on the stock exchange (PMC) it can be bought and sold easily. It is invested along the same lines as the $7.4 billion flagship Platinum International Fund, which has an impressive 18-year track record.

Another benefit to investing in Platinum Capital is the quarterly reports. The December report ranged from discussion of what the Bank of Japan’s moves might mean for investors (good news) to the New Zealand economy and Youku (China’s leading web-based video-TV provider). A portfolio I manage has an investment in Platinum Capital as well as funds run by II Funds Management. So it’s an overseas trip for my $10,000 and I hope it will return bearing some profitable souvenirs.

GREG HOFFMAN is an independent financial educator, commentator and investor and a director of Intelligent Investor. His regular feature is on page 82.

6. Learn as you trade


As I’m a stockbroker, you’d assume I’d tell you to invest your $10,000 in the stockmarket. But the last thing I’d do is invest a small sum of $10,000 in a diversified portfolio or an index trying to capture the “average” stockmarket return – because average returns are a joke.

We use past average returns as a marketing tool but no one ever achieves them or is happy with them. The average return over the past 75 years from the All Ordinaries Index was 5.76%pa compound. Over that period the inflation rate took more than 4% of that return off you, leaving you with a paltry 1.5% or so to pay dealing costs, management fees and tax, and that’s before you realise that the 5.76% is a fudge because the All Ords, like almost every index, is an index of the best stocks, not a constant group of stocks.

When attempted in real life, the stockmarket is a nil sum game and the pursuit of an average return through a diversified portfolio or a managed fund (take off another 2%) will leave you stationary and, in the current market, even that could be optimistic. You have to do better than that.

How? Pick stocks. At the end of the day the only thing that matters is that Excel spreadsheet with codes and prices. That’s all that matters – what stock you are in and when. To make progress in the stockmarket you have to pick stocks, time stocks and get it right.

I would spend $500 of my $10,000 on one of the “value”-based software packages that filters for good-quality stocks and filters out all the crap. That’ll improve the odds. Then, using a top-down approach (what sectors are growing) and, if you have it, some personal insight of a stock or sector (maybe the industry you work in), I’d start to isolate stocks doing better than average. Eventually I’d pick a stock or a few stocks, the less the better. It focuses the mind in a way a 20-stock portfolio doesn’t.

I’d then spend $70 on two books that teach basic trading techniques, pick one stock and invest whatever money I had left. You’re going to get an education, win or lose, and that’s the best investment you could make.

One of the few growth sectors is telecom services, in particular data centres. I’d pick NextDC (NXT) and start following that. That doesn’t mean buy it now; it means start watching it and trading it. It will be a buy and a sell 20 times in the next 10 years, but if the industry is growing you should at least be swimming with the tide.

MARCUS PADLEY writes daily stockmarket newsletter Marcus Today. For a free trial go to www.marcustoday.com.au. His regular column, This Month, is on page 88.

7. Outside the square


When I was first given the task of buying real estate with only $10,000, I thought it would be impossible. However, if you think “outside the square”, almost nothing is impossible. This amount of money presents two problems when trying to buy property:

• How much can I borrow?

• What and where can I buy?

How much can I borrow?

I asked Matt Davis, a mortgage broker at Property Planning Australia, who found a number of lenders who would lend me money based on a $10,000 deposit. They would lend me 95% of the value of the property, which meant I could buy property to the value of $200,000.

However, I still needed to pay for all the purchasing fees such as stamp duty, lenders mortgage insurance, etc. I did some thinking outside the square and came up with a solution. I could borrow another $10,000 via a personal loan and use this for the purchasing costs.

I don’t recommend this strategy to everyone as it is risky, but if you are a seasoned investor, understand the risks and aim to pay off the high-interest personal loan first, it just might work for you.

What and where can I buy?

I looked for property valued at up to $200,000 in my home state of South Australia. I found numerous properties and narrowed it down to three.

Encounter Bay

The first property that caught my attention is a two-bedroom unit in the lovely seaside resort of Encounter Bay. It has sea views and is less than 100 metres from the beach. It is in a small group of four ground-floor units. It could either be used as an investment property or, alternatively, a cosy holiday home!

Why Encounter Bay?

• It’s a seaside area and the property is close to the beach.

• It is popular with holidaymakers.

• It provides three options: permanent rental, holiday rental or my own holiday getaway.

Port Noarlunga

Coming closer to the city, I found a one-bedroom unit on the Esplanade in the seaside suburb of Port Noarlunga This suburb is only 30 kilometres from Adelaide CBD and 10km from the lovely vineyards at McLaren Vale. The property is not much to brag about but the position is – on the Esplanade!

If possible, I would take out a bigger personal loan so I could also buy the unit next door. I would do this with the eventual option of buying all five units and redeveloping the site.

Why Port Noarlunga?

• An ugly duckling suburb transforming into a graceful swan.

• The property is in a prime position.

• Long-term strategy of buying all the units.

Glenelg East

Even closer to the CBD, I found a one-bedroom unit in Glenelg East, 10km from the city, adjacent to the prime beachside suburb of Glenelg. It also has easy access to the CBD via bus or tram. Not only is the property located in a very nice suburb but, for less than $200,000, it was already fully renovated!

Why Glenelg East?

• Adjacent to prime suburb of Glenelg.

• Between the city and the sea.

• Good depreciation benefits as it’s recently been renovated.

Three properties in three great locations, but which one to buy?

PETER KOULIZOS is a well-known and respected property academic. See www.propertyprofessor.com.au.

8. Why you can’t go past the new ‘big Australian’


Why not own a $110 billion-dollar company with consistently growing tax-effective dividends that has given investors an average 16.5%pa return for the past 10 years? Sounds too good to be true doesn’t it? But it’s one of our big four banks and the largest company on the Australian Securities Exchange (ASX) as of last month when it overtook BHP Billiton as the “big Australian”.

I hold Commonwealth Bank (CBA) shares in all our clients’ managed portfolios because it’s a consistent performer with great management; has low competition and rising earnings; and has fantastic fully franked dividends that are perfect for all investors, but especially for our clients who hold the shares inside their highly tax-effective self-managed super funds (SMSFs).

The beauty of this type of investment is that it will never need painting, I don’t have to worry about tenants and the dividends keep growing (see chart). Don’t get me wrong – I love property and the conditions are just right now for a solid movement in the property market. But for many of my clients who are aged over 50 and invest through an SMSF, shares make much more sense than property.

I often say: “Property for wealth accumulation and shares and cash for retirement.”

Of course, there are some great properties around but vacancies, strata fees, land tax, maintenance, depreciation and interest costs make absolutely no sense in retirement and the tax benefits of property diminish entirely, so I love shares, cash and bonds for many of our pre-retirees and retiree clients.

(That being said, we are frequently showing younger clients how to tax-effectively buy property in super at the moment.)

But I don’t reckon any investor should go past CBA.

Everyone should own some of its shares and you probably do through one of the super funds. Under $60 would be an ideal buy price but, in a low-interest-rate environment, that might be ambitious, as price pressure has been upwards because of Commonwealth’s growing dividends.

So why am I particularly enamoured of Commonwealth Bank shares?

Here are 10 reasons to invest your $10,000 in its shares:

• The average 10-year return has been 16.5%pa.

• The earnings per share have grown by around 5% to 20% or more a year since inception.

• The dividends have grown 5% to 20% or more a year since inception. The first dividend was 20¢ and next year it’s forecast to be $4.97. That’s a 2485% pay rise over 20 years – well above inflation.

• Commonwealth dividends are fully franked, meaning 30% of tax on the income has been paid for you. If you own it inside super, you will get 15% rebated back to you. Or if you’re retired and own CBA in super, the whole 30% will rebated back to you. It’s quite a deal.

• Dividends are around twice the return from term deposits offered by the bank.

• Conditions are right again for earnings to grow, as funding costs have dropped and low interest rates mean expansion in credit growth and lending, which flows on to greater profit for the bank.

• CBA is very well managed.

• The banking sector has very high barriers to entry, making it difficult for new participants to make a dent and increase competition.

• The big four banks own significant share in a market that is highly regulated and customers don’t like to switch.

• The banks are economically sound. Despite some volatility during the GFC, in Australia they are highly regulated and deposits are guaranteed.

SAM HENDERSON is author of SMSF DIY Guide, host of Sky Business’s Your Money Your Call every Friday at 8pm and CEO of Henderson Maxwell (www.hendersonmaxwell.com.au).

9. Stick to the five Rs


When thinking about property, most believe that they can’t do anything with a mere $10,000. We all know that you need to at least provide the stamp duty, legal fees and deposit, and $10,000 would not get you a property worth much. The reality is that experienced investors know that they can use equity to cover those fees. So if you were given $10,000, what would you do without using that tactic? I have three options:

• In my book Your Renovation Success: 2 properties, 1 renovation, $1 million in the bank, I talk about the five types of renovation, or the five Rs – refresh, repair, rejuvenate, restructure, revamp.

For experienced investors looking to spend $10,000, you can easily turn your attention to your current portfolio and revamp! This is one of the most underutilised opportunities that most of us have up our sleeve.

The $10,000 could be spent on upgrading an existing property, maybe new benchtops, a paint job, new vanity, taps, door handles in the kitchen. Go back and revamp the landscaping, maybe even sand the floors.

Seriously, for the $10,000 you spend you could add $30,000 to the value – not to mention improving the rental yield. In fact, most of these things could be done without you even waiting until your tenants leave. Think about it. Revamp!

• Another underutilised opportunity for investing is looking at buying a property within your self-managed super fund. So possibly utilising the $10,000 to set up an SMSF and for the costs associated will allow you to buy a property. In fact, it should cost you less than $5000.

What is not well understood about buying in an SMSF is that lenders look at your ability to pay for the property entirely from your SMSF. So you may have had a lender tell you that you can’t borrow any more but if you buy in your SMSF, the lender rarely looks at your personal situation, only your SMSF’s ability to cover the costs.

• When we think of making money through property we obviously think about making money through an investment property. I believe this leaves the majority of property owners without the concept of being able to invest, which they can do in their home.

So let’s look at your own home. According to the census, we move every nine years – so that means if you knew how to renovate your own home strategically you could add more value than the $10,000 investment.

The added benefit is you can make your home liveable and, when it comes time to sell, you can sell for more.

The key is not to overcapitalise on the renovation and you need to renovate strategically, so you add more than $2 in value for every $1 spent.

In fact, even without using the amazing leverage opportunities of the $10,000 (which would have been easy), I believe there are three ways you can use $10,000 today to make a return in property.

JANE SLACK-SMITH was awarded Australian mortgage broker of the year. She is the director of Investors Choice Mortgages (www.investorchoice.com.au) and founder of www.yourpropertysuccess.com.au.

10. Reap the rewards


Although gold has rallied for each of the past 12 years, it has recently been a commodity out of favour. The possibly temporary resurgence of risk appetite and a strong US dollar have weighed on the gold price in 2013.

Confidence, though, remains a fickle thing after inconclusive elections left Italy a rudderless ship and the Cypriot deposit levy threatens to spark a run on bank assets across the eurozone.

The combination of a more volatile political environment and rising expectations of more monetary stimulus to support sluggish growth should lift gold in the weeks ahead.

Concerns over premature withdrawal of monetary stimulus by the US Federal Reserve and rising real interest rate expectations are the key risks for gold in 2013.

However, with the US suffering from its own political problems, it seems that central banks are the only source of economic support. The potential erosion of currency values as markets remain flooded with liquidity has prompted other central banks to buy gold to diversify foreign exchange reserves.

Ongoing political paralysis could be the catalyst for a strong gold recovery in coming months and gold’s defensive characteristics mean that it can continue to help buffer a portfolio from stockmarket downturns.

Agriculture has been an area of increasing interest for investors in recent years. Agriculture is a slave to nature, with short-term price performance remaining strongly tied to weather conditions.

Last year’s developments in the US were a prime example after the worst drought in over 50 years sparked a price surge across grain markets.

While the new season for grain and oilseed crops is about to get under way, markets remain tight. Stockpiles of corn are at 17-year lows, while soybean stocks are at the lowest level in nine years. Meanwhile, growing per capita income in emerging markets is seeing a shift to more Western-style diets, which is increasing demand for crops.

Any deterioration in weather conditions in coming months, combined with high demand for crops to feed the world’s expanding population and as biofuel use rises, could set the stage for another test of the 2012 highs.

DANNY LAIDLER is head of ETF Securities Australia and NZ (www.etfsecurities.com).


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