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Diversify into Shares?

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  • Diversify into Shares?

    Thanks for all the posts on other investments guys. It's really good to broaden the horizons, and got me thinking more about diversification.

    I know next to nothing about shares, so can anyone help me out with some of the basics:

    I have heard that if you borrow money to buy shares you can claim a tax deduction for the interest costs (just like property - makes sense really). Are there any limitations on how this works (e.g. NZ sares only, certain types of shares etc?)

    People use different entities to buy property (trust, LAQC, etc). Are there reasons to use different entities to buy shares? Would you mix property and shares in one entity?

    Some shares pay dividends, but the numbers they talk about always seem so small (e.g. 9c a share recently for Telecom?). Are dividends income and therefore taxable?

    Can you buy shares for cashflow or only for capital gain (in property speak).


  • #2
    Other investments


    We feel shares are not passive enough or lucrative enough unless you really know your stuff.

    I'm looking at other investments also to increase my cashflow and give me a few other income streams, as well as somewhere to put my self managed super funds.

    So far we have bought one redemption machine, this like a vending/game machine and for 6k invested we expect $40 to $50 per week return.
    It is completely passive and if the first one goes ok for a few months we may by 10 to 20 more. main problem is that the machine dies after 10 to 15 years. However it is low risk.

    Also we have a small amount of venture capital invested in a gold mine, but will put a few thousand more into that. The return is expected to be 100% for what we have invested and 200% for our next few thousand we invest . However it is high risk, which is why we are limiting the amount we put in. Again it is completely passive.

    We have also started investing in an offshore fund. Again this is completely passive and we expect 55% return yearly. This is medium risk.


    John F ([email protected])


    • #3
      Hi John

      As the expert advisers tell everyone...... diversify. And that appears what you are doing. Well done.

      Interested in the vending machine idea. Can you give more information please. Why, where and what etc?
      This came up on Somersoft sometime ago and caused some discussion.

      "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx


      • #4
        We are still trialing our first one, but basically, we own the machine and get 40% of the profit. The Machine supplier gets 20% and the "shop owner or location provider gets 40%.

        It is completely passive for us. Wheras with shares, we would have to spend more time, and we are still uncomfortable with them.

        The location provider gets the best deal, which is what we were initially going to be as we were negotiating a block of 91 apartments.

        You will probably find that it is more lucrative to get vending machines and fill them yourself, as they could bring in higher returns, without much work. You may also be able to do your own more lucrative deals by buying rides or games and sharing the profit direct with shop owners.

        I forgot to mention that we also have 30k of super loaned out for 6 months at 20% per annum to a developer (Like supplying mezzanine finance).

        The overseas funds are fairly easy and lucrative, although the high risk means that you wouldn't want to put too much in ( minimum $5k I think). If anyone needs help with them then they could email me at [email protected].


        • #5
          You might find some answers at ShareChat...
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          • #6

            In answer to your queries:

            you claim a tax deduction for borrowing for shares for the same reason you get it for property, investing with the aim of making a profit.

            The shares that you can purchase via a margin loan are limited mainly based on the size of the companies and risk nature. Australian and NZ shares can be used. If using property as security you can invest in any listed share worldwide.

            Structuring is also the same - eg for protection, ability to use losses etc.. If you had property and shares and all were passive investments these could be within the same trust.

            Dividends are paid out throughout the year. You note Telecom - over the last 12 months this share has paid out dividends of 40c providing a return of 7.15% per annum based on the current price. After tax benefits this comes up to 10% (which is taxable).

            The benefits of this is that there are no management fees or vacancy periods to consider.

            The tax benefits refer to franking credits which is a credit that you get with your dividend to reflect the fact that tax has already been paid by the Company and so that you are not also taxed on these funds.

            Shares are used for cashflow and capital gain and often your purpose will determine the portfolio that you invest in.

            To invest in shares you need the assistance of a full service broker who can structure a portfolio appropriate to you.

            Shares can also be used to provide cashflow via the use of options. This can provide 2-4% returns per month which results in a great annual return.

            This stratgey is widely used in Australia and becoming more profitable in the NZ market.

            I hope this helps - let me know if you need any more information


            • #7
              whooa there folks. don't forget that share gains for active traders are TAXABLE on the capital gains and dividends form part of your income.

              Personally in almost all cases I would strongly advise against borrowing money to buy shares. Yes all of you who love shares are welcolme to reply, this seems to be one of those ongoing arguements. Let me say I have followed and invested in Shares for 20 years now including day trading on the US exchanges and I have come to the conclusion that I will only invest occassionally in shares when they represent what I think are strong value opportunities (to that end I have brought Baycorp, tower and AMP at the very low prices they have seen recently). I do still spend a few hours a day studying shares (mostly US) as I find them so interesting. Overall however shares just cannot return the income the levered property can return.

              For me I would rather make the mistake of buying a property badly that goes down in value becuase over the long term it will be worth something and pays a consistant rent (ie dividend) and of course is capital gains free, hopefully higher than all the Enrons, Worldcoms and for that matter Mircosofts, Intels and Ciscos at their highs of four years ago.

              I could go on for pages on this topic but at the end of the days I have made a few million over 15 years with property at a very low risk. I know that just would not have been possible with shares unless I was not diversified, took great risks and since most people who tried this route are well out of the money I am intending to continue my investments in property confident in the knowledge that since stockbrokers an dinvestment advisors have not figured a way to make money from property investors they will continue their mantra of the need to own shares - not for me thanks apart from a bit of fun.


              • #8
                The main reason we got into property investment was because
                our super scheme based on a shares portfolio was doing so badly,
                what with asian crisis, world trade ctr, etc, etc.....

                Who knows where or when the next terrorist attack will come from,
                and what effect it could havce on global share prices.

                NZ economy & sharemarket is so dependant on overseas factors
                we thought we would be better off with more 'hands on' approach
                to financial investment.

                I do not like the idea of borrowing money for shares because
                you are only hoping for capital gain to pay back the loan.
                (which is subject to tax)

                At least with housing, even though the value may drop you still
                have the opportunity to service the loan through rent.



                • #9
                  Before you guys shoot out and buy vending machines...

                  It's way different here in NZ. As I understand it, (I have friends who own them) you get them on loan from a third party who pay you a fixed amount for having them on your premises. The bulk of the income from them goes to charity and the main benefit is the spin-offs from the patrons that come to play them. You're also limited by the size of the place as to how many machines you can get a licence for.
                  You can find me at: Energise Web Design


                  • #10
                    Hi Drelly, Vending in NZ is much the same as other countries. I think you are talking about gambling machines, which are a totally different thing.
                    Redemption machines are the ones that you win tickets etc and are for entertainment, not gambling.
                    We've been in the drink vending industry for six years.
                    The most money you'd probably make would be selling a good "site" to one of the big players. The site is the key, not the machine.

                    Find The Trend Whose Premise Is False - Then Bet Against It


                    • #11
                      Umm I've always been told 'do as the Rich do' and have a balanced portfolio - property, shares, gold etc ideally not in the same market but spread globally.

                      We all know the saying "don't have all your eggs in one basket". Why are the Rich rich? Is it something to do with having the right structures (Trusts etc) and spreading their $$ around - each year some of their investments make a loss to offset capital gains etc. I don't think its a straightforward case of 'property is a better investment over shares' as both have their uses and can provide a lot of benefit.

                      My 2 cents worth :P


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                      • #12
                        Probably nothing wrong with having all your eggs in one basket "just watch that basket" [Mark Twain]

                        Talking about shares, has anyone here used the "StockVal" programme?
                        (www.valueinvesting.co.nz) It is meant to identify value shares. I'd like to know if anyone has had success with this, (or any other) programme.


                        • #13
                          I think you will find that a lot of people who are rich 9new rich) put all their eggs in one basket at one point in time. Do you think Bill gates had a fully diversified portfolio when he started Microsoft. The key is to diversify one rich so that you dont lose it all. Many have come and gone in this way.

                          However, most people should go for the diversified portfolio unless they have that one great idea. ie. the entrepreneurrather than the investor.

                          Nothing wrong with borrowing a little for shares (I wouldn't but I am conservative) but I wouldn't go above 30% as the value fluctuates a lot more than houses (houses fluctuate - you just dont know as the same house doesn't trade 100's of times a day).

                          Just remember the risk return concept - and it is dimishing so the more return you aim for, the risk increases even more.


                          • #14
                            I think it was Robert K who said that if you are going to invest a whole heap of money in a particular field (e.g. property) then you had better know what you are doing so you dont loose the whole lot. You should pick an area, and become an expert in it, and then invest everything in that area. By spreading your investing, you become knowledgeable in multiple areas, but an expert in none.

                            An interesting perspective. I personally think a percentage of diversification is a good idea.