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Trading Australian Stocks

Trading Australian Stocks

Trading Australian Stocks is fairly easy. You just need to have the right broker. Making profitable trades is a little harder. But before we get too far into brokers and trading you might be asking…

What is Special about Trading Australian Stocks?

Trading Australian Stocks

The Australian Stock Exchange (ASX)

Trading Australian stocks meet all FIVE of my investment goal categories: Preservation of Purchasing Power, Capital Appreciation, Passive Monthly Income (via Dividends), Geopolitical Risk Protection, and Liquidity.

If you believe that US and European stocks are overvalued, as I do, and that gold mining stocks are undervalued, as I do, Australia presents, pardon the pun, a golden opportunity.

Australia is a stable jurisdiction that is gold mining friendly. It’s also relatively close to the biggest emerging markets in the world: India and China.

India and China are also some of the world’s largest purchasers of gold.

Why not just trade ADRs?

An ADR is defined by investopedia as follows:

An American depositary receipt (ADR) is a negotiable certificate issued by a U.S. bank representing a specified number of shares (or one share) in a foreign stock that is traded on a U.S. exchange. ADRs are denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas.

Source: http://www.investopedia.com/terms/a/adr.asp

If the Australian stock you want to buy IS available as an ADR through your existing broker you can save yourself the trouble of opening a new brokerage account.

But there ARE advantages to owning a stock directly on the exchange (instead of buying the ADR).

1) It costs banks money to create ADRs and they sometimes keep part of the dividend to cover these costs (Peter Schiff, Crash Proof 2.0)

2) Trading stocks on the local exchange can be more liquid (Tim Price, Price Value International)

3) The only way you can acquire many excellent value stocks is to purchase them directly on their “native” exchange. So if you limit yourself to ADRs you’ll miss out on opportunities.

While I do make some of my own stocks picks I also rely on competent professionals that I trust.

Which brings me to…

Price Value International

Trading Australian StocksOne such expert I look to is Tim Price.

Among many other accolades Tim boasts 25 years in the capital markets; 15 years as a discretionary multi-asset portfolio manager and was Chief Investment Officer at three successive firms. Tim is currently one of two principals at Price Value Partners and a columnist for MoneyWeek magazine.

Tim also has a monthly paid newsletter called Price Value International (PVI) in which he provides value stock picks of international companies. Tim hails from the UK which I believe helps adds to his unique perspective that is hard to find from asset managers closer to Wall Street.

I receive no financial benefit from Time Price or Price Value International by writing about his newsletter.

But I have been a Price Value International subscriber for over 10 months now and for me it has been worth every penny. As a result I want to share it with my readers.

You can sign up for the PVI newsletter at the following link: Price Value International.

Make Money Like Warren Buffet

Tim Price follows a methodology heavily influenced by “the father of value investing” Benjamin Graham. Graham developed investment strategies that Warren Buffet adopted to grow his fortune.

Using these methods Tim looks for high quality companies around the globe that trade close to or even less than their book value. It’s kind of like buying a house for $190,000, when building the same house would cost $200,000. Value investing provides built in downside protection and is a proven investing method.

Through the Price Value International newsletter Tim shares a new value stock recommendation each month. When you sign up you also get access to back issues so you can see recommendations from prior months.

The stocks range from firms throughout the world and two of them are traded on the Australian Stock Exchange.

I’d love to share the names of these stocks (both of which I own) but it would not be right to do so since I learned about them from Tim through his Price Value International newsletter.

But if you do sign up for PVI and/or decide you want to trade stocks on the Aussie stock exchange, I can provide you with the name of…

A Broker that allows you to trade directly on the Australian Stock Exchange

Most foreign brokers don’t accept US clients largely because of the onerous US laws foreign brokers would have to comply with if they did allow US citizens.

However, I’ve found a US based broker that allows you to trade directly on the Australian Stock Exchange.

This allows me to purchase an Australian stock recommended by Tim Price that I know for a fact is not available as an ADR.

This broker has no minimum account balance which is great if you don’t have a lot of capital to invest.

I DON’T get anything if you sign up for an account with this broker. It’s a firm that I personally have an account with and find valuable.

What is the name of the Broker?

I AM trying to gain more subscribers to my own FREE email newsletter where I talk about what I’m doing to grow my wealth. So while I’m more than happy to provide the name of the broker at no cost, in return I just ask that you sign up for the How I Grow My Wealth email Newsletter using the form below.

Again, out of respect for Tim I’m not going to share the name of any of his stock recommendations. Plus he might cancel my subscription and then I’ll miss out!

But I am happy to share the name of broker that I use.

I was able to start trading Australian stocks quickly. It took me less than a week to get my account setup and make my first trade.

To get instant access to the name of this broker simply sign up for my free email newsletter using the form below.

Getting into Real Estate

Getting into Real Estate

I’ve been taking concrete steps to get closer to investing in rental property. While I consider myself experienced in precious metals, stocks and mutual funds, I am very much in the early stage of learning about real estate. In this article I’ll share what I’ve done so far.

Action 1: Found a mentor and started building a network

I’ve taken it upon myself to learn as much as I can about real estate but I don’t want to try to figure it all out on my own. I’ve reached out to an individual who is experienced in real estate investing who is open to mentoring me and I’m looking forward to bouncing ideas off my mentor and leveraging the knowledge of this experienced professional.

I’ve also been talking about real estate investment with a good friend who recently began purchasing properties. This friend closed on a house that will be rented out and is gracious enough to answer my questions and share experience.

Action 2: Attended a real-estate investing workshop

I attended a free real estate investing workshop put on by the Rich Dad company. This was interesting but not very practical. They did A LOT of sales, trying to get you to buy books and attend one of their three day workshops. I expected as much, after all, they aren’t really doing this for free. But I was hoping to glean more actionable information.

I wouldn’t necessarily recommend going to one of these Rich Dad workshops unless you plan on spending upwards of $300 to purchase their training and/or materials.

Action 3: Started Listening to the Bigger Pockets Podcast

I don’t gain anything by promoting Bigger Pockets. My real estate investing friend recommended I start listening to their podcast. I also signed up for their newsletter and got a copy of their free “Ultimate Beginner’s Guide to Real Estate Investing” which I’ve been reading through.

It’s got me thinking about different ways I can get into real estate investing.

On such way is “house hacking”. I’m considering buying a duplex, renting out one side, and living in the other side. This could allow me to live rent free and learn the basics of buying a property before I move onto something bigger.

My Next Steps

  • Determine how much capital I can raise to make a down payment on a property.
  • Learn what locations close to my area are optimal for investment.
  • Research loans rates and lenders.
    • Get a handle on my credit rating.
  • Develop a network of potential partners interested in investing in real estate with me.
    • By pooling capital I can invest in a larger property and potentially get more scale, versus sticking with duplexes and single family homes.

So that is what I’ve been doing as I research getting into real estate.

Buying Rental Property

Buying Rental Property

Buying Rental Property and Real Estate has helped create many a millionaire. Robert Kiyosaki, Barbara Corcoran, and even Donald Trump amassed fortunes via Real Estate.

Buying rental property is an investment that hits on three out of five of my Investment Goal Categories: Capital Appreciation, Preservation of Purchasing Power and Passive Monthly Income.

At it’s most basic level, investing in rental property consists of buying a property and then renting it out to gain monthly income.

I don’t directly own any rental property at this time but it is an area I’m investigating and learning more about.

Buying Rental Property has Five Great Benefits

1) Passive Monthly Income (Cashflow)
2) Equity Build-Up
3) Leverage Utilization
4) Very Favorable Tax Benefits (in the US)
5) Appreciation

Let’s explore the five benefits of buying rental property.

Passive Monthly Income

Buying Rental PropertyIn many areas it’s feasible to purchase a rental property that generates positive cashflow each month. Even after making a monthly mortgage payment, taxes, fees and maintenance expenses, a good rental property can be have net positive cashflow from the rent payments of the tenants.

This meets one of my investment goal categories of passive monthly income.

Equity Build-up

Many banks will loan qualified persons enough money to purchase a rental property but typically require a 20-30% down payment. By renting the property you can use the rental income to pay the mortgage and continue to build equity in the property until you own it outright.

With equity in a property you have the option to choose between selling the property, taking a loan out on the property and re-mortgage it, or simply hold onto the property and continue to enjoy the monthly income.

Leverage Utilization

By taking out a loan to buy a positive cashflow rental property you are leveraging the capital you have to make more money. For example by using $16,000 for a down payment you could purchase an $80,000 property and rent it for $600 per month. Lets say after making the mortgage payments, paying property taxes, and other expenses, you are bringing in $150 per month in cashflow. At the end of the year that $150 monthly income would be $1,800 from a $16,000 investment, or over an 11% return. And that doesn’t even include the increase in equity.

Because of the use of leverage, price inflation actually reduces the cost of the remaining loan balance over time. This combined with the universal human need (and hence demand) for shelter even when the economy is not performing well makes buying rental property a great investment for preserving purchasing power.

Tax Benefits

I’m not a CPA or tax advisor, but I understand that when it comes to investment properties, mortgage interest, depreciation of the property, and other expenses that go into maintaining the property are tax deductible. Often times the 11% profit can be made tax free because of all the deductions the tax code (at least in the US) provides to real estate investors.

Appreciation

Partly due to price inflation, partly due to an increasing population and demand for housing, real estate prices tend to rise. So it is possible to grow wealth because the value of the property has gone up. While this is more on the speculative side of the housing and real estate market, appreciation can be a very nice bonus.

This meets one of my investment goals of capital appreciation as well as preservation of purchasing power.

What has stopped me from Buying Rental Property in the past?

  1. Capital I need money for a down payment. Most of my savings go into stocks and I want to buy a rental property with new money. So I’m going to start earmarking money for buying rental property. While it might be possible to buy a property with zero down I think this is reckless and irresponsible. It’s a good way to find yourself underwater on your mortgage. By making a 20% down payment you can weather a 20% drop in the value of the property and still be even in terms of equity. Plus if the property is cashflow positive, even if you are not making money via appreciation, you can still make money via cashflow and equity building.
  2. Knowing how to make an offer I would like to better learn how to coordinate having a loan pre-approved with making the offer. With real estate you have to be able to move quickly. In some markets if you go eat lunch to think it over the property will be sold by the time you get back.
  3. Maintenance Costs and Expenses If you know purchase price of a property and how much you can rent it for (by looking at similar properties being advertised in the same area) and what your costs are going to be you can determine if a property will be profitable (or not). However, I find the most difficult part to research is estimating maintenance costs. The hot water heater breaks, furnace needs repair, a crazy tenant tears up the place, etc. As someone who has been a renter all his life I don’t have a good sense of how much I need to budget for maintenance costs for a rental property. These costs are a huge factor in the profit and loss calculations.

There are five great reasons why real estate investing is a superb way to build and grow wealth. I’ll be sharing my progress in the coming months as I continue to learn more about real estate investing.

Negative Interest Rates Means Hold Cash

Negative Interest Rates Means Hold Cash

Holding physical cash makes sense in the event negative interest rates are implemented in the country in which you reside.

Physical cash only meets one of my Five Investment Goal Categories I consider when allocating capital.

Not only that, but it absolutely stinks on the other four.

The US Dollar has over a hundred year history of going down in value. The US Dollar does not appreciate or pay any interest, does not generate monthly income and is very vulnerable to geopolitical risk.

Why would I hold onto something I know will go down in value?

Even though the US Dollar fails in four out of five categories it excels at one: US Dollars are EXTREMELY LIQUID.

Cash dollars are accepted across the United States. US dollars are also the global reserve currency and accepted around the world.

I Want Cash if there are Negative Interest Rates

One of the things I believe is coming are negative interest rates. Negative interest rates would mean that a percent of the money in your bank account would be removed and given to the bank.

You’d be paying the bank to store your money.

If you think this is crazy you’re right. But it’s already being done in places like Japan and Europe.

Regardless of where I lived in the world I would want some of my money in physical local currency.

In the United States, the Federal Reserve has stated they aren’t investigating negative interest rates.

I take this denial as a strong contrarian indicator that they are in fact considering negative interest rates.

Negative Interest Rates

In a negative interest rate environment a person is better off holding cash as opposed to leaving money in a bank account.

I greatly dislike fiat currencies in general and the US dollar in particular. Despite my dislike of holding US dollars they are still needed to buy basic items like food and clothing and pay rent.

If the United States does implement negative rates, rational people would seek to withdraw their money from the bank in the form of cash and so the US government would naturally try to prevent this from happening by imposing limits on how much cash could be withdrawn per day.

I don’t want to be rushing out to the bank to make a withdrawal with everyone else when the Government announces capital controls. I want to be the guy that already has a months expenses worth of cash available.

I prefer smaller bills like the $10 and $20 because higher denominations like the $50 and $100 will likely be banned first as the war on cash intensifies.

Even if I didn’t think negative rates or capital controls would happen in the US (or the country in which I resided) I want to have extra cash available in the event of a natural disaster or when there are power disruptions and credit card readers won’t work.

Holding a months worth of expenses in cash is right for me and provides needed liquidity for my overall asset portfolio.