RS> Its a complex argument. You can NOW make a case that with the new regime
RS> of very low inflation rates again, the old idea that real estate is
RS> always the best, particularly owner occupied housing, isnt anywhere
RS> near as true as it once was. One of the fundamentals of the financial
RS> scene is that the stock market generally looks best in a low
RS> inflation environment, But you have to remember that the stock market
RS> is considerably higher risk. Particularly owner occupied housing
RS> never has the same downside risk that the stock market does. Downside
RS> risk means risk of it dropping.

AM> IOW, higher risk shares would probably be the closest you'd get?

Dont understand the question. Are you asking if they are likely to be
the highest rate of return ?

RS> I guess I think that in an either/or situation there is a lot to be
RS> said for the owner occupied housing still, mainly coz its still got
RS> the very favorable tax regime, no capital gains tax, and there is an
RS> excellent chance that the very low inflation regime wont be with us
RS> forever. And its the lower risk of the two anyway.

AM> OTOH, I'm at an age where if I allocate 10k or whatever to some
AM> riskier shares, it's not the end of the world if I do lose on it,
AM> even all of it, as opposed to someone older and more financially
AM> committed.

True. OTOH directly investing in shares yourself isnt for the faint
hearted, you need to know what you are doing rather more than with
some other approaches.

RS> Corse in theory what you are supposed to be doing is doing the
RS> investment in a balanced fund which has a balance of real estate,
RS> shares and the others like fixed interest.

AM> Yeah, Noel makes that clear too.  But would some kind of balanced
AM> investment fund force me to invest in more real estate even when I
AM> will sooner or later be investing in my own home?

Depends. Normally it includes property, but not domestic houses. The non
residential property market is completely different to the house/flat
market. With very different things affecting the performance. House
prices have the immigration rate and the land release rate and stuff
like HongKong people buying insurance involved in it. The non
residential property market is completely different and is much more
dependant on the state of the economy and the loony vast over building
that happens at times, very graphic in the CBD vast overbuilding you
have seen since the stock market crash. And its much more risky too,
being much more dependant on dodgy financing schemes which can often
come unstuck. Your own property you live in is quite different.

AM> I have been lead to believe that you have a certain amount of
AM> flexibility in say specifying what proportion of your cash can go into
AM> certain types of investment, with various risks...

Depends on the financial institution. Some like the GIO give you a lot
of flexibility and you can even change the balance if you want to fiddle
with the ratios in particular market segments, the ratio adjustments
being cost free changes too.

Others are completely inflexible, you essentially decide if you like the
particular mix at the time you put the cash in. Some being quite
specifically narrow funds like say overseas shares.

RS> Trouble is that all those funds have the leeches leeching off the
RS> cash flow all the time, thats what they live off.

AM> Which brings me to another question.  Is it therefore any better
AM> (financially) to spend the considerable time regularly observing and
AM> learning about the stock market and doing your investments all by
AM> yourself (through a broker), or just dump it with a manager who'll
AM> play around with it to his hearts content and forget about all the
AM> details?

There is no simple answer, essentially because its not possible to
predict if you can do a good job yourself or not. Some people can, some
people are hopeless at it. And there is a vast range of approaches even
if you do it yourself too. There is a hell of a difference between
speculating in high risk mining stocks and say deciding that some
industry segments look like their prospects are good, buying shares in
the companys which look the best one or two in a particular industry
segment.

OTOH the fundamental problem with any fund is that they leech off the
cash in the fund all the time. They dont even just take a percentage of
the profits, they leech off the total value of the fund almost always.
Which also means that whats best for their income is quite different to
whats best for your financial return too. A very real problem for which
there is no solution.

AM> Or should you take a longer term approach and pick on a choice company
AM> every now and again when you've got some cash saved that's bound to
AM> appreciate over enough time, and buy the shares, and forget about them
AM> again for 5 or 10 or more years, a bit like real estate?

Some people do it like that. Again tho you essentially have to know what
you are doing. Its not a trivial thing to even just decide which
industrial segments look like good prospects in that time frame. Just
look at the banks for example, there arent too many people who in the
early 80s would have been able to predict that most of them would go
completely loopy and comprehensively root their prospects in the share
price sense. Or be able to accurately pick that the NAB was the sane one
which had hell of a lot better prospects than say Westpac. Its not easy
to do at all, even if you do go for this 5-10 year investment approach.

--- PQWK202