Shares, Property, Volatility & More – Marcus Answers Your Questions

 

Should You Sell a Paid-Off Investment Property?

Ben asked: If the investment property has been paid off, should you sell it and invest in the stock market for a better return?

There are a couple of things in there, Ben, which need to be debated. One is, does the stock market give you a better return? The answer to that is — if the person who’s investing is any good, because it is a skill — then the returns would be better than the investment property, where the asset class grows rather slowly.

So I would say the stock market in the right hands is better than the investment property.

Should you sell an investment property just because it has been paid off? All I would say to you, Ben, is it’s entirely personal. What are you trying to achieve with your investment property? If you’re good at investing in property, it’s succeeded for you, you know what you’re doing.

Maybe gear up and buy another investment property, if that’s what you’re good at. People should stick to what they’re good at. So there’s no one answer to this question. If the investment property has been paid off, it’s entirely down to you — what you want to do next.

Should you put it in the stock market? Only if you know what you’re doing.

 

Dividends vs Rent – Does Frequency Matter?

Vishal asked: One of the problems with Australian shares is that they only pay dividends twice a year. Property puts rent in your pocket every week. What are your thoughts on that?

Again, entirely a personal choice. Do you need income every month? Or does it not disturb you to get it every six months?

I would say to you that wealthy retirees really don’t care about needing cash. If you need a regular cash flow, you haven’t got enough money, and you’re a little bit desperate. Because most wealthy people will have enough money around to see them over for six months in between dividends from shares.

Yes, you can spread it out with property, but also what you can do is spread it out with shares.

For instance, the CBA pays a dividend, and then three months later ANZ, NAB and Westpac pay a dividend. And then three months later, CBA pays a dividend. So you see, you can put together a portfolio that pays at different times.

There used to be a good table — which you could do yourselves — which shows you when, because they go ex-dividend the same time and they pay the same time every year, or almost every share. You could grab the top 20 income stocks. You could have a look at our Income Portfolio for some of those, grab the top 20 income stocks and see what month they pay. And you could buy them in proportions that would give you an income over time.

But as I say, most wealthy retirees don’t really care about the infrequency of getting a dividend. What they’re really after is the big lump of franking credit refunds they get at the end of the year — which you get once a year — when they put their tax return in. And that’s really what they’re interested in. And they just budget the whole thing over the year.

So no, I don’t think there’s any problem with shares paying twice a year instead of every month compared to property.

 

Volatility Is Normal – But Manageable

Rick asked: How do you look past volatility in the share markets, when the USA is so central to confidence in its performance?

You don’t.

The share market is clearly mentally more volatile than property, and that’s one of the great benefits of property — it doesn’t get reported to you in the media every night. Every morning, “the market did this, the market did that.” “Your house has gone down 0.3% today, it’s up 2%.”

That would freak you out as much as shares freak you out at the moment — if it was being reported on all the time. So the impression is the property market is less volatile.

How do you manage volatility in shares? Well, you manage it. Most of the market doesn’t understand. Most people sitting at a dinner party talking shares will talk about BHP and the CBA in the same breath — when the BHP share price is moving 5% a week and the Telstra share price moves 2% a week. It’s two and a half times more risky, more volatile.

Every share, every return you get, has a level of risk. You can work that out using average true range percentage of the share price — we talk about that in the newsletter a lot — but you need to understand volatility and risk has to be managed to match you. You have to match it to your own personal investing style.

So that’s how you handle the volatility — by being aware of it and managing it. You can’t get away from it.

The fact that the property market appears less volatile and allows investors to sleep at night — that’s fine. You sleep at night. But I reckon I’ll make more money in the stock market if I know what I’m doing.

With the volatility, I just have to make sure I manage the volatility. And as you’ll know, in any market today, remember — we all know — the way we manage the precipitous moments is we cash out.

It is less risky.

The whole market will tell you you can’t time the market. “It’s time in the market, not timing the market.” I think that’s wrong. And I believe timing the market is less risky than giving it to a fund manager who sits in the market come what may with some idea that it’s all about the long term.

I think that’s rubbish.

What we do — cashing out occasionally, getting back in again — is going to get you a better return and is less risky than somebody who tells you all those Buffett-esque quotes about it being in the long term. “Don’t buy anything for ten minutes you wouldn’t hold for ten years.” Absolute rubbish. You have to time the market, and it’s less risky to do that.

 

Geared ETFs – Use With Caution

Scott asked: What are your thoughts on leveraging in shares via geared ETFs like GGUS, GEAR etc., if the investor understands the risk?

Careful.

If you treat some of these synthetic ETFs as investments, you will find they don’t do what the underlying index does.

Geared ETFs — if they’re created using derivatives — are going to short-term do what the market does. Longer-term, they won’t. Because if they’ve got derivatives involved, they constantly lose time value.

So if you were to, say, buy a synthetic derivative-leveraged ETF over the Nasdaq — to create that, you’re constantly losing time value. So it will underperform the Nasdaq over the longer term.

In my view, geared ETFs are for trading. They are not for long-term investment.

So if you thought you were going to buy GGUS instead of the US market because you thought the market was going to go up long term, you’re going to be disappointed. Because it’s going to underperform long-term, because it’s being created out of derivatives. Derivatives lose value all the time as time goes past.

Slightly complicated — but look up time value of options, or time decay in derivatives.

 

Investing With Marcus Today

Adrian asked: Can you please expand on investing with you?

Thanks, Adrian. Sounds like a plant, that question — but it’s not.

All you need to do is go to our website, click on the green button that says “Invest With Us”, and it will explain the fund we run.

At the moment, we’re just about to go through $50 million in real money from investors — most of them Marcus Today members, but plenty of other investors involved as well.

I reckon we’ll be at $100 million by the end of the year.

We target 20 — we target 20%, which is a bit ambitious and unrealistic considering the equity market only goes up 10% per annum. But it’s good to have targets. And we’ve got a target of 20.

If we can get a 20% return, we’re going to double our money every four years, triple it every six, quadruple it every ten.

That’s what we’re after. It’s a goal rather than an expectation.

But go to the Marcus Today website, click on the green button — Invest With Us — it will explain what we do.