# Will 2008 be better or should I give up?



## amax (16 Dec 2007)

Dear AAM,
At the start of 07, I opened up my first ever online share accounts (one with DAVY online and another with etrade for the US) from which I have seen no returns at all, and consistently seen the value of my investments , which seemed sensible at the time such as ELAN, Anglo Irish etc decrease in value. I had also wanted to get on the property ladder but with conditions at present, putting that off seemed the most sensibly thing I have ever done.
Being a totally new and young investor and never knowing a single thing about shares / investing / property until this year, I have lost faith before I even start, beginning to think that I would be better of just saving regularly in the bank than having a go at "investing".
Can you recommend any areas / hints for the new year that I should be researching or the safest investment schemes out there at present that would be suitable for a young graduate who would prefer to do something with his money other than stick it in a bank!


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## CCOVICH (16 Dec 2007)

1 year is too short a timeframe in which to evaluate the success or otherwise of a portfolio of shares.  You should really be looking at staying in for 5+ years.

All very well saying this in hindsight, but if you browse the forum, and read the Key Posts, you will see that before you invested you should have taken steps like assessing your tolerance for risk, investment goals, investment timeframe, and overall financial situation.

If your goal was to buy a house in say, 2-3 years, and you had no other savings, you should really have been looking at nothing riskier than a cash deposit/savings account.

If you are willing to take a 5 year + view, then I would say that your equity investment is still a good idea.  But to give some balance to your portfolio, I would consider a cash investment as well. 

When are you looking to buy a property?


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## GeneralZod (16 Dec 2007)

Given your profile; young and not on the property ladder, I'd concentrate on building savings for a deposit on your first residential property. 

You dodged a bullet by avoiding purchasing property in the last couple of years. There's a huge amount of gloom about 2008 at the moment with little reason for optimism on house prices going up in the short term. If you're in stable employment that will work to your advantage as you save. A regular saver account will give you 7% (less DIRT) which is pretty good.

Personally I'm starting to move out of savings and buying a regional spread of mutual funds/index trackers for the long term (15+ years) but I may be doing it a bit early and lose more in the short term than if I left it on deposit.


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## bsloe (16 Dec 2007)

2007 was a difficult yr to start investing, if you had started a yr earlier you would have better returns. Most people who read this forum probably got burnt at some level by the downturn. One of your first priorities should be to buy a house, if you are renting as you are paying someone elses mortgage. 

your pension is also a tax efficient way of investing in shares although you wont see it for a while. You need to decide what your prioities are and what type of risk are you willing to take. investing in share is high risk, you can spread you risk by investing in quinn freeway or rabo fund as many AAMers  have done. 

You should also consider your mortgage application as banks dont like to see large credit card bills or loans so they should be cleared and they like to see savings so follow Zod's advice and start a regular savers account. 

No one can tell you what do to as the markets are very unpredictable at the moment ( more than normal) due to the sub prime mortgage problems and the subsequent liquidity problems. 
MY advice to you would be to keep a close eye on the property market, talk to as many interested parties to see when the recovery starts kicking in. prices are still coming down as they are still over priced, consumer confidence is still low and will be for some time with all the negative media attention on all markets worldwide.

also, make sure you dont invest all your eggs in one basket, ensure your asset allocation suits yout risk strategy...good luck


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## Dave Vanian (17 Dec 2007)

I have monies invested in various stock-markets through my pension fund and also through unit-linked investments outside of pensions.  Overall I'm down quite a bit on paper this year.  I'm not remotely bothered.  In fact, I've been seeing this as a buying opportunity and have been investing a bit more in Irish stocks and global financials.  

I'm not saying that you should do the same - just offering a personal perspective.  I'm happy that the current downturn is part of the cyclical nature of stock-market investing.  They go up, they go down.  I've no idea whether or not they'll go up in 2008, but I'm confident that they will in due course.


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## croker (17 Dec 2007)

You should also think about currency exposure since the money you put into your Etrade account would be worth alot less now due to the slide in the dollar. Many people dont think about this when opening accounts.
Of course in the long term the currency may reverse but could keep sliding. Some strategy for both scenarios needs to be thought of.


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## z109 (17 Dec 2007)

bsloe said:


> One of your first priorities should be to buy a house, if you are renting as you are paying someone elses mortgage.


This is a myth.

Currently, if you buy, you are renting from the bank at more than you would rent from a private landlord for an equivalent property. 

In terms of house-price timing, when it costs more on rent than the interest on the mortgage you will be paying, it makes sense to buy. Make the comparison on similar properties (i.e. if you are looking to buy a 3 bed house in an area of Dublin, look at the rents of similar properties). You are a first time buyer (I presume?) therefore, you have seven years of higher rate TRS and no stamp duty as a bonus. Don't waste them on something that is only going to last you two or three years, save and buy with a 5-10 year timeframe. Of course, this presumes you can see yourself in an area for that length of time. If you cannot, don't worry about buying at all and stay renting!


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## Grus (17 Dec 2007)

> Currently, if you buy, you are renting from the bank at more than you would rent from a private landlord for an equivalent property.


 
Yoganmahew, 
you may be "renting" from the bank at more than you would rent from a private landlord, but you also end up owning the property. Is this view incorrect?


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## z109 (17 Dec 2007)

Grus said:


> Yoganmahew,
> you may be "renting" from the bank at more than you would rent from a private landlord, but you also end up owning the property. Is this view incorrect?


Yes, because the comparison is the interest you pay on your loan versus the rent you pay.

So 300,000 mortgage at 5% for 2 bed apartment in Swords (in Holywell).
Rent a similar apartment in Holywell for 1000/month

Repayment on 300,000 over 25 years: 
1753.77/month

The interest portion of the repayment stays over 1000/month until January 2016.

I have not included the mortgage interest relief:
1. Because it is in the gift of the government
2. Because it will be balanced out by changes in interest rates over the term of the mortgage
3. Because it does not reflect the value of the property, as opposed to its affordability.


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## ClubMan (17 Dec 2007)

Speculative post about house prices by _barryl _removed. Please read the posting guidelines.


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## amax (17 Dec 2007)

Thanks for all the advice guys, I will def focus alot more on a cash investment / savings and keep an eye on the property market.  Being 24 at preset, the 5 year plan does make alot of sense to me.

Its def been an exciting years introduction to the financial world regardles of the losses. 
Thanks again


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## plant43 (17 Dec 2007)

yoganmahew said:


> I have not included the mortgage interest relief:
> 1. Because it is in the gift of the government
> 2. Because it will be balanced out by changes in interest rates over the term of the mortgage
> 3. Because it does not reflect the value of the property, as opposed to its affordability.



What happens if rent goes up by more than interest rates, which I believe is happening in alot of areas at the moment.


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## z109 (17 Dec 2007)

plant43 said:


> What happens if rent goes up by more than interest rates, which I believe is happening in alot of areas at the moment.


Well rent is down overall in the past few months, despite it's rising trend over the year!

But, yes that will change the timing of the calculation. As I say, you need to work out where you want to live and keep doing the sums until it makes sense to buy. This is not a way to spot the bottom of the market, just a way to dispel the myth that rent is dead money - it is no more dead than paying interest on a loan. If one is more than the other, then it is surely deader!?


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## plant43 (17 Dec 2007)

There's an interesing "when is buying better than renting" calculator in the New York times

http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?_r=1&oref=slogin

Obviously, it predicts certain things in the future, but I think over the course of your lifetime, buying will always work out better than renting.


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## z109 (17 Dec 2007)

plant43 said:


> There's an interesing "when is buying better than renting" calculator in the New York times
> 
> http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?_r=1&oref=slogin
> 
> Obviously, it predicts certain things in the future, but I think over the course of your lifetime, buying will always work out better than renting.


Yes, I've seen it.

Put in 300,000 in price
Rent of 1000
Interest rate of 5%

Rent rise of 3% (generous on long-term inflation)
Property appreciation (based on long-term price rise) 1%

In this scenario, renting is always better.

Many other likely scenarios (not based on the experience of Ireland in the last ten years - does anyone really think that property prices are going to double from where they are?) can be found that show that renting is better than buying.


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## threeticks (17 Dec 2007)

Im keeping this simple or I will be here all night typing.

Rent to me is wasted money.
If rent is 1000 a month and lets asume the same house would cost 1300 a month to buy.

Now you will need somewhere to live so if you dont buy you must rent.
So that 1000 a month is gone.

The way I see it is if you are already paying 1000 rent and you had 300 to invest then instead of investing the 300 on its own just put it with the 1000 and buy the house.
In theory you are buying the houes for 300 a month.

You can always rent a room to help with the monthly payments.

Now I know there is more to it than that but you get the jist.


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## Markjbloggs (17 Dec 2007)

Here's an interesting site for those of you who want to argue the toss about which is better - renting or buying.

http://www.nytimes.com/2007/04/10/b...html?_r=3&oref=slogin&oref=slogin&oref=slogin

Put some real numbers around your assumptions and extrapolate.

Be interested to know if anyone has a change of mind based on hard analysis, rather than using cliche-laden verbal arguements.


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## joe sod (17 Dec 2007)

what stocks on etrade did you buy? however i would definitely stay with etrade, even though your stocks are denominated in dollars, you can invest in stocks all over the world that are quoted on the new york exchanges, i have used it to buy stocks in argentina, korea, australia and US, you can even buy gold or silver ETF, Big oil, commodities etc. The only thing you have to be wary of is the temptation to trade, you are better off making at most one buy or sell per stock per year,  and using stop losses to protect you from big falls. Therefore just because you have etrade account does not mean you have to be fully exposed to US assets. However i happen to think we are near the end of the falling dollar against euro.


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## CCOVICH (17 Dec 2007)

Can we try and address the issues/questions raised by the OP please?

Also, I don't think we need to discuss the shares bought by the OP.

Thanks.


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## z109 (17 Dec 2007)

Markjbloggs said:


> Here's an interesting site for those of you who want to argue the toss about which is better - renting or buying.
> 
> http://www.nytimes.com/2007/04/10/b...html?_r=3&oref=slogin&oref=slogin&oref=slogin
> 
> ...


Er, this is what two of the previous posts are about?    (the previous posts above where we discuss some of the scenarios as you belatedly suggest?).


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## z109 (17 Dec 2007)

CCOVICH said:


> Can we try and address the issues/questions raised by the OP please?


Okay, I believe you should continue renting, but that you should save/invest the difference between your rent and the mortgage payment you would pay for a place of your own.

That way you will build up a substantial deposit and hopefully end up with a low LTV and so a decent mortgage rate. You would also feel the pain (if any) of the mortgage before you have committed yourself to 25-40 years of it!

Personally, for regular savings, I would use one of the 7% deposit accounts. Others would use a share saving scheme. It depends on your timescale and your attitude to risk.

As for your existing shares, I would keep them if you can afford to wait and look on them as a long-term investment. As pointed out elsewhere, pension contributions, especially at your age, are heavily geared towards equities, so, apart from the tax relief (which is significant if you are on the higher rate), you can consider that you have enough exposure to the markets and not feel under any pressure to make additional purchases should you feel burned by risk!


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