Case Studies

Disclaimer: These are examples of how some clients used our services to obtain excellent returns on their investments. They are examples only and similar results cannot be guaranteed.

Wealth creation – Mr and Mrs S.

Nest egg

They were both in their mid 40s when they came and saw us five years ago. They were concerned that they didn't have enough money in their superannuation funds for their retirement and they were looking to save $10,000 per annum in some way, and we had a 15 year time frame.

We discussed many issues in relation to wealth creation, including wealth protection, estate planning and importantly budgeting.

Once we implemented the above it left them with $4500 p.a. to place entirely into growth assets. This was, in their case, invested directly into the share market (they couldnt buy a property with this small amount of money!!) and they were concerned with the result. It would only be worth $159,700.

We therefore discussed leverage, the use of someone elses money to make money, and after explaining fully the risks they were happy to proceed.

The owned a home valued at $220,000 in The Gap and owed $60,000 against this. We obtained a CALIA+ loan and borrowed $116,000 interest only for them to use for investment.

We discussed in detail dollar cost averaging and this was the strategy we were to implement to take advantage of fluctuations in the share market.

We invested an initial $50,000 from this loan. They matched this investment with the margin loan component of $50,000. From day one, they had $100,000 in the market.

Each month we drew a further $2000 from their line of credit and this was also matched by the margin loan by $2000.

As part of our service we offer a periodic review of the clients portfolio, and as this strategy cannot continue infinitum, it becomes imperative that this be undertaken.

In year three, during our normal review, we discussed the fact that they were getting close to their limit in the investment loan, so we undertook a revaluation of their home and increased their facility to $188,000. At this time we boosted the investment by another $10,000 and this once again was matched by the margin loan. The $2000 per month continued.

Recently in their normal review we again revalued the property and extended their line of credit to $228,000 – however at this time we also stopped all contributions – this extension just provides and level of comfort or risk minimisation for the whole process.

The projections (and these cannot be relied upon, no one has a crystal ball) shows that in the remaining 10 years of the plans life:

  1. It will become cash neutral in year eight, i.e. the after tax costs will be nil.
  2. The maximum after tax cost was $350 per month in year 4. Or only $4200 pa.
  3. The value is expected to be $866,834 or $506,834 net of the outstanding loans.
  4. Or $347,000 more than saving alone.

It should also be mentioned that during the stock market crash after September 11, the clients did not receive a margin call (none of our clients did!!) as we only gear to a level of 50%, the market has to fall a very long way to be effected at this level. And during this time the clients continued to invest, although with some hesitation, and because of 'dollar cost averaging', they are well ahead of their expected portfolio value at this time.

The next step for these clients is to take advantage of the superannuation laws and increase what they have in this investment.