At age 30, risk is a friend

Money Magazine Australia - - ASK PAUL -

Q

I’m 30 and in March I fin­ished my PhD with a per­sonal loan of $26,000 at 14.69% in­ter­est. I earn about $80,000 a year as a nurse and have been fo­cus­ing on pay­ing off the debt. My work is ca­sual but plen­ti­ful and my ex­penses are low. I an­tic­i­pate mak­ing the fi­nal re­pay­ment in early 2019.

My fi­nan­cial ed­u­ca­tion as a child was neg­li­gi­ble and I don’t want to get into this sit­u­a­tion again. I am very com­fort­able with a high level of risk and I want to build a port­fo­lio I can re­tire on but recog­nise that cash flow as­sets mean lower growth. Af­ter pay­ing off the loan I’m con­sid­er­ing get­ting a mar­gin loan for ex­change traded funds to then use as par­tial eq­uity for an in­vest­ment prop­erty. Is this wise? I’m con­sid­er­ing a 45/45/10 split into growth, cash flow and cash ETFs. Is this the best strat­egy?

Good job, David. Com­plet­ing your PhD is a fan­tas­tic achieve­ment, so well done.

You may not have re­ceived much fi­nan­cial ed­u­ca­tion in your youth but you cer­tainly have picked it up. I can only agree with pay­ing down the 14.69% in­ter­est on your loan. That is such a sim­ple but ef­fec­tive strat­egy. Where else could you earn 14.69% on a dol­lar in­vested?

We are also in com­plete agree­ment about risk. At 30, risk is your friend. It was the same for me at 30. The risks I took, mainly in start­ing a busi­ness and gear­ing into in­vest­ments, paid off over the decades. Now, at 63, risk is my enemy and I use di­ver­si­fi­ca­tion to pro­tect my as­sets. So, yes, in your sit­u­a­tion I would re­gard a loan to in­vest in an ETF as wor­thy of con­sid­er­a­tion. Do take care about the level of gear­ing and seek ad­vice if you need it.

Once you build eq­uity, I also have no prob­lem with the con­cept of us­ing that to buy prop­erty. But what I am most pleased about is your sig­nif­i­cant achieve­ment with your ed­u­ca­tion. This will lead to higher earn­ings.

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