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Understanding Shares

Rent & Invest VS Home Ownership Seminar
by

Dallas Davison

on 19 June 2015

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Transcript of Understanding Shares

So what do we do with our surplus funds?
1924
2005
1981
Opened first store in
Sydney. Nominal
capital of £25,000.
1933
23 stores across
Australia and
New Zealand.
1955
Opened 200th store
1959
Opened 300th store.
1976
Opened first Big W store.
1985
Acquired Dick
Smith Electronics.
Acquired 126 Safeway stores.
Became the largest food
retailer in Australia.
1998
Acquired Dan Murphy’s.
2001
Acquired Tandy Electronics.
2004
Entered agreement with Caltex
to co-brand petrol outlets
Entered agreement with
ANZ to install ATM's.
2008
Launched 'Everyday Money' division.
Launched Master's Home Improvement
division to take on Bunnings.
2011
Today...
Largest retail company in Australia and New Zealand by market capitalisation and sales.

Largest food retailer in Australia and the second largest in New Zealand.

Largest takeaway liquor retailer in Australia

Largest hotel and poker machine operator in Australia

19th largest retailer in the world (may change from time to time)

17 brands.
This presentation contains general information and may constitute general advice. It does not take into account any person’s particular investment objectives, financial situation or individual needs. It should not be relied upon as a substitute for financial or other specialist advice.

Before making any decisions on the basis of this presentation, you should consider the appropriateness of its content having regard to your particular investment objectives, financial situation or individual needs.
General Advice Warning
Understanding Shares
Home Value
$300,000
$240,000
Home
Loan
"Own" - Upfront Expenses
Purchase Price $300,000
Building & Pest Inspection $420
Conveyancing Fees $1,500
Government Charges $600
Mortgage Application Fees $600
Total $303,120
Less First Home
Owners Grant $7,000
Less Deposit $56,120
Total Mortgage $240,000
"Own" - Ongoing Expenses
Total $530 $27,560
Expenses per:

Loan pmt. 30 years
Rates
Home & Cont.ins.
Maintenance (1%)
Improvements
Week

$368
$62
$23
$58
$19
Year

$19,136
$3,200
$1,200
$3,000
$1,000
Ongoing Expenses
Expenses per:

"Own"
"Rent"
Week

$530
$300
Year

$27,560
$15,600
Surplus $230 $11,960
$56,120 initial deposit
+
$230 per week
Save - "short term"
Invest - "medium/long term"

840 Australian supermarkets.

156 New Zealand supermarkets.

140 Dan Murphy's outlets.

165 Big W outlets.

394 Consumer electronics stores.

Employs more than 190,000 people in over 3000 outlets.

Current annual turnover of $54.28 billion.

Current annual profit of $2.14 billion.
House price growth - 4%
Wage increase & inflation - 4%
Company share price growth + dividends return =10.25%
Time (Years)
Return (%)
Wage increase & inflation - 4%
Company share price growth + dividends return =10.25%
Value ($)
House price growth - 4%
1982
3 Bedroom
2 Bathroom
2012
3 Bedroom
2 Bathroom
1982
400 Supermarkets
$96,000
2012
17 brands,
3000 outlets
$300,000
$1,630,000
Profits
Used to build more stores
Profits
Used to build more stores
Profits
Used to build more stores
Profits
Used to build more stores
400 outlets
440 outlets
490 outlets
2012
17 brands,
3000 outlets
550 outlets
620 outlets
Mortgage Amount
House Value
$300,000
$240,000
$0
$973,000
House Value
$300,000
$973,000
Investment Value
House Value
$112,240
$1,106,214
Year 12
Year 30
Total Net Equity:
$2,079,214
Total Net Equity:
$973,000
Year 30
Mortgage Amount
House Value
$300,000
$240,000
$0
Year 30
Investment Loan Amount
Investment Loan Amount
Investment Value
Value
Share Price
$56,120
Cash Deposit
$56,120
Investment Loan
$143 additional investment
$87 loan repayments
$230 per week surplus -
Investment Value: $547,547
Redeem: $480,310
Remaining Investment Value: $67,237
At Year 12
$281 additional investment
$87 loan repayments
$368 per week surplus
"Own" - Ongoing Expenses
Total $530 $162
Expenses per week

Loan pmt. 30 years
Rates
Home & Cont.ins.
Maintenance (1%)
Improvements
30 year mortgage

$368
$62
$23
$58
$19
Pay cash for house

$0
$62
$23
$58
$19
Difference = $368 per week
Value ($)
2013
17 brands,
3000 outlets
$1,797,000
2012
3 Bedroom
2 Bathroom
$300,000
1982
3 Bedroom
2 Bathroom
1982
400 Supermarkets
$96,000
2013
3 Bedroom
2 Bathroom
"Own" - Ongoing Expenses
Total $530 $27,560
Expenses per:

Loan pmt. 30 years
Rates
Home & Cont.ins.
Maintenance (1%)
Improvements
Week

$368
$62
$23
$58
$19
Year

$19,136
$3,200
$1,200
$3,000
$1,000
Over 30 years...
$27,560 x 30 years = $826,800
+ $56,120 deposit =
$882,920
Your Next Steps...
1) Find out more. Book an appointment with Lighthouse Financial Advisers Townsville.

2) Strategy! Strategy! Strategy!

3) Stick to it!

4) Like us on Facebook to receive information on upcoming events.

Franking Credits: What are they, and how do they work?
Company
Tax Office
Step 1.
Dividend
Tax paid
Company
Owner
Tax Office
Step 2.
Dividend
Tax paid
Company
Owner
Tax Office
Step 3.
Dividend
Franking credit
The company pays a dividend to the owner, and pays tax of 30% to the Tax Office.
The owner pays income tax on their taxable income (earned income + dividends).
The owner receives franking credits from the tax office, which is a full refund of the tax paid by the company on their behalf
So you've got a coffee shop...
(cost $200,000 to buy)
It makes a profit of $100,000 per year
$50,000 gets paid to shareholders as a dividend
$50,000 is kept by the company
After 4 years
The company now has $200,000...
Which is used to buy...
(cost $200,000 to buy)
(cost $200,000 to buy)
Another coffee shop!
Now the company makes a profit of $200,000 per year
$100,000 gets paid to shareholders as a dividend
$100,000 is kept by the company
(cost $200,000 to buy)
(cost $200,000 to buy)
(cost $200,000 to buy)
First year
After 4 years
$100,000 profit
each year
$200,000 profit
each year

Market Capitalisation: $45,081,000,000
Owners/Shareholders
Marginal tax rate: 0% 30% 46.5%
Receives franking credits as a refund
Tax is already paid at 30%
Has to pay tax of 16.5% (46.5% - 30%)
1. What are shares?

2. But aren't shares risky?

3. How can I invest in shares
to improve my financial position?
Our 3 topics
1. What are shares?
2. But aren't shares risky?
3. How can I invest in shares
to improve my financial position?

With $200 per week...
With $200 per week + gearing...
Assumes interest rate of 8%, tax rate of 30%, all dividends are fully franked
Investment value:
Loan value
Loan % of investment:

At the start...
$400
$200
50%
Investment value:
Loan value
Loan % of investment:

After 25 years...
$2,502,712
$249,600
11%
Assumes share return of 10.25%, property return of 4%
Assumes interest rate of 8%, tax rate of 30%, dividends of 4%, capital growth of 8%, all dividends are fully franked.
Why?
Shares are the least understood asset class
You're already invested in shares through superannuation
Shares are one of the highest returning long term assets
Australian shares are one of the most tax effective investments
You can access part or all of the investment balance at any point in time
You always have a guaranteed buyer
You can start an investment with as little as $1,000 upfront
Because...
Based on Dow Jones Index
Investment value:
Loan value:
Loan % of investment:
Net equity:

After 25 years...
$2,502,712
$249,600
11%
With Borrowing
$2,242,712
$1,553,073
$0
0%
Without Borrowing
$1,553,073
Difference: $689,639
Full transcript