[committee] What to do with the rainy day fund
Andrew Adamson
bob at ucc.gu.uwa.edu.au
Tue Jan 26 21:40:15 AWST 2016
Hi all,
So the OGM is rapidly approaching (this Friday), and there hasn't been a
great deal of talk about what to do with the rainy day fund. I noticed
some other people have started a conversation on the facebook page about
the best interest rates for term deposits. I think we would be shooting
ourselves in the foot to only look at term deposits this time around,
given the available interest rates. Anyway, in case this isn't always
clear, this is just my opinion:
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What we currently have:
A quick explanation because most of committee weren't members when we set
this up, and I was treasurer at the time. A 60-month term deposit with
Westpac that was set up for monthly payouts. If I recall correctly the
monthly payout is something like $283 from an interest rate of 6.7%. We
put 35% of that payout aside to offset inflation and grow the fund a
little, leaving us about $184 to play with each month on top of our other
income sources. This term deposit matures on March 25 of this year, at
which point the best monthly rate offered by westpac is 2.9%.
The 35% that is being put aside for reinvestment was originally being put
into a cash reserve account with Westpac, because that gave us a non-zero
rate on that cash while it was waiting to be added to the principal
amount. Unfortunately Westpac then went and changed the account terms on
us and we got zero interest because the balance is under $10k. I'm unsure
if we changed the account to a different type after this, but even if we
did it would only be getting about 1.05% - not great.
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What I think UCC needs (disclaimer: this is not investment advice and I am
not a qualified professional):
Payment frequency:
I think we need a stream of income coming in monthly rather than annually.
That way we have a sensible amount of cash available most of the time and
we're able to take advantage of times when people have the motivation to
buy stuff or run events.
Fund growth:
In the very long term the fund has the ability to grow and provide us with
things like clubroom fitouts, and to provide things that will benefit all
members of the club in the long term. For this the fund needs to maintain
its value against inflation and grow as well. Funds being put aside for
reinvestment is great and has worked okay-ish the past few years, but
we're definitely losing out on compound interest while we wait to add it
to the next term deposit. Ideally we would look at something that is more
perpetual than a term deposit and allows us to reinvest immediately and
automatically.
Fairly low risk:
We don't get given $50k every day - we can't afford to lose it. However,
we can reasonably afford a short term drop in value (eg: drop to $45k for
a year before recovering). If we have to, we can also afford a drop in
payouts to around $100 for an indefinite period, though that wouldn't
leave much room for exciting toys. We previously went for the term deposit
because it was near-zero risk and had a good rate of return, but I think
we could look at something with a slightly higher risk and rate of return.
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Possible solution:
I think we should look at some sort of managed investment scheme, such as
a managed fund [1]. This would allow us to diversify without having to
manage it ourselves. Managed funds are perpetual so we would only have to
revisit things if the fund were failing to perform.
I had a quick look at managed funds on the Westpac site [2], which then
links to bt.com.au . There are a LOT of different funds available, with
different levels of risk, different goals and different returns. A cursory
glance at the list of funds on the BT site turned up the "BT Wholesale
Monthly Income Plus Fund" [3], which looks to be in line with our goals in
terms of maintaining the value of the initial investment and paying out
monthly. If we decide to look at managed funds we should definitely get
some advice on what to go with, though I've no idea where we should go for
that advice. There are certainly many other funds we can look at if other
people want to do so - and I encourage anyone attending the OGM to read up
a bit on managed funds before the meeting, whether it be to find something
that suits our needs or just to understand what they are.
[1] https://www.moneysmart.gov.au/investing/managed-funds
[2] http://www.westpac.com.au/personal-banking/investments/managed-funds/
[3] http://www.bt.com.au/investment/products/wholesale-funds/wholesale-monthly-income-plus-fund.asp
Andrew Adamson
bob at ucc.asn.au
|"If you can't beat them, join them, and then beat them." |
| ---Peter's Laws |
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