Analysis of Investment Strategies in Financial Discussion

This discussion board post analyzes three different investment scenarios. The first scenario involves Tanya considering investing in Greek government bonds versus keeping money in a savings account. The analysis points out the higher yield of the bonds but also acknowledges the economic uncertainty in Greece and the comparative calculation of returns over time. The second scenario discusses Faye's concerns about her apartment investment, considering potential vacancy periods, falling property prices, and rising interest rates, with the post agreeing with Faye's concerns. The third scenario discusses Michael's preference for dividend-paying stocks and the post disagrees, highlighting that high dividend yields can indicate that a company is not reinvesting its money and that capital gains can be more attractive over the long term. The post emphasizes the importance of considering various factors when making investment decisions, rather than relying solely on dividends or interest rates.

1- Tanya said:
“The interest rate on my bank savings account is very low – about 0.5%. I see that the yield
on 10 year Greece government bonds is about 4.5%. I know there were problems with the
economy in Greece a few years ago but I think the future is positive. My intention is to
withdraw AUD10,000 from my savings account and invest in these bonds.
The 10 year yield on Greece Government Bond though appears to be more attractive than
0.5% on savings bank account, but cumulatively speaking, the savings bank account after 10
years, compounded annually will effectively yield 9.27%. Also, there is an uncertainty
around the economy of Greece which cannot be totally ignored. Recently a news article
published by Deutsche Welle states that the economic conditions currently are so bad that
there is not enough money, even for food. We cannot compare 2 yields having different time
periods. Hence, investment should not be made and Tanya should keep the amount in her
savings account. I disagree with Tanya’s outlook.
(Refernce : https://www.dw.com/en/greeces-debt-crisis-leaves-nation-hungry-and-children-
malnourished/a-46733130)( 11.21pm 11/1/19)
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2- Faye said:
“I am very concerned about my investment apartmenct. The bank loan repayments are
covered by the rental income, but what happens if my tenant moves out and the property is
vacant for several months?? Property prices have fallen and the market value of the
apartment is 10% less today than what I paid for it two years ago. And I am worried that
interest rates might increase. I think the apartment might have been a poor investment for
me.”
I agree with Faye. Realestate.com.au has just released fresh data and their chief economist
Nerida Conisbee said, “Prices will probably continue to fall.” Given the market conditions,
where property prices are falling, people are more likely to purchase property rather and
living on rent. Bank of Queensland recently announced interest rate rises of between 11-18
basis points (0.11-0.18 percentage points) on most of its home loans, pushing its Economy
Owner Occupier rate up from 3.88 to 3.99 percent. The ideal thing to do would be to enter
into long term agreements with tenants to secure oneself against unfavourable economic
conditions. This would help Faye cover the instalment and help him get the best out of a poor
investment.
3- Michael said:
“I do not understand why people buy shares that do not pay dividends. I will only invest in
stocks that pay dividends – and the higher the dividend yield the more attractive the stock is
to me.”

I do not completely agree with Michael. High dividend paying companies means that the
company is not re-investing money which signals that the making a pay-off with its growth
opportunities. What needs to be ensured is that the stock is having high dividend yield is not
due to plunging share price. If we are looking at absolute returns over the lifetime of owning
the shares of a company, a volatile company with huge capital gain potential is more
attractive. Dividends cannot be the sole basis of investing in a stock. Also, it depends if the
investment is made for capital gains or dividend yields.