How Paul Clitheroe is investing for his grandchildren

For decades Paul Clitheroe has helped thousands of Australian families grow their wealth and better their future through his financial planning business IPAC Securities and tens of thousands indirectly through Money Magazine and Money on Channel 9. So, when we saw three applications for Fundlater accounts with Paul as trustee for his grandchildren we had to reach out and find out what his investment plan is.

Mitchell Sneddon: Will/do you talk to your grandkids about the investments and how will you explain the value of investing to them?

Paul Clitheroe: No. Not yet anyway. A key with kids and money is not to bore them witless, so it needs to be time, place and  age appropriate. Our kids grew through an age range of about 0 to 20 when I hosted the Channel 9 Money Show from 1992 to 2002. 

As they got to their mid teens, I am acutely aware they had zero interest, in fact they used to call me “the most boring person on TV”. 

Our grandkids are 3, 2 and 1. The 3 year old is very interested in treats, a good area of discussion, as is the 2 year old. They also like building blocks and puppies. The 1 year old can say a variety of words, such as dog. She also calls all birds “duck”. I am sure they would be just delighted to start talking about investing. Not. 

MS: Why is the ethical growth strategy right for your grandkids?

PC: What a Dorothy Dix question. OK, I’ll play this game. Let me think about this for a nano second and ask you a question. What is an overriding concern for the younger generation? Ethical companies seeking not to hurt our planet and hopefully slow or repair the damage to it. Next question!

MS: What do you hope they'll do with the money when they can access the investments? 

PC: Good question. Not a car. Depreciating asset. We are hoping it will go towards a key productive asset. This could be a house deposit. I appreciate homes are not a particularly productive asset for our economy, once built, they simply lock up capital. But they are productive for the individual as they provide accomodation and security. Once paid off a home frees up extra income for the individual, which generally does benefit our economy.

We would be very happy if they used it to take time out after school or university and did a long global trip. In our view, this is a great investment in personal growth. We’d be equally pleased if they used it to start a business or pay for post graduate education, maybe overseas. We want to give them options. 

MS: What would you say to other grandparents who are considering investing for their grandkids? 

PC: Fellow grandparents or parents, let me tell you a little true story. My parents started making very small share investments, each year for my sister and I, from birth. Let’s jump forward. The shares started to interest me at about 18. I had zero interest until then. Dad and Mum would occasionally mention them and drop an annual report on my desk. Gradually this seeped in. 

Jump to 1982. I am 27. At this stage the couple of hundred dollars a year had grown to $32,000. Left in a bank account it would have next to no value. That was a life lesson. Vicki and I were newly married, so we used part of the money to start, with my four partners, our business, Ipac Securities. The other part greatly helped us buy our first home in Sydney. A tiny semi on a busy road in a close to the CBD suburb, with great transport links for $90,500. 

We were on our way, all thanks to my parents wisdom. How good is that? 

MS: How do you reconcile investing now for the grandkids when there is no shortage of macro-economic headwinds?

PC: Oh for heavens sake Mitch! Readers, I need to pause and tell you that Mitch is a much valued part of the InvestSMART team. He is really pushing the InvestSMART philosophy here, but I’m in a good mood, so will play this very obvious game. This is a 25 year plus investment, when has there not, in human history, been threat of plague, pestilence and war? 

In 1982 we could have looked fearfully at the future and buried our $32,000 in a peach can under a tree. The world looks pretty bleak to those whose cup is half full. And for good reason. We had a monster share crash in 1987. Then during the Paul Keating “ recession we had to have” in 1990 our mortgage hit 18%. 

There are many great and logical reasons to cower in fear and find a cave to hide in. Or we could look at 7,000 years of human history, ignore all the negative crap on social media and realise that human beings are incredible, growth oriented, survivors. They say cockroaches will be the last survivors. Sorry, it will be humans. 

So, in a peach can, buried under a tree, our $32,000 would have buying power today of about $3,000. We sold the semi, many moons ago to buy a bigger house. I guess it would be worth about $2 million today. The part that allowed me to help start our business would be worth a multiple of the money my parents created for me. Heavens only knows how much. 

I would not give a two penny toss about “economic headwinds”. Asset values will go up and down. Who cares. The absolute key to investment (this will cheer you up Mitch) is regular investment into quality assets, but in a fund with very low fees. This of course is InvestSMARTS strategy. 

MS: Why not just do it yourself?

PC: Another good question, but blatantly pitched at our investment model at InvestSMART!

I don’t build my house, make my car or do surgery on myself. So why the heck would I apply the little time I have to being an investment expert. Yep, Vicki and I will chose our own home, because we want to live in it, that is emotional and personal. I’m not having Evan Lucas, InvestSMART’s very clever Chief Market Strategist, buy my home. He would be far too logical! Nor can our equally talented CEO Ron Hodge do it, in particular as he and his wife recently sold their home (at a very premium price) but they currently have nowhere to live. 

But back to building my own home, car or diagnosing and treating my own medical issues as they come along. It seems to me that proper experts in their field are the people to turn to for just about everything. Yep I can grow tomatoes in my backyard, generally the insects get them first, but it is fun to try. Thank heavens I can turn to experts and buy our food. As with my fishing, a trip to the fish market on the way home is essential.

So why is it different with money? Given I do tend to look at what markets are doing for about 3 minutes a day (I do enjoy my InvestSMART/Eureka Report friend, the very talented Alan Kohler, on ABC news each night. Great information, (even if I need to pause some of graphs to work them out) And he makes me laugh at his super dry quips

I am actually not entirely stupid, so as I use a car manufacturer, a house builder, a doctor, a tax accountant and food growers, I use an expert fund manager at InvestSMART. My only caveat is low fees. Investment returns, over the longer term are a reasonable expectation. But fees are a certainty. 

If you have more questions Mitch, send them to my grandkids.