Paul's Insights: 'Money' Thoughts for 2017

January 2017

I thought Christmas and New Year was meant to be a quiet period and it has been anything but that! The huge US share market is up by over 12% in the last couple of months, our market has done pretty much the same. And in particular, in our East Coast cities, property prices continue to power on. On the other hand, for investors chasing income or yield, decent returns with acceptable risk are hard to find. Mind you, I do see all sorts of silly online “safe” returns being flogged by investment promoters, often in excess of 10%. In fact, I was pottering along in my car the other day behind a bus with a huge poster offering 9% per annum on “1st mortgage lending." This took me back to the collapse of Estate Mortgage and Pyramid Building Society. It seems to me that if someone is going to pay you 9% on a first mortgage investment, they will want to make 2%, so the borrower must be paying 11%. Given any solvent borrower with a job can borrow at not a lot more than 4%, I really wonder what sort of security I will get from someone who has to borrow at around 11%. Pretty obviously, it is a disaster waiting to happen. Will investors ever learn? Risk equals return.

After 35 years of talking to people about money, watching various investment disasters is very educational, but all too often with tragic consequences for real people like you and I. The promoters, hidden behind company and trust structures seem to escape with impunity to wreak havoc with their next investment scheme, or should I say scam. Seeking decent returns with understandable risk has been of huge interest to me for decades, but it is fair to say that it is even more important for me today. I turned 60 about 18 months ago, and I have to say that this really concentrated my attention on my own investments. I still work part-time, but this is not a stage in life where I can afford a catastrophic loss of capital…..hence my great concern about investment schemes and scams.

According to life expectancy tables, my wife Vicki and I have some 25 years plus in front of us. This is fantastic, but also quite odd. Never before in history have retirees or near-retirees had to manage their money for potentially several decades. This is where the dilemma hits when it comes to risk and return. At 60 plus, “safe’ investment like term deposits sit very comfortably in my portfolio. But at around 2.6%, my capital may well be safe, but it makes it hard to eat, and inflation will slowly destroy my capital. Shares and property are riskier, but higher return. The ride will be uncomfortable in market downturns, and at times my capital will go backwards. Fortunately, the income I need to eat, in the form of dividends and rent tends to be pretty stable.

My solution is to hold decent quality assets in both local and overseas shares, property and some nice stable, but low returning cash and term deposits. The right mix for you is very much based on your age and attitude to risk.

Many of you (in fact most of you) will be far younger than me and in the wealth creation stage of life. Here there is plenty to think about. The engine room of wealth is surplus income, basically spending less than you earn, then many options are available to you, super, negative gearing and so on.

But at any stage the key to solving the money puzzle is knowledge. This is where my plug for InvestSMART comes in. Chatting to YourShare members at seminars or online, it is pretty obvious to me that many of you are not getting the full value of the range of services InvestSMART offers, and many of these are free! Investing is about understanding risk and what is appropriate in your situation. Here we can help with our free portfolio manager and useful tools, such as our HealthCheck feature. Information is available to you, and in a lot of depth if you think that would be useful.

We greatly encourage investors to design and go down their own investment pathway, but equally we offer managed portfolios for those like me, who would rather leave investment selection to the experts. We have a range of investment options where risk is clearly explained and you can invest online and have instant access to the investments you hold and their performance.

Really importantly, a certainty when it comes to investment is fees. In this age where returns are not easy to find, we all need to keep fees to a minimum. As a technology smart and online organisation, this is something InvestSMART does very well.

I’ll drop you an email from time to time with a few of my thoughts. If anything in the world of money is on your mind, drop me an email. I can’t answer emails individually, but those I think are of interest to many Your Share members, I’ll answer via email to you all.

Anyway, these are certainly interesting times. I do hope that we can help you to develop your own path to financial security.