Unsurprisingly, there are plenty of people out there jostling to help you spend your nest egg. All promise high returns, but not all that many deliver; in fact, you can quickly lose your super if you don’t do your homework.
Take the agribusiness managed investment schemes. Following the GFC, wide-spread drought, and falling commodity prices, these schemes started going into receivership in 2009. They had appealed to investors for their tax deductions if not long-term profitability, but they ended up losing investors and creditors hundreds of millions of dollars.
1) First off, you can waste a lot of money if you find yourself a financial advisor who charges exorbitant fees, but doesn’t offer great value. A common misconception is that financial advisors have to be expensive. The reality is, there are ways to find a low cost financial advisor who offers the same services you need at a fraction of the cost.
Some advisors may charge a percentage fee. When you work with an advisor, you are paying that person for their time and expertise. You are not paying to buy anything from them. Some advisors may charge a percentage fee on whatever you make, but this fee is typically only charged when the client is successful in their endeavors.
This is a tricky one. My problem with it is that it can lead to your paying too much for advice that you could have received at a much cheaper cost. Consider before you employ this kind of advisor whether 1% of $750,000 of $1million is worth their services, otherwise you’re likely to end up feeling ripped off.
2) Worse than a financial advisor who is overpriced is one who gives you advice not aligned with your desired level of risk. It’s a common misconception that the more risk you take, the higher your potential return. This is not always true. When a financial advisor is recommending investments to you, it’s important to ask questions like:
In 2014, CBA’s financial planning arms received a lot of bad press after they were accused of putting low-risk investors into high-risk investments. Many of these investors are now pursuing a class action against the bank to the tune of $200 million.
The lesson to be learned is: know your financial planner and make clear your attitude towards risk.
You might be familiar with convertible notes or convertible securities, which offer holders the option to convert their notes into a certain number of shares in a company. A reverse convertible is a type of bond with the rate of interest that resets periodically. The reset typically occurs around the maturity date. Investors who purchase these bonds are willing to take on a higher level of risk in exchange for the chance to earn a higher yield. However, they also face the possibility of losing money entirely and should be prepared for this.
The lure of reverse convertibles is that they offer a higher income stream over the life of the security. The downside is that the issuer can decide to repay the investor a certain number of underlying assets (e.g. shares) if that asset’s price dips below a certain level, leaving you worse off.
Let’s say for instance that the holder of the convertible pays $1000 for a convertible note which has 10 underlying shares and the issuer agrees to repay the full $1000 only if none of the shares fall by more than 25%. If one of the shares over the course of the securities life does fall (let’s say by 30%), then the investor will receive $700 upon maturity.
Essentially, the holder of the security is betting that none of the underlying shares’ values will fall by more than x% while the issuer is betting that it will.
Unless you’re prepared to shed a minimum of the agreed upon percentage of capital, you probably don’t have the stomach for reverse convertibles!
3) Bad Property Investments
If you are looking to invest in property, but are not sure which market will provide the best return, then you need to read our website more and learn the facts about property investment.
Property can be an excellent investment for your super (I’ve bet my business and my super on it). Unfortunately, a lot of bad salespeople have also seen the value of investing your money in their property schemes. Beware those salesman, wealth “advisors” and other unlicensed individuals who tout the benefits of property and then present you with the perfect development for you to invest in. Just ask yourself: ‘What do they care what property I buy?’
4) Investing in cash and fixed interest
If you are looking to invest your money and feel as though you need a reliable, dependable option with a low return that inflation will eat away, then investing in cash and fixed interest may be your best bet. this investment choice grew in popularity after the GFC when investors were understandably feeling a bit skittish. Sure, we all know the saying that cash is king, but this kind of thinking is best applied to the short term and therefore not an advisable super strategy. If you’re looking for long-term growth, cash will give you poor ROI. As Robert G Allen put it, “How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.”
If you’re wondering how to best invest our super, a free initial consultation will give you a chance to assess the opportunities, set your investment goals, and devise a strategy to achieve them.
Using an SMF to invest in NDIS property can help protect your retirement. An SMSF is a type of debt that can be used by an individual to purchase a residential property. In order to qualify for this loan, the individual must have a good credit history and meet the eligibility criteria.
SMSF borrowing rules are very strict. You need to be over 18 years old, have a good credit history, not have any other outstanding loans, and your property needs to be free from any mortgage or lien.
Author: Yannick Ieko is the founder and managing director of NDIS Loan Experts.