It may only be a tiny clip here and another over there, but over time they can cost you a lot.
A “profits-for- us-but- not-for-you” fund averages 5% i.e. you get 1% less after all their little clippings and you end up with $208,316.
Over $25,000 difference!
Who are the clippers? JPMorgan, Barclays, Citigroup, RBS, UBS, & Deutsche Bank w ere all caught rigging interest rates (another form of “clipping the ticket”) and were fined billions. A whole lot of unidentified people somewhere paid hundreds or even thousands (of dollars/ Euros/ £stg) more in interest than they should have.
The same attitude to profits will and clipping will apply to any investments you make. If you can avoid these with “profits-before-all-else” companies.
Tip No 21 – the companies pursuing profits before all else will be “clipping the ticket” wherever they can with your investments. They are not always visible and they will not lose all your money, indeed on the surface they may look OK, but they will be costing you.
While you are doing your checking on Google, look at company profits too. If they appear to be huge, be a tad cautious.
In their mad pursuit of profits, Volkswagen was caught out, their shares dipped by 30%, making a nasty loss for their investors.
Tip No 22 - liquidity – access to your money. Wherever possible you should seek investments that allow you to access your money without penalty.
Fortunately most quality investments are liquid some you do have some good choices available to you.
Never mind that you are sure it is OK to lock your money away, do not. Emergencies happen, often overnight, and your whole situation can change, sometimes forever. I have seen quite a few in my travels;
- A grandchild with a long-term illness. The parents had a business and so the grandparents were asked to move close to them to help. A suitable house was for sale for $300,000 just a few meters away, so the grandparents did not hesitate; they pulled out their money and bought it (and sold their current house later).
- A 65 year old in the early stages of Parkinson is heard about a new experimental cure at a cost of $100,000. Luckily, he had had immediate access to that sort of money.
- A daughter doing voluntary work overseas had a bad accident and it cost her family $100,000 to fly her home for urgent treatment.
In the past, most banks would allow investors to break a term deposit with a small penalty. Nowadays it seems that most banks do not allow that, so beware, you cannot count on a term deposit becoming available at short notice.
Fortunately, most quality bond and share funds are liquid at all times and you can get your money out within 10 days or so.
KiwiSaver is locked in
It is locked in to age 65 or for 5 years, whichever comes later. It is not available except in dire circumstances and even then, it can take a long time to get it out. As a rule, do not save any more into your KiwiSaver than you need to to get your employer’s contribution and the government’s $10 per week. Save more but into a liquid investment.
Property syndicates are not liquid
In most cases, investors will own shares in the syndicate, but are not listed on the share market. To get your money out, you have to find another investor to come in, and that can take months or even years.
We avoid property syndicates as they lack liquidity and lack diversification too.
Only one type of property is liquid
Shares in property companies listed on the share market are liquid and can be bought and sold daily. E.g. Kiwi Income Property Trust, Property for Industry, Goodman’s Property trust, and quite a few others.
All other property types are not liquid and can take months or even years to exit.
Loans to family & friends
Usually they borrowed from you as they needed money, and so are unlikely to be able to pay you back in a hurry. Not liquid.
Supplied by Alan Clarke, financial & retirement adviser, & author.
His 2nd book “The Great NZ Work, Money & Retirement Puzzle” is now available.
Alan is an independent authorised financial adviser (AFA) FSP26532.
His disclosure statement is available on request and free of charge.