Barefoot Investor: The chihuahua investment pretending to be a Great Dane

This term deposit alternative sounded almost too good to be true — until I did some digging into where the money actually went, writes Scott Pape.

I have got an old bloke who comes out and services my tractor.

Mostly we talk about hydraulics, but the other day he rifled through his overalls and pulled out an ad he’d ripped from a newspaper. Then he handed it to me with his grease-stained hands.

The ad was from an outfit called “IPO Wealth”, whose tagline is: “Are you tired of earning less than 3 per cent p.a. on your idle money?”

“They’re paying 5.3 per cent for a 12-month term deposit,” my mechanic mate said.

(It turns out he’s an old cocky who has the proceeds from the sale of his farm invested in low-earning term deposits, which is enough to qualify him as a “high net worth investor” suitable to invest with IPO Wealth.)

I studied the ad, which had a picture of a Great Dane towering over a hairless chihuahua.

“What do you think?” he asked.

“I think you’re the chihuahua!” I laughed.

He did not.

“But it’s a term deposit … so it’s safe, right?” he said tentatively.

“Well, that depends,” I replied. “Where will they invest your money?”

He shrugged his shoulders. I shrugged my shoulders.

Then he snatched the paper back from me, stuffed it in his overalls and turned back to the tractor. Awkward.

So later that night I did some research.

It’s clear that IPO Wealth is marketing its product as an alternative to term deposits.

Turns out the Great Dane is more of a chihuahua.

“The fund is considered by our investors as an attractive alternative to term-based investments, investment property and stock market investments”, their website says.

And it’s clear they’ve spent a shedload of money on advertising, including creating infomercials with appealing retired women talking about their investments with IPO Wealth.

And it’s also clear it’s working: IPO Wealth says it has taken $100 million in deposits in the past two years.

So where is all that money invested?

Well, it’s hard to tell. The fund lends depositors’ money on to a related party, a privately held investment group called Mayfair 101.

Mayfair 101 says its policy is “not to publish a list of its entire investment holdings as many of these assets are private companies”. Bugger that!

So I got on the phone and spoke to them directly, and they confirmed that Mayfair 101 has spent $31.5 million buying Dunk Island (an island south of Cairns that was wiped out by Cyclone Yasi in 2011) and has also invested in various cryptocurrency-related companies, a food app, and a host of other investments across 11 countries.

My old mechanic mate clearly didn’t understand that this was not a traditional bank term deposit (which would be covered by the government’s bank deposit guarantee if something goes wrong).

Yet I totally understand his frustration: with interest rates at all-time lows, it’s bloody hard for retirees trying to live off their interest. My worry is that income-poor retirees could be sold a pup.

They may believe they’ve got a Great Dane guarding their money … only to find out later it’s a hairless little chihuahua.

Tread Your Own Path!

Q&As

CAITLYN’S MUM GIVES HER SIDE OF THE STORY

The money Commbank pays cash-strapped schools is welcome. Picture: Hollie Adams

RITA WRITES: In response to your column last week about the Commonwealth Bank’s school banking program, I am “Caitlyn’s mum from Year 4” and I’m also the school banking co-ordinator for her primary school.

Yes, I am a volunteer. In fact there are four of us who volunteer on a regular basis.

Even though I run the program, I support the idea of removing big banks from school banking programs and have watched with interest the changes you are trying to make in the sector. But the one thing that keeps the program going at our school is the kickback from the bank — around $800 a year.

It is more than some of our other fundraisers! Anything that brings in dollars to the P & C is going to be difficult to get rid of.

BAREFOOT REPLIES: I totally understand that the money Commbank pays cash-strapped schools is welcome.

Yet the point is it comes with strings, and it’s your kids who’ll pay for it in the end.

Part of my submission to ASIC will raise your point, and I’m going to add that we need the government to put some money into this.

I’ve always said the CBA understands the value of our kids — it’s time our government did too.

REMOVE YOUR HUBBY’S TOY FROM THE SANDPIT

Women tend to have a much better BS radar than men, the Barefoot Investor says.

JENNIFER WRITES: How safe is ProfitiX MetaTrader 5?

My husband has recently signed up for this trading site at a cost of $300. I am nervous about the site as the reviews are not that great.

He gets calls every other day from a lady from ProfitiX, who always signs off by saying things like, “Why not put in $2000, or $10,000?” My husband, who is convinced it’s legitimate, even lets ProfitiX log in remotely to his computer (via TeamViewer). OMG!

BAREFOOT REPLIES: I totally love the name. It sounds like one of my son’s Transformers: “ProfitiX MetaTrader 5, BLAST OFF!”

You can almost feel the testosterone dripping out of it, right?

Now this will get me in trouble (send complaints to [e-mail]), yet in my experience women tend to have a much better BS radar than men.

And, Jennifer, your radar is working well: this is a currency trading platform.

Having your husband trade complex, highly leveraged instruments like this would be like me giving my six-year-old the keys to the car and telling him to stick it in “D” and give it a fang.

And the fact that your husband allows strangers to log into his computer tells me he’s not a highly analytical trader.

You need to protect him from himself: please take the Transformer from the sandpit.

EITHER WAY, IT’S TIME TO SPLIT

LISA WRITES: My housemate and I are both on the lease and we split the rent 50/50, paying separately. I am always on time, but my housemate is lousy at keeping up regular rental payments.

So, every eight weeks or so, we get an email from the estate agent reminding us to pay. It is not fair.

I am fastidiously going through my “Barefoot Steps” — saving to pay off my car loan and build up a house deposit. But I worry what damage my housemate’s bad rental history will do to my ability to get a home loan in the next couple of years. What do you think?

BAREFOOT REPLIES: Well that sucks.

But it’s also a rite of passage: we’ve all had a dirtbag roommate at one time or another (or been the dirtbag!).

Will being late on your rent affect your ability to get a home loan? Unlikely.

MORE BAREFOOT INVESTOR

For that to happen, your rental manager will have to be registered with a credit reporting agency, and they’re generally not.

Will it affect your mental health to live with someone who doesn’t share the same values as you? Absolutely.

So, in the first instance, I’d suggest looking into bill-splitting apps like easyshare or Splitr, and let the tech do the money-crunching and send gentle reminders. I’d also look at creating written rules around bill payments and household chores … and (if all else fails) moving out!

If you have a burning money question, go to barefootinvestor.com and #askbarefoot

The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice.

The Barefoot Investor for Families: The Only Kids’ Money Guide You’ll Ever Need (HarperCollins) RRP $29.99

Originally published as Barefoot Investor: The chihuahua investment pretending to be a Great Dane