Be wise about squirrelling away those nuts

THE Acorns app is a good deal for investors but watch out for the big banks getting in on the act and going after your nuts, writes Scott Pape.

Squirrel munching on nuts.

THE Acorns app is a good deal for investors but watch out for the big banks getting in on the act and going after your nuts.

JAMES ASKS: What do you think of the new app Acorns? Apparently it’s a new smart way to invest without too much thought. (Or perhaps it’s just a lazy approach?) I’m sceptical, but intrigued at the same time!

BAREFOOT REPLIES: Let’s back it up a bit. For those of you who don’t know, Acorns is the hottest thing in finance since Commsec’s Craig James appeared in the buff in Men’s Health magazine. The app was launched last year in the US and reportedly has 700,000 users, and it’s growing faster than Tom Petrovski’s caveman beard. Now it’s in Australia. Essentially, the app allows you to invest your pocket change into the sharemarket. Let’s say you buy a copy of Men’s Health for $9. You could tell the app to push the $1 into your Acorn account and invest it. You can also tell the app to invest $5 or $10 each day, or month. Importantly, there is no minimum amount you need to invest, and the costs are cheap (unless you only buy one magazine for the year): members with account balances up to $5000 get charged $15 a year, and anything over that cops a fee of 0.275 per cent of the balance per annum. It’s a good deal, and I like it. But watch out. You see, I think the big banks will offer their own Acorn-inspired apps in the not too distant future. It’s a great loss leader to capture kids, and later upsell them. The banks love getting their hands on your nuts, and having a nibble. Hold on to your acorns!

 

BRICK BLOWOUT

SANDRA ASKS: I’m completely stressed out. My husband and I are planning on building our new home, and we’re worried that we won’t have enough money when the build is over (let alone now!). Our land cost us $445k, and the house will be $280k. Our basic expenses will total $1300 a week (which at this stage does not include our kid’s school costs of $5000 a year). Hubby brings in $1100 a week, I bring in $300.

My question is this: should we bail now and sell the land, or wait until it is built?

BAREFOOT REPLIES: A couple of obvious observations: you’ve got $100 a week left over, so long as the car doesn’t break down, the fridge doesn’t go on the blink, and … your kids don’t go to school. Seriously Sandra, your numbers are tighter than Clive Palmer’s shirt buttons. Having just built a home, I can almost guarantee you that it’ll cost more than you’re budgeting for. It’s an incredibly expensive, draining process. The bottom line is that if you’re stressed out now, just wait until you’re a few months into the build. If I were in your situation I’d press “pause”, until you can increase your household income. You should only go into this with at least one month’s worth of living expenses — call it $4000 — and a weekly buffer of $300 a week (preferably more). That means either you go fulltime, or your husband picks up more work. It also means your kids go to a public school. What if you can’t do that? Simple. Sell the land and buy something you can afford. Bottom line, don’t sacrifice your family for a pile of bricks — your kids will love you no matter what home you’re in.

 

HIT PANIC BUTTON

BRIAN ASKS: My wife and I are 60 and 62. About a year ago (many years too late!) we realised we needed some financial guidance and approached a financial adviser whom our accountant recommended. He told us he believed he could make us $60,000 a year from our $380,000 super, and set us up in an SMSF (self-managed super fund). So far we have lost $110,000. He says “don’t panic”. Do you have any advice?

 

BAREFOOT REPLIES: I’d panic. I think that’s a perfectly acceptable emotion to be experiencing right now. After all, your financial adviser sounds like a crook. Seriously. I don’t know of any professional who would suggest to a client that they could generate a $60,000-a-year return from a $380,000 investment. That’s a 16 per cent return. If that’s really what he told you, he’s not only an incredibly bad money manager, he’s a bloody liar. Truth is, you went looking for a princess and you ended up kissing a toad. If it were me, I’d stomp on him.

BETTER TOGETHER

CANDICE ASKS: My husband works fulltime earning $87,526 a year while I work 27.5 hours a week and earn $38,818 a year. We have two children, aged 18 and 15. My husband’s wages are paid into an account in his own name, while mine is paid into a joint account. My husband gives me $750 per week from his wages and together with my wage I am expected to cover all of our expenses (home loan, insurance, utilities, school fees, children’s expenses and groceries). Should my husband be contributing more?

 

BAREFOOT REPLIES: No, I don’t think he should be contributing more. Honestly, I think you should have both your wages go into the one account — so you can make spending decisions like a family. What I’d want to know is this: he’s bringing home $1165. If he’s giving you $750, what’s he doing with the $415 a week? I annoy a lot of people when I say this, but it makes absolutely no sense to me that a husband and wife (who have children and are still on their first marriage,) would separate their finances. None whatsoever. In all the years I’ve been doing this, I’ve never seen separate finances work out well. How can you share your dreams and goals if you don’t share your money?

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

Originally published as Be wise about squirrelling away those nuts