Financial panic a passing fad

A FINANCIAL catastrophe of biblical proportions is set to happen. I know this because a number of people have emailed me. Seriously, I couldn’t make this stuff up if I tried, writes SCOTT PAPE

Beware of warnings of doom.

TOMORROW, a financial catastrophe of biblical proportions is set to happen. I know this because a number of people have been emailing me about it. (Seriously, I couldn’t make this stuff up if I tried.) So this week I’m devoting my column to the weird but always wonderful Barefoot mailbag. Keep your questions (and conspiracy theories) coming through at barefootinvestor.com

WILL THE SHEMITAH

HIT THE FAN?

QUESTION: Hi Scott, Should I be worried about the Shemitah? The Shemitah is the last year of the seven-year cycle in the Jewish calendar. It links to historical market crashes and is scarily accurate (1987 crash, 9/11 attacks). The next significant date is supposedly September 13, 2015, with a major economic collapse foreseen. I know that investing in the share market is a long-term proposition, but is it worth cashing out my stocks if it can be done with little or no loss, then holding off buying for a month or two? It’s got me spooked and I’m not even religious! Tim

 

ANSWER: I too am worried about the coming Shemitah. I have sold all my stocks — and my farm — and I’m currently hiding out at the Pie Face on Collins St waiting for the impending catastrophe to strike. (Which means I’ll be watching this biblical cataclysm with a semi-frozen pie in my hand, thank you very much.) In the past week I’ve received close to a dozen questions on this. It all appears to be coming from a 30-minute presentation on YouTube called “Surviving the Shemitah”. It features armed guards with gas masks, and advises viewers to stockpile “enough food, guns and water to last you a couple of months”. However, in the final few minutes the video moves from fear to greed when a man with salon-styled hair, and too much makeup, explains how “you too can become incredibly wealthy” by signing up to his newsletter. All it costs is $39.95 (every 90 days). So get in while you can. Come to think of it, better to wait ’til September 14 to subscribe. If their predictions are right, they’re sure to have a fire sale.

 

WHAT DO YOU THINK OF

STOCKSPOT.COM.AU?

Q: My question, as a newbie, is what do you think of the online investing service stockspot.com.au? They bill themselves as an ultra-low-cost financial adviser that invests without conflicts or kickbacks. I was thinking about starting an account with them for my son, but would like your opinion. Steve

A: Stockspot is a new breed of investment service referred to as a “robo-adviser”. While it sounds as sexy as a cyborg, it’s really pretty simple. Stockspot has built a computer program that asks you a few questions and then builds a cookie-cutter portfolio using ultra-low-cost index tracker funds. The Stockspot guys spend a lot of time banging on about their low costs, but they’re actually bloody expensive for what they provide. You’ll be hit with an annual whack of 0.8 per cent, plus a $77 fee, and you’ll also have to pay the underlying ETF (exchange traded fund) percentage-based fees. Bottom line: it’s like shopping at Aldi but paying 7-Eleven prices. Avoid it, and stick to AFIC, Argo, the ASX 200 tracker fund (code: STW) and/or the S&P US 500 tracker fund (code: IVV).

 

HELP, I’M GETTING

LEGGED BY AMP!

Q: My husband, Michael (48), has a super fund with AMP that he no longer contributes to. It is currently worth about $120,000. The problem with this fund is that the fees are around $2300 a year — the management fee is 0.46 per cent and the investment fee (which includes the cost of the Capital Guarantee) is 2.09 per cent. On top of that, the exit fee would be $9111. We would like to know if we should exit this fund (despite the fee) and reinvest the money. Sharee

 

A: This investment is a textbook example of everything that’s wrong with the financial planning industry. Someone, somewhere advised you to take out this stinking pile of investment turd — and that person will be enjoying a nice little kickback each year for their efforts, right up until your 65th birthday! The bean counters at AMP designed this investment product with their best interests in mind. They’ve got you by the short and curlies: you can’t leave because you’ll be whacked with an extortionate 7.6 per cent exit fee. My advice would be to drop the Capital Guarantee option (it’s too expensive) and move your balance to a low-cost growth investment option within the fund, preferably with an annual fee below 1 per cent, total.

 

DUMPED MY DEBT

- WHAT NEXT?

Q: A few months ago I wrote to you for advice, and you said “sell your block of land”. Well, since then I have sold the block and paid out the loan — and had money left to pay out my other investment property loan too. Now I have no debts whatsoever and I feel outstanding! I have $200,000 in a savings account, we own our home and an investment property outright, and I’m still earning over $150,000. So how do I set myself up to get a good tax deduction — buy another investment property? Chris

 

A: You sound like you’re in a great financial situation. Well done. Your next step is to work out how much you’ll need in retirement. The ASFA (Association of Super Funds of Australia) guidelines suggest that a comfortable retirement will cost a couple $58,784 a year. On those figures you’ll need about $1.2 million in super between the two of you. That’s a goal worth striving for. So if I were you, the only tax deduction I’d focus on would be contributing to your super, preferably via a self-managed super fund (SMSF) or low-cost industry fund.

 

FUTURES TRADING?

Q: I’ve been following your advice — I’ve built up my mojo and made my first trade on a low-risk index fund (STW). Then I read a story about a Japanese day trader who made $48 million short-trading leveraged futures on the Nikkei by taking advantage of Monday’s downturn. How can I get in on that action? Barry

 

A: You shouldn’t. In one of the largest studies on trading, researchers from the University of California, Berkeley, looked at 66,465 discount broking accounts from 1991 to 1996. People who traded underperformed the market by 6.5 per cent a year — before taxes and trading fees. In other words it’s gambling, and statistically you’ll lose your shirt.

Originally published as Financial panic a passing fad