Calculators beat crowbars if you’re smart enough

A BLOKE with a buzz-cut who smells of cheese sandwiches pats my inside leg, then snorts at me to go through the gate.

06/02/2009 BUSINESS: Scott Pape. The Barefoot Investor. HWT staff.

A BLOKE with a buzz-cut who smells of cheese sandwiches pats my inside leg, then snorts at me to go through the gate.

I’m entering the Melbourne Remand Centre.

For those of you who don’t know, that’s the place where people who are waiting to be sentenced are locked up. And, as I would soon be told, every single one of them is innocent.

In my younger days, I did my civic duty in this way — going into jails and talking to young offenders about their finances.

“What did you do?” asked a young man who had been banged up for “burgs”.

“Oh, I’m not an inmate, I’m here to help you manage your money,” I replied.

He stared straight through me: “You serious?”

Turns out, I was the one who got the education: they taught me how to hot-wire a car, and bust open an ATM. (And provided me with enough second-hand cigarette smoke to last a lifetime).

Most of them were facing long-term sentences and still the only thing that really interested them was making a quick buck.

In retrospect, I should have introduced them to the absolute masters of making easy money — the financial services industry.

I’m sure the inmates would be very interested to hear about the racket they’ve got going on.

Hey boys, put down your crowbar and pick up your Casio calculator. Let me tell you about a job which is almost guaranteed to make you a millionaire — and here’s the kicker: you don’t even need to be good at it.

The money keeps rolling in bigger and bigger each year. In fact, in this line of business, there are laws set by the Government that actually guarantee it.

It sounds ridiculous — but only partly — and the money is mind-boggling.

The billion-dollar losers

MEET the boys from the Financial Services Council. (Yes, they’re as boring as that sounds.)

They’re effectively a lobby group for the big four banks and the retail super fund managers.

And here’s the jig: lately there have been growing calls for their millionaire members to disclose how much they get paid to manage our superannuation money.

But the industry has argued people are not interested in these details … apparently we just don’t care!

Collectively, fund managers rip $6.2 billion in fees each year from our superannuation accounts.

Yet here’s the thing: nearly three-quarters of all Aussie share investment funds have failed to beat a “no-brainer” automated index fund over the past five years, according to S & P Dow Jones (which keeps a scorecard on these things).

But performance doesn’t seem to matter. Next year they’ll make even more.

Why?

Because every boss in the country sends them 9.5 per cent of their staff’s wages every year.

And very few people check what’s happening until they hit 50 (and even then most have no idea what’s going on with their super). This is the reason I’m such a huge fan of ultra-low-cost investing.

Why pay these bozos billions of dollars when the vast majority of them are losers?

As a postscript to this tale, the Financial Times reported this week that the industry is facing its own day of reckoning: Google is reportedly exploring ways to get into the fund management game. And anything that makes the industry more competitive is a bloody good thing.

QUESTION OF THE WEEK

Hi Scott,

First let me tell you, I’m a huge Barefoot fan. However, I read another commentator (with more grey hair than you!) who advised “those planning to negatively gear an investment dwelling should consider taking action sooner rather than later”. That’s me. With interest rates low, I’m looking to buy an investment property, have been for the past 12 months. Do you think they’ll scrap it?

Leslie

Hi Leslie,

It’s true, I don’t have any grey hair yet — but my son Lewis is working on it. While I’d like to see the Government scrap negative gearing (a tax break where an owner can write off their investment property losses against their tax), I don’t believe it will.

I’ve discussed this issue with politicians from both sides of the fence. While (privately) they understand that the policy works against young first-home buyers, they’ve got zero appetite to change it.

There are about 1.3 million voters who have negatively geared investment properties. Most of them are battlers — 72 per cent earn less than $80,000 a year, according to Tax Office figures. A Current Affair would have a field day with it. Bottom line: neither side wants to go down in history as being responsible for pricking the property bubble.

A more important question is why would you want to negatively gear a property in the first place? (After all, it’s basically a socially acceptable way of saying “I’m losing money”.) My opinion is different to that of most balding financial types, many of whom own multimillion-dollar property portfolios: forget about the tax savings (which require you to lose money) and focus instead on buying something that will put money in your pocket.

Tread Your Own Path!

Originally published as Calculators beat crowbars if you’re smart enough