Marathon of a sprint

IT has been a big week in finance, so let’s crack open the Barefoot mailbag and answer some of the your burning questions.

NOT FOR INTERNET... 15/12/2004 BUSINESS: The Barefoot Investor. Scott Pape. HWT staff.

IT HAS been a big week in finance, so let’s crack open the Barefoot mailbag and answer some of the your burning questions.

 

TAKE A QUICK PROFIT ON MEDIBANK PRIVATE?

QUESTION: I followed your advice and applied for some shares in Medibank Private. Are you advising to sell on the opening day at a profit, or hold for the long term?

Bruce

ANSWER: I plan on holding my shares for the long term. (Besides, the shares were harder to get than a table at Heston Blumenthal’s Fat Duck, so you probably won’t get enough to make a short-term trade worthwhile). That being said, I think we’ll make a 15 to 20 per cent return when the shares list on Tuesday, which is better than a poke in the eye with a sharp stick (and much better than having your money sitting in a bank account earning 3 per cent). However, like most things the honourable Finance Minister Mathias “The Belgian Waffle” Cormann does, the process of buying shares in Medibank Private wasn’t made easy, understandable or transparent.

Investors were forced to send off a cheque for the shares before they knew the final share price, and before they knew how many shares they could get. Clear as a chocolate waffle, right? Yet we can thank Cormann for fanning the flames of FOMO (Fear Of Missing Out), causing professional fund managers to bid up the price of Medibank Private shares, set to hit the market at around $2.30 when they begin trading on Tuesday — and they’re likely to go higher.

 

FINDING A FINANCIAL PLANNER

Q My wife and I are both 53, and for the first time are looking for a financial adviser to help us sort out our superannuation, and plan our retirement, but we’re worried about being ripped off! How do you find a good one?

Megs

A I understand your frustration, it can be hard to know who to trust. And in that regard, the people I trust the least are the Government. Thankfully this week they got rolled on their ridiculous plans to push through an agenda that has been (basically) written by the big banks and AMP. As a starting point, I’d suggest that you start your search by asking your family and friends for their recommendations. Failing that, your next step should be to contact your superannuation fund, and ask for an obligation-free meeting with one of their financial planners.

Regardless of who you end up seeing, my advice is to treat them the same way you do your plumber — pay them by the hour. The best advisers do an incredible amount of good, especially in terms of organising your risk planning, and they want to be regarded as professionals, not as product floggers.

 

BIG CHEQUE FOR A YOUNG BLOKE

Q You were recommended to me by a teacher of mine, but I’ll cut to the chase. I’m likely to be inheriting $20,000-$200,000 upon turning 18, and apparently when it comes to money you’re the guy to talk to. What would you recommend I do?

Sam

A That’s a big range: $20,000 to $200,000! But no matter — the Barefoot Investor’s Golden Rule of inheriting money of any amount is to honour the person who gave it to you. You can do that by using the money to set yourself up for life. So let me give you three suggestions. First, go to your school library and borrow a copy of the Barefoot Investor. You want to make this money work for you, and my book will teach you how to do it. Second, use some of it to buy your first car (that’s what you planned to do anyway, right?), but make it a challenge. Only put in as much as you’ve been able to save yourself from your part-time job. Third, lock away the rest in an investment bond (with a high-growth shares option) for 10 years. You’ll be 28 by then, and hopefully you’ll have got most of the crazy out of your system. If you inherit $100k, it should be worth around $200k in today’s dollars by then, and you can withdraw it without paying any capital gains tax. That’s enough money to put a very big deposit on your first home.

And if you can pay off your home before you’re 40, you’ll be on your way to being a millionaire, and will never have to worry about money again. In other words, you’ll have achieved our Golden Rule.

 

WHAT’S YOUR HOTTEST STOCK?

Q If you could buy one stock right now (not AFIC!) what would it be, and why?

Mark

A If you twisted my arm, I’d say it’s Woolworths, which is currently hovering around 12-month lows. There’s a couple of reasons it’s in the sharemarket sin bin: analysts are worried about increasing competition from Aldi and Costco (which has been overblown), and its Masters hardware franchise is a dog with fleas. However, the main game is groceries: Australia has some of the fattest supermarket profit margins in the world, and Woolies and Coles basically carve up the market between them, controlling roughly 80 per cent. Remember, the way you become wealthy is by buying great businesses that have temporarily fallen out of favour. It’s simple. And it works.

Tread Your Own Path!

REMEMBER, IF YOU’VE GOT A BURNING MONEY QUESTION, OR YOU WANT TO WIN A FIGHT WITH YOUR SPOUSE — SHOOT OVER TO BAREFOOTINVESTOR.COM AND ASK ME A QUESTION.

Originally published as Marathon of a sprint