Safe way to stay out of trouble

IF you have a burning money issue, or you want to win a fight with your spouse, put your questions to Barefoot Investor.

Worried couple thinking

IF you have a burning money issue, or you want to win a fight with your spouse, put your questions to Barefoot Investor.

Q Scott,

The wife and I are both 75 years young, and I have recently cashed-in a small SMSF.

I do not have the confidence (neither does my wife) to get involved in direct share trading. 

We are looking for a secure income stream with security of capital, and we are considering: the La Trobe Pooled Mortgage Fund (which has won the Gold Award with Money Magazine for four years), and the Pimco Global Bond Fund.

Do you have any recommendations? 

Regards, Tony 

A Hi Tony, 

Steer clear of both of these investments: I don't like pooled mortgage funds. They may look secure, and pay a high regular income, but they're not covered by the Australian Government guarantee like bank deposits are. 

The same goes for the bond fund. Traditionally bonds have been safe, boring investments. Yet even exceptional managers like Pimco could be caught out when global interest rates rise - and bond prices fall. 

A safer option would be to keep 12 months' living expenses in an at-call cash account. Keep in mind that one of the biggest risks you face is outliving your money.

So, if you're looking for a growing income source, then look at investing in a listed investment company like Australian Foundation Investment Company (AFIC) or Argo Investments (ARG). 

ACCOUNTABILITY 

Q Hi Scott, 

We were advised three years ago to sell our Australian Foundation Investment Company shares (as we had ARGO as well), on our broker's advice. We then bought Leighton's Holdings ($37 per share) and the ASX ($37).

We have recently sold Leightons for $17.50 again on the broker's advice (realising a loss of about $18k). 

We would have been better off not trading at all from the start.

What really annoys me is that they still get their commission and don't have the client's best interest at heart. There is also no accountability. 

Cheers, Peter

A Hi Peter, 

Having been a broker I can see both sides. 

Your broker made a recommendation, and you chose to follow it. If he'd picked winners I'd have never heard from you. 

That being said, it doesn't sound like there was a lot of strategy behind your share picks, so you're quite right, that you'd have been better off sticking with AFIC, reinvesting the dividends, and saving on brokerage. 

The only person who consistently makes money trading is the broker - whether you win or lose. Which is why I don't trade - and why AFIC is at the core of my portfolio. 

YOU'RE A GOOD CATCH 

Q Hi Scott, 

I'm 27 and earning good money. I rent in an inner-city suburb of Brisbane and have an investment property in Melbourne, which returns a loss. 

My dilemma is this: I hate paying interest to the bank, and I'm not convinced that having an investment property is best for me.

I want to sell my property and invest the money into shares. However, I am being strongly discouraged by my folks, who are of the old school, meaning they think that "property affordability will only get worse and that it's a bad idea to sell up". 

I feel like I can't do a lot of the things my friends are doing, like travelling. I'm slowly passing my prime and I need to get out there to meet someone special. 

Cheers, Rob 

A Hey Rob, 

I showed your question to a higher power - my wife - and she strongly disagrees that you're "past your prime". You're 27, earning good dough, and you have shares and property investments. You, my friend, are a catch. 

Don't get emotional about the property. If you don't plan on living in it, treat it like any other investment. First figure out how long it will realistically take for the property to be cash flow positive - then work out whether you can wait that long.

Second, think about the opportunity cost of tying your money up in a property that will require more of your time to maintain, and likely offer lower growth, than investing in blue-chip shares.