How to Earn 7.35% on Your Savings

Hi Scott,
 
I’m not your typical Barefoot reader. I’m a senior executive who reads the Australian Financial Review (AFR) and has a digital subscription to the Wall Street Journal. In other words, I’m well read! I have been lately interested in private credit, which has exploded in popularity since the GFC, after banks stopped lending to businesses. Specifically, I read about a new product by fund manager Pengana (and Mercer) called TermPlus which is currently paying 7.35% per annum. What are your thoughts on this?
 
Raymond
 
Hey Ray!
 
Well, you do sound like a very smart sausage.
 
Funnily enough, investing in private credit is a lot like buying snags: in both cases the key question you want to know is “what went into the sausage?”.
 
Was it pork? Chihuahua? Toenail clippings?

Similarly, I’d want to know who these fund managers loaned the money to, and, more importantly, how these borrowers are coping after 13 consecutive interest rate rises.
 
To scratch my itch, I went digging through their product disclosure statement (PDS), but alas it was like reading a Dr Suess book – completely nonsensical. The only thing that stood out was the fees, which are outrageously high – 1.94% per annum, plus an additional 1.01% performance fee. Talk about green eggs and ham!
 
Look, staying the hell away from whatever Wall Street is selling has served me well in my career – and private credit is being sold really hard now. It’s being touted as a way to earn much higher returns than a bank term deposit, without the risk of shares. If only it were that simple.
 
It’s not that simple.
 
The managers are making a fortune in fees, to be sure, but it’s the depositors who are ultimately taking the risks. And remember these funds are not guaranteed by the Australian  government, the way that traditional bank term deposits are up to $250,000.
 
Truth be told, I’m very conservative, but that’s because I still have PTSD from dealing with heartbroken retirees who were sold (supposedly low-risk) investments that were paying higher returns than bank deposits, and who ended up having their money frozen or lost.
 
My view?
 
A good term deposit will generate you roughly 5.25% per annum, guaranteed by the government. That seems like a decent place to park your short-term cash (money you don’t need in the next five years should be invested in low-cost index funds).
 
Phil, I know you’re well read, so perhaps I could point you to my son’s favorite nursery rhyme book and his favorite ditty, which makes a compelling case for the risk of private credit lending that their PDS doesn’t: “Ten fat sausages sizzling in a pan, one went ‘pop’ and another went … ‘BANG!’”.

Scott.

Watch Your Back, Barefoot

Scott,

I like you. And I like your advice. Which makes me want to give you some of my advice. Watch your step. You’re a finance guy, right? Let me run some numbers by you: you said the three credit bureaus in Australia made $521 million collectively. You are challenging their entire business model. Do you see where I am going with this? You are a pretty bright fellow, and I respect your advice (and BIG BALLS!). Just remember, an American president got murdered in broad daylight.
 
Tony
 
Hi Tony
 
Thanks for your concern, but I don’t think the credit bureaus take me very seriously. After all, they have highly paid lobbyists who have better access to politicians than I’ll ever have.
 
Still, I think locking your credit file is one of the best ways to safeguard your identity, and to stop scammers who’ve accessed your personal details via a hack from applying for credit in your name.
 
The most logical solution would be to put a ‘lock and alert’ system on all credit reports. That is, give people the ability to lock their credit file so no one can see it (without the customer’s consent) and send an immediate two-factor-authenticated alert to the customer if someone tries to access it.
 
 In America, the government forces credit bureaus to offer exactly this service. I’ve asked federal Finance Minister Stephen Jones why he doesn’t follow their lead. He told me he’d look into it, but I haven’t heard anything for months. Bang!

Please open this right now, it’s very important

Today I’m going to show you the exact steps that will stop scammers from running up credit in your name.

Best of all, it’s fast, easy, and free.

Yet before I do, I want to take a moment to reveal the name of a company that made MILLIONS from the Optus Hack.

That company’s name is Equifax and they’re a credit bureau.

This week, in a blind panic, Optus agreed to purchase 12-month subscriptions to Equifax’s ‘Credit Protect’ service for their most affected customers. This service sends an alert if your credit file is accessed (by a scammer applying for credit in your name using stolen docs), and it costs $14.95 a month per person.

That’s not just a huge amount of dough for Equifax, it’s insanely great advertising to boot!

So let me square the ledger …

Equifax is the financial equivalent of Mark Zuckerberg. They hoover up your personal private credit information and sell it off to any financial institution they damn well please. Yet unlike Zuck, if you want to monitor who they’re pimping your private data out to, well, you have to pay them $14.95 a month*!

*Except you don’t.

I’m afraid Optus has been scammed again.

They didn’t need to pay Equifax all that money. There’s a much better workaround, and it’s free.

I want you to pay close attention to this, even if you aren’t an Optus customer. After all, just this week Standard and Poor’s came out saying that Aussie banks are among the most vulnerable to a cyber attack in the region because of their work from home policies and all the stuff they’ve got in the cloud.

Bottomline?

This isn’t the first mass hack, and it won’t be the last.

Now, I don’t think simply having an alert on your credit file provides you enough protection.

Here’s the way I think about it:

An alert is like having a security camera on your front door.

You’ll get an alert that you’re getting robbed … but your TV still gets flogged!

If you are scammed – and one in four Aussies have been – it can take upwards of 30 hours to sort everything out, (most of which involves sitting in long telephone bank cues, listening to Daryl Braithwaite’s Horses.)

Instead, what you want is a big arse lock on your door that makes it impossible for the robber to get in your house.

Thankfully there is one app that will let you put a lock on your credit file.

That company’s name is CreditSavvy, and it’s a division of the Commonwealth Bank. (The fact that they’re owned by big yellow gives me a certain level of comfort … though I still wouldn’t trust them educating my kids).

Creditsavvy bills themselves like a fitness coach for debt, which in itself is kind of weird. Their schtick is that they calculate a personal ‘credit score’, which for me is about as useful as the score I give my four year old daughter’s nightly dance concerts:

“10 out of 10 Honey, BRAVO!”

In both cases we’re just needy adults desperately trying to keep your attention. (Credit Savvy makes its money by selling leads to finance companies to get you into debt).

However, part of their app that I’m interested in allows you to lock your credit file with a swipe or click of a button.

So here’s what I want you to do, step-by-step to lock down your credit file so that scammers can’t rip you off.

Step 1: Download the Credit Savvy app (either in the Apple or Google app stores).

Step 2: Verify your details (I used my driver’s licence and Medicare card).

Step 3: Press “protect” from the bottom navigation.

Step 4: Press “Request a ban”. Credit Savvy will then let the other credit agencies know you’ve got a ban on your file within 2 business days.

Step 5: On the 16th day the Credit Savvy app will remind you that your pause is ending. When you get that alert – and this is important – click “ban my credit report for 12-months”.

And that’s it!

From then on if anyone tries to access your credit file, the Credit Savvy app will alert you.

Though it will also be locked so the bank or financial institution won’t be able to access your file. However, this will not count against you. To be clear, it will not harm your ability to take out credit.

Now if you are applying for credit (or say moving home and applying for utilities and the like), all you need to do is temporarily lift the ban on your credit file for a week or so. And then put that lock straight back on using the Credit Savvy app.

Tread Your Own Path!