The Banker and the Dog

Scott,

My wife and I are 40, with two primary-school-aged kids. I seek your investment opinion. We are now mortgage and debt free, with $2 million in cash due to an inheritance. Our investment goals: long-term growth combined with cashflow return to earn $40k p.a. We are thinking 70 per cent in property and 30 per cent in shares. Our banker suggested UBS Callable Goals, which is linked to four Australian bank shares, maximum 3-year, which pays an 8 percent fixed coupon. What would you do?

Danny

Hi Danny,

OK, here’s what I took out of your question:

You’ve done well! The only thing that could hurt you now is if your friendly banker works out that you’ve got 2 million large burning a hole in your pocket.

I had a glance at the ‘UBS Callable Goals’ product he recommended you. My first thought was: ‘this is a pile of dog turd’, but on second thoughts, I don’t want to disrespect my dogs do-dos. It looks like a bunch of very smart bankers have conjured up a confusing product so they can make a boatload of fees (up to 3.75 per cent up front, apparently).

Yes, they’re headlining that you can get a potential return of 8 per cent (by writing options against bank shares), but the fine print shows that if there’s a ‘kick-in event’ you could lose 65 percent of your investment. But win, lose or draw, you still pay the bankers their fees.

Dude. You have $2 million bucks, so quit playing these silly games. A 5 percent dividend yield from a few old-fashioned, low-cost listed investment companies will generate you $100,000 a year. Peace.

Scott