I’m on Lithium

Hi Scott,

My wife and I received $370,000 from the sale of our house, which I decided to invest into an Australian lithium producer. But over the last six months the share price has halved, leaving me (on paper at least) with a very distressing loss. My question is: do I let this ride until things pick up, or am I in a situation that could get even worse?

James

Hi James,

This could get much worse — especially if you haven’t told your wife about the share price plunge yet.She will likely process your confession as follows: you have taken her security — literally the roof over her head — and gambled it away at the casino.And you know what? She’s right.

Dude! What the hell were you thinking? Are you on lithium?

A quick google shows me that it’s been a wild ride for lithium stocks lately. Two headlines from the same publication, just four months apart, tell the story:

November 2018: “Why I think these lithium miners offer great growth potential for investors.”

March 2019: “Have lithium stocks hit rock bottom?”

I have three (boring) rules when it comes to investing:

First, I don’t like investing in speculative companies that don’t have a track record of making money.

Second, I don’t like investing more than 5% of my portfolio in any one stock.

Third, I would never, ever invest money I thought I might need within the next 10 years (say, to buy another house) into the stock market. While good in the long term, shares are just too risky in the short term.

I’m afraid you’ve broken all three of these rules. And, if you’re tempted to keep playing at the casino, remember that things can always get worse from here.

My advice is to stop listening to investment gurus who can’t predict the future, and start listening to someone who has a real interest in your future: your wife. Sit down and make a plan together. 

Scott

All My Eggs in One Basket

Hi Barefoot,

Following your recent post about expensive super funds, I had an appointment with a financial advisor at First State Super, where my fund is held. After doing a ‘risk report’ on me, the advisor suggested I essentially ‘put all my eggs in one basket’ by investing 100% in high growth. I am in my mid-thirties with a hubby and three kids under five. My question to you is: would you put all your eggs in one basket?

Emma

Hi Emma,

I actually think this is good advice.

I’ve said the same thing in my book: young people should be in high-growth super offerings.

I took a look at First State’s High Growth Option, and it has:

• 30% invested in Aussie shares (think CommBank, CSL, Woolies and a couple of hundred other companies)

• 37% invested in international shares (think Facebook, Apple, Nike and over a thousand other companies)

• 30% invested in unlisted assets (like the Sydney Convention Centre and various hospitals and other large projects)

• 3% in cash.

So, while it’s true that you’re investing in growth assets, it’s not like you’re putting all your eggs in one investment.

Emma, you have at least 30 years before you can access your super — that’s more than enough time to ride out the temporary dips of the share market. In fact, the biggest risk you face is not having your money in high-growth investments at all.

Scott

ProfitiX MetaTrader 5

Scott,

How safe is ProfitiX MetaTrader 5? My husband has recently signed up for this trading site at a cost of $300. I am nervous about the site as the reviews are not that great. He gets calls every other day from a lady from ProfitiX, who always signs off by saying things like, “Why not put in $2000, or $10,000?” My husband, who is convinced it’s legitimate, even lets ProfitiX log in remotely to his computer (via TeamViewer). OMG!

Jennifer

Hi Jennifer,

I totally love the name. It sounds like one of my son’s Transformers: “ProfitiX MetaTrader 5, BLAST OFF!”

You can almost feel the testosterone dripping out of it, right?

Now this will get me in trouble (send complaints to scott@barefootinvestor.com), yet in my experience women tend to have a much better BS radar than men.

And, Jennifer, your radar is working well: this is a currency trading platform.

Having your husband trade complex, highly leveraged instruments like this would be like me giving my six-year-old the keys to the car and telling him to stick it in “D” and give it a fang.

And the fact that your husband allows strangers to log into his computer tells me he’s not a highly analytical trader.

You need to protect him from himself: please take the Transformer from the sandpit.

Scott

Is This a Scam?

Dear Scott,

Your Bitcoin scam article prevented me from losing $5,000. Thank you! However, it raises another question: Where can I find out categorically if Oasis Trade is a scam company?

Tegan

Hi Tegan

Yes it is.

Scott

$2 Shares?

Hi Barefoot

You have been sitting on my bedside table for a full 12 months! Yet, after a year of my fiancée threatening to not turn up to our wedding unless I read your book, I have read it and am raring to start investing. I am a Commbank customer (have been since my mother signed me up as a Dollarmite!), and I would like to know your thoughts on Commbank’s new app ‘Pocket’. It looks pretty good, and it only charges $2 to buy $50 worth of shares.

Chris

Hi Chris,

I’m always happy to help the groom make it past the broom!

I had a play around with Commsec’s new app ‘Pocket’, and I actually think it’s pretty good.

It’s clearly aimed at first-time investors who don’t have a lot of dough. As you’ve mentioned, you can kick off your portfolio with a $50 investment and only be charged $2 a transaction (though you’d want to invest more than that, otherwise it works out to be a hefty 4% fee!).

There are seven different ‘themes’ you can choose to invest in, which sounds cool, though they’re really just regular off-the-shelf exchange traded funds (ETFs). Still, they’re a much better deal than investing in an expensive CBA-Colonial managed fund.

Okay, that’s the positive. Now for one big negative.

The only reservation I have with all these investing apps is that they can lead to you checking your balance too much. Behaviorally, the best thing you could do is to delete the app off your phone and forget about it for a few years while you focus on your fiancée. Then you could give ‘Pocket’ a try.

Scott

The Stock Market is Freaking Me Out

Scott,

The ABC reported the other day that “ASX tumbles $60 billion on US recession, China slowdown fears”. I know you are a big supporter of buying shares, but how is an ordinary person like me (age 25, medium income) supposed to follow your lead when the market can lose $60 BILLION in one day? It freaks me out, and makes me think it’s a lot safer to just stay away from the market altogether.

Mandy

Mandy,

Mandy, Mandy!

At your age, you should be getting down on your knees each night and praying for a share market crash.

More than that, you should be hoping that the stock market falls and stays low for decades.

That’s not going to happen, of course -- though it would be the best outcome for you. Reason being is that you have 45 years of investing left, and you ideally want to purchase your shares while they’re on sale!

Remember, the share market is not only the greatest compound investment machine on earth, it has also never failed to reach new highs. In other words, the cheaper you buy today, the wealthier you’ll end up.

Scott

Motivational Misfire

Hi Scott,

I went to a Tony Robbins motivational seminar. What I didn’t know what that prior to the main show, there was a great deal of, let’s say, warm-up speakers, talking about fluff about how to get rich.  One of the guys was selling a share trading program. He had a very impressive style, and was very amiable, very charismatic … but I wasn’t buying it!

Still, I was bored waiting -- so I thought what the hell -- I put my hand up as being interested and went up the back of the room to listen to his spiel. I must admit, what he said got my attention. He said he was selling his share trading system for a good cause: to help build homes for poor people affected by a tsunami.

I watched, I listened, I questioned, I doubted, and then I thought ... I can do this! I can make this work!  (Even though I knew Scott Pape would say “NO!”). But I knew me and I was dog determined to make it work. So I paid him $20,000 for his trading package and got down to it.

I invested extra into a trading account, extra into flying to Sydney to go to live trade events. And I invested copious amounts of time. I’m still up at 1am, still watching the market, still feeling excited. And I am still waiting to see my return. I read your stuff, I read their stuff, I read loads of information. Guess what? I am still down $20k … and you know what, I am grateful for the experience.

Lisa

Why would Lisa say that she’s ‘grateful for the experience’ … of dusting twenty grand?

It almost sounds like she’s been kidnapped into some sort of cult!

Actually, that’s kind of what has happened. Lisa has Stockholm syndrome (definition: “Feelings of trust or affection felt in many cases of kidnapping or hostage-taking by a victim towards a captor”). The guru has worked hard to get Lisa to buy into the reality that she’s going to get rich.

The gold-plated guru says the only thing stopping her living this amazing life is knowledge.

And only he has that knowledge ... yet he’s willing to do her a favour and sell it to her for $20,000.

So if the trading program doesn’t work, it’s the guru’s problem right?

Wrong.

The guru can only do so much, so Lisa needs to work for it, and prove it to herself. And it may be that Lisa requires even more knowledge from the kind guru, in terms of high priced live trading events.

So just for this week everything is upside down:

It’s usually my answers where the learning happens, yet today the lessons come from the questions.

Scott

Where’s the Beef?

Hi Scott,

I am a proud and very passionate vegan who normally couldn’t give a stuff about investing. (Okay, so your book really helped me, but I have never get my head around investing in businesses that harm the planet for future generations). However, some of my vegan friends have been telling me about an amazing company called Beyond Meat that has perfected plant-based meat, which some food critics weren’t able to tell wasn’t meat. It’s backed by Bill Gates and a host of other smart people. Should I follow their lead, and if so how do I invest?

Bree

Hi Bree

As a farmer, I’ve been watching Beyond Meat for a while.

And I’ve been saving up your question until they had their IPO (initial public offering), so I could tuck into it like a juicy Sunday roast.

Grab your fork, Bree. Let’s chew some investment jerky!

Beyond Meat’s signature product is the Beyond Burger patty, which has 20 grams of protein, and by all accounts smells, tastes and even bleeds like a real burger (because of beetroot juice ... rather than blood). It’s a plant-based product, not meat grown in a lab. Coles actually stock their products at selected supermarkets, and in the US their burgers are sold in thousands of supermarkets and restaurants, like TGI Fridays.

It’s a massive market.

Aussies are some of the biggest meat-eaters in the world, consuming around 100kg per person per year!

(Think about your pipes, people!)

Globally, meat consumption has increased from 70 million tonnes in the 1960s to more than 330 million in 2017, according to the United Nations.

Why?

Because the world population is growing, and this is the wealthiest time in human history … and wealthier people eat more meat.

However, there are environmental impacts -- depending on who you believe, producing 1kg of beef requires somewhere between 550 litre of water (beef lobby group) or 100,000 litres (Greens Party). And then there’s the growing backlash from animal welfare and vegan groups.

So it’s not surprising that food conglomerates have been shovelling millions of dollars into producing a low-cost alternative. Beyond Meat debuted on the NASDAQ this week, and its share price rocketed 163% on the day.

In 2017, insiders were buying in at a reported valuation of million.Today, investors are buying in at a valuation of .6 billion!

Key point: insiders like Bill Gates and Leonardo DiCaprio got in to Beyond Beef at very, very low prices.

Now they’re selling their shares to the general public (via the share market) at very, very high prices.

They’re all eating rib eye … but are investors getting the ‘mystery sausage’?After all, Beyond Beef is still very much in start-up phase and has yet to turn a profit (in fact, last year the company lost million).

So what’s my advice?

Call me old-fashioned, but I personally don’t invest in companies that don’t make money, regardless of how attractive the future looks (and the more attractive the future, the more competitors a company will have).

However, if I were in your shoes, I’d probably have a crack: it’s something you’re passionate about, and if you believe in the company and the change it makes, put your money where your tofu is. You can buy shares through your bank’s online international share broker. The ticker code is BYND.

Scott

How to Prepare for the Coming Stock Market Crash

Hi Barefoot,

My husband and I are two to three years from retirement. Someone told him there will be a financial downturn this year in Australia and our superannuation will be hard hit. Should we move our super somewhere safer?

Clara

Hi Clara,

It sounds like your husband has been hanging out with a tarot card reader (or an economist).

(For my money, tea-leaf readers have slightly more accurate stock market forecasts, and a much better wardrobe.)

Okay, enough of the jokes!

The truth is that when you hit 60, you’re going to stress about money.

It’s unavoidable. Seriously, everyone over 60 I know stresses about the stock market.So let’s talk about how to prepare for it:

The first risk you’ll face is that a stock market crash happening just before, or shortly after, you retire.

(My old finance professor called this ‘sequencing risk’ — which is a fancy way of saying that a market crash in the years leading up to your retirement will have a significant impact on the future income you can generate from your nest-egg).

The second risk is that you’ll freak the hell out, sell at the bottom of the market, and go to the ‘safety’ of cash.

The third and final risk is that you’ll leave that money in cash, and get robbed by rising prices (inflation).

The best way to reduce all three risks is by doing the following:If you’re over 60, start aggressively building up three to five years of ‘Retirement Mojo’ — a cash buffer of living expenses. (If you think you’ll get a pension or part-pension, that’ll reduce the amount you’ll need to save to reach your buffer.)

Better yet, put it on autopilot — contact your ultra-low-cost super fund and request that all future super contributions go to a cash and fixed-interest investment option. However, you should keep the rest of your nest egg in growth assets (within your super fund) to keep your nest egg ahead of inflation.

That way, when the next crash does come -- and it will -- you’ll be able to say to yourself: “That’s Day 1 — it’s a good thing I have 1,095 days (three years) of living expenses set aside to ride this sucker out.”

Scott

Crypto Low

Hi Scott,

I have always put my savings in a long-term deposit bank account. However, starting about 12 months ago, I decided to use half of this money to invest in cryptocurrencies, and this resulted in a 90% loss. I then used the remaining of my savings in some blue-chip ASX shares that have delivered a 25% loss. Of my original $40,000 I currently have just $10,000! Should I accept this loss, cash out, and put my $10,000 back in the bank -- or hold?

Phil

Hi Phil,

Holy Moly.

This year really has been your ‘annus horribilis’, to quote the Queen. Now given your experience, you probably think everything is a scam. However, please don’t confuse punting on crypto and investing in shares. The small, but fundamental difference is that you are becoming a part-owner in a (hopefully) profitable business, that (hopefully) pays you a growing dividend.

So, what would I do?

Well, after suffering a 90% loss on your crypto, I’d mentally write them off as worthless, but continue holding them just in case crypto madness returns. However I’d hold and add to the blue chips over time. It’s the slow and steady accumulation of dividends that will make you wealthy. The rest is just noise.

Scott

Are You Taking Kickbacks, Barefoot?

Hello,

I have a simple question: does Scott or his team receive payments from Vanguard to recommend their products?

Peter

Hi Peter,

I have a simple answer to your simple question: NO!

But your question does give me a nice segue into something I really want to talk about:

Jack Bogle, the founder of both Vanguard and the first ever index fund (the S&P 500 — you’ve probably heard of it), died a few weeks ago.

Literally the day before his death I put in a request to interview him, hoping to hear his wisdom on what could be done about the embarrassment that is our fee-gouging retirement industry.

Sadly, it wasn’t to be.

But he’s a legend and you need to hear his story.

Jack Bogle was a rebel who set up Vanguard in 1975 as a non-profit.

Vanguard could have made him one of the richest people on earth. But it didn’t. Instead, he put investors first, with an unrelenting focus on lowering fees.

Warren Buffett regarded Bogle as his hero, saying:

“If a statue is ever erected to honour the person who has done the most for American investors, the hands-down choice should be Jack Bogle.”

Last year the Vanguard index fund beat around 85% of the 100 large cap Aussie fund managers. So faced with this overwhelming evidence why don’t our Aussie super funds embrace low-cost index investing?

In fact, that’s the exact question I was going to ask Jack.

Now I don’t want put words in his mouth, but my guess is that he’d point to the collective $30 billion a year in fees trousered by our super funds.

Or to quote the man himself:

“The miracle of compounding returns is overwhelmed by the tyranny of compounding fees.”

RIP Jack!

Scott

Reminder: I first wrote about this years ago and highlighted the low costs. Today there are better deals on offer. How do I know? Because my readers constantly email me about them! So before you do anything, do a quick google.

Buffett’s Secret Aussie Share Play?

Hi Scott,

I know you’re a fan of Warren Buffett’s Berkshire Hathaway. Well, there’s a relatively small listed investment company (LIC), called Global Masters Fund Limited (ASX: GFL), that invests in Berkshire Hathaway, UK shares and cash. It appears to have performed fairly well over the last five years or so. I am considering investing in it but have some reservations, like their exposure to the UK market given the Brexit situation. Is there any advice you can provide on weighing up a fund like this?

Terry

Hi Terry,

Yes, I’ve heard of Global Masters.

I wrote about them when they first listed in 2006, and then sent my column to Warren Buffett himself in the post (he doesn’t do email). A few weeks later, Buffett sent me a handwritten letter thanking me for alerting him to Global Masters, and for advising people not to invest in them.

As of 30 September the Global Masters portfolio has 63.8% invested in one stock, Berkshire Hathaway, 9% in ASX-listed investment company Flagship Investments, 6% in the Athelney Trust PLC, 6.3% in cash, and 14.7% in something they refer to as “other UK”.

(Interestingly, the Managing Director of Global Masters is also a director of Flagship Investments, and the Athelney Trust.)Global Masters estimates its fees at just 0.23%.

Which is fairly low. Cheaper than many exchange traded funds (ETFs).

Except … it’s not. Flicking open their annual report I see that shareholders also cough up for auditor costs, share registry costs, directors’ fees and admin costs. Put it all together and the true cost of investing through Global Masters is actually closer to 2.2% — and that’s bloody expensive!

So, Terry, considering you don’t even like the UK investments ... why not just Brexit?

With international brokerage fees as low $10 a trade (and there are some apps that are free, but they tend to screw you on the currency conversion), why not buy shares directly in Berkshire Hathaway (BRK.B) on the NY stock exchange?

After all, Buffett refers to his shareholders as partners, and treats them as such. A quick look at Berkshire’s annual report shows that he takes a salary of just ,000, and even reimburses the company for personal expenses.

Scott

This morning I arrived home from a family holiday from Bali

I’ve just arrived home from a family holiday.

As I opened my front door, I quickly realised I’d brought home a souvenir from Bali: bacteria.

Yes, I’m typing this bent over with a bad case of ‘Bali belly’. Yet nothing bad ever happens to a columnist, so I’m using my tummy troubles as an analogy for how the world financial markets are feeling right now:

Queasy.

And worried about what’s coming down the err … pipes.

Case in point, here are the headlines that greeted my arrival back into the country:

“House prices to fall 15%: Morgan Stanley”

“ASX plunges ‒ $50 billion bloodbath”

Pass the bucket!

However, I view these headlines as about as reliable as consulting Dr Google about my tummy troubles:

“Bloating? Cramps? Vomiting? You could have stomach cancer! And possibly rabies!”

So what is really going on with investment markets, and, more importantly, what should you do about it?

Well, at long last the markets have started paying attention to the fact that global interest rates are on the rise.

Yet this shouldn’t come as a surprise to my regular readers … I’ve been banging on about it for years.

In fact, way back in 2015 I wrote an article entitled “2018, The Year First Home Owners Get their Revenge”, in which I urged young people to start aggressively saving up for a 20% deposit so they’ll be prepared to take advantage of lower house prices.

And for people approaching retirement I’ve long advised to save up a buffer of two to three years of living expenses in cash (less any government pension payments) in their super, so they aren’t forced to sell when the real crash comes.

That’s the real rib-tickler: for all the doom and gloom headlines this week, global interest rates are still incredibly low, and they’ve only just begun rising. In my tummy analogy, what we’re experiencing is merely an uncomfortable rumbling.

Yet the truth is that we Aussies, by taking on record household debt at a time when interest rates are at record lows, have already swallowed the bug. As a result, plenty of overstretched people may well find their financial lives will end up in the toilet sometime in the next decade.

The most important thing to take out of this week is to ask yourself: am I prepared?

Trust your gut.

Tread Your Own Path!

You Made Me Rich! … Now What Do I Do?

Hi Scott,

Twelve years ago (May 2006), you wrote an article in the Herald Sun talking about why you were buying shares in Warren Buffett’s Berkshire Hathaway. I know the date because I followed your advice, and I am very glad I did!I remember looking at the share price at the time and was astounded that a single share could be worth $59.Well, it is worth $217 a share!Even better, the Aussie dollar has gone down since my purchase, so I am sitting on a 350% total return.I am wondering whether I should sell, because I could use the money to pay off my mortgage. And Warren Buffett, now 88 years old, is older than my grandmother. How long can he go on for?What are you doing with your Berkshire Hathaway shares?

Nina

Hi Nina,

I hope you bought a lot of shares!

If you thought the Berkshire Hathaway’s shares were expensive, just remember that what you bought was ‘Class B’ shares. The original ‘Class A’ shares are currently trading for $450,000 per share in Aussie dollars. That’s for just one share.

Yes, Berkshire is currently trading at all-time highs, for two main reasons:

First, Buffett’s decision to invest in his own shares, via a share buy-back.In other words, the greatest investor in history is essentially telling investors that he thinks his stock is cheap.

(Who are we to argue?)

And second, the US stock market is also at all-time highs. However, Berkshire is sitting on around billion in cash, presumably waiting to be greedy when other people are fearful.

For all these reasons, I’m not going to be selling mine. However, I’m in a different situation to you, and I don’t have a mortgage. Just make sure you need to factor in capital gains tax (CGT) when you eventually decide to sell your shares.Well done!

Scott

First Share Purchase and I’m Petrified!

Hi Scott,

I have just learnt that the value of shares I own have dropped by $5,000 since last week, from $25,000 to $20,000. In April last year I purchased them at $30,000, so they had already dropped $5,000. I want to sell immediately, but I talked to my girlfriend last night and she suggested I contact you. The shares are Audio Pixels, which is an audio company. This is my first ever experience with shares, and I want to cry. I have a high mortgage and can’t afford to lose $10,000 grand. I am petrified if I leave it there, but hate to take such as loss. Please help me quick!

Paul

Hi Paul,

Admittedly, I’d never heard of this company before, but Audio Pixels Limited has a very new-age sound about it:

“Audio Pixels Limited was founded in July 2006 [and] has developed a revolutionary technological platform for reproducing sound, thus enabling the production of an entirely new generation of speakers that will exceed the performance specifications and design demands of the world’s top consumer electronics manufacturers.”

Sounds impressive, but then my ears began bleeding as I flicked open their latest 2017 annual report:

Over the past five financial years Audio Pixels has lost a total of $17.76 million.

And in the past 10 years it hasn’t turned a profit … and there’s not even a squeak of the revolutionary speakers.

“A material uncertainty exists that may cast significant doubt on the Company’s and Group’s ability to continue as going concerns”, says their auditor Deloitte.

That doesn’t sound good.Paul, there are three rules I apply to investing:

1. Don’t invest with money you can’t afford to lose.

2. Don’t put all your money in one stock.

3. Don’t invest in businesses that don’t make any money.

Cobber, you’ve broken all three!

So what should you do?

Don’t pray that the share price returns to what you paid for it … because the share market is tone deaf to your prayers (much like Audio Pixel’s speakers). If I were in your shoes I’d sell this stock immediately, pay down your mortgage, and buy some Sonos speakers.

Scott

Is This a Scam?

Hi Scott,

I recently received an unsolicited phone call from an investing group offering to invest my savings in their share trading scheme. A promise of 18‒22% sounds attractive, but I could not find them or their associated company on the ASIC website. Is this a scam?

Trudy

Hi Trudy,

Yes it is.

Scott

Here’s What I Really Think About the Acorns (Raiz) app

A lot of people ask me about the youth-focused investing app Acorns.

Its ‘killer app’ is that it collects your spare change and invests it in the share market on your behalf.

The company recently changed its name to Raiz Invest, and this week it had an IPO (initial public offering) and became a public company trading on the ASX (ticker ‘RZI’).

If you’re one of the 160,000 young people who are already a Raiz user, or if you’re just an interested punter, you may be wondering if you should invest in RZI.

Well, thankfully, the difference between being a private company and a public company is kind of like the difference between going on a first date and going on your seven-year wedding anniversary: there’s a lot more disclosure.

So let’s take a look-see.

Raiz states in their prospectus that they make their dough by charging users maintenance fees, account fees, netting fees and advertising fees. Lotsa fees. However, these fees only amount to small beer for the company, because the average Raiz account balance is just $1,234 (not a typo!), according to the company.

Looking at their cash flow statement, it shows ‘receipts from customers’ in FY 2017 was $990,424.

However, ‘payments to suppliers and employees’ for the same period was $3,005,078 (also not a typo!).

Feel the burn, baby.

Raiz has recently launched a super fund version of the app (which is cheap, but not cheap enough for my liking), and is also expanding overseas by targeting kids in South-East Asia, which seems like a very slow ramp-up to me … I’m not sure how much spare baht teenagers in Thailand will have to invest.

So, how did Raiz’s debut on the stock market go?

Not well.

The share price plunged 20% on the first day. Though I don’t think it helped that ‒ of the $15 million the company tapped investors for ‒ $2 million was trousered by staff, including a $1 million cash bonus for the CEO.

So should you invest via the Raiz app?

I think it’s a great introduction for novice investors, which is why it’s been so successful. However, after a certain point the fees Raiz charges are too high for what amounts to a cute index fund app.

So should you invest in the Raiz company itself?

Based on what I’ve read, they won’t be getting any of my nuts.

After all, I’ve always thought of Raiz (Acorns) as being a little like your first teenage love:

Memorable, but you’re not going to stay with them long term.

Tread Your Own Path!

We Smell a Rat!

Dear Barefoot,

My wife and I desperately need your help. We have been following your wise advice for many years. We do not earn a lot (I am on $80,000 a year) but by implementing your plan we have accumulated $1 million in super, $250,000 in shares and $160,000 in savings. I am 64 and want to retire, so I went to see a financial advisor. He recommended we take all our super and invest it in five Vanguard ETFs plus an SPDR Dow Jones Global Real Estate Fund. We smell a rat ‒ do you?

Frank

Hi Frank,

Before we get into sniffing rodents, first let me give you a pat on the back: on your income you’ve played an absolute blinder — well done, mate!

Now, I don’t know what you’ve got a whiff of, but I’m not sure if we can call it a rat just yet. See, the Vanguard ETFs (exchange traded funds) and the SPDR (or ‘Spider’) ETFs are ultra-low-cost index funds — the fees are around 0.20 per cent, or $200 for every $100,000 invested. To quote financial rapper Jay-Z, “I got 99 problems but the fees on these ETFs ain’t one”.

That being said, things might get a little pongy if the advisor tries to wrap in substantial admin fees on top (not that I’m saying they will, but keep a close eye on it). Know this: on your balance, paying an additional half a percent will end up costing you an extra $100,000 in fees over the next decade. Ay caramba! That’s a lot of Coronas!

Look, if you’re going to invest your super in low-cost index funds — and that’s a smart strategy — I’d suggest you do it via an ultra-low-cost industry fund. You should be able to replicate the advisor’s stated portfolio for fees of less than 0.10 per cent, and under $100 a year in administration fees.

Sniff, sniff!

Scott

Reminder: I first wrote about this years ago and highlighted the low costs. Today there are better deals on offer. How do I know? Because my readers constantly email me about them! So before you do anything, do a quick google.

High Returns from Medical Cannabis?

Hi Scott,

We are in our mid-forties with a combined income of $110,000. We own our home and have an investment property worth approximately $420,000. We would like to further secure our future and are thinking of investing a small amount, $3,000 to $5,000, in shares in a medical cannabis company. We could invest more but, because we have never played the share market and do not really know anything about it, would like to start small. What are your thoughts, and do you think medical cannabis is a safe choice?

Christine

Hi Christine

The dot bong boom!

Mark my words, the medicinal marijuana business is set to explode. Analysts are suggesting that the domestic market could be worth $1 billion a year, and that the global market could reach as high as billion by 2025.

Even better, earlier this year the Federal Government gave the green light for exports of medicinal cannabis. Health Minister Greg Hunt sparked up a spliff and told reporters, “Australia is brilliantly placed to be a world leader in medical development and medical cannabis”.

Exhale.

So it is a good investment?

I have absolutely no doubt that medicinal marijuana will become a huge industry all around the world. And I also have absolutely no doubt that there are hundreds of companies around the world that are looking to cash in on this boom.

Listen, I have a simple, old-fashioned rule when it comes to investing: I only invest in companies that make money.

And none of these medicinal marijuana companies are making any money … yet.

Take the largest pot player on the ASX, the Cann Group. Its share price has had a phenomenal run, up close to 500% since May last year, and the company is now valued at around $350 million.

However, they’re also burning cash like Bob Marley rolling a spliff with a hundred dollar note: they lost $1,462,561 in the six months to 31 December 2017. Despite this, they still hit investors up for more dough, even though they admitted that they had no expectations of being profitable in the short term, and that their financial projections were unreliable.

Look, if you’re just getting started in the share market, don’t dabble in dope. Now, this is the straightest thing you’ll ever hear me say: call your super fund and make a tax-deductible contribution to your fund, man.

Scott

I’m Freaking Out Here!

Hi Scott,

As I write this, the Dow Jones has suffered its “biggest fall in history”. They are saying on Sunrise that our market will plummet today. I feel physically ill. I am 62 years old, earn $110,000 a year (I work in logistics for a government department), and am due to retire in three years — or at least that was the plan until today! I feel so stupid. This was the year I was finally going to sort my super, work through the steps in your book, and get on top of it all. But have I left my run too late? What should I do? Help! I’m panicking.

John

Hi John,

Thanks for your email, which brilliantly captured the madness of Monday’s market.

It’s like you wrote it on a plane just as the oxygen masks fell from the ceiling: “Captain Kochie says the market’s plummeting!”

But then after a few scary bumps the pilot’s voice comes over the PA saying “sorry about that, folks, we just hit some unexpected turbulence; everything is back to normal now”.

So adjust your tray table, resume your in-flight viewing, and notice that Kochie has gone back to dancing with the Cash Cow.

Okay, enough with the analogies.Monday saw some brief market turbulence, but there will most certainly be a crash at some stage.

That’s because, historically, the Australian stock market crashes every 10 years or so.The good news is that it’s not too late.

What I’m saying, John, is that you need to harness the fear you were feeling when you wrote me this email on Monday, and make sure you strap on your financial life jacket right now.

Here’s what to do:

First, get rid of any debt you have. Interest rates have never been lower — but that won’t always be the case. The time to get out of debt is right now.

Second, get rid of any dodgy investments you have. They fall into three camps: the ones your brother-in-law talked you into, the ones you’ve borrowed money for that aren’t paying their way, and anything you don’t understand. Ditch ’em.

Third, my advice to anyone over the age of 60 who is preparing to strap on the sandals and socks is to start aggressively building up three to five years of ‘Retirement Mojo’ — a cash buffer of living expenses. (If you think you’ll get a pension or part-pension, that’ll reduce the amount you’ll need to save to reach your buffer.)

Better yet, put it on autopilot — contact your super fund and request that all future super contributions go to a cash and fixed interest investment option.

Why would you do this?Well, my old finance professor called it ‘sequencing risk’ — which is a fancy way of saying that a market crash in the final years leading up to your retirement has a significant impact on the future income you can generate from your nest-egg.

I learned this first hand in 2008 when I saw many retirees watch in horror as their super got smashed. What did they do? They sold out at the market bottom … and locked in their losses.

Think of last Monday as a test-run, John. When the real crash comes, you want to be able to say yourself: “That’s Day 1 — it’s a good thing I have 1,825 days (five years) of living expenses set aside to ride this sucker out.”

That way you won’t end up having to rely on the Sunrise Cash Cow!

Scott