Could We Lose All Our Money?

My husband and I are working through your book, but we are stuck at the superannuation chapter. We both work for the Queensland Government and have our super in the QSuper Lifetime Aspire fund. The fee is 0.9%, which is just above your recommended 0.85%. QSuper feels ‘safe’. If we changed to another fund, can we be sure we are guaranteed by the Government? Could we lose all our money?Thanks,

Merryn

Hi Merryn,

Let me clear this up: you are not guaranteed by the Government if you lose all your money in super. (That only happens with money you have in the bank -- see the question above.)

Instead, your superannuation fund is a trust, and the trustees of the fund are legally obliged to act in your best interests (as the Royal Commission has shown, some do a better job of this than others). QSuper appears to be doing a good job: they’re a not-for-profit industry fund that charges competitive fees, and they have a decent track record.My advice would be to call up the fund and request to sit down with one of their advisors, and have them help you select the most appropriate asset mix within your current QSuper fund. Why? Well, a Vanguard study showed that 90% of your returns comes from the asset allocation you choose. Make that your focus.

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.

Bailing Out My Boyfriend

Hi, I’m a huge fan!

My boyfriend is currently working overseas, and we plan to ‘go Barefoot’ when he gets back so we can tackle our debts. My accountant suggested we first pay off the personal loan my boyfriend got, which he consolidated his credit card debt into -- a loan that was only possible with my name on it. The accountant suggested using my inheritance, which I currently have in our joint offset account. Trouble is, my boyfriend now has another credit card and I worry I would be bailing him out again! What should I do?

Mel

Hi Mel

Your accountant is just looking at the digits:

The interest on the personal loan is costing you more than the offset, so you could save money by extinguishing that debt. And given you’ve already contracted an STD (Sexually Transmitted Debt) -- that is, you’re now both jointly and severally liable for repaying the loan -- it makes total sense financially.

However, if I were in your situation, I wouldn’t repay the loan.

(Actually, I wouldn’t have co-signed the personal loan in the first place, but I’m a little Judge Judy like that.)

First, because you don’t want to set up the expectation that you’ll reward his dumb behaviour.

And second, because you’re already giving him a helping hand. By keeping your inheritance parked in your joint offset account, you’re already effectively lowering your mortgage repayments, giving him a fantastic opportunity to ditch the credit card and domino his debts.

I’d sell it this way: this is an excellent way to show his commitment to both the Barefoot plan, and you!

Scott

The Best Thing I Ever Saved For

Dear Mr Pape,

I bought your book while in severe financial difficulty — I actually had to save money for six weeks just to buy it! Anyway, I am 10 months in and will never look back, having managed to pay off $25,574.23 worth of debt. I still have a fair way to go, but I am churning through it. Thanks heaps!

Callum

Hi Callum,

Dude, you could have loaned it from the library!

What I love about your email (okay, testimonial), is how detailed you are with your digits:

You haven’t just paid back ‘twenty five grand’, you’ve calculated it down to the cent!

A report this week by NAB found that 20% of Aussies said they don’t have even a cracker saved up.

Don’t let that be you.

If you’re following my plan, you should have nailed the first step: open your separate Mojo account, with an initial $2000 deposit. And if you don’t have a spare $2000, look around your house and see what you can flog on Gumtree.

Scott

The Giving Game

Hi Scott,

My daughter would like to donate the contents of her money box to a charity. I really want to take her to one in person, rather than doing it online, so she can be a part of the process. But I am finding it increasingly challenging to find information on where we can do this ‒ none of them seem to want to interact in person. Any ideas?

Jill

Hi Jill,

I think there are more meaningful ways to teach giving than handing over cash.

Instead, my experience is that food is the perfect way to teach your kids about giving.

Reason being, every kid knows what it’s like to be hungry: you can’t concentrate, and you’re irritable until you eat.

So, you can explain that on a typical day roughly three kids in her class will arrive at school hungry or without having eaten breakfast, according to Foodbank. (This explains why approximately 1,750 schools across the country have Breakfast Clubs, to ensure kids are getting their most important meal of the day. They’re in poor areas. They’re in wealthy areas. They’re in my home town.)You can also explain that just because you can’t see their tummies rumbling doesn’t mean they’re not hungry.Not only is food a powerful metaphor for kids, even better, your kid has the chance to do something about it.

Last year charities across Australia had to turn away 65,000 hungry people each month because there wasn’t enough food to go around.

However, there’s no need to start feeding the masses bread and fish like a motivated messiah.

Instead, when you’re next walking around the supermarket, ask your kids, “What can we buy for hungry people?”

You can donate things like canned foods, spreads, coffee, flour, sugar and baby food. Have your kids bring along some money from their Give Jar so they can buy food with their own money, and then on the way home you can drop it off at the local Foodbank warehouse, or your local community charity that distributes food in your area (you can find their contact details from your local council).

Scott

The Dollarmite Rebel

Hi Scott,

I purchased your latest book, The Barefoot Investor for Families, and gave it to my nine-year-old son, who has taken to it like a duck to water. He is enthusiastically helping with cooking, and has set up his three jam jars. He has a presentation at school coming up and, due to inspiration from your book, he wants to do his talk on why his school should give Commbank the flick. I don’t want to discourage him, as I too believe in the cause -- but is it something best left for parents to bring up with the school?

Barry

Hi Barry

What do I reckon?I reckon this sounds like a life lesson he’ll remember for years to come.Here are a few things I’d talk through with your son:

Explain that a credit card is a very expensive loan from a bank. Young people often get themselves in a lot of trouble with credit cards by borrowing too much. Credit cards tend to make everything you buy much more expensive. For most people -- especially young people -- the best credit card is no credit card.And perhaps he could ask:

Why does Commbank’s Start Smart Program teach kids -- in grade three -- about the benefits of credit cards?

Then he could ask his teachers:

Have you ever got in trouble with a credit card?When we get older, should we get one?

A big part of financial education is to be skeptical about what banks (and advertisers in general) offer up.

You’re teaching your son to be an independent thinker and to intelligently and respectfully question authority.

In this case, he’s got truth on his side: there is no justification for allowing a bank to spend millions of dollars for the exclusive right to teach our kids this core life skill, much less for rolling out a marketing program that is worth, according to one analyst, as much as $10 billion!

Let me know how he goes!

Scott

The 3 books I’m giving for Christmas this year

Christmas shopping sucks, right?

Not for me.

Years ago, I cracked the Christmas shopping code: I buy people books.

Although I must confess, last year it didn’t work out so well.

I bought my mother-in-law Marie Kondo’s The Life-Changing Magic of Tidying Up.

She opened the present, scanned the title, and the look on her face said it all.

“Oh, I’m not saying you’re a hoarder … it’s just … a really good book. Merry … Christmas”, I added.

Silence.

Anyway, you’re not going to be that stupid, so here are the books I’ve got in my Santa sack this year:

Factfulness: Ten Reasons We’re Wrong About the World — and Why Things Are Better Than You Think

Bill Gates says this is one of the most important books he’s ever read.

Author Hans Rosling systematically unpacks fake news, sensationalist clickbait, and doom-and-gloom headlines with cold hard facts: actually, in almost every way, the world is getting much better.

While the media reports obsessively on the latest drama of the moment, the upward movement of human progress marches on with little fanfare. This book shows you how to look at the world in a rational, fact-based way.

A perfect gift for your manic-depressive, we’re-going-to-hell-in-a handbasket, MAGA-hat-wearing brother-in-law.

Where Are The Customers’ Yachts?

This year we’ve watched — gobs agape — at the sheer rat cunning of financial institutions: charging dead people for advice, ripping off the mentally disabled, and billing for advice they never gave.

Has it always been this bad?

Hell, yes!

Almost 80 years ago Fred Schwed wrote the book Where Are The Customers’ Yachts?

The title of the book comes from a legendary story about a visitor to New York who stands admiring the expensive yachts of the Wall Street brokers. He naively asks, “Where are all the customers yachts?”

Of course, there were none. As every bank CEO knows intuitively, the really big money is made in providing financial advice, rather than receiving it. This book will make you laugh and cry.

A great book for anyone who is reviewing their super fund fees over the holidays.

How to Break Up with Your Phone

Our phones (and the apps on them) are designed to be highly addictive. They manipulate our brains, suck up ever increasing amounts of our attention, and capture the one true resource we can never replace: our precious time.

Author Catherine Price explains how phones are changing our brains, and provides a four-week program that shows you how to break up with your phone and form a healthier relationship with your screen.
A great gift for … me.

And yes, you guessed it, I’ll also be gifting my book, The Barefoot Investor for Families.

I’ll confess: while I originally wrote the book for parents and grandparents, a huge surprise for me has been how successful the book has been with kids. I’m pitching it as a perfect stocking-filler. After all, the skills the book teaches will set their kids up for life. And that’s a pretty cool Christmas present to give, right?

Tread Your Own Path!

Why Afterpay is the marijuana of credit

I think of Afterpay as the financial equivalent of marijuana.

Young people absolutely love it, and old people are doing a lot of finger-waving about the dangers of getting hooked on the newest financial drug to hit the streets.

This week the financial equivalent of a teacher, ASIC, busted into the school locker rooms (quick, hide the bongs!) and attempted to clear the air by holding its first review into the phenomenon that is ‘buy now pay later’, otherwise known as ‘young people’s layby’, otherwise known (by me) as ‘financial weed’.

Here’s some of what ASIC found:

The majority of Afterpay customers are millennials.

One in six of them are in financial strife … getting overdrawn, delaying bills, or borrowing more.

And these services are hot: the number of transactions has risen from 50,000 a month in April 2016 to 1.9 million in June 2018, with the collective tab now at a whopping $900 million plus.

Now, understand there’s nothing really revolutionary about Afterpay — men in grey suits have been dreaming up new ways to get people to spend money they don’t have since long before Bob Marley rolled his first spliff.

This is just the latest incarnation. (Case in point: when I was at uni the bank gave me a student banking package that bundled in a credit card with a $3,000 limit ‘just in case’, and effectively trained me to see their credit limit as my money. See? Same, same but different. Even the excuses are similar: “Oh, but if I pay off my credit card in the 55-day period, it’s free!”)

My opinion?

The actual terms on Afterpay are not that bad. As long as you pay off your instalments on time, you won’t be charged any interest or fees. So, as far as consumer credit drugs go, it’s not too heavy. Your financial life won’t be ruined by taking out a few Afterpay loans.

So chillax, right?

Well, no. See, the reason I compare Afterpay to weed is that it acts like a a gateway financial drug: it’s effectively training young people to rely on the bank’s money rather than banking on themselves.

Case in point: Afterpay claims their average purchase is $150.

A hundred and fifty clams!

Seriously, if you need instalments to cover $150, you need to check yourself before you wreck yourself.

And, once you get hooked on spending someone else’s money, there’s every chance you might graduate onto harder stuff — other millenial credit-drug dealers who really rip you off.

Who knows? Maybe in the future we’ll have before and after photos like they do with meth heads:

Before: This is a fresh faced Emma, aged 18, buying a pair of pink pumps on Afterpay.

After: This is a stressed out Emma, aged 23, buying scratchies with her Nimble loan.

Seriously, you’re never going to win if you don’t learn to stand on your own two feet and pay your own way.

And that’s why the ‘buy now, pay later’ phenomenon … is true to label.

Get hooked on this junk and you’ll pay a very high price later.

Tread Your Own Path!

Southern Cross Travel Insurance

Hi Scott,

This question is for my brother. After being diagnosed with serious bone cancer in March 2017, he proceeded to apply to his travel insurer -- Southern Cross Travel -- for a refund on his overseas trip, planned for April 2017. But Southern Cross have refused to pay up the $4,000. His doctors are at a loss as to why they won’t pay -- fairly cut and dried they thought. How damn sick do you need to be? Please help!

Nick

Hi Nick,

I read through Southern Cross’ Product Disclosure Statement.

It’s pretty clear: “This policy automatically includes cover … for actual and reasonable losses incurred by you because of an unexpected event, if you have to cancel or change the dates of your journey before leaving Australia.” And it details one of the ‘unexpected events’ as the “diagnosis of a terminal condition, or a condition requiring radiotherapy or chemotherapy”. They say they’ll pay up to $2,500 on a single trip.

Like your brother’s doctors say, it seems pretty cut and dried, so perhaps I’m missing something.

Or maybe it’s Southern Cross that’s missing something. Most big companies have sophisticated media tracking systems which alert them to when their names are mentioned in the media.

So, since this column is being published across the country, maybe they’ll pick it up.

Just in case, let’s throw in a few keywords: “Southern Cross Travel Insurance Fair Suck of The Sav”.

Let’s see if Southern Cross Travel Insurance reviews your brother’s case and, if he’s in the right, pays the claim.

Over to you, Southern Cross Travel Insurance.

Scott

Does Renting Now Make Sense?

Hi Scott,

I would like your thoughts on something that is bothering me. Forecasters think that house prices are set to fall at least 5% over the next year. If you buy a million-dollar house now, in a year you will have paid 4% stamp duty upfront and 4% interest in servicing -- and suffered a 5% drop in value. That’s 13% gone, wiping out over half of a 20% deposit! Isn’t renting at a 3% to 4% yield better? Should there be a ‘Barefoot Warning’ that rent money sometimes is not wasted?

Dee

Hi Dee,

My warnings for first home buyers aren’t about falling property prices, but rising interest rates.I devoted an entire chapter to it in my book: it’s called ‘The Curious Case of the Postcode Povvos’ … first home buyers who live in cafe suburbs … but can’t afford a coffee because they’re a slave to their mortgage.

In that regard, I totally agree that rent money is not dead money if you can’t afford to comfortably service a mortgage and have a commonsense buffer for higher interest rates (which will come at some stage in the next decade).

My view?

With falling prices, there is absolutely no rush to buy your first home. Yet don’t get paralysis by analysis. You’ll pay stamp duty and interest whenever you decide to buy. So, once you find a home you love, that you can afford, and that you will live in for at least a decade, buy it.

Scott

Boost My Super Just By Shopping? SuperSuper!

Hi Scott,

I am hearing a lot of advertising for SuperSuper ‒ a shopping rewards program that pays rewards directly to your super account with GuildSuper. It’s targeting women, enabling us to boost our super balances by doing nothing different ‒ we are shopping anyway! What are you thoughts on this?

Louise

Hi Louise

I actually heard SuperSuper advertised on the radio, and my first thought was:

“Well, this sounds like the financial equivalent of a Spice Girls song.”

Girl Power! Yeah! We can shop and save for our super!

So I’ll tell you what I want, what I really, really want.I want a super fund that doesn’t zig-a-zig-ah: GuildSuper has underperformed an average super fund over 1, 3, 5, 7, and 10 years, according to Superratings. I assume this is because their fees are a little, shall we say, Scary Spice. At 1.38% per annum plus $95 a year.

Bottom line? Any money you save from their slick shopping campaign, you’ll give back in higher fees and lower returns (and then some).

So, if you want to be my (super) lover, you’ve got to get with my plan.By all means score rewards from shopping, but you don’t need GuildSuper to do it (though hats off to GuildSuper for making it super … simple).

All you need to do is Google “Woolworths discount cards” and you can get 5% off your shopping. (Tightarse tip: most retailers offer these discounts if you buy their gift cards or e-vouchers … because they bank on a certain percentage of people losing the cards or forgetting about them, and they’ll pocket the money.)

Then, take your savings and make a contribution into an ultra-low-cost index super fund.

Spice up your life!

Scott

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

19-Year-Old Girl Wins the Lottery

Hi Scott,

I am 19 and was given your book last Christmas. I am not the greatest saver — I like to splurge a little too often. Yet a year after reading the book I have over $16,000 in savings, $4,000 of which is in shares. Recently I did my tax return and the accountant was asking how a 19-year-old girl seems to have it so together. I explained that she could buy your book for $29.95 (or less at Big W), and while she was doing my tax return I drew your ‘serviette strategy’ on the back of an invoice sheet. She looked at me in amazement the entire time, even though I was basically regurgitating everything you had explained. It was an awesome feeling. So I wanted to say thank you — you have given me a $29.95 lottery ticket that has earned me thousands!

Zoe

Hi Zoe,

I’m punching the air as I’m reading this.

Most people leave school believing they have no idea about money, and then they prove it to themselves.

Not you!

I guarantee your accountant was thinking, “Why wasn’t I this sorted out when I was 19?”

(As are everyone reading this right now.)

Well done. You got this!

Scott

Don’t Raise a Tightarse

Hi Scott,

Loving your new book, but I have a question. If a child does not want to spend their accumulated ‘Splurge’ money, isn’t that effectively another form of savings? I am trying to identify the more important lesson. Is it the realisation through experience that splurging can result in the impulse buying of random, insignificant items or should it be rewarding the decision not to splurge at times and having that money to top up their savings?

Joanne

Hi Joanne,

Congratulations on doing the jam jars!

You’re well ahead of most parents, who do pocket money for a while and then let it fizzle out, and give up.

Getting your kids to dish their pocket money into three jars teaches fundamental life lessons:

The ‘Smile’ jar teaches them the power of saving up for something that makes them smile.

The ‘Give’ jar teaches them the joy of generosity, and breaks the entitled bratty mentality some kids have.

The ‘Splurge’ jar teaches them how to spend their money wisely and enjoy it.

(The biggest financial fear that I have for my kids — having the Barefoot Investor as their dad — is they’ll be so focused on money that they’ll become tightarses. I don’t want to raise stingy, money-hungry kids. There’s a fine line between “8-year-old Johnny’s such a good saver, he won’t spend a cent!” and “28-year-old John is such a tightarse, no wonder he doesn’t have a girlfriend”).

So, Joanne, I’d encourage your kids to splurge some of their money. Yes, they’ll make some mistakes, as we all do. But then again, that’s how we learn, right?

Scott

Eat, Pray, Dump

Hi Barefoot,

So I get a message from my wife at 2am while she is in Morocco (finding herself): “I think I’m going to move to Morocco, I’m so sorry.” This really was not expected, nor in my plan for the future. Now I am having to deal with all the financial responsibilities on my own, without a second income. I have a half-renovated house, our combined debts, and now legal fees to deal with the separation. I am 34 and earning good money ($140,000), but it feels like I have caught an STI from an overseas holiday that I didn’t even take!

James

Hey James,

It sounds like your ex-wife took the ‘Eat, Pray, Dump’ tour!

Seriously, I can’t imagine what it was like to get that text ‒ you must be going through hell. And while it probably feels like you’re the one here in Australia cleaning up the financial mess, you are both responsible for seeing this out.

So a couple of practical things: if you haven’t already shut down any joint bank accounts, credit cards or redraw facilities, do so immediately. Also, keep good notes on your finances, and engage a family solicitor.

You don’t mention kids and, given your age, it sounds like it may have been a short marriage. This will be taken into account, and should make things much simpler in coming to a final property settlement.

Obviously you are facing a financial setback, but at your age, and with your income, it’s something you will overcome. So think hard about whether you want to keep the house or sell and make a clean break … your ex-wife certainly has.

Thank-you for reading,

Scott

Is AMP Heading South?

Hi Barefoot,

On advice from our financial adviser, my wife and moved our super from Australian Super to AMP MyNorth Super a year ago. We have generally been happy with the advice we have received and, like all funds, in the past year MyNorth has had its ups and down. However, with the findings of the banking royal commission and recent stock market volatilities affecting AMP, we think we should maybe go back to the industry fund. Is it likely AMP could go under in future, meaning we could lose all our super?

Cliff

Hi Cliff,

I’ve had a number of people ask me the same question ‒ whether their money is safe with AMP.

Let me be clear: your money is safe.

That’s because the money you have in super is held via a legal trust for you. ‘(and this applies to AMP as much as any super fund)’. Super is strictly regulated, and the trustees have a legal duty to manage the fund for the benefit of members.

However, the same can’t be said for the suffering AMP shareholders.

The very fact that so many of its customers are questioning whether this 170-year-old blue-blooded company will survive is an indication of just how much the brand has been battered.

As Dr Phil says, it’s hard to win back trust.

Speaking of which, I’d ask your advisor to do a financial comparison between your old industry fund and your MyNorth fund since you switched.

Scott

Super Stressful

Hi Scott,

I am 27 and earn $95,000 a year, so my super is adding up. But I received my annual superannuation statement and found I am being charged three separate fees: administration fees (0.37%), investment fees (0.25%) and something called ‘indirect costs’ (0.64%). In your book you recommend paying no more than 0.85% in fees on super: does that refer to any type of fee charged, or only administration and investment fees? And do you have any idea what indirect costs are?

Lisa

Hey Lisa,

Good on you for being one of the few people who bothers to look at this stuff.

ASIC defines ‘indirect costs’ as costs “paid by your super fund to external providers that affects the value of your investment. Typically these are costs paid to investment managers.”

Bottom line? It’s another fee. All up, you are being slugged 1.26% of your balance each year.

If you’ve currently got $40,000 in super, that’s around $500 a year.

That doesn’t sound like much.

Yet, as a back-of-the-envelope calculation (6% real return, not factoring in tax), your super will grow to around $720,000 over the next four decades. However, the negative effect of the compounding fees will be roughly $220,000!

You’ve done the hard work by wading through the complicated, boring guff. Now comes the most profitable call you’ll ever make: call your fund and ask them if they have a high-growth, low-cost index super offering ‒ preferably one that charges less than 0.85% in fees, total.

Scott

Randy Andy

Scott

Today I called my bank to negotiate after seeing a special home loan rate advertised on their website. I followed your script and asked for the new rate. I was rebutted with “Sorry, that’s only for new customers”. When I replied with, “Well paint me red and call me Randy”, the operator laughed and said, “You’ve been reading Barefoot?”Then he gave me the lower rate. You saved me over $1,000 a year in a two-minute phone call. Thanks, cobber!

Andy

Hi Andy,

That’s totally wild!

I was speaking to a banker the other day who said that his call centre staff know when they’ve got a Barefooter on the line, following my script to get a better deal. He also said that if they’re a good customer they’ll “more often than not get a discount”. That’s not because the bank staff are kind hearted, but because they’ve also read the book, and they know my next step. They know that that customer (if knocked back) will move to another bank and get a better deal.

Thanks for reading,

Scott

The three questions my financial advisor couldn’t handle

A woman I’ll call Lynne emailed me with the subject line “Devastated”.

Here’s what she wrote:

Scott,

Over the past three years I had become increasingly anxious about the state of my finances, which have been controlled by my ‘trusted’ financial advisor of seven years. Finally, I sent him an email last Friday asking him the three questions you suggested in your book.

He replied the following Monday, terminating forthwith his services! I am a single mother of three adult children, without a home, living alone, paying rent. During the seven years he has been my advisor, my capital assets have been reduced by over $500,000 (to $800,000). What can I do?

Lynne

Bingo Bango!

I’ll answer Lynne’s question in a moment, but first, here’s the cut-and-paste email I wrote about in my book:

Dear (advisor’s name)

I’ve decided to do a review of my finances. Could you please do the following three things for me:

1. Print me a statement that clearly shows my annual percentage return since we began, net of fees.

2. Benchmark my return against the relevant accumulation index for the same period.

3. Provide me with an itemised list of fees (expressed in both dollars and percentages). Include any and all ongoing fees, commissions and administrative costs that I’m charged.

Kind regards,

Client

Lynne, you can almost picture how this went down:

Your advisor double-clicks on his email: “Oh, I got an email from Lynne, I wonder what she’s up to …”

As he starts reading, his eyes begin to squint like he’s getting a root canal.

And then he gets to the end of your email and theatrically spits out his frappuccino all over his mainframe, which ricochets and ruins his Roger David tie.

Lynne, know this: good advisors ‒ and there are many ‒ actually want their clients to ask them these questions. They can justify their fees because they’re working in their client’s best interests. A good advisor wants smart clients who understand and value good advice.

A shonky advisor, on the other hand, will do what this guy just did ‒ sack you and move on to the next chump. They see you as their meal ticket. It’s not personal. It’s just lunch.

Now, I spat out my coffee when I read that your assets had decreased by $500,000 over the past seven years (thankfully I was not wearing a tie).

Here’s why:

Aussie shares have achieved a compound annual return of 8.5% over the past seven years, while international shares returned 14.5% a year, according to Vanguard. In other words, a $10,000 investment would have grown to $17,701 (Aussie shares) or $25,801 (international shares).

Over the same period the average default super fund (with a higher weighting to cash and fixed interest) has returned 9.1% per year (industry funds) or 8.4% (higher-fee retail funds), according to ratings agency Chant West.

Someone needed to be given the boot here, Lynne, and I don’t mean you.

So now it’s time for you to write a few more emails. The first is to make a complaint to the firm. The adviser’s financial services guide will tell you how to do this (look through your paperwork and you’ll find it, otherwise call the firm and request a copy). The next is to lodge a complaint with the Australian Financial Complaints Authority (ACFA) via their website (afca.org.au/).

Look, one of the biggest fears we all have is looking dumb in front of others. And sometimes experts can use that against you ‒ whether they’re a mechanic, a doctor or a financial planner. Perhaps that’s why you didn’t act on the feeling you had in your gut about this bozo for three years. Yet the smartest people are those who fearlessly ask the simplest questions, and then back themselves.

So back yourself. Remember, no one cares more about your money more than you do.

Tread Your Own Path!

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.

My Aunty Has 15 Credit Cards

Hi Scott,

My aunty has got herself into trouble with credit cards. She is not savvy with money and I really do not think she understood what she was doing. After a lifetime of work, she has $10 in her purse – and $211,000 in debt across 15 cards. She has been cash-advancing to make the minimum payments for years. I think most of the debt is interest, and she has nothing to show for it (no car, holidays or smashed avo). At this rate she is going to lose her home. Is there anything I can do to help her?

Max

Hi Max,

It sounds like your aunt is going bankrupt … or at risk of going bankrupt.It also sounds like she has a gambling addiction.

Now you don’t say whether your aunt has any loans against her home, but she’ll eventually be forced to sell it. If the credit card company, or a debt collector who has bought any of her debts (for cents on the dollar), works out that there’s a chance she may have money left after she pays out her secured mortgage, they’ll carve her up.

Your aunt is facing two battles that you can help her with, but I can’t fight for her:

First, you can help her get some independent financial advice.

Encourage her to sit down with a community-based financial counsellor (call 1800 007 007). They’ll help her weigh up her options (either a debt agreement or bankruptcy). They can also investigate the inappropriate lending she’s received. No one should have a $211,000 credit card debt. There are responsible lending laws in place to stop people getting themselves into this mess.

The second, and most important, thing you can do is get her some psychological support.

You’re right to be worried about the state of her mental health. The debts she’s racked up is a symptom of what’s going on in her head. Something is seriously wrong and she needs professional help. Money comes, money goes, but this really is life and death stuff.

Scott

Is your money in one of these ‘fat cat’ funds?

2018’s Top 10 ‘Fat Cat Funds’

I once knew a very rich guy in his sixties who prided himself on ‘calling a spade a spade’.

“You’re fat!” he once said to a bloke we’d just been introduced to.

“Hey!” I said, coming to the poor guy’s defence (while simultaneously sucking in my gut).

“What? It’s the truth! Look at him! He’s a prime candidate for a heart attack!”, he said (while the guy seemed to be having heart palpitations).

“You need to look after yourself. I’m telling you this for your own good”, he said condescendingly to the stranger.

True story.

(And also true that, ironically, he was himself built a bit like Shane Warne ‒ circa 1993.)

Anyway, my wife says that sometimes I behave like him when she wheels me out in social settings ‒ the only difference is that I’m brutal about people’s financial flab.

Case in point: a while back at a BBQ, a guy I didn’t know struck up a conversation with me (the token finance guy) by saying he had his super with what I knew to be a high-fee fund. He wasn’t asking for advice, just making polite conversation on a Sunday afternoon.

“What on earth made you go with them?” I asked, head cocked, eyebrow raised.

But before he could burble out an answer I said: “I mean it’s just a stinker of a fund.”

As I type, I’m literally cringing at reliving this moment.

My wife’s right: no one wants to talk about personal stuff with strangers in a social setting.

But, hey, it’s just you and me sitting here, and we’re old mates … so let’s say we poke a bit of fun at a few flabby funds.

Last week, investment group Stockspot came out with their annual Fat Cat Awards, which ranks the worst-performing super funds.

Stockspot Fattest Funds 2018

Each year the finance industry gives out thousands of awards to itself, but this is one award you do NOT want to win. Here are the Garfields of the game ‒ who’ve been effectively stuck in the cat-flap for the last five years licking the cream off your returns:

1. OnePath Masterfund ‒ OnePath Tax Effective Income Trust

2. OnePath Masterfund ‒ OptiMix Moderate Trust

3. OnePath Masterfund ‒ OptiMix High Growth Trust

4. OnePath Masterfund ‒ OnePath Balanced Trust

5. Perpetual WealthFocus Superannuation Fund ‒ Perpetual Diversified Growth

6. AMP Superannuation Savings Trust ‒ BlackRock Global Allocation

7. Queensland Independent Education & Care Superannuation Trust ‒ Conservative Growth

8. Labour Union Co-Operative Retirement Fund ‒ Targeted Return

9. AMP Superannuation Savings Trust ‒ Future Directions Moderately Conservative

10. StatePlus Retirement Fund ‒ Balanced

Source: Stockspot

What do all these crazy cats have in common?

They all charge high fees, presumably to pay for all their expert fund managers.

(Oh, and the ‘top four’ are all brothers from another mother.)

Now, if you’re a Barefooter you’ll know I’m a skinny cat who likes index funds (i.e. low-cost funds that mechanically track the stock market, rather than being actively managed).

Guess what Stockspot found?

“Over the past five years we found only 4% of balanced funds beat an index fund. And across all investment categories only 13% of funds beat the indexed option”, adding that this is a global phenomenon in which “actively managed funds have been unable to match low-cost indexed options”.

Faced with this research, they came to a beautifully simple conclusion. They say there are only two things to consider when choosing a super fund: first, find the right type of fund based on your capacity to take risk. (Which Barefoot decodes as “anyone under 40 should go for growth, anyone over 40 should find a bit more balance”.) Second, choose the fund with the lowest fees. (Which is the exactly the recipe I follow in my book.)

So, if you’ve read this far and are thinking to yourself “maybe I’m getting licked”, by all means get in touch with your fund and call a spade a spade.

Tread Your Own Path!