Follow the money - its new for us

Follow the money

We had a ‘Eureka moment’ last week attending another professional development course. ‘Eureka’ does it matter how we make money for clients as long as it is legal. Note vices have not had good returns as we smoke less & Fosters share price has been very poor. After 26 years in this financial services industry we are very cynical as we have heard plenty. But this was definitely what clients are looking for.

Yes, it is a magic pudding or more accurately a ‘black box’. We have heard over time that again Goldman Sachs [masters of the universe or other names] made huge profits from their momentum trading. This is not them but it is momentum trading & the track record is impressive.

What do they do? They follow the money trend.

Hence from their adviser only summary sheet we note

• An alternative investment strategy with low correlation to other asset classes over the longer term.
• The fund has a long track record of strong performance through bull & bear markets.
• The fund applies a systematic approach to capture price trends in both rising & falling markets across more than 100 global markets including equities, interest rates currencies, energy, agricultural commodities & metals.
• The fund is designed to increase risk adjusted returns of portfolios by providing returns with low correlation to other asset classes over the long term.
• The founders were early pioneer of the scientific application of systematic techniques to investment management.
• The fund invests heavily in the research driven evolution of its trading systems designed to maximise future returns.
• This fund is rated ‘highly recommended by Lonsec which is as high as it gets.
• From their graph, http://www.managedfutures.com/managed_futures_index.aspx the relevant index of managed futures with 10k invested in Dec 89 would be 100k in Dec.09. So 100k invested would be 1m.

Clients have been entrusting us with their funds since 1984. As a contemporary lady financial adviser said to us recently ‘we can look them in the eye & know we have given them the correct advice’.

Let’s recall that not too long ago we were in the midst of a 10 year drought. Now that is very hard to believe today when we have inland seas in South Queensland.

We also compare markets with personal relationships i.e. ‘they go up & down & we have to live with them’.

However that is very hard to reconcile with when we are talking about money. Hence because of the CFG & the volatility others are looking at other investments. They look at rental property as it is spruiked that property ‘doubles every 10 years. I.e. a compound rate p.a. of 7.2%. Well sorry but that is very disappointing & can be bettered. We could also refer you to a recent article that states that 25% of buyers of houses in Sydney have lost money if they bought & sold in the last 5 Years. In Brisbane it is suggested 15%.

We suggest that that this % is bigger because no data ever takes into account the costs of property. There are costs to property at the beginning & hence you have paid more for your property. Similarly you have paid costs on the selling such as stamp duty, conveyancy fees, real estate agents 2-3% commission and costs of moving & the new QLD land taxx. These reduce your profits we would argue by 5 %. You then generally trade up or on the same market. You also do some ‘renovating’ as you want to improve & profit but this cost is also not taken into account.

As examples we have been offered by property marketing agents a share of 25K for selling a new unit or house. Client of ours recently commented how aggravated he was with the real estate agent who made 25k & ‘didn’t want to know him after the house went unconditional’.

Hence we suggest you need to make 50K + before you sell to break even. We also suggest that ‘a house is like a spouse it requires money & maintainence’. It does mean on average you spend 1% to 2 % simply on maintaining the house. You don’t take into account your unpaid labour time on the guttering or the tree lopping or the bathroom painting.

Of course if you are negative gearing & a recent request for help was 9Kp.a cashflow negative. Where does that necessary 9K come from? Does your lifestyle suffer? Let me think about it.

We suggest you need 100k profits before you sell? Then & we almost forgot the ATO will want 50% X MTR of the real gains. Let me think about it!

If you wish to follow the money & your own house is enough property & you are aware that you need 1M in capital to retire on then you are welcome to call on 07 3848 1088, email us on info@wecoachwealth.com.au or visit our website www.wecoachwealth.com.au

We only yesterday attended another manager with 15% p.a. returns over 15 years. That is TWICE as good p.a. as the average property & means maybe EIGHT times more in 15 years with less cost.


John McAuliffe