Information Memorandum

By Jason Fittler

Information Memorandum’s are becoming more popular as a way to raise money from investors.

But before you start investing you need to be aware of a couple of things. 

First, they are normally aimed at larger investors, which are described as professional and sophisticated investors as they do not attract the same sort of disclosure requirements as an ordinary investor. If you are classified as a sophisticated investor you are deemed able to make sensible investments decisions as such you are not afforded the same level of protection as an ordinary investor.

Second, they generally ask for a large amount such as $500,000 as the minimum investment you can make, this is also a way to get around having the Information Memorandum reviewed by the ASIC. As the document is not checked by any government department or the ASIC it is a case of “Buyer Beware” as there is no way to know if the information in the documents is factual or simply made up. All investigation needs to be done by the investor before making the investment. If something goes wrong then you have no one to complain to and will need to undertake any legal action at your own costs.

The provider of the Information Memorandum will not provide you any advice and will not take into consideration your financial position or risk profile.  What you normally receive is some glossy documents containing information about the investment. Basically a sale document, if you speak to the manager they will only provide general advice about the investment which is another way of saying you will receive a “Sales Pitch”.

So, should you invest in these investments?

Generally my advice is no. Unless you get a qualified person to review the investment and fully explain the risks and see if it meet your investment goals. This, of course, will cost money to get the advice, but it could save you half a million dollars.

If you receive an Information Memorandum, what should you do?

1. Did you request a copy or was it unsolicited and simple sent straight to you. If unsolicited then the manager has already breached your privacy, which is not a good start.

2. Did you receive a follow-up call from an unsolicited approach? If so it would indicate to me that the investment is not popular as the manager is now cold calling people. Good investments sell themselves they do not need someone to cold call.

3. Look at who the investment manager is and what they have done previously. However, be careful as mentioned above the ASIC has not checked the document as such there is no guarantee that the manager’s experience is correct.  If their experience is not correct, you will pay the price.

4. Take a look at the investment strategy, if any history of performance has been provided or if any expect projections have been provided. If no history or projections on performance AVOID the investment at all costs.

5. Look at the fees. Are they high? Is there a performance fee? If so what is, the performance benched marked against. I have seen an IM, which take 20% of all upside. So, no matter what the return, the investment manager gets 20%.

If there is no clear investment strategy, high fees, high-performance fees against no index, cold calling and subjective information regards experience AVOID. There are plenty of other investment opportunities.

Quantitative Easing (QE)

By Jason Fittler,

For those who would like to get a better understanding of how Quantitative Easing works I have attached a link to a YouTube clip which explains this in basic terms. 

Note it takes about 30 minutes so grab a cup of coffee and relax, it will be worth your time.

How the economic machine works by Ray Dalio.

The video is well done and gives a good run down on credit cycles and Quantitative Easing. Ray Dalio who narrates runs the world’s biggest macro hedge fund Bridgewater. He is outlining his framework for thinking about markets.

I would strong encourage everyone to take the time to watch this. It is important and will assist in your understanding of not only how the economy works but also what it is the government is doing for you.

The performance of your investments can be directly traced back to how the economy is going. And, therefore, what the Government is doing to assist.

Given our recent state election it is timely to watch this and get an understanding of what the government needs to do to repair our economy.

You can be the judge if they are getting it right.

Wikipedia Definition

Quantitative easing (QE) is monetary policy used by a central bank to stimulate an economy when standard monetary policy has become ineffective. A central bank implements quantitative easing by buying specified amounts of financial assets from commercial banks and other private institutions, thus raising the prices of those financial assets and lowering their yield, while simultaneously increasing the monetary base. This differs from the more usual policy of buying or selling short-term government bonds in order to keep interbank interest rates at a specified target value.

Know the Downside Before You Invest

By Jason Fittler

When you look to investment you must assess all the different risks involved in your chosen investment.

You need to understand what can and will go wrong.

Most investors are only focused on the upside of the investment. When things go wrong this leads to irrational decisions. And irrational decisions can cause loss of capital. 

Investments will fluctuate; this is the nature of investments. To be successful you not only have to understand this you also have to have considered this before making the investment.

Let’s look at some examples:

Investment Property

There are a number of downside risks in relation to investment properties:

1. Interest rate increase

2. Property price fall

3. Rental prices fall

4. Occupancies rates drop

4. Cash flow

The largest risk sits with cash flow making it the key downside risk when considering investing in property. Many things can affect cash flow but the main risk is loss of income.

An investment property generates small or negative cash flow. The investment needs your income to be sustainable.

What happens if you or your partner loses your job? Will you be able to pay the mortgage, rates, insurance, repairs and maintenance on your investment property?

Consider your future employment stability before buying an investment property.

If you have to sell the property in a hurry can you handle the loss? What is your exit plan?


Shares are generally cash flow positive and so the downside risk is total loss of capital.

Shares generate dividends and do not need any further cash input once purchased. The loss of your job would not affect your ability to continue to hold that share investment.

With shares the company in which you are invested in can go bankrupt. This will result in you losing all your capital invested. This is the main downside risk when investing in shares. As such you need strategies around this risk:

1. Never invest all your money in one company. Invest in at least 20 different companies to reduce the risk. If you do not have the funds to invest in 20 individual companies then look at an index fund, which provides the same exposure.

2. I prefer not to gear into share investments. But if you must then you can reduce the risk by gearing against a property. Keep the margin loan to 30% of the value of the investments or use warrants to reduce your exposure.

3. Education is the key. Know why your invested in the particular company and keep up to date with the latest information on the company. It is normal for the value of a company to fluctuate based on the many different factors. If you understand this there is less chance of you selling at the wrong time.

If you would like more information please call me on (07) 4771 4577.

Stock Market Investing for Beginners

By Jason Fittler

You want to start investing.

But you find the whole process complicated and confusing.

Don't worry you are not alone.

One of the main barriers to the average person getting ahead is the complexity around financial advice. Most Financial Advisers seem to make a simple activity more complex than is necessary. 

The truth is when you first start out investing is not all that complicated!

Here is a simple investment guide. Follow it and you’ll be on your way to building financial freedom.

The basic building blocks of wealth are all the same no matter what you are investing in or how you decide to build your wealth.

You need:

1. Time

2. Spare cash

3. A Clear Picture of What Financial Freedom Means to You 

Time – You build wealth over time. The old saying “easy come easy go” could not be any more true when you are dealing with creating wealth. So the trick is to start early. Start now and continue the process over the rest of your life.

Spare Cash – You must find some money to invest. This will mean sacrifice. To have money tomorrow you need to put some aside today.  You create wealth by the choices you make about how to spend your money not how much you make. Find the cash and start putting it aside now.

Clear Picture - Know how much you will need to buy yourself financial freedom. Take your expenses and divide by 6% this will be a good starting point. This amount will be achievable as long as you have the right time frame and make the necessary spending cuts to make sure you have the cash.

Now what?

Investments need to do some of the work as well. So which investment should you invest in?

Cash – Cash should not be considered a long-term investment. It provides no growth and little income. Cash should be held for short-term expenses and for those people who have retired and cannot afford to lose any capital.

Shares – When starting out buy an index fund. This will provide you with a diversified portfolio straight away.  Index funds are simple and straightforward to understand. Market goes up so does your investment. You can start an Index Fund with $1000. You can then add to it monthly. This makes it easy to set up a savings plan.

Property – Not for the beginner as it requires a major capital outlay and gearing. Property is a cash negative investment in that you will always be outlaying money on it. Property is better suited as an investment when you have high surplus cash.  

If you would like help in getting started please give us a call (07) 4771 4577.

5 Steps to a Better Investment Strategy

By Jason Fittler

“I can help any man get what he wants, but I cannot find any man who knows what he wants.”

When it comes to investing the majority of investors have no idea what it is that they want to achieve. Except for some vague idea that they are falling behind and as such they want to make sure they keep up with everyone else.

The fear of falling behind is a key motivator of many investors. It is also the key pitch of every salesman.

Investing is a personal thing. The end goal is only relative to you. How well your neighbour does is completely irrelevant, as long as you achieve your goal.

It is human nature to compete. This is how we survived and is a core part of our nature.

But chasing after last year’s winners or taking bigger risks to make up lost ground will nearly always end in tears. 

Keep in mind that no one ever purchased a drill because they wanted a drill. Everyone who has ever purchased a drill wanted a hole. It is the same with investing. We do not invest because we want more assets; we invest because we want the income the assets produce.

Here are 5 steps to consider when you develop your own investment strategy:

1. The first step of your investment strategy is to:

a. Decide what sort of lifestyle you want.

b. Work out the cost of that lifestyle per annum

c. Work out how much capital you need to earn that amount of income.

2. The next variable is time. When will you need this income? Is it when you retire or do you want to slow down and work less. At this point many investors realise that they should have started this process many years ago. Time is a relative thing if you leave it too late then you have to make one of the following choices:

a. Work longer

b. Reassess your income need or live on less

c. Increase the risk in your investments to make up the shortfall in less time.

3. How much risk you are willing to take? The higher the risk generally means a better return, and a shorter time to achieve your goal. But there is a cost if things go wrong, it could set you back many years. Risk is also the hardest thing to work out. Until you have suffered a loss you do not understand risk. If you chose a low level of risk, then you may never achieve your goal.

4. What type of investments will you buy? Do you understand the different type of investments? At this stage you will need to start doing some homework. There is plenty of free information out there. The key is to read as wide as possible and speak to a few different investment managers who sell different investments. The rule of thumb is if you do not understand it, best you do not buy it.

5. Insurance. What level of insurance do you need to protect your main asset, you! Keep in mind that it is your ability to earn income, which will fund the buy of any investments. If you were to lose this ability you will also lose the ability to achieve your investment goal. Insurance is a key part of any long-term strategy. Always look at insurance. 

Follow these steps before you start spending money and you are on your way to being a successful investor.

For more information, please call us (07) 4771 4577.


Golden Rules When Investing

 By Jason Fittler

You want to get ahead by investing shares.

But where do you start?

The first and most common approach is to look for some recommendations.

Oops! You already made your first mistake.

First Step is to Find a Broker

Brokers make their money by finding good companies to invest in and then passing on these ideas to their FEE paying clients.

Free advice is worth exactly what you paid for. Sure, if you go online, buy a paper or magazine you will find plenty of hot tips or so you think.

The facts are, brokers and fund manager do not write about their top buys. They will first build their own position before telling the public.

By the time you got the tip most of the upside is gone.

You Have a Broker

Should you just buy everything they recommend?  NO!

This is your money so you must make sure you are comfortable with the company you are buying.

Easy to Understand 

Make sure that you understand what the company you are looking to buy does. Can you identify what the company does to make money and the cost and risks associated with not just the company but also the industry it is in. 

Example: NAB is a bank, it lends out money to people and charges interest. It also charges fees for its products and services such as bank accounts, eftpos and credit cards. NAB also has a financial planning arm where it again charges fees for advice and access to products. 

If you cannot work out what a company sells or does to make money, it is best to avoid.

Capital Requirements

Some companies are highly capital intensive. Meaning that most of the profits get reinvested back into the company. 

This puts a strain on the company’s cash flow and dividends. Low capital-intensive companies usually have a stronger cash flow and lower risk level.

Barriers to Entry

The harder it is for a new competitor to gain access to the company's client base the stronger the company. Usually the higher the initial upfront cost the higher the barrier to entry, a good example are toll roads. The cost of someone else building another road beside it costs way more than the benefit they will receive.

Government Involvement

Any company, which relies heavily on the government for income or government legislation, is a higher risk company.

If the government is the main client then the company is at risk of change in policy.

Companies need a diverse client base.

If government legislation restricts the company it will decrease its competitiveness. It will also increase the risk of the company.


Always take a quick look at the management of a company. The company website should give you the details.

You are looking to make sure that the management has the relevant experience in the area that the company works.

Are they focused on the company or their own pay cheques?

Like to know more? Give us a call (07) 4771 4577.


It Takes Four Dimensional Thinking to Achieve the Lifestyle You Want

By Jason Fittler

What you want out of life and what you get largely depends on how you view, approach and think about life.

Investing and wealth creation needs to be approached the same way if you want to be successful and achieve your goals.

The first step is to work out where you want to go, before you work out how to get here.

One of the simple facts of our economy is that not everyone can be wealthy. There will always be a divide.

Which side you are on depends on you and how you think about wealth.

One dimensional thinking:

“I want to be wealthy.” 

I would be hard press to find anyone who does not think this way. But the truth is this is as far a many people get. It is more of a wish then a plan.

Two dimensional thinking:

“I do not want to be poor. I want to be wealthy.”

The next stage for many is to identify what they do not want to be. In this case, it is poor. At this stage you are starting to add substance to forming a goal. Unfortunately, the goal is more focused on what you do not want to be instead on what you want to achieve.

Three dimensional thinking:

“I do not want to be poor. I want to be wealthy. I want to be wealthy by the time I am 60.”

The third stage confirms your end result. Provides a focus on what you want to achieve. Gives you a time frame to achieve this goal. This might be to have no debt and a million dollars in super at retirement. Three dimensionally investment thinkers generally end up to be considered wealthy and will be better off than the majority. This due to their focus being on what to achieve as opposed to what they do not want to happen.

Four dimensional thinking:

 “What do I consider to be wealthy? I do not want to be poor.  I want to be wealth by the time I am 60. How will is best achieve this result ”

The fourth dimensional thinker approach differs in that they will quantify what being wealthy means to them. Wealth is a relative term when compared to others and is measured in dollars. But in essence wealth is only relative to how you would like to live and your personal goals. Once you work out how much money you need to achieve your level of personal wealth the next step is to work out how to achieve this goal.

Fourth dimensional thinkers/investors may not have the most money but what they have is the right amount of money for their lifestyle and a plan of how to achieve and maintain this goal.

To be a successful investor first you need to know what it is you truly want.

Once you know this you can map out a plan to achieve your goal. 

Future of Financial Advice (FOFA) – Common Sense Prevails

By Jason Fittler

To understand the FOFA changes you need to understand how Financial Planners are licensed. 

All Financial Advisers are an Authorised Representative (AR) of a holder of an Australian Financial Services License  (AFSL).

You can also have Corporate Authorised Representative, which just means that the holder of an AFSL has granted a company the permission to trade using their AFSL.

These companies can then issue AR’s to their internal advisers but the unlimited responsibly is on the holder of the AFSL.

The issue for the consumer is that it is difficult to know if the advice or product being recommend is in your best interest.

Who your adviser is licensed with may influence the products they offer to you.

The majority of advisers in Australia are licensed through the Big Four Banks and AMP, which mean that their advice will generally direct you towards their products.

This is called Conflicted Advice and may not be in your best interest.

So how do you get “Conflict Free Advice”?

The ASIC does not allow independent AFSL holders to use the word “Independent” in any advertising. So there are two basic things you need to do:

1. Look for a Financial Adviser who advertises as “Conflict Free Advice” this generally means that they hold their own AFSL and are independent of the major banks and AMP. This means that the advice and products they offer are in your best interest.

2. Spend the time to follow the trail of how the adviser is licensed. This can be done on the ASIC site using this link but be prepared to spend some time searching.

Most conflict free adviser firms are easy to spot as the AFSL License is normally in the same name of the firm.

The amendments which Clive Palmer has asked for when passing the FOFA wind back laws, will allow consumers to easily identify which Financial Advisers are independent of the major banks and AMP.

This means that you can be more confident with the advice given from these “Conflict Free Advisers”.

Clive Palmer wants “Client Best Interest Rules” to be tightened.

This is not an issue for any independent adviser. It is only an issue for those who give conflicting advice or the bank employee giving general advice.

Finally, only around 20% of the population actually get some sort of financial advice.

The other 80% never seek advice. Which means any change to FOFA has no impact on them. These people are in Industry Super funds paying fees for no advice and no service.

The benefits will be felt by the 20% who do look for advice and appreciate what this advice can help you achieve.

The extra cost for advice is small when you consider the benefits and results achieved.

For proof just compare the average balance of a Self Managed Super Fund to that of an Industry Fund.

More money means a better retirement.

Check it out for your self.

International Share Investing

In Australia we tend to invest mostly in Australian shares.

This is due to many reasons:

1. We know more about the companies we are investing in.

2. Information flow is timely as such we are able to act fast to a change in circumstances.

3. It is easier and more convenient without the time difference.

But, there are some drawbacks when you are investing in just the Australian market.

Our market is heavily concentrated in the financial and mining sectors.

The financial sector makes up 35% of our market and the mining sector 17%.

In overseas markets the Financial sector is around 17% of the market and the mining sector is around 5-6% of the market.

That means that in Australia the Financial Sector and the Mining sector make up over 50% of the market.

Which means that portfolios are heavily weighted to these sectors and underweight other sectors. 

It also means that the Australian market has few companies to investor in these other sectors.

By investing in overseas markets we are able to get exposure to large worldwide companies. Companies focused in sectors such as Technology, Health Care, Consumer and Telecoms.

The problem is which companies, when to buy, how to buy and time differences.

New products are coming to the market. These allow investors to gain access to different sectors in overseas markets through a listed index approach fund.

These products solve the time differences, news flow and access issues.

Taking an index approach to overseas company investments means that you are able to get the exposure your portfolio needs. With less risk. And less costs then trying to buy the individual companies themselves.

The use of Exchange Traded Fund (EFT) has allowed the Australian share investor to build a better-diversified global portfolio with less cost and less risk.

Why should you invest overseas?

We need to take advantage of all markets in the world especially the developed markets such as America and Europe. Both of these markets have struggled to recover since the GFC. Which provides opportunity to invest in undervalued companies.

America and Europe provide exposure to some of the world’s largest and leading companies. And provide more diversification then available in Australia.

Becareful not to go over weight the overseas sector.

But it is important building a long-term investment portfolio to ensure that you have some exposure.

If you would like more information about investing in overseas markets please call us on (07) 4771 4577.

International Share Investing

In Australia we tend to invest mostly in Australian shares.

This is due to many reasons:

1. We know more about the companies we are investing in.

2. Information flow is timely as such we are able to act fast to a change in circumstances.

3. It is easier and more convenient without the time difference.

But, there are some drawbacks when you are investing in just the Australian market.

Our market is heavily concentrated in the financial and mining sectors.

The financial sector makes up 35% of our market and the mining sector 17%.

In overseas markets the Financial sector is around 17% of the market and the mining sector is around 5-6% of the market.

That means that in Australia the Financial Sector and the Mining sector make up over 50% of the market.

Which means that portfolios are heavily weighted to these sectors and underweight other sectors. 

It also means that the Australian market has few companies to investor in these other sectors.

By investing in overseas markets we are able to get exposure to large worldwide companies. Companies focused in sectors such as Technology, Health Care, Consumer and Telecoms.

The problem is which companies, when to buy, how to buy and time differences.

New products are coming to the market. These allow investors to gain access to different sectors in overseas markets through a listed index approach fund.

These products solve the time differences, news flow and access issues.

Taking an index approach to overseas company investments means that you are able to get the exposure your portfolio needs. With less risk. And less costs then trying to buy the individual companies themselves.

The use of Exchange Traded Fund (EFT) has allowed the Australian share investor to build a better-diversified global portfolio with less cost and less risk.

Why should you invest overseas?

We need to take advantage of all markets in the world especially the developed markets such as America and Europe. Both of these markets have struggled to recover since the GFC. Which provides opportunity to invest in undervalued companies.

America and Europe provide exposure to some of the world’s largest and leading companies. And provide more diversification then available in Australia.

Be careful not to go over weight the overseas sector.

But it is important building a long-term investment portfolio to ensure that you have some exposure.

If you would like more information about investing in overseas markets please call us on (07) 4771 4577.

Don't Get the Wrong Message Reading the News

By Jason Fittler

In todays world of media and social media you need to be careful that you do not get the wrong message when investing.

Right now there are a number of themes being pushed in to media which if you read incorrectly will be costly to investors and individuals.

Let’s take a look at each of these:

  1. Confidence – all the market needs is confidence and everything will be OK. I wrote about this in a previous newsletter. The message is designed by government to encourage you the general public to spend more money. Why? It is your spending which keeps the economic wheel turning. The catch is that now is not a good time to be spending. Now is a good time to consolidate and reduce loans.

  2. Low Interests Rates – the RBA has been banging on how rates will stay lower for the next 12 months. Low interest rates are used to stimulate the economy by encouraging people to borrow and invest. However low interest rates for the astute investor is also a good time to pay down debt. Borrowing to invest is only best done in boom times when cash flows are more certain and capital growth is available.

  3. Unemployment at 6% - according to Roy Morgan’s the unemployment level is closer to 12%. The way unemployment is calculated these days has changed so that people who work a couple hours per week are consider employed.

  4. House prices – we continue to see lots of media coverage about house price on the rise. This is a prompt to get out there borrow and invest in housing. Again to increase how much you spend. Buying a house has a flow on affect with your spending as you furnish and make it a home. You must keep in mind that house prices have fallen hard and the increase is coming off a low base. Real returns on investment properties are lower then the cash rate.

  5. Fair Work increased minimum wage by 3% - more money in your hands hopefully leads to more spending. However this is at a time when employers are looking at costs and a wage increase is more likely to see employers cut staff to cover the increase. It certainly will not help employers putting on more staff.

What you are not hearing is that business confidence has hit an all time low. Business confidence is what the people who run large and small business think sale and profits will be in the coming 12-months.

This is a key factor because if business is not confident then employment opportunities are also low.

You are also not hearing about house sales being down and rental prices having to drop. The return on a residential property is around 2–3% much the same return as the cash rate but with a lot more risk. Real Estate agent profits will in most cases be down this year.

So what does all this mean?

The message from government is for consumers to spend more, borrow to do so and your job is guaranteed. This allows the government to get the economy moving again, improve tax revenue and get re-elected.

The cost to the consumer? More financial strain due to increased debt at a time when their job is at risk.

At this point in the economic cycle you should only be investing in cash flow positive investments, not borrowing to invest but pay down debt.

Do not be dragged into this hype and make a investment decision which could lead to large losses.

Get some independent advice before investing.


Dividend Reinvestment - A Bad Idea

By Jason Fittler

Dividend reinvestment is when a company gives you more shares in place of cash for your dividends. Not all companies provide a dividend investment plan. 

So should you use dividend re-investment or not?

My personal view is to never use dividend reinvestment plans, and here is why:

1. Even though you receive shares instead of cash you still need to pay tax on the dividend. It is a common mistake by investors to think that because they did not receive any cash that they do not have to declare it for tax. Wrong, you have received something of value, the franking credit will be attached and the amount of the dividend will need to be included in your tax return. The only problem is that, you did not receive the cash, so you will need to fund any tax out of other income.

2. The shares are issued normally at some volume average weighted price (VWAP) prior to the dividend being paid. This means that you do not get to choose the price at which you buy the shares, they simply get allocated a price by the company. For example, if your dividend was $1,000 and the VWAP was $15 per share then you get 66 shares rounded down for the decimal points. What you need to ask yourself is “would I buy more at this price?” If the answer is no, then why accept dividend reinvestment and pay too much. Sometimes the price is lower at which point why would you not just simply buy at market. Or is it the best buy on the market right now. The point is you should be making the decision of when to buy the shares, not the company.

3. Investors may think that they are saving fees or brokerage. This is true, but what fees will you incur because of dividend reinvesting:

a. Admin fees- you need buy a software program to collect and maintain the cost bases, date of purchase etc.

b. Opportunity costs – if you spend your time keeping track of the information yourself how much time will this take and what else could you be doing which would make you more money.

c. Accounting Fees – when you sell your shares, your accountant will take longer to input this information. As they work on hourly rates the fees for accounting work will increase. If you do not keep records, the cost to go back and get this information will outweigh and cost savings.

d. ATO – guess the cost base and therefore the capital gains. Best hope you do not get audited because unless you can prove the cost base the ATO will take the entire sale price as the capital gain.

Finally, you need to take a close look at any company, which provides dividend reinvestment, the issue is twofold:

1. Cash flow: Companies may be looking to maintain a certain dividend level, but their cash flow does not support it as such they simply issue more shares. A company whose cash flow does not support their dividend gets a red flag.

2. Dilution of your holding: By issuing more shares to pay for dividend reinvestment all shareholders shares are diluted. For example, if the company is worth $1,000 and has 1,000 shares worth $1 each and they issue another 100 shares as dividends. The company is still worth $1,000 but now there is 1,100 shares making each share worth $0.91. You have received nothing, but you will pay tax on it. 

How It Is All Connected

By Jason Fittler

I often hear that investing in shares is high risk when compared to property.

It refers to the old saying about bricks and mortar. The fact is that both carry the same amount of risk. And both are affected by the same variables but generally at different times.

You may have heard people say “things go in cycles”. Shares have a good run, and then property, then back to shares. There is a reason for this as the different variables that affect our lives play out.

Let's look at some of the factors, which affect investments. This is not a comprehensive list. I have chosen 7 factors to try and explain a complex issue: 

1. Australian Dollar – Australia generally exports its product, which includes things like iron ore, coal, cattle other materials etc. When our dollar is high the cost of these products to other countries increases, as such exports may fall. This will reduce the tax these companies pay in Australia and jobs on offer.
2. Employment – when unemployment is low, people feel more confident about borrowing. You see inflation increase, as people are more comfortable to pay more for things, especially for houses. As unemployment get higher then we start to see household spending decrease. This decreases inflation and company profits. 
3. Interest Rates – interest rates are used to try and control inflation. If inflation is high then the Reserve Bank will increase interest rates, which should slow household spending. If inflation is low then the Reserve Bank will decrease interest rates to try and increase borrowing and spending.
4. Inflation - is simply the measure of how much prices of goods are increasing. If inflation is to high then the cost of living may become unaffordable for people. If too low then we could start to see a recession where people are no longer spending.
5. Government Policy – if the government over regulates the market place the cost of doing business becomes high. The set up of both large and small businesses slows. If unregulated then people are left unprotected, which could lead to major loss of individuals. 
6. Consumer Spending – how much you and I spend each week is important, as money needs to turn over to make the system work. If we all stopped spending, then companies could not make profits or employ people. The saying “Money was made to be spent “ could not be truer.
7. World Economy – this is particularly important for the major world players such as the US, China, India and the Euro Zone. We are now all part of a world economy and will be affected if any part of the system slows down. 

When looking to invest you need to understand what all of these issues are, and to understand what is most likely to happen in the future.

Keep in mind all investment performances are based on future outcomes. No one can see the future but with some good research you can get a glimpse.

Tip for Property investors:

Property follows shares. When the share market is high, unemployment is low and borrowing money is easy, everyone is positive and property prices start to increase. 

How Do You Determine Superannuation Performance?

And Who Should be in Control?

By Jason Fittler

First, we need to define the word, “performance.” Performance is not based on one thing but a combination of activities. All focused on achieving a specific end result.

Retail and Industry Funds

Retail funds and industry funds market their performance on individual indicators. But are they relevant to you? Here are the four main ways they market:

  1. The low fee crowd. They tell you the only difference in performance is the fees. Because you can’t beat the market. If this is the case, why are there wealthy and poor people?
  2. The beating an index crowd. They benchmark their performance against some obscure index that has nothing to do with your risk profile or return.  When they beat this index they charge you more.
  3. The fear crowd. They tell you it is not about making money, but more about not losing it.  They offer ultra safe investments. All investments have risk.
  4. The cherry pickers. They provide you information on the performance of their investments by choosing the date when the investment has best performed. This has no relevance to current performance indicators. 

You are lead to believe that performance should be compared and measured against everyone else. This makes no sense. Performance is only relevant to you and what you are looking to achieve, your goals and your outcome.

Self-Managed Superannuation Funds

So how have SMSF performed against retail funds and industry funds? Back in 2011 a study was completed which showed that SMSF’s did outperform but this is of little importance as each fund is run by the individual for one purpose.

Some interesting facts about SMSF’s are that:

  • The average balance of a SMSF is over $1 million dollars.
  • Around $5 billion is invested in SMSF.
  • Around 2750 new SMSF are being set up each month.
  • SMSF is the fastest growing sector in the superannuation industry.

The key point is that SMSF’s have larger balances than industry and retail super funds.

The question you should be asking is why?

SMSF’s have larger balances as the investors are focused on achieving their goal of retiring comfortably. They are focused on reducing fees, saving, reducing tax, and improving the performance of their investments. Performance is not based on one thing it is a combination of activities. All focused on achieving a specific end result.

If you want to focus on low fees, chase last year’s winners. But don’t complain when you fail to get the performance you are looking for.

The people whose superannuation outperforms are the ones who “Take Control” and focus on achieving their goals.

Don’t leave it to others to look after your retirement.

Take control.

For more information on SMSF's register for our upcoming SMSF workshop. For details call me on (07) 4771 4577. 


Doing Nothing is Doing Something

By Jason Fittler

Advice received, does not mean action must follow. Even though we have been conditioned to believe this is the case.

When you speak to your accountant their advice generally results in you taking action to reduce tax. Lawyers are the same; you generally consult them, as you want to take an action, such as buying a house.

When dealing with Financial Planners or Financial Advisers you need to be careful when you get advice.  Here are two common mistakes people make.

1. Are you getting advice or are you being sold a product? The first clue is how you pay for such advice. If the advice is paid on purchase, (or if there is no fee if you do not go ahead) then you did not receive advice you got a sales pitch.

2. Advice from a Financial or Investment Adviser does not always lead to some sort of action. It is common for investors to expect that every time their adviser contacts them that there will be some buying or selling. Quite often there is no need to make changes, and a hold and wait strategy is just as profitable as a buy or sell strategy.

It can be misinterpreted that when an adviser tells you to do nothing that they are lazy or are not across the market and what is happening. In fact, as a professional Investments Adviser I work harder when there is nothing to do than when there is.

Professional Investment Advisors are always looking for some way to make their clients money, simply because the better the clients do, the better the advisor does. 

When markets are very bullish there are always plenty of ideas and actions to take or follow.

However, in a Bear market it is much more difficult to find a good opportunity for your client. You have to work through a lot more data to find the right idea.

Professional Investment Advisers spend a lot of their day reading through financial statements and research on different companies, looking up the most recent announcements, looking at economic data to try and find a good idea for their clients.

Sometimes the result of all of this hard work is to sit tight and keep looking.

It is easy for investors to get that burning feeling in their pockets that they want their money working harder for them and as such they start to take more and more risks. If your investment adviser tells you to sit put, you should listen.

Sometimes saving you from losing money is worth more than an idea that makes you money.

There is not a good idea every day. If your adviser tells you differently, you are being sold.

Investing is a long-term game and Value Investing means that you need to look for the right opportunity to buy.

It is like waiting for the Boxing Days sales. Sure before Christmas you are in spending mode. But, if you just hold off a couple of weeks you make big savings. Big savings mean more in your pocket.


Conflict Free Advice

By Jason Fittler,

Everything we see, read and watch these days is designed to do one thing. Sell you something!

Our economy is based on consumption, if consumption of products drops our economy will slow. Americans are at present the world champions of consumption. So, it is no surprise that our market keeps a close eye on the US.

You must keep this in mind when you are dealing with any company or person supplying you a service. Are you receiving advice or being sold a product? Conflict Free Advice is hard to come by.

What is Conflict Free Advice?

At Grow Your Wealth, we have our own Australian Financial Services License (AFSL). We are not licensed under any of the big investment banks or brokers.

Because of this, we are free to recommend any product that we believe will truly meet your needs. We are not constrained by having to offer products that are wholly owned by a parent company. Our advice is conflict free.

We choose for you the product that best suits your needs. Our fee is the same no matter which product we choose for you. No part of our staff’s remuneration depends on how much of your money they invest within a certain product or service. 

Most advisers in our industry are licensed through a larger parent company. This parent company provides the products the advisors sell. 

This in my view causes conflicted advice, as they will mainly recommend their own products. It only makes sense for the company and its employees to look after themselves.

Some samples are as follows:

  1. NAB owns MLC
  2. CBA owns Colonial First State
  3. Westpac owns BT Fund Manager and Asgard.
  4. AMP is more obvious 

So how can you tell if the advice is right for you?

You would need a second opinion from a Conflict Free Adviser.

But there are also advisors that appear to hold their own licenses but are licensed through these big companies.

The only true way to check is online. Visit the ASIC website. But you will need to work your way through the holding companies before you get the truth. It is a hard process if you are not in the industry.

So why is Conflict Free Advice important?

  • You can be confident that you are getting advice not an elaborate sale pitch for a predetermined product.
  • The advice will be specifically for you and not a one-size fits all off the shelf plan.
  • The strategy will focus on your needs, concerns and lifestyle and not provide standard advice for people your age.
  • The investments chosen will be based on what you need, not chosen based on what product the parent companies push that month.

The financial system is a minefield, with plenty of people looking to benefit from people's lack of knowledge.

Keep in mind that the company who’s product you are invested in make their money from selling you the product, not from you achieving your goals. They still get paid even when the value of your invest falls.

Is There a Quick and Easy Way to Get Wealthy?

By Jason Fittler

Buy (insert product name). Invest, forget, and watch the money role in. All your money worries are over, quick and easy. If you hear this, beware, it is most likely a sales pitch not investment advice.

The salesperson’s job is to sell you their particular investment product. They lead you down a path, which has only one end option, their product. They do this by running through a few different types of investments. They point out downsides in all except their own. They feed your existing fears or beliefs. If they sell investment property they'll tell you...

  • Shares go down like in the GFC. You could lose the lot. Remember Storm Financial!
  • Property never goes down, it’s solid and safe. 

It’s easy to be caught up in the emotion of the sales pitch.

However, before you make a decision, step back and seek unbiased investment advice.

Investment Advice vs. Sales Pitch

Investment advice and the sale of products has become a blurred subject over the past 10 years. It’s easy to be confused. Here is a simple way to make the distinction.

1. Investment advice is about strategy, structure, taxation, fees and goals. 

2. Sales pitch is about a product.

Destination First, Investment Options Second

When you travel, you first need to decide on a destination. Then you need a strategy to get you from where you are to where you want to be. The same rule applies to investing.

Once you have a financial destination (your goal) only then do you look at investment options. Make sure you explore and discuss ALL the different types of investment options available. Once educated, you can then make an informed decision on which investment options best suit your needs and goal.

Note: The choice of investment is the last thing, which you decide, not the first. If the choice of investment is the first thing spoken about, it is a sales pitch, not investment advice

All Investment Options Carry Some Form of Risk

Risk is a part of investing. The best investors know this all too well. Shares have risk. Property has risk. Even cash has risk.

The only way to reduce risk is to make sure you fully understand each investment option.

Growing Wealth Takes Work

If you speak to those who have self-made wealth, you will find a consistent message. Hard work is what got them the wealth they now have.

Growing wealth takes time, effort and commitment. It is not a one off event; it is a lifetime pursuit, which has ups and downs.

For most of us, there is no smoking gun, big idea, lucky break, or one investment that will makes us billions. It is simply never going to happen.

To grow your wealth you need to work hard, save, and invest wisely.

To invest wisely you need unbiased investment education and advice.

It’s not sexy.

It’s not what you want to hear.

But it’s the truth.

Real Rate of Return

By Jason Fittler

To grow wealth you need to take risks.

Wealth is created when your personal wealth increases faster than inflation after tax is accounted for.

Lets break down this statement:

  1. Inflation – this is the rate, which the cost of an item increases over time. The Reserve Bank measures inflation and generally looks to maintain inflation at 3%. This is the level that economists have decided is a reasonable rate of growth. However inflation will be higher and lower at any given point than 3%. We will however work our calculations for this example at 3%.  So if you were to purchase a widget today for $10,000, in a year’s time it would cost $10,300. To keep pace with inflation you need to ensure that your investments have also increased by 3%.
  2. Tax - we all pay tax on any income we earn so to ensure that you are increasing your wealth you need to measure your wealth in after tax terms. For example, if you hold a term deposit of $10,000 currently invested at 3.9% for 12 months, a year later you have $10,390 before tax. But to see if you have increased your wealth you need to know the after tax value of the investment. If your average tax rate were 25% then tax would be $97.50 ($390x 25%) as such your investment is now worth $10,292.50.

When you combine these two factors you have a real return for the past 12-months of negative $7.50 or negative 0.075%. In other words, you are going backwards.

The real rate of return is a true guide as to whether you are getting richer or poorer in relative terms compared to your peers. Historically the real rate of return was 0% or less if you held cash earning no interest at all. However since the GFC your real rate of return will be negative if you are invested in any of the following:

  1. Cash
  2. Term Deposits
  3. Short Term Treasuries
  4. Government bonds
  5. Investment Grade Bonds

This is a very unusual situation to find the financial world in; investors are now required to look for more risk just to break even. Cash and term deposits are no longer a long-term viable option, how long this will last will be determined by how long the world’s largest economies continue to keep interest rates at all time lows.

If you are an older investor who is happy for your wealth to run itself down then you should not worry too much about this situation. However if you are younger or you do not hold enough money to see you through your retirement then now is the time to be speaking to a financial advisor.

Investors look to invest in cash for safety. However, holding cash (as seen by the above example) carries a long-term risk. By playing safe and trying to protect your saving (by investing in cash) you could be losing it.

Trend and Value Investing

By Jason Fittler

For the vast majority of people the Stock Market is a concept, which they simply cannot understand and therefore they have misinformed opinions of how risky it is.

I heard a comment on a morning television show; “The share market is up today which is great for all of those Mum and Dad traders!”

One of the major misconceptions of the Stock Market is it is full of Mum and Dad traders. This is why it is common for people to liken it to betting on a horse race or gambling.

In fact it is a misconception that market is full of traders betting on individual shares moving up and down to make money at the end of each day.

It is these stereotypes and ill informed views which lead people to believing that the stock market is more risky than other types of investing.

The best way to understand the risk of any investment is to understand how that investment works. So before you express an opinion or worse, hand over your hard earned money, take the time to fully research the investment and understand it.

In the stock market there are two opportunities to make money, one is buying the trend and the other is buying value.

For less active investors or those who want to take less risk I would recommend Value Investing.

To invest in a trend you generally have to take an overweight position to make it worthwhile. Which means the risk of loss of capital is increased.

Value investing is when you look to find an opportunity where a company is trading below it intrinsic value (fair value). The first step in value investing is to be able to value a company at what it is worth.

You can do this yourself or you can buy the research from an independent third party. Independent is the key, if you buy research make sure that the company you are buying from makes their money from selling research and has no link to investment banks.

Once you have a list of companies you like, you then simply wait for an opportunity to buy them less than their intrinsic value.

The reason companies will trade below their fair value is beyond me except to say that the market in general has a short-term time horizon and is not logical when dealing with bad news.

As the market is made up of people, it is prone to emotional responses to negative news. It is this emotion, which leads to companies being oversold.

Once you find and buy one, prepare for a long wait before the company recovers. 

If the fundamentals hold, then the company will eventually move back up to intrinsic value and generally beyond.

Trend investing is when you are looking for a trend in the market. The most recent and obvious trend is investors moving out of cash due to the low interest rates and into high yielding blue chip companies. This has seen the ASX 20 outperform the broader market recently.

If you are able to spot these trends early enough you can hitch a ride and achieve good results, however trends have their downfalls. You need to ensure you get in early in the trend, getting in late will generally lead to a loss of capital.

A trend will terminate at some point which leads me to the second part of trading a trend, when to get out.

The obvious answer here is at the top. However, this statement makes no sense as you only know when the top is after it has topped. Exiting at the top is 100% luck not skill.

The time to exit a trend is when you have achieved your goal return. Do not get greedy. Always leave some upside for the next person. 

If the trend turns down, get out and cut your losses.

Investing Tricks and Traps (Part 2)

By Jason Fittler

Visit Investing Tricks and Traps (Part 1)

5. Emotions – one of the biggest traps when investing is making emotional decisions.

We are all guilty of this. Most decisions in our lives are made emotionally we then look to rationalise our decision with logic. Once emotion starts playing a role in investing then you are starting to gamble. Good indicators of when emotions are taking over are:

  • You have pre-conceived ideas of what you want to invest in. To avoid this you need to spend time looking at all the different type of investments.
  • You only like advisers who sell the investments you like. At this point you are being sold and not getting advice.
  • The adviser is only telling you what you want to hear. This is a trick by the adviser to connect with you on an emotional level.
  • You get upset when someone disagrees with you. 

6. Free Advice – there is no such thing as a free lunch. Same with advice, if it is done for free then it is a sales pitch not advice. Things to look out for are:

  • Free seminars or ads offering free investment packs. These are all marketing tricks designed to persuade you to buy their product.  The goal with marketing is to get you to hear the same advice from three apparently different sources. Read it in the paper, hear about it on TV and then you go to the seminar, sold.
  • Cheap Advice – with compliance costs and the requirements currently in place for Financial Advisers at a minimum you should be expecting to pay around $2000-$3000 from a full financial plan. If it is cheaper it is because:

1. It is a sale pitch to sell you their product.

2. It is a sale pitch to sell you their product.

  • Australian Financial Services License (AFSL) – the person giving you advice should have an AFSL or be an Authorized Representative (AR) of some who does have an AFSL. If they do not hold an AFSL then it is a sales pitch not advice. Best option is to walk away.

7. Current Investment Trends - are always a big trap for the investor. 

Trends become bubbles, bubbles burst and when the music stops there are no chairs left. Trends are driven by groupthink. Humans survived as a species by being part of a group, many animals do. Being part of a group provides safety in numbers. As such it is not unexpected that we follow the group. 

The fear of being left behind is instinctive in humans as such we ignore all of the warning signs, see nothing but opportunity and join with everyone else. The last investors in a trend are often the most naïve, they join in as to not miss out and have little understanding of the investment of the risks associated with it.

8. Power of Savings - most of your wealth will come about through regular savings. How this money is invested will increase your wealth but not create it.

Having a good saving culture will build you the capital you need to live off. Many investors chase the big returns, looking for 20% return each year. The fact IS that a return between 6-8% per annum is what you should expect long-term.

At 7% return your investment will double each year, but if you also add to the capital through savings it make a large difference.

For example, $10,000 invested at 7% after 10 years will be worth $20,000. If you were to add $500 per month to your capital then in 10 years you would have $100,000.

If you continue this on for 35 years it would be worth a million dollars. 

For more information on any of the above please call us on (07) 4771 4577