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.

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.

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.


When is the right time to buy a share?

By Jason Fittler

Is it time in the market or timing the market, which yields the best results?

Here is the first tip to new or old investors about buying shares. If someone has an absolute approach to investing, they focus on one method and forsake the rest you can be sure you are getting bad advice.

It could be lack of experience. The need to feel like the expert. Or you are dealing with a sales person and not a professional adviser.

When it come to investing in shares there is no one right way.

A customer focused investment adviser knows that the right approach for now depends on 1. What is happening right now on the market, 2. The economy and, 3. Globally.

They will take into account all these factors and look for the best opportunity right now.

When we look at which is right in regards to time in the market or timing of the market the answer is both.

You need to be in any investment for the long-term. To make remarkable returns however the point you enter the market will have an effect on the end result of the investment.

This is why the core of a successful investor is PATIENTS. 

Never be in a rush to lose your money.

So what should you be looking for when looking to invest in shares?

1. Ignore all media. They sell advertising space not advice. If it is on the television, radio or in print it is about selling advertising. Rest assure by the time a good tip hits the media everyone in the know has already acted so you are too late.

2. Economy – always understand where the economy is at and where it is heading. A basic understanding of the driving forces in the economy will save you lots of failed investments. You need to understand which sectors of the economy are doing well and which are performing poorly. By understanding this you will be able to see which sectors of the market are riding the high, which ones are at their lows. This help you to pick which stocks are likely to ride the next highs and which sectors are about to pull back.

3. Companies – you must always do your own research. Sure take a look at all the research available to you online but also make sure you take the time to review different opinions. Do not just rely on what the research is telling you; look at the financials. Many a lie can be uncovered by crunching the numbers. You want to make sure that you understand the whole story, the good and the bad. Especially the bad, poor investors never focus enough on the downside, they are too busy spending the money the have not earned yet.

4. Technical Data – the share market is not a logical place, do not assume it is. The efficient market is a myth. Not all information is available to all people at the same time. Technical analysis is one way to see how a share is trading and the direction it might take in the short term. This can help with the timing.

If you apply all the above when you start to think about investing in a particular share or company you will have a better than average chance of getting it right.

This is when time in the market comes into play.

Now you have a good investment continue to hold regardless of the share price. Hold until something about why you purchased the investment changes.

Time in the market yields the best results.

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.

What is the Best Strategy for Investing in Shares?

 By Jason Fittler

As an investor you will come across many different strategies to make money with shares. 

So which one is right for you?

First let’s take a look the main strategies in the marketplace:

  1. Buy and hold strategy.
  2. Value Investing – looking for undervalued companies.
  3. Growth – looking those companies that have high potential for growth.
  4. Technical Analysis – looking at momentum and movements in stock.
  5. Index approach. 

Each approach is different and each needs to be assessed in retailing to the following factors: 

  • How much you have to invest.
  • The time you have available each day to spend on your investments.
  • The economic cycle we are in at any point in time.
  • Your level of understanding of the stock market and the financial system.

My first tip for any new or seasoned investor is to continually improve your education and knowledge of the stock market and our financial systems.

The more you understand the better placed you will be to make sound decisions. Your education never stops, you must commit time each day to improve your knowledge or you will fall behind the game.

The second tip is you need to understand all of the above approaches. It then comes down to how comfortable you are with the strategy you have selected.

Trying to swap from one to the other chasing the best returns will usually end in disaster due to one variable... timing.

Getting the timing right to effectively and profitable switch from one investment style to another is nearly always wrong. The common error is that people switch styles at the end of the cycle of the style they are moving to.

This is usually because their investments are under performing in the period leading up to the switch. If you do not switch at the start of the cycle you will lose money as you are buying at the high of the cycle.

I find that the best overall approach is to choose an investment style you are comfortable with and maintain the core of your investments in this style.

You can then take a small percentage of your investments and invest in the right style for the economic conditions to try and boost your overall performance. You must accept that your performance will lag the market but it is a long-term game and what you lose in one cycle you will pick up in another.

So which style suits you?

Buy and hold strategy is good for investors with large portfolios and plenty of free cash flow to take advantage of any new opportunities.

Value investing is focused on your investment providing you high level of income and long-term growth. Good for people who need to live of their investments.

Growth investing is good for those who do not need the income and have high disposal income to invest in new opportunities.

Technical Analysis suits traders and those who may need to sell something to raise funds for new investments. It fits in well with a growth or value investment strategy for those with limited funds.

Index funds suit those with a limited amount to invest as it allows you to get a diversification spread of investments with a small amount of funds. The wider the diversification, the less risk.

For most investors a combination of these will produce the right result.

Beware of any adviser who tells you that there is only one way.


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 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.


Do Nothing and Save Money

By Jason Fittler

Ever thought “I wish I didn’t do that”.

Investors tend to focus on the upside, the profit, and the benefits of investing and rarely take a close look into the downside or the losses, which could occur.

Many years ago, I was reviewing a client’s portfolio when they told me they wanted to invest in a privately owned company. For me, this immediately raised a red flag. Privately owned means small and illiquid, this increases risk. On further discussions, I was advised that the investment would receive interest of 20% per month. No, that is not a typo. This sort of return is not a red flag, it is a giant blinking red light, which reads DANGER. 

After further discussions, I was able to obtain some information about the company its workings, cash flow and business model as well as the owners and their experience.

Based on what I knew about the company and the information the client supplied it was clear that this company was about to fail.

My advice was not to invest.

A couple of weeks later the client advised me that they had invested $250,000 into this company against my recommendation. They were initially going to invest $1 million. 6-months later, the company went bust. The media reports confirmed my fears. The company was trading insolvent for around 12-months. The company left a trail of financial disaster.

My client lost their $250,000.

My advice saved the client $750,000.

Investors generally focus on the money that their adviser makes them and rarely focus on the money that their adviser saves them.

Creating wealth is not just about making money; it is also about not losing money. 

As a rule of thumb, if an adviser tells you not to invest and forgoes commission because of that advice, best you listen. 

Before You Invest You Need to Set Goals

By Jason Fittler

What are you looking to achieve?

Your investment goals need to be specific and well thought out, clear and concise.

Never set vague goals such as “I would like to retire comfortably.” If you have vague goals you will also have a poor/vague out come.

You need to set goals like:

  1. I want to be debt free by age X.
  2. I want to have my home loan paid off before I am X.
  3. I will need $xx to retire comfortably on.

A clear and concise goal is the first step to becoming a successful investor.

The first big mistake made when investing is that the choice of what to invest in, is the first decision. You need to recognize that you have not made an investment choice but in fact you have been sold a product. This is generally a very bad start. Why? When you purchase a product (as the end user) all of the profit from the product has been made.

The choice of what you invest in should be the last decision made. In fact once you set your goals, work through your cash flow (budget) take in consideration taxation, fees and time needed to achieve your goals. The type of investment you need to achieve your goal will then be quite obvious.

What you invest in is the last choice not the first. 

Let’s put this in action and look at an example:

You are 30 years old married with a couple of kids a home loan of $350,000 (which is the average home loan at present) both you and your spouse work and combined earn around $150,000 pa. You have $40,000 in super combined.

Goals are to pay out home loan and retire at age 65 with an income of $60,000pa.

Let’s work backwards.

Take home pay will be around $159,000pa. Home loan payments over 25 years $30,000pa. Super paid by your employer is $9,350 after tax in super fund. The expected return is 6%. So to achieve your goal you need investments, which will return 6% pa at least.

As you stand at present, if you pay the minimum payments on your home loan the interest bill over 25 years will be $392,000. By 65 your super should be worth around $480,000 in today’s dollars.

Step 1 is to pay of your home loan as fast as possible by increasing the repayments to $45,000 (a 50% increase) per year. You will pay it of in 11 years and save around $240,000 in interest.

Step 2 is to make sure that the extra $45,000 per year is being invested in either super or other investments. Given that you are now 41 years old and have 24 years to retirement if you put say $25,000 per annum into super this should boost you super to around $1,000,000 by age 65. A million dollars will produce $60,000pa for your retirement.

Now it is time to choose the investments that will best help you achieve your goal.

  • Please note all figures are in today dollars and allow for inflation of 3%.

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

Investing Tricks and Traps (Part 1)

By Jason Fittler,

Modern technology allows us access to more information than ever before. However, this information is not always factual and often simply opinion.

And with so much investment information available, how do you separate fact from fiction?

There are a number of steps you need to undertake before you jump on the keyboard and start looking for ideas of how to create wealth.

When you invest your money, keep in mind, someone is getting richer, and it may not be you!


1. Consider your objectives. The more specific the better. Getting rich or wanting to retire are not objectives they are wishes. Objectives need to clearly outline what you are setting out to achieve. For example, in order to retire I need to have at least $50,000 income each year for living expenses on the provision that the kids have left home and I have no other debts. 

2. Education is the next step. Education needs to be obtained independently before seeking advice. The goal of education is to ensure that you are armed to ask well-informed and considered questions to those providing advice. With education, seek opinions from many different sources; perhaps enroll in an online course. If you are looking to retire then enrolling in a course on superannuation will give you the tools you need.

3. Selecting an adviser. This is a time consuming process and will require you to speak to a number of advisers. Do not fall into the trap that they are all the same. Advice is separate from product. When speaking to a financial advice ensure that they are speaking about strategy, and not about their products. Products should fit the advice. Advice should never fit the product. One of the big traps in the investment industry is when a sales pitch is dressed up as investment advice. Thing to look out for are:

a. Seminars, that are more motivation than advice. If they are full of hype and fist pumping then it is most likely a sales pitch.

b. The advice is focused around one product. Advice should be focused on strategy, not a product. Once the strategy is right then turn you attention to the best vehicle to achieve the strategy.

c. Cold calls. Advisers who come to you. Act now or you will miss out deals. Latest fads. These are all red flags, and should always be looked at carefully before you hand over your hard earned money.

4. Clearly commutating your requirements to the adviser. Make sure that the adviser clearly understands you and your needs. To do this you must invest time and speak freely. No matter how dumb you think a question might be, make sure you ask it. This allows a good adviser to assess your level of knowledge and better understand how they can help you.

Stay tuned for Part 2.

SMSF – Buying Property in Super

By Jason Fittler

If you are looking to invest your superannuation into direct property then there are two main types.

Business Real Property - is defined as meaning, any freehold or leasehold interest of the entity in real property, or any interest of the entity in Crown land, other than a leasehold interest, being an interest that is capable of assignment or transfer, where the real property is used wholly and exclusively in one or more businesses, but does not include any interest held in the capacity of a beneficiary of a trust estate.

Two basic conditions must therefore be satisfied before an SMSF or any other entity related to or dealing within an SMSF can be said to hold business real property:

  • the SMSF or the other entity must hold an eligible interest in real property
  • the underlying land must satisfy the business use test, which requires the real property to be used 'wholly and exclusively in one or more businesses' carried on by any entity.

For most SMSF this generally is used when a business owner’s SMSF buys the property, which they run their business out of. If this is you always make sure that there is a valid and arms length lease in place.

Residential Property – there is now a growing trend to purchase residential property (a rental property) in your SMSF. This is allowed as long as the Trustees and any related party do not benefit (use) from the property. As such holiday homes or family renting the property is not allowed, nor can you purchase the property from a related party.

If you are looking to buy property in the SMSF I strongly recommend that you only do so if you already have sufficient cash in the fund to do so, keeping in mind that the SMSF can hold the property as tenants in common owing a defined percentage of the property.  If however you need to borrow to purchase the property then you will need a Bare Trust.

Bare Trust – a Bare Trust’s only purpose is to keep title over the investment property until the loan is paid off.  This is to ensure that the other assets inside the SMSF are not put at risk in the case of the geared property investment losses money.  The Bare Trust also is the entity, which holds the loan. The loan from the bank is required to be a “Limited Recourse Loan” which means that it can only sell the property in the case of a default on payment by the SMSF.

However the banks will normally require that the Trustee’s of the SMSF supply a guarantee for the loan. This means that the Trustee will be personally liable for any short fall on the loan and will therefore be placing their personal assets at risk. Once the loan is completed the title will go to the SMSF.

Trustees and members of a SMSF need to give careful consideration to the purchase of direct property into their SMSF as it comes with risks. You need to ensure that the property will provide sufficient liquidity to cover its expenses; proper leases are in place, that rental is at an arm’s length rate. That the property is not use for personal use either by a trustee or related party and that your investments strategy and trust deed allows for such an investment.

When it comes to retirement owing property in the SMSF will result in liquidity issues as generally the property will not generate enough income to cover the minimum pension payments as such it will need to be sold. Depending on the type of the property this can take some time. As such careful planning is required prior to making the decision to start a pension.  

For information please contact us on 07 4771 4577. 

Common Financial Planning Mistakes

By Jason Fittler

1. Too Little Too Late
Most people only go through retirement once in their lives. Many financial planners go through it on a weekly basis. Too often, planners see what happens when people face retirement with too little money to sustain a comfortable retirement and too little time to make up the deficit. Even those who have sought advice earlier in life are sometimes reluctant to commit to a plan to reach their retirement goals. They cite mortgages, renovations, overseas travel, school fees and not planning to stop working as reasons to put off seriously investing in their long-term future.

The combination of compound interest and Government incentives favour the tortoise over the hare.

2. Paying Unnecessary Taxes and Fees
People generally don’t want to pay more tax than they need to. But they quite often do. Taxes can act as a drag on your efforts to achieve your financial goals.

Be aware of these taxes:

  • 15% tax on earnings in super for clients over 55
  • Excess contributions tax for superannuation payments
  • Potential salary sacrifice contributions taken as income
  • Capital gains tax on short-term investments

3. Falling for Investment Fads
Investing can be very emotional. Envy and greed often tempt clients to chase hot asset classes, share market sectors, managed funds or property schemes. History shows that this rarely pays over the long term. Tech stocks, speculative mining stocks and highly leveraged property investments have all caused financial hardship for a large number of retail investors. You need to take the emotion out of investing and invest in accordance to your attitude to risk and understand the strategic investment framework that is appropriately diversified and tailored to your individual risk appetite.

4. It Won’t Happen to Me
You are often either unaware or unwilling to admit that risk exists in your life. You need to make sure that the correct level of insurance is held and that you have a Plan B. Job losses and illness can cause major financial strain if not correctly accounted for.

5. Failing to Plan
As the old saying goes, “if you fail to plan, you plan to fail”. You are very unlikely to achieve your major life goals, if you fail to first articulate those goals and secondly put a framework in place to achieve them. Goals often lie under the surface in a person’s sub-conscious. You need to identify and articulate these goals, this will allow you to visualise what success looks like. If your goal is to see the world, you need to visualise stepping on the plane. If your goal is to pay off their mortgage, try to visualise what it will feel like making your last payment. A vision will provide more motivation to achieve those goals.

Financial Planning advice is most commonly measured as good or bad depending on the performance of the investments. This is a common mistake. Performance is a measure of the investment, not the advice you are receiving. Investment advice is how your adviser goes about choosing the investments for you.

Financial Planning is getting the tools and advice you need to achieve your goals.  

Do you need Financial Planning advice? Please call me on 07 4771 4577.  

Bonds – Should You Invest in Them?

By Jason Fittler

Bonds are very popular right now for investors looking for higher income and capital security.

Over the past 4 years in a falling market, bonds have outperformed direct equities and are therefore seen as a better alternative.

Unfortunately, investors mistakenly think bonds are risk free like term deposits... they are not.

The only guarantee a bond has over equity is the income; the risk of the Bond is directly related to the underlying company. The underlying company is the company, which issues the bond such as NAB, QBE, etc. 

Bonds level of security will range from senior secured debt – senior debt – subordinated debt – hybrids.

The higher the security level, the lower the interest rate.

Like equities, if the underlying company goes into liquidation then the bondholder is at risk of losing their investment.

Bonds have an inverse relationship to the government cash rate. If interest rates goes up the value of the bond goes down and vice versa. Due to this relationship a bond carries risk of loss of capital if you need to sell before maturity.

The upside of Bonds is that your income is guaranteed. The company must pay the income on the Bonds before any other distributions are made. If the income is not paid, then it accumulates.

Bonds are now available to the retail investor. So if you are looking for security and a rate higher then term-deposits, Bonds maybe for you. 

For more information please contact us on 07 4771 4577.

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