17th June 2009
Use your nose before buying a financial product
In the current investment environment, it is always good to step back and look at some fundamental rules of investing. Marcus Padley is a stockbroker with Patersons Securities and is the author of the daily stock market newsletter Marcus Today. He also writes for major newspapers in Australia. In a recent article, he listed 12 tips when looking at buying a financial product, which we would like to share with you. Here they are:
- Don't expect the law to protect you - no one can protect you from your own stupidity in your own living room.
- Take responsibility yourself. Have your wits about you. Common sense will suffice. You are your only defence.
- Most dodgy products are flashing warning signs. If the salesperson has travelled 100km to see you at 8.30 at night then something is wrong.
- Remember the golden rule. If it's too good, you would not be offered it. If you get offered it, you don't want it.
- If you don't understand it, don't buy it. Complexity is camouflage.
- Don't put too much money in one product.
- Be very careful about borrowing to invest. There are not many (any) asset classes that will reliably return you more than the cost of borrowing. There aren't many that will return it without a risk.
- If you are buying a dressed-up product, you are almost certainly paying more than market interest rates.
- Reward is always balanced by risk. You will be told about the rewards. If you can't see the risks, you clearly don't understand what you're investing in.
- Don't be rushed. There are a million financial products out there. You don't "need" to buy this particular one in a hurry.
- Anyone selling you a return of greater than 9.5% a year either has her fingers crossed behind her back, is lying, or is selling you a greater-than-average risk product.
- Anyone earning a commission of more than 2% is selling something hard to sell, so you probably shouldn't buy.
We at La Trobe agree with these thoughts. That's why we like to keep things simple and straightforward. We only manage mortgages, and we've been doing that for over 50 years. We believe that our Mortgage Fund offers value for money, with an appropriate reward for the investment risks involved. We offer our investors a choice of mortgage-related investment options, which invest in a selection of mortgages underwritten and managed by La Trobe. The mortgages are diversified by location, sector, interest rate and maturity profile. Investment returns range from the Cash & Mortgages Option, currently paying 5.25% p.a. variable and the Pooled Mortgages Option, currently paying 6.95% p.a. variable, through to the Select Mortgages Option (7.15%+ p.a.) and the Special Situations Option (15%+ p.a.), which allow investors to select the mortgages in which they want to invest. These second two options pay a higher return, but they are riskier investments, particularly because they don't offer the diversification benefits of the first two options.
When you read our Product Disclosure Statement, you will see that we set out the risks of an investment in our Mortgage Fund, as well as the returns, so that you can make an informed investment decision.
We don't pay any commission on investments in the Cash & Mortgages Option, and only 0.50% commission on investments in the Pooled Mortgages Option. Commissions paid in relation to the other two options vary, but are always well below 2%.
And in particular we agree with Marcus when he says "Don't be rushed". Take your time when making investment decisions, and make sure that you can sleep at night once you have invested your money.
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Head of Funds Management
t +61 3 8610 2811
Chris Andrews is the Head of Funds Management for the La Trobe Group and has responsibility for the La Trobe Australian Mortgage Fund.
Read full profile here.
La Trobe is one of Australia's leading independent specialist mortgage Financiers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 115 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.
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