"Sit back, relax, and watch your money grow"
Like Fincorp and Westpoint before them, Australian Capital Reserve has gone down, taking a large amount of Mum and Dad investers with them.
It just goes to show that you cannot make any wise investment moves based on a couple of snappy television ads. No doubt that the smart ones would have done proper checks before pouring all their life savings into one basket, but that raises more questions. Why wasn't this picked up earlier.
Why was there no flashing sirens to suggest "Hey, this is pretty risky, wouldn't be worth it"
Australian Capital Reserve collapse
Re: Australian Capital Reserve collapse
Shares in general are the most risky asset of all, but they return the highest (generally speaking).dom_105 wrote:"Sit back, relax, and watch your money grow"
Like Fincorp and Westpoint before them, Australian Capital Reserve has gone down, taking a large amount of Mum and Dad investor's with them.
It just goes to show that you cannot make any wise investment moves based on a couple of snappy television ads. No doubt that the smart ones would have done proper checks before pouring all their life savings into one basket, but that raises more questions. Why wasn't this picked up earlier.
Why was there no flashing sirens to suggest "Hey, this is pretty risky, wouldn't be worth it"
The problem with the mummy and daddy investors is that they go in blindly to begin with. They refuse to believe that some thing are too good to be true.
Now I will be honest, I don't know enough about Australian Capital reserve, but this happens a lot. Why on earth would people put all their eggs in one basket?
The key to investment is diversification. You are never going to eliminate risk, but by diversifying your port-folio, it can minimise it. Even when investing in a certain asset class, you can further diversify it by allocating shares to different industries of the ASX.
The mind boggles sometimes.
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jimmyc1985
- Champion of Essendon
- Posts: 5869
- Joined: Wed Aug 30, 2006 11:33 pm
- Location: Position A
Sigh.
The long term real rate of return on the sharemarket is about 8%. Current real returns on savings deposit accounts are about 2.5%. ACR's promised real rate of return was about 5% - e.g., on the spectrum of risk, it was somewhere in between a zero risk proposition (deposit account) and an ostensibly high risk proposition (sharemarket).
The problem with all these subordinated debt, high return investments is that even that very basic citation of knowledge that i just gave isn't possessed by most people who invest in these schemes. Most people don't know the concept of risk-return payoff, they can't (or don't bother to) read through the legalese and financially abstruse information contained in disclosure documents (e.g. prospectuses) and, worst of all, they receive bad advice (this was particularly pertinent in the Westpoint matter). That is to say, if you ask some people: "if there are two investments - a deposit with ACR that returns 9% and a deposit in the bank which returns 5%, which is more risky and why?", there are plenty of people that wouldn't be able to give a definitive answer to that problem.
Basic finance should be a compulsory part of high school education. Compulsory financial education isn't going to stop people losing money by being greedy, but it will hopefully stop people losing money due to their own lack of knowledge. That kind of loss is the kind that needs to be avoided where possible.
The long term real rate of return on the sharemarket is about 8%. Current real returns on savings deposit accounts are about 2.5%. ACR's promised real rate of return was about 5% - e.g., on the spectrum of risk, it was somewhere in between a zero risk proposition (deposit account) and an ostensibly high risk proposition (sharemarket).
The problem with all these subordinated debt, high return investments is that even that very basic citation of knowledge that i just gave isn't possessed by most people who invest in these schemes. Most people don't know the concept of risk-return payoff, they can't (or don't bother to) read through the legalese and financially abstruse information contained in disclosure documents (e.g. prospectuses) and, worst of all, they receive bad advice (this was particularly pertinent in the Westpoint matter). That is to say, if you ask some people: "if there are two investments - a deposit with ACR that returns 9% and a deposit in the bank which returns 5%, which is more risky and why?", there are plenty of people that wouldn't be able to give a definitive answer to that problem.
Basic finance should be a compulsory part of high school education. Compulsory financial education isn't going to stop people losing money by being greedy, but it will hopefully stop people losing money due to their own lack of knowledge. That kind of loss is the kind that needs to be avoided where possible.
Re: Australian Capital Reserve collapse
Talking about history this happened before...Filthy wrote:Those Westpoint, Fincorp and ACR investor's were ill-informed (their fault) and/or greedy (their fault). They also either don't read history and therefore learnt nothing from Estate Mortgage or chose to ignore it.
http://en.wikipedia.org/wiki/Savings_and_Loan_crisis
Not for the faint of heart but enlightening nevertheless, it seems that the same causes always bring the same effects.
Red and Black Forever
Re: Australian Capital Reserve collapse
Share in the banks are very high at the moment, I think CBA is at $46 a share or in that area.Filthy wrote:But back to shares .....Ross where do most peole park their money?
Most would answer the Bank. Why?
They would say because it is safe.
Then if it is so safe why wouldn't you own a share of it especially if pays around 5-6% plus a fully franked credit thus increasing its value by 30%? You also get capital growth.
If you get say a gross 6% at ING you pay tax at your marginal rate of at least 15% up to whatever it is with NO capital growth.
There is risk in everything but the above example is a no brainer. If you think CBA is going to go broke, you're best converting your cash to gold and burying it in the back yard.
I dont play the share market so i dont know a great deal about keen strategies that most would play. While I have a few shares here and there, its mainly for diversification. At the same time, I dont say "ill buy shares in company A for the sake of it". I do research on it, but as Im not fully aware, I dont go throwing thousands of dollars at them.