Money Matters Investment & Finance Advice and need, vice and greed
Advice and need, vice and greed
Monday, 01 June 2009
PDF Print E-mail

stethmoneycalc.jpgNo-one seems willing to state the obvious - the current ‘global financial crisis' is the result of human greed, free-market economies that position personal wealth, growth and profits as prime markers of success, and the failure of regulators to reign in excesses and unscrupulous operators. The downturn has lifted the rock on shonky business practises worldwide, so everyone can see what squirms beneath. Politicians have been lobbied by big business and mesmerised by big powerful dealers. We now know that even major banks can fail and crooks acting alone can take $100b off other people. Every rich country has wheeled out its startling examples of financial failure. Flogging housing to people in the US who couldn't really afford it was simply the first card in the stack. The list is now endless.

For example, the Bank of America's equity cushion was an estimated $34b shy of a safe level. The yearly bonuses paid to New York's financial workers equates to most of Kevin Rudd's Aussie stimulus package. Dubai's artificial economy, a parade ground for the rich, is stalled and owing huge debt to oil-rich neighbours. And so on.

The size, rapidity and global nature of financial change have taken everyone by surprise. Australia has been forced to view itself from a global perspective. In this respect, many investment advisers here have been caught napping. This explains why the Financial Ombudsman Service in Australia, which adjudicates on disputes up to $150,000 for claims against stockbrokers, financial planners and investment advisers, is now buried in consumer claims.

Where do small investors go from here? World economies are debt ridden, soon to average 9% of GDP amongst rich countries. As banks, insurers, financial institutions and big business default on commitments and debts, small investors receive little back from any fire sale that ensues. Rich States that use public funds to bail out businesses will now have a higher stake in private enterprise and greater control. Mergers and acquisitions are rising as businesses position for survival. This is a difficult climate for the average investor to both trust the advice they are given and feel confident they are doing enough to grow or protect their hard-earned.

This is no conventional downturn - company defaults on debt and bankruptcies are still rising, as is unemployment, while wages are static and there is the threat of higher taxes. Some observers believe recent good news in world markets is merely a temporary twitch from a global economy heading south.

However, there is more talk of recovery as time goes by. Those feeling a little greedy (or is it needy, after losing a big slice of their retirement nest egg!) want to get in early on any market rebound. Hence the unusual interest in high risk stocks and the repackaging of investment advice and portfolios by institutions vying for profit-starved investors. Recent heavy losses are discounted by the explanation that "timing the market" never works. But tell that to someone now looking to retire in 5 to 10 years - they will need a 100% return on their sharemarket investments for a few years, just to break even on a 50% loss.

The health sector is relatively buffered from any economic downturn. Hence, health stocks are seen as defensive investments and health interests are regarded as a safer bet for lenders.

A significant proportion of doctors have self-managed super funds. Most of these have stockmarket portfolios that have dwindled in value. But busy doctors, unless they personally dabble in shares, will follow advice. Like many others affected by the downturn, some are now questioning the value and accuracy of that advice. Let's face it, anyone can turn a profit by investing through a downturn, with 10 years or so up your sleave. But it takes a good adviser to maximise profit.

We were curious about general practitioner attitudes to investing and advice received.

 

GP Investment Comment

175 general practitioners responded to our brief E-poll on attitudes to investment, with some interesting results. Half said they would ride out the current crisis, 1 in 10 moved investments towards cash, and about 1 in 5 have decided to take a more hands-on approach to their investments. Interestingly, only 25% were looking for fresh advice. Maybe they think the horse has already bolted?

 

As a result of the recent economic downturn, what steps have you taken to protect your assets?

Do nothing, just sit it out 50%

Taken a more hands on approach to where my money is invested 18%

Invested more in property 10%

Become more diversified 10%

Moved from shares to cash/bonds 9%

Become less diversified 2%

Put it on ‘the black' at Burswood or suchlike 1%

 

Are you looking for fresh investment advice?

Yes 25%

No 75%

 

Without naming specific companies, what useful financial advice have you received this year that is worth sharing?

In response, around 60 GPs offered comment - 18 said they had had no advice. Seven had been told to do nothing, and not panic; 3 had been told to invest in gold or precious metals; and 2 were told cash was King. Regarding real estate, three had been advised to invest and one warned off. Four GPs reminded us of the 30% business deductions for new purchases before June 30. Three suggested getting rid of debt through home or practice ownership was a good idea; "Practice ownership makes sense and still makes the best investment for GPs". Two said super, with its tax advantages, was still the way to go.

In terms of who to trust, comments offered were, "No-one cares about your money like you do", "If the ‘experts' don't know then I trust no-one!", "Follow your own informed instincts and do it yourself, after all it is your own hard earned money so don't give it away!" and two gave reference to newspaper financial columnists.

As to the philosophical side of investing; "Buying makes you profit", "Conserve resources, spend wisely, booms come and go, think positively", "Do not be greedy with investments" and "Keep it under the mattress until cash is needed."

Three doctors gave sobering comment: "I really need [advice] as I am a senior citizen and still working!"; "This assumes we all have spare money to invest. I am sure I am not alone as a single parent in having just as much trouble financially in making everyday needs met as my patients"; and "I have a large house mortgage and I live from payday to payday".