You might hear them at a dinner party or in the back of a cab. Wherever
you hear them they have two things in common. They are generally
wrong. And they can cost you money.
1. "The most important thing
is protect your capital."
While the desire for security is understandable, highly secure investments
such as bank accounts and term deposits are unlikely to provide
the returns investors need to meet their goals. This is especially
true once tax and inflation are taken into account. Successful investors
understand the balance between risk and return.
2. "This time, things are different."
Insert: "Those who cannot remember the past are condemned to repeat
it." George Santayana
The next time you're told that some important new factor means that
market fundamentals don't apply, refer them to history. The share
boom that ended in 1987 was "different" because a massive flow of
new money into shares was supposed to push up the sharemarket indefinitely.
The money kept flowing, but when shares became expensive it flowed
out of shares into bonds and then into housing. History proves that
investment markets move in cycles, both up and down and that no
matter how "different" things are, booms always come to an end.
Happily, so do recessions.
3. "It's got amazing tax advantages"
Investing in macadamia nuts, pine forests and ostrich farms can
be a perfectly valid path to wealth. The trouble arises when you
invest in areas such as these, or any other investment, purely for
the tax saving. If the underlying asset isn't likely to provide
a reasonable long-term return, no amount of tax advantage is going
to make it a good investment.
4. "If you don't buy now, it
will be too late."
When confronted with this phrase, try asking "What is this investment
worth?" not "how much will this cost?" When an investment market
enjoys a period of sustained good news it's tempting to jump on
the bandwagon when someone reminds you that you could be "too late".
Often that means you will buy assets at inflated prices. You could
arrive too late for the rise and just in time for the correction.
5."You can't go wrong in bricks
and mortar"
Beware advice that "house prices always go up". While demand for
residential property may be rising now, the poor performance of
residential property over the past 10 years ends the myth that a
house is always a good investment. Iron rusts, timber rots, paint
peels. So, when inflation is low, house prices rise only when more
people want to buy houses than sell them.
Disclaimer
This information is given in good faith and has been
derived from sources believed to be reliable and accurate. However,
the information is selective and Bankers Trust has not verified
all of the information, which may not be complete or accurate for
your purposes. None of the companies of the Bankers Trust Australia
Group, nor any of their directors or employees give any representation
as to or warranty of reliability, completeness or accuracy of the
information, nor accepts any responsibility arising in any way (including
by reason of negligence) for errors in, or omissions from, the information.
This disclaimer is subject to the contrary provisions of the Trade
Practices Act.
