In your in­ter­est: Paul Clitheroe

Money Magazine Australia - - CONTENTS - Paul Clitheroe

Well, here we go again. At a rough guess this must be get­ting close to 1000 ar­ti­cles or TV or ra­dio sto­ries I have writ­ten about scams over the past 35 years. Part of me does won­der if I am wast­ing my time but I am a gen­uine op­ti­mist. While I would be re­ally sur­prised if a reg­u­lar Money mag­a­zine reader fell for a money scam, I am hope­ful that you will share scam sto­ries like this with your kids, grand­kids, ex­tended fam­ily and friends.

I don’t want to let my­self be­come too de­spon­dent about peo­ple be­ing scammed. In fact, I think as a “herd” our com­mu­nity is get­ting bet­ter. An ex­am­ple of this is that I see no ev­i­dence that we are still fall­ing for emails telling us that “I am Prince Who­ever, son of the de­posed King Who­ever, and I wish to send you a vast for­tune. Just send your ac­count de­tails and I’ll send the for­tune to you and we will split it.”

Em­bar­rass­ingly, in terms of our ba­sic com­mon sense, the emails were pretty much ex­actly th­ese words and, yes, many fell for them. But the world moves on, and as our knowl­edge of scams grows, the so­phis­ti­ca­tion of scam­mers has moved even more quickly. I have to pay grudg­ing re­spect to some of the im­pres­sive fake web­sites built by scam­mers. But now we re­turn to the past.

I have ab­so­lutely no idea how some 2000 peo­ple have man­aged to lose $10 mil­lion be­tween them to the old­est trick in the book, a play on gulli­bil­ity and greed. The good news is that won’t take me long to ex­plain the scam. Four peo­ple have been ar­rested: “four men in their 30s and 40s and a 41-yearold woman”. Sadly for the Gold Coast, as is all too com­mon, four were op­er­at­ing from there and one from Bris­bane.

The scam was sim­ply ring­ing peo­ple and of­fer­ing them an “au­to­mated share trad­ing sys­tem” that would make 16% to 18% a month and a “guar­an­tee” that if you did not make $30,000 a year you would get your money back. Nat­u­rally the sys­tem did not make 16% to 18% a month and – sur­prise, sur­prise – the “guar­an­tee” was backed by a $2 shelf com­pany that folded.

Good grief. How dumb can we be? Per­son­ally, I would love 16% to 18% a month, with a guar­an­tee. But I also quite like the idea the moon is made of green cheese. I am sure that all read­ers of this mag­a­zine would have a bit of a laugh at this pre­pos­ter­ous pro­posal and hang up. But 2000 peo­ple did not. Surely they re­alised that the re­turn be­ing of­fered was about 200% a year. Let’s say we started with $10,000 and com­pound at the “lower” end of the scam­sters’ re­turns, about 16% a month. Our $10,000 be­comes $63,000 after one year. After 10 years the $10,000 is worth about $1 bil­lion. If we go out just 20 years, my cal­cu­la­tor, be­fore it melted, said it would be worth $116,742,640,320,894,451,712. Now I am not sure what words de­scribe this – maybe zil­lions is as good as any. But I think it is enough to buy pretty much every­thing on planet Earth!

Where you can help is to pass on the ba­sics when­ever you get the op­por­tu­nity. As I see it th­ese are: 1

The risk-free rate of re­turn is close enough to a 90-day term de­posit rate, say 2.5%. 2

A re­turn above this is pos­si­ble if we take more risk. 3

When we take risk sen­si­bly, in the long run we should earn higher re­turns – but we may lose money. 4

Ask peo­ple to think for a mo­ment. If a scam­mer is of­fer­ing a huge rate of re­turn with no risk, why do they need to sell it to us?

As I don’t ac­tu­ally be­lieve the moon is made of green cheese, I also know su­per­high re­turns do not ex­ist. If they did, in a few decades I would own the planet. Clearly this is ab­surd.

The sim­ple state­ment that we need to sit firmly in the psy­che of our com­mu­nity is: if it looks too good to be true it will be.

Paul Clitheroe is Money’s chair­man and chief com­men­ta­tor. He is also chair­man of the Aus­tralian gov­ern­ment’s Fi­nan­cial Lit­er­acy Board and a best-sell­ing au­thor.

After year 10 the $10,000 would be worth $1 bil­lion

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