The West Australian - - AGENDA -

It has been a busy cou­ple of weeks for yours truly. It has been that time of the year when I set­tle a few foot­ball bets that were made when my wild-eyed and un­founded con­fi­dence in the Pur­ple Princes saw me ig­nore the sen­si­ble ad­vice of my wife.

I stupidly put the odd bot­tle of red on the fact that the Dock­ers would fin­ish higher on the ta­ble than the Ea­gles at sea­son’s end. As a long-term fan, you would think I learnt my les­son but it is a les­son that can be shared with all of those think­ing of tak­ing a punt dis­guised in the veil of “mak­ing an in­vest­ment”.

There is a world of dif­fer­ence between the two.

We reg­u­larly re­ceive calls from some­one who is keen to have us cast a pro­fes­sional eye over some new in­vest­ment scheme. Equally, some­one’s un­bri­dled con­fi­dence in their own abil­ity to pick a win­ner sees them sink all of their spare cash (and of­ten, the not-so-spare cash) into their new en­ter­prise.

Let’s start with a new, “make-lots-of-money” type scheme or in­vest­ment.

In­vari­ably, it’s be­ing touted by some­one with a di­rect in­ter­est in you hand­ing over your cash. Be wary of any­thing where you send money di­rectly over­seas or you’re re­quired to keep the de­tails se­cret. In iso­la­tion or to­gether, th­ese lift the prob­a­bil­ity you are be­ing scammed to about 90 per cent. Aus­tralia has a strong and ef­fec­tive reg­u­la­tory regime cham­pi­oned by ASIC and the Tax Of­fice. Send­ing money over­seas im­me­di­ately re­moves you from their pro­tec­tion. Send it off­shore and there’s a very strong chance you won’t see your money again.

The keep-it-a-se­cret ploy is typ­i­cally used to stop you get­ting a sec­ond opin­ion. You need to lis­ten to the lit­tle alarm bell tin­kling mer­rily in your ear. If you’re re­stricted from tak­ing it to an ac­coun­tant or qual­i­fied ad­viser for a look over, watch out. It never hap­pens in real life. Any pro­fes­sional in­vestor will al­most al­ways use out­side ex­perts and a sec­ond pair of eyes to fill in the knowl­edge gaps and give a sec­ond opin­ion.

As­sum­ing you’ve avoided the out­right scam­mers, do you com­pletely and fully un­der­stand how the money will be used and who will get paid be­fore you, the in­vestor? There’s many a good idea where pro­mot­ers, man­agers and oth­ers are feed­ing off the money sup­ply, leav­ing just cents in the dol­lar for in­vestors.

Does the busi­ness ac­tu­ally make sense? If it all seems a bit vague us­ing terms and tech­niques that you don’t un­der­stand and can’t work out, then walk away. Blind­ing an in­vestor with sci­ence is an old trick and of­ten masks costs and risks that if un­der­stood, you wouldn’t touch.

Lastly, weigh up what you can gen­uinely af­ford to write off. With a new spec­u­la­tive in­vest­ment, treat it like a punt at the casino. Typ­i­cally, we wouldn’t put any more than about 5 per cent of any to­tal in­vest­ment port­fo­lio into a spec­u­la­tive in­vest­ment.

And a word of ad­vice from some­one who’s been bit­ten plenty of times. Don’t get sucked in by hype and avoid bet­ting on the Dock­ers.

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