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Another Day, Another Financial Danger

9 Nov 2012 4:44 PM -
If you’re expecting your money to be safe when you invest it appears there’s more and more onus on you to thoroughly educate yourself to avoid disaster.
The recent Banksia Financial collapse again highlighted extreme care has to be taken when looking at any advertised return, unless it comes from an actual authorised deposit taking institution like a bank.
Remember this: the only guaranteed return you’ll find is a term deposit with an actual bank.
If someone’s advertising returns above bank rates, your money is at higher risk.
The unfortunate irony reveals many people see share markets as the ultimate measure of investment risk, yet have no qualms investing large sums of money into investment schemes and companies whose activities they have no understanding of.
And often when these companies advertise they specifically highlight share market risks.
Now the risks of share markets are self evident, so why would these companies need to highlight the risks of another asset class when selling their own?
Usually it’s a smokescreen, because the only risk that needs to be disclosed is the one you’d be taking to invest in a company, investment scheme, or to deposit your money with a non bank lender.
If someone is offering a return of 8-9% they’re clearly taking your money and lending at a higher rate to someone who presents a higher risk of default.
Enough defaults and you’ve got the Banksia scenario.
There’s not enough legislated control and the regulatory bodies clearly aren’t well resourced enough to protect investors from these situations, so it’s clearly up to the investor to be well educated.
ASIC will pick through the bones of Banksia, but according to the Financial Review there’s still 18 similar companies raising money and 12 of them miss ASIC’s benchmarks for such institutions.
And falling short of a benchmark is irrelevant, it just means that detail has to be disclosed somewhere in a fine print document!
Be very careful.

It’s never too early to invest in your future