NZ Herald 21 May 2022

ATalk about “from the sublime to the ridiculous”. This is diversificraziness!

Let’s give the adviser some brownie points for charging you fees. I think that’s the best way to operate. Advisers who offer a free service are usually rewarded, instead, with commissions from the investment managers they place your money with. Will they put your money in the best place for you, or where the commission is highest for them?

Mind you, some advisers receive both fees and commissions. Always ask for a commitment, in writing, that an adviser’s only payment comes from you.

Even if your adviser is “fees-only”, I wonder if she is trying to justify a higher fee by making an unnecessarily complicated plan for you.

If you were investing, say, $10 million, it would be hard to justify using more than four or five funds. With your amount, I would suggest a single broad-based share fund — with shares in many countries and industries — for the money you don’t expect to spend within ten years.

For money you want to spend sooner, a diversified bond fund would be good. And for short-term money, a cash fund. You can get all the diversification you need by making sure each of the funds invests widely.

On fees, yes, you would be paying 30 different managers. And if their fee structures include a flat fee as well as a percentage fee, you would pay more in total than if you are in just two or three funds.

And that’s not all. Just keeping track of 30 funds could be nightmare. Maybe your adviser plans to do that for you, to “justify” considerable ongoing fees.

Then there’s the absence of index funds. These almost always charge lower fees than actively managed funds, and research shows that on average their long-term returns are as good or better — especially after you take their lower fees into account.

You might want to ask the adviser about that absence. Then again, you might want to just give her a miss. I certainly would.

AIt sounds as if your cynicism is justified with both advisers.

Building on what I said above about adviser fees, I think it works best to have an adviser who charges an hourly rate, like an accountant or lawyer, rather than a percentage of your investments. That removes their incentive to bring more of your money under their control.

On your earlier adviser trying to justify her fees by moving money around, the adviser in the above Q&A may well be planning to do that too. If your money is invested properly to start with, it shouldn’t need to be moved much at all, except to reduce risk as you approach spending time.

If an adviser suggests you move your money in response to market trends, I suggest you sack them. Your investments should be able to weather downturns.

That’s shocking that your adviser addressed only your husband. From a woman too! If you had been less knowledgeable about money — which it seems was not the case — that would actually have been all the more reason she should have been addressing you more, not less. While we’re discussing sexism, read on.

AFirstly, other people’s trading of DGL shares will indeed affect CEO Simon Henry. He owns 57 per cent of the Australian chemicals company. Your purchases will help push up the value of that holding, even if only minutely.

Secondly, research shows that companies that get their culture “right” tend to be more profitable.

It’s intuitive really. If a CEO is sexist he — it would rarely be she — is likely to miss out on the contributions women could make to the company. Many won’t work there, and those who do are less likely to be highly productive and forthcoming with ideas. Add racism to the mix and the CEO is missing out on the contributions of perhaps two thirds of the population.

You’ve also got to question the judgement of someone who makes unwise comments to a reporter. How clever are they in their other decisions?

And depending on what the company does, it could lose customers, and possibly even suppliers, if the boss makes unsavoury comments.

Finally, there’s the question of your standards. If you are happy to profit from an incident like this, that’s your choice. Consider yourself told off!

AGlad you liked last week’s Q&A — to which I’ve had no responses from landlords, to my surprise.

The role of auctions in all this is interesting. Read on.

AFor the sake of other readers, pump and dumpers buy into a share, say, and then strongly recommend it to others using false information. Other people’s purchases then pump up the price. The P and D brigade then dump at the higher price. This is unlawful market manipulation.

But is it happening in the housing market?

“There are two key problems with this person’s argument,” says independent economist Tony Alexander. “If an asset is pumped then dumped its price collapses and stays down. House prices have risen 7 per cent on average per annum since 1992, and falling prices now are a simple correction to a pandemic surge driven since April last year by owner occupiers, not investors.

“Second, there is no dumping by investors. My monthly survey of existing property investors shows 65 per cent plan holding for at least ten years or never selling. Twenty per cent of investors in April said they plan selling in the coming year, down from 27 per cent in January.”

He backs this up with results from two other surveys, which also show decreasing numbers of property investors planning to sell.

“No dumping is occurring — not with rents soaring, and construction costs escalating still (new insulation costs now). The alternatives of shares (down 20 per cent for some indices), commercial property (very low yields, specialised), and bank deposits (strongly negative returns after inflation and tax) are unattractive for most.

“House prices are falling currently because of a withdrawal of buyers, not a wave of sellers,” says Alexander.

ASo do I. Thanks for a good yarn. Next week: a share club that welcomes new members.