High yields come with risk

I PERSONALLY know a builder who pays a spruiker $50,000 to find wood ducks to buy duplexes he builds in boom towns like Gladstone.

REIQ commission would be 2.5% or under $9000.

I personally know a couple of pretty bright guys who invested millions with Atlantic 3, a Gold Coast mob that purportedly managed mortgages but was actually a Ponzi scheme like Madoff's notorious scam in the US. Investors lost their shirts.

Storm Financial grabbed the news because mug punters were encouraged to pile debt upon debt to invest in shares that crashed. Investors lost their homes as well as their shirts. And there are many "mini-Storms" out there which have been lucky to escape negative publicity, believe me.

Recently the Australian Crime Commission and Australian Institute of Criminology issued a report called Serious and Organised Investment Fraud in Australia.

They found 2600 Australians had lost about $113 million in the last five years to scams.

Primary targets are people aged over 50, particularly those running self-managed superannuation funds.

There are 7000 new SMSFs being set up each quarter and now that it is allowable for them to borrow to invest in residential property and "business real property" like leases, the scammers can smell a windfall.

Any property spruiker worth his salt is going to be able to convince naive investors that high rental yields in Gladstone, Mackay, Moranbah, Emerald and so on are as safe as houses and sustainable for the next million or so years!

The bottom line is that the old cliche is true: if it sounds too good to be true, it probably is. The ancient Romans had it right: caveat emptor or buyer beware.

Advisers who tell the truth will tell you that you can test the relative safety of an investment against the 10-year government bond yield, which usually runs at 1 to 2% above inflation. Promised yields greater than that have an element of risk and should be weighed on a risk versus reward basis.

ASIC has tightened the rules. Despite the Storm debacle, invest only on the advice of somebody who holds an Australian Financial Services Licence. Spruikers don't.

Bob Lamont is Senior Partner in Corporate Accountants and Rid Tax situated at the Night Owl centre. He welcomes your questions directed to boblamont1947@hotmail .com



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