Busting Money Myths
Beware Of Investor Chat Sites
This one is more Share related
Busting money myths
By Nick Gardner December 12, 2007 12:00am
THE world of finance is awash with misunderstandings and misconceptions, very often perpetuated by the companies with whom you save, invest and borrow your hard-earned money.
We explode some of the most common myths so you can avoid them.
Credit cards
There are at least 10 ways of calculating interest on credit cards, according to the consumer group Choice.
The worst method means a card charging 10 per cent interest could cost more than one charging 18 per cent.
This can happen for a variety of reasons. Some card companies do away with the interest-free period (usually 56 days from the purchase date) if you don't clear your balance. So all subsequent purchases while you carry forward unpaid balance accrue interest from the moment they hit your account.
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Worse, some providers - including American Express, ANZ, Aussie, BankWest, Citibank, Members Equity and National Australia Bank - charge interest retrospectively to the purchase date if you don't pay off your balance by the due date.
This takes away any potential benefit from an interest-free period. Other, less draconian cards charge interest for only part of the period since the purchase, or charge interest only on the unpaid portion of the debt.
So, if you spent $1000 and repaid $300 by the due date, you would be charged interest only on $700.
That may seem a commonsense way of approaching credit-card debts, but only Bank of Queensland, Bendigo Bank and NSW Teachers operate in such a fair way.
"It goes to show how important it is to check how a card issuer charges interest and to match that with how you plan to use the card,'' a Choice spokesman says.
"If you make the minimum repayments, it makes sense to choose a card that charges the least interest and takes account of partial repayments."
Free advice
There really is no such thing as free advice.
You may not have to hand over a cheque to a mortgage broker, but make no mistake: their advice comes at a price - sometimes a very high price, indeed.
Brokers make their money by charging “procuration'' fees - commissions, in everyday speak - to lenders in return for giving them their business.
These fees can range from 0.6 per cent to 0.8 per cent of the loan amount as a one-off payment, in addition to as much as 0.3 per cent every year the loan is kept with that lender as a so-called trail commission.
Now, given that the banks have paid the brokers to get their business, you might think the banks would pass some, or all, of this cost on to the customer - and you'd be right.
According to online mortgage provider Quickdirect.com, an adviser's commissions add an average of 0.56 per cent to banks' mortgage rates, which will total thousands of dollars over the years.
Quickdirect managing director Hamish Carlisle, a former banking analyst estimates borrowers are charged about $2 billion a year in extra interest because of these commissions.
"On a $300,000 mortgage that lasts for four years, these commissions could add up to an extra $6000 in costs - which explains why the banks' loans are so expensive."
Ethical funds
Different people have different ideas about what constitutes an ethical investment.
Some people have no problem with an "ethical'' fund investing in, say, gambling companies, but others do.
There are few guidelines about what constitutes "ethical'', "socially responsible'' or "sustainable'' holdings. This remains an area where investors need to do research to ensure they're not investing in companies they would rather avoid.
Many ethical funds have holdings in mining companies while others may invest in forestry or other unethical practices.
A number of funds invest in so-called "sustainable investments'' (which basically means they can invest in anything that's legal), so investors should beware if they intended to invest in a green, ethical or environmentally friendly way.
The only way to determine whether a fund suits your ethical standpoint is to ask about its strategy. Will it invest in mining companies or commercial logging? In tobacco or arms companies?
Refinancing
Many people refinance their credit-card debts, personal loans and other expensive, unsecured debt on to their mortgage, believing it makes sense to wrap it all up in a single, lower-rate loan.
This can be an expensive mistake if you don't keep finances under tight control.
The problem is that although you may be able to halve your interest rate by switching your credit-card debts to your mortgage, you're likely to be lengthening the time it takes to pay the balance off -- and that will cost thousands extra.
For example, Aussie Home Loans says a $10,000 credit-card balance switched to a mortgage at 8.57 per cent would increase mortgage payments by $81 a month. Over 25 years, the borrower would repay $24,298 - that's $14,298 in interest.
Borrowers with credit-card balances need to direct a significant chunk of their income at paying down expensive credit cards - or, if you do consolidate to a mortgage, ask your bank for a "split account'' with a different repayment term (say, three years).
That way, you can transfer your credit-card debts but pay them down quickly, preventing a huge build-up of interest payments over the life of the mortgage.
Savings
You could be forgiven for thinking the interest rate quoted on your savings account is the interest you actually receive.
But all too often, it's just a headline rate designed to capture new business, and the real returns are much lower.
The problem is, some of the most tempting rates come with the most absurd conditions - so savers need to be extra careful.
BankWest, for instance, offers a regular savings account paying $50 and $500 a month - but forbids any withdrawals at all. Otherwise, savers lose all the interest for that month.
In addition, at the end of the year, all money in the account is immediately "swept'' out into another, linked transaction or savings account, reducing the balance to zero and forcing savers to start from scratch.
All this means is that the maximum you can save is $6000, and you will only ever earn the eight per cent on the full $6000 balance for one month before the money is switched to another, lower-paying account.
Citibank also advertises a Linked Saver account, which offers returns of 7.25 per cent.
The catch is that, to get this rate, you must keep at least $5000 in a Citibank transaction account, which pays no interest at all.
So, if you had $30,000 to invest, you could actually earn only seven per cent on $25,000 because you'd need to put $5000 in the linked transaction account.
If you fail to keep $5000 in the separate account, the interest on the savings falls to six per cent.
Finally, the seven per cent offer expires at the end of the year anyway, at which time the interest rate falls back to six per cent, whether or not you have kept $5000 in the transaction account.
Most people will find that the requirement to put $5000 in a non-interest-bearing account reduces the overall rate on their savings to below that of rival banks' savings accounts, so you need to be very careful.
For those with a large amount of money to invest it may make sense, but most people with average savings will be better off with a rival.
No refunds
According to the NSW Department of Fair Trading, it's illegal for a shop to display a ``No Refunds'' sign. If goods are faulty, you're entitled to a full refund.
In most other cases, you're entitled to a credit note, enabling you to spend the same amount on something else in the same store.
Stores, however, tend to deal with refunds and complaints on a discretionary basis, so do check in advance if you're buying sombody a Christmas present.
Your super
There's a common misconception that, when you retire, you can ignore your super, take your money and relax.
It's not that simple, and failing to pay close attention to your super - even after you've retired - can be costly.
Retirement may last 20 years or more, and the fund has to last all that time.
Leaving your fund invested in the same old stocks may mean you're adopting an overly cautious strategy that may not boost the fund enough to last for your life.
And an overly risky, growth-oriented strategy may not provide enough income and be too volatile.
Matthew Walker, of financial planner WLM, says: "By the time you retire, your super could well be your biggest asset.
"Changing economic conditions, new rules and changing personal circumstances can mean you need to tweak your approach."
Beware Of Investor Chat Sites
This one is more Share related
Beware of investor chat sites
By Cameron England December 27, 2007 12:00am
ONE of the attractions of investing in speculative resources stocks, is the possibility of doubling or tripling your money in a short time when a company releases some spectacular news.
While trying to consistently pick out the companies which will produce these kind of returns is a fool's errand, it does happen.
And if you believe some of the pundits on stock chat sites such as Hotcopper and ShareScene.com, they can tell you exactly where and when to invest your money.
In reality however, the information on these sites ranges from the useful to the ridiculous, with a fair bit of personal acrimony mixed in to keep it interesting.
Take for example the recent share price run experienced by Adelaide company Flinders Diamonds.
Flinders has been a hot topic of discussion on Hotcopper since it released an iron ore target in the Pilbara last month.
The shares ran up 790 per cent cent in one day and have garnered a lot of interest since.
Discussion has ranged around what the real value of the announcement was, and hence, where the shares should be.
With equal vehemence, posters have predicted the stock will "definately (sic) be two dollars next year'' (note: if they can't spell, think twice about taking their stock advice), and that it would plunge back to the 1c levels it had previously floated around.
Often when a stock is the subject of such wild conjecture, the debate devolves into a slanging match, with posters playing the man rather than the ball.
Despite the noise surrounding in-favour stocks, these sites also have their fair share of posters who generate well-considered critiques of companies, and help others to understand company valuations and prospects.
The key, as with all other areas of investing, is to understand the risk you are taking and whether it is a risk you can afford and are comfortable with.
Anonymous share tips posted on a website, claiming to have identified the next big thing, should start the alarm bells ringing.
How many of these will be traders looking to "ramp'' stocks they own, and how many will be selfless individuals willing to risk being prosecuted for releasing market-sensitive information, just for your enrichment? I'll leave you to decide.
) but with a little effort I can minimise errors, but poor spelling/punctuation is not limited to stock pickers. In fact I grit my teeth more on SS than HC.
