Investing or Gambling?
The current COVID-19 restrictions have led to many having more time on their hands & therefore dabbling in shares. One of the greatest cases of wealth destruction occurs when people start telling themselves they are investing, when they are really gambling.
Investing is not supposed to be fun & it’s not supposed to lead to emotional highs & lows. Investing done well is boring.
This article outlines the alarming trend of Gen Z & millennials look to ‘punt’ on shares.
“Where they see blue chip stocks as “boomer” stocks, because why would you get into something like Rio Tinto when you could get into WZR (non-bank lender) or BET (Betmakers technology) and generate MAYBE 100% return in a year.”
There are mounting concerns among regulators about the risks this gambling is creating.
ASIC report in MAY 2020 found an explosion in the use of contract for difference (CFD), a financial product allowing traders to magnify bets they make on certain trades. CFDs can allow for up to 500 to 1 leverage on an investment - but losing can be disastrous.
EXAMPLE
In 2008, I was sitting next to a colleague who looked like he had not slept in weeks.
I asked him what is wrong.
He explained “My parents have been paying for my accommodation, living expenses & university degree whilst I’m studying. I was gambling on CFDs, had a guarantee stop/loss in place, but the stock fell through it. I’ve lost $80,000. How could I lose that much when my yearly salary is only $30,000. My parents have sacrificed so much to send me to Australia for a better education & I have lost it all.”
EXAMPLE
In 2013 I had a new client, come to me seeking advice.
Emma was 40 years of age & pregnant with her first child. Emma was self employed as a fashion designer, generating an income of just under $30,000 per annum. Furthermore, she informed me she had just sold her unit in Bondi. The net proceeds were $350,000.
She had invested $250,000 into an “investment” that was paying her a monthly income of 10% per annum.
When asked about this investment, Emma could not articulate what she was invested in, but believed the North Sydney gentlemen that she gave the money to & informed me she could not live without the regular monthly income.
We called the company she was invested with, only to be given the run-around. From our limited research, Emma was invested in a ponzi scheme that was said to be an expert derivative options.
We informed Emma that based on our research, we were not comfortable with the investment & that she should request a full withdrawal.
Emma said they had asked her to make another contribution of $100,000, which she did.
Less then 30 days later there was nobody at the company answering her calls or responding to her emails when the monthly income was not received.
A month later, the company was insolvent & liquidators informed her that she would be lucky to get any of her money back.
EXAMPLE
One of the most recent high profile cases has been ex-footballer Willie Mason.
Mason invested over $500,000 with a “property investment company” who guaranteed a 15% p.a.
The company promised Mason they could teach him how to get rich and that he would be able to buy luxury cars if he invested with them, Mason alleged in court documents.
Instead the company has gone into liquidation & the money has evaporated.
As the Federal politicians have made financial advice unattainable for many in Australia, here are a few things to consider when investing:
Set a goal
Set a timeframe
Set a budget
Consider where you invest your money (diversification - diversify your risk)
Research your investment (ensure you understand what you are invested in)
Research the company/companies you invest your money with
Seek professional advice
Ensure you understand your options so you can take advantage of your opportunities.
Take control of your financial future & seek professional financial advice from our leading Newcastle financial planning advisers.
Our Newcastle financial planners also have offices in Sydney and help clients across the local areas including Newcastle Financial Planning(Merewether financial planning, The Junction financial planning, The Hill financial planning, Bar Beach financial planning, Newcastle West financial planning, Hamilton financial planning, Adamstown financial planning, Redhead financial planning, Whitebridge financial planning, Kotara financial planning, New Lambton financial planning, Mayfield financial planning), Maitland Financial Planning (Morpeth financial planning, Lorn financial planning, Rutherford financial planning, Aberglasslyn financial planning, Metford financial planning, Beresfied financial planning), The bay (Medowie financial planning, Fern Bay financial planning, Fullerton Cove financial planning, Anna Bay financial planning, Nelson Bay financial planning, Shoal Bay financial planning, Tea Gardens financial planning, Hawks Nest financial planning), Lake Macquarie Financial Planning (Cardiff NSW financial planning, Glendale financial planning, Speers Point financial planning, Fennell Bay financial planning, Bolton Point financial planning, Coal Point financial planning, Toronto financial planning, Valentine financial planning, Belmont financial planning, Eleebana financial planning, Warners Bay financial planning, Redhead financial planning, Caves Beach financial planning), Hunter Valley Financial Planning (Muswellbrook financial planning, Scone financial planning, Pokolbin financial planning, Cessnock financial planning, Singleton financial planning, Broke financial planning, Rothbury financial planning), Central Coast Financial Planning (The Entrance financial planning, Bateau Bay financial planning, Berkeley Vale financial planning, Tuggerah financial planning, Wamberal financial planning, Terrigal financial planning, Erina financial planning, Avoca financial planning, Gosford financial planning, Woy Woy financial planning, Picketts Valley financial planning) & Sydney Financial Planning (Castle Hill Financial Planning, Rouse Hill Financial Planning, Dulwich Hill financial planning).
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