Over the coming weeks we are going to take a look at the pros and cons of various investment vehicles. Before doing so, let’s just clarify what we mean by this. When talking about an investment vehicle or an investment product, what we’re really talking about is a box – a box for holding assets. These assets could be cash, bonds, stocks, funds, ETF’s etc. The box may be structured as a directly owned account, a nominee account, or even an insurance product. The main point here is to separate the box from the actual investment strategy – i.e. what assets you hold inside the box and how you manage them over time.
I often hear people say “I’ve got a …….. product / account and it’s not performing well.” This requires some clarification as it’s unclear if it’s the account itself that is not performing well, or the investments inside it. You can have a really great vehicle that is secure, tax efficient, and reasonably costed, but if your asset allocation is poor and the investments are not performing you will not be happy with the result. Equally, you could have picked great investments that have performed very well and suffer because the vehicle you are using is inefficient, not secure, or the fees are excessive. For some of you this will be obvious, but many people fail to distinguish between the investment vehicle and the investments themselves.
Another thing people often fail to do is read the instructions on the box! It’s amazing how many people own investment products without having any idea of how they work, what restrictions there are, what fees they are paying or how they will be taxed. In many cases they have bought the product through an adviser or salesperson, based on their presentation, and not actually read the terms and conditions themselves. While we are on the subject of reading the small print, I recently came across this rather amusing article about a public wifi company’s campaign / publicity stunt, whereby thousands of people agreed to clean toilets for wifi because they didn’t read the terms.
Now I’m as guilty as anyone of not reading the terms I agree to in order to get access to public wifi, or download songs from iTunes for that matter, but when it comes to investing money we should all take responsibility for understanding what we are getting into. While I truly feel for people who get duped, or simply get unlucky, investors need to do their own due diligence before investing their money.