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The DIY Syndrome

By Jack Wellings

I never cease to be amazed by how the whole financial services industry manages to generate an aura of mystery and complexity for itself.

Maybe it's a built-in self-preservation mechanism.

This applies to stock brokers, the Stock Exchange, superfund managers, real estate sellers, accountants and many (if not most) financial advisers. And of course the media.

I recently attended a seminar at the ASX on Tax effective Income Investing. (This was about investing for income, not about investing income; again ambiguous terminology - and this is the ASX!!)

This was a lunch-time presentation (free to the public). Commendable. There was a good attendance - close to 300.

At the conclusion, I couldn't escape the impression that most attendees were in 'information overload', and would have left with no appreciable benefit.

But they would have gone back to running their own portfolios and self-managed super funds. And - with few exceptions - continued to experience the same mediocre investment returns. And still under the delusion that they could 'beat the experts'. And at minimal cost.

Then again, they may have held a few company shares, and which - through no expertise or good management on their part, may have experienced price-increases, due - as always, and only due - to increased buying demand. And yet, unless they are thinking of selling, produces no real benefit, other than 'warm fuzzy' feelings.

The point is, that if the dividend earnings hadn't improved, then the only benefit would be if they sold out at a profit. But if they are good, dividend-producing shares, why would anyone want to sell them? And unless they did have good dividend earnings (or expected future good dividends), why else would the shares have been in demand and risen in price?

To summarise, unless you're a speculator and aim to make a capital profit, you hold an investment for its income-earning potential. You can assess an investment on its income earning potential. If you can trust the income, you can trust the investment.

This is not rocket science. You don't need a degree in economics. You don't need to do courses at the ASX.

The simple facts are

  • You can't go past Australian 'blue chip' industrial shares for a consistent, reliable, growing income-stream.
  • Dividends are paid 'per share'. They are not determined by whatever the share price happens to be. If you are investing for income, share prices don't matter; its dividends that count.
  • It isn't worth 'doing it yourself'; It's too much bother. It can become a book-keeping nightmare. And need costly tax returns. And complicate your estate in the bargain.
  • A managed fund shouldn't cost you more than 1% of your funds, per year.
  • Managed funds come 'packaged'; that is, they do all the record-keeping, book-keeping and tax-accounting for you. They also have constantly available, up to the minute reporting. And liquidity is never a problem.

An adviser comes at another 1%. And assists you with everything from selecting funds, monitoring, conferring, explaining, reporting and keeping you on track. And more than covers the cost of his/ her services in economies and better investment results.

Why DIY?

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