ENK LIFE      Erasmus and Kinkajou What you need to know about LIFE -
What they don't teach you at school.






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Finances in Life

We talk about the factors that give you money in life – choosing a job – saving –  and spending.

Goo the Numbat Goo : Our aim in this site is to give you advice and some guiding principles to manage aspects of your life that no one may have given you advice about. The advice we aim to give is focused on being simple but achievable.

Kinkajou Kinkajou : So how do you set up your finances in your life to do the best you can?
Erasmus Erasmus :
* Live your life and enjoy your money. But you must save 10% of your net income. This 10% can only be invested; or used as an “additional” payment for your house mortgage.

If you wish to save up money to buy a car or other consumer goods, you cannot take that money out of this 10% pool. The 10% of money you save is for savings and investment. You are allowed to invest into an asset such as your own house (via the mortgage on the house), by making extra” repayments”.

Save 10% Save 10%

Goo the Numbat Goo :There are some simple but effective books out there such as
"The Richest Man in Babylon" which are an easy read and which propound the concept of save and invest what you save. (make your money work for you).

Some of the Basic Principles in the book are:
Save 10% .
Invest that 10% .
Protect your Income and Investments : e.g. Planning e.g. Insurance .

Control your Expenses .
Don't invest your Time , Energy or Money in businesses or purposes with which you are not familiar or with people who are not familiar with those businesses and purposes.

Invest in Yourself : increase your skills and your ability to earn.
Own your own House as a Priority .

Goo the Numbat Goo : Some of these rules are very dependent on your social milieu. In Australia, it is generally a good idea to do your own repairs and as much of your own maintenance as possible. For the price of a simple machine or tool, you can generally save thousands of dollars.

In countries like Sri Lanka, labour is generally cheaper. You will hire the workman for less than the price of the tool.

So different solutions for different places. You need to be familiar with how things are best done, wherever you may be. And strangely, no one may explain it to you. Every one just assumes that you know.

But let's talk about owning your own house next.


Erasmus Erasmus : Paying off your house mortgage is probably one of the best investments you can make in your life. In most countries, the primary residence is capital gains tax free. Because your repayments are not tax-deductible. In essence, doubling repayments in the long-term substantially reduces the cost or hit to your pocket. And this is important to allow people to develop their own financial independence.

Kinkajou Kinkajou : Personally, I think that if the government ever proposes a capital gains tax on the primary residence, the people should revolt. CGT (Capital Gains Tax on the principle / primary residence ) guarantees that many people will never develop the assets required to own their own house.

The money they inherit will always be substantially reduced. And personally, I don’t think that the government’s usage of the money achieves anything useful for society in general. Society is about having the "most" for the "most".

The Government through Capital Gains Tax on home residences can take the equivalent of years worth of earnings out of people’s pockets.  This level of extortion is hard to justify. The only benefit is to encourage people NOT to look after themselves and to expect handouts.

Erasmus Erasmus : I realised long ago that there will always be poor and needy people.

There are many people who choose not to work. These are the undeserving poor. If people are NOT willing to put time and energy and their own resources into improving their own welfare, this simply means that other people ("working"people), become their slaves.

There are people who cannot work. These are the deserving poor. For these people in human terms, we should be obliged to provide them with at least the basic necessities of life. That is what it is to be human.

Goo the Numbat Goo : Unfortunately, Paill can blur this line somewhat. There will be people who we judge as not wanting to work, but their problem is the damage to their mind - causing incapacity to work- just not physical incapacity. The Paill Spectrum organism excels at this type of injury to motivation , ability and drive.

Kinkajou Kinkajou : Back to the savings. We are saving 10%, so that means there’s 90% of the net income left over.
Erasmus Erasmus : Yes. This leaves you with 90% of your net income to use to enjoy life. Life does need to be enjoyed. If you have an inbuilt savings plan, in the long term you will always do well. You should enjoy your money, because you have worked hard for it.

* Tax. You should consider the issue of tax  every day as you go through your life spending money. To what extent are the things you are doing possibly tax-deductible? The next issue here is that you need to maintain documentation, or else you will forget to claim your tax deduction.

Kinkajou Kinkajou : A friend of mine purchased a car – a very old car – for next to nothing (less than $1000), but still working very well. In Australia, such a car can be given as a fringe benefit to an individual. So, what happens now, is that a private vehicle now becomes a tax-deductible vehicle. However, you pay a fee or a tax for this privilege.

If you have a very expensive car, it is essentially not worth it. But our friend had a very old and cheap car. He was happy with it because he could put building materials in the back seat and the mower in the boot. He could transport materials that might damage the vehicle in loading or offloading such as timber or concrete. But because the car was relatively old and not a "classical" vehicle, small scratches were irrelevant. The car was maintained well and mechanically worked extremely well.

Fringe Benefits Tax FBT
Fringe Benefits Tax FBT

Erasmus Erasmus : I can see where this is going. You’ve mentioned this to me before. Consider the tax implications of owning such a vehicle. The fringe benefits tax was about $400 and this was tax-deductible, in essence costing my friend about $200 out of his own pocket. For this small fee, all expenses of the vehicle now become tax-deductible. This includes approximately $6000 a year in fuel expenses, $2000 a year of servicing and repairs and thousand dollars a year insurance. And the purchase price of the car could be written off as well.

In short, his car was saving him approximately $4500 per year out of pocket. Multiply this by say five years and you can see how much money the government has helped you to save.

In addition, if you purchased accessories for the vehicle such as GPS devices, a Refedex street map or car seat covers, you found yourself in the enviable situation of the government always helping you to pay half the bills for these items, instead of these bills coming out of your own pocket.

All perfectly legal. But you do need to sit and think about the cost consequences and tax consequences of your actions. The government income tax is the biggest bill that most people will pay, perhaps apart from their mortgage repayments or rent. There are rules but the rules can be taken advantage of, if you consider how they work and how they affect your life.

Goo the Numbat Goo : The problem of course is that everyone wants a fancy car. For people owning a fancy car, the whole situation becomes a tax loss rather than a gain.

Erasmus Erasmus : True. Owning a fancy car or an ordinary car is neither right or wrong. But there are substantial income consequences of your choice. Make the right choices and the government becomes your silent partner paying up to half of your bills. You need to understand how to optimise the situation to your own benefit.

And remember if you do not record and document, there will be NO benefit either. Documentation in this day of electronic banking and electronic credit is relatively easy. Almost everything sits as an entry in your bank account. Remembering what each payment represents can be a problem many months down the track – so you can see the need to document.

Consider the consequences of poor record-keeping. If you record that $100 can be claimed as a deduction, and claim a deduction in your tax return, it will probably cost you $50 out of pocket, (depending on your marginal tax rate). But if you fail to maintain the records or fail to claim because of lack of documentation and records, to pay that $100 bill, you will need to earn $200.

Goo the Numbat Goo : The moral of the story is fairly obvious. With regards to tax
think about deductibility and

Erasmus Erasmus : The ATO (Australia) generally insists that income records need to be kept up to 7 years , but shorter time frames of 3-4 years generally apply to "ordinary" circumstances. "Capital" files may need to be kept very long term - up to the life of the asset plus seven years.

Kinkajou Kinkajou: * Think about the consequences of your decisions. Even simple decisions can have drastic consequences if looked at over 12 months. For example, the decision to buy a five-dollar coffee every day throughout the year, can easily add up to $1200 of expense per year. All not tax-deductible. Small decision – with big long-term costs and consequences, especially if you are only earning say $20,000 a year.

Erasmus Erasmus : Jim’s wife decided she would like a new car. She wanted it now and did not want to wait. She had just finished paying off her old car and thought that she would have a good deposit from the sale of the old car to contribute towards the cost of a new car. So she trades in her old car and takes a loan to buy the new car.
The new Loan is $7500.
Result: loan repayments for the next three years, paying off the new car.

Alternative strategy: Wait 12 months and keep paying the old car repayments to yourself. Over 12 months you will save up several thousand dollars. This saving is particularly enhanced because you are not having to pay any interest repayments because you have no borrowings. So, in continuing to pay $300 per fortnight into a bank account, over 12 months you save up about $7500.

You can then essentially buy your car outright. You do not have any loan repayments to continue to make. So, in the future you can essentially spend your fortnightly loan repayment on yourself rather than giving it to the finance company.

And if the car is a cheap car and available as a fringe benefit, you can collect even more money into your own pocket.

Goo the Numbat Goo : In short,in planning and considering their financial choices, people can end up many thousands of dollars worse off or better off than others, per year.
Think before you act. Next Issue !


Kinkajou Kinkajou : One of the things you’re often told in life is that you need to work hard.
* Work hard to get a better job and work even harder and earn more money.

No, I don’t actually believe this. This principal is however pushed onto many of the people in our society. Not everything in life is about money. Having money is nice, but having a good life is nice too.

Working hard can result in you losing your peace in your spare time. You are entitled to ask the question “Is it worth it?” Perhaps it is in the short term. Perhaps it is in the long-term. But it is a question that you need to ask and that only You can answer.
What are your values? What you want out of life?

If you work hard and ignore your family and your other interests, your decisions are changing the path of your life

Dr Xxxxx Dr Xxxxx : I have a doctor friend who is a neurological specialist. He has spent his whole life living thinking and breathing work. So, when he goes out with friends, the only thing he can talk about, the only thing he knows about - is Neurology. His friends are very accepting of this. But this is a consequence of having an intense unidirectional focus on hard work.

I have some other doctor friends were cardiologists and cardiac surgeons. They are quite happy taking time off for the weekend using tools, repairing things and making things. Yes, they have put a lot of time and energy into their life and specialty. But yes, they have also retained some time for their own interests and productivities. Just because they are good at something such as dealing with heart problems, doesn’t mean that they need to choose that that is the only thing that they should do. They still have a choice as to how they ration the time in their lives.

Neither path in life is wrong. But selecting the path is YOUR choice to make.

Kinkajou Kinkajou : All too often "work hard" is the message that life gives to so many people. Students at school are told to work hard so they can get better marks so they can graduate higher in their class, so they can choose a university career in which they can study hard and work even harder – forever.

When I was at a religious school, the focus was on study hard and think of Jesus. Success was defined in terms of becoming a priest or a brother as a career. A very limited menu of options. And options which would be an anathema to a large number of people.

Yes, they could achieve something like this but the cost to their lives and to their enjoyment of their life could well be substantial. There would be many things that they would never be able to do, their choices being limited by the religious hierarchy.

Life has many paths. Remember your choices are your own. Think hard about where your choices are taking you. It is not up to others to dictate your choices for you.

Erasmus Erasmus : But remember, you are free to make choices,
but not free to choose the consequences of your actions

So in considering your choices, consider the consequences they will have on your future life. There are reasons that everyone is told to work hard. And they relate to consequences. If you don't work hard, you may likely be poorer. But sometimes thinking about your path in life can lead to better choices and a better path through life.



Goo the Numbat Goo : Let’s talk about some of the other things that help your finances in life.
Erasmus Erasmus :
* Education. This is the process of acquiring knowledge and skills that can serve you in your future life – most obviously by giving you more rewarding work choices. But education can assist your personal life choices as well.

A friend called Henry worked at a local bank where he was noticed by the manager for his energy and devotion to work. The manager called him into his office this to talk to him. He asked him what he would like to do in future. Henry replied that he would like to work as an Investigative Accountant in the Development Branch of the Bank. Henry had worked for several years part-time to obtain a university qualification in accounting and economics. The bank manager said to Henry “I will see what I can do for you”. And he did. Several weeks later there was an offer to work in this section of the bank.

But to work in the section of the bank required a university qualification. Had he not undertaken the education to obtain his qualification, the bank manager could only have said to him “Thank you very much. Keep up the good work”, and the matter would have been ended.


University Graduate
University Graduate

Goo the Numbat Goo : So, I can see that Having an education gives you choices. The process of acquiring education is time-consuming and forces you to make sacrifices in your life in the short term. But without education, your options are limited.
Erasmus Erasmus : And remember qualifications need to be recognised. They need to be official. You may be as good as someone else in what you do. But in this world, without the qualification you will not be recognised as being skilled at what you say you can do. And you will not be rewarded for what you can do.


Kinkajou Kinkajou : Other advice:

Erasmus Erasmus :
* Think about the long-term consequences of financial decisions. This could be in the maintenance costs in terms of time or money arising from the decision. This could be in terms of where you are applying your money.

Borrowing money for appreciating asset such as a house is always worthwhile. Borrowing money for a depreciating asset such as a car is essentially never worthwhile.
Most big financial decisions are made easily and quickly, but they have huge long-term consequences.

Once you have paid off your house, you are very much better off -
as your asset continues to appreciate.

Once you have paid off your car loan,
your car is now probably worth half as much is when you bought it and
it is continuing to depreciate.

A simple decision can take you up or down – big time.



Kinkajou Kinkajou : Isn’t it important to be careful?
Erasmus Erasmus : Yes indeed. Especially if your circumstances are tight. Being careful financially is called budgeting.
* Budgeting. This is especially important if you have a limited income. The wife of a friend of mine managed the house finances and was exceptionally careful with budgeting. When she sat down and worked out how much money they had, it eventuated that each partner (husband and wife), could have $40 per week to spend on themselves after all the bills had been paid.

They managed to buy a house and to meet the repayments. But without the extreme talent of the wife in managing the family finances, they could well have been poor forever and never owned their own home.

Without careful budgeting they could never have managed their bills because there was never enough money left over at any time to deal with casual bills that they had not already become prepared to pay. Every bill was anticipated and planning was undertaken to make sure that every bill could be paid when due and on time to avoid excess fees and charges.
Then the husband lost his job. They had budgeted savings. Yes he found another job – eventually. But they really needed their savings to keep paying their bills to tide them through.

Goo the Numbat Goo : Generally, I find that the finances in a family are best managed by the person who worries about them the most. If one partner has a very obsessive attitude to budgeting, finance and paying the bills and the other partner is much more laissez-faire, it becomes fairly obvious who should be in charge of the finances especially in tight circumstances.

Planning and preparation can get you past many hurdles.



Kinkajou Kinkajou : Other Principles for Budgeting:

Erasmus Erasmus : Shopping : keep it tight

Buy if you need it now, and will be using it now.
Otherwise let the shop - store it for you.
Many things deteriorate with time so again, maybe it is best to let the shop -
store it for you.

Lists : are the only way to do get many things done in a complex world. But decide carefully what needs to be done and should be kept on your list and what is best forgotten.

One friend works a lot using lists to help him make sure jobs get achieved and things get done. But one of his most annoying problems is deciding that things or jobs that have made it onto the list - may be best put aside or removed from the list.

Goo the Numbat Goo : As we have stated before, Change is the Constant in Life. Review your goals and decisions frequently. And be prepared to decide NOT to do things.



Investing Graphs for Shares
Investing Graphs for Shares


Kinkajou Kinkajou : Doesn’t investing make you rich?
Erasmus Erasmus :

* Investments. There are basically three things you can invest in.

and that’s it.

To add an extra layer of complication, shares can invest in property, shares or money.
And that’s it.

Properties are fairly simple decision as an investment. Spend the time and choose a good property at a good price and purchase it. Then sit and meet repayments. Generally, properties are not easy to buy and sell so people tend to hang onto them long-term. In Australia, the government charges stamp duty on the purchase and sale of houses. So, you can end up paying a fee to the government equivalent to the price of a year of your income for the right to buy and sell a house.

Property is an investment in a country like Australia that is only worthwhile if you intend to buy and to hold on. If you buy and sell, you are likely to be losing money.

Shares by contrast (such as stock market shares), have very low stamp duty. So, it is easy to buy and sell at minimal cost. If you have smaller amounts of money, you are able to buy shares. If you need cash in a hurry, there will be minimal cost involved in selling your shares and recuperating your money.

Knowing how to invest in the sharemarket is however a problem. It takes a lot of time and devotion to read about businesses and business activities to make yourself aware of what is happening in the sharemarket.

Investing in individual shares can well be a lifestyle choice requiring you to perpetually study the sharemarket and its ups and downs. (Remember our advice on the long-term consequences of decisions).

Kinkajou Kinkajou : Individual companies can go bad. So, to make sure that your investment isn’t put at risk with a single company collapsing, it is important to invest in a number of companies. (in other words, Diversify). One may collapse, but the others usually do well enough to compensate for this risk.
Erasmus Erasmus :
An alternative is to invest in the stock index. Index shares act to replicate the stock index.

The fund that owns the shares essentially allocates a portion of the fund to each share that forms the stock index in proportions that match the company’s capitalisation in the stock market. What that means is if the sharemarket goes up, your shares go up. If the sharemarket goes down, your shares go down.

The All-Ordinaries stock market index in Australia reflects the prices and capitalisations of the top 500 companies in the Australian marketplace.

Because it covers so many companies, your shareholding is very diversified but to hold the shares individually would require quite a substantial amount of money. (You would have to buy some shares in each of the 500 companies in the stock market). For every company that goes bust, there are likely to be several companies that do exceptionally well. So overall, your shareholding goes wherever the sharemarket goes. You can keep an eye on the prices of your shares by listening to the news every night or by doing a simple search on the Internet.

Kinkajou Kinkajou : But wouldn’t you do better selecting the shares yourself? Surely by studying the financial indexes and features of your company investments you can select superior companies?
Erasmus Erasmus : Some researchers suggest that it is very difficult for most people to outperform the stock index in the long-term. So, it becomes an issue of how worthwhile is it to pay fund managers high fees for their management input, when in the long-term you are no better off than if you had simply invested in the stock index itself.

Is it worth your own time invested in always being aware of what is happening or changing the stock market?


Stock Markets in the World
Stock Markets in the World


Kinkajou Kinkajou : If you’re worried about buying shares in companies, then perhaps you can buy shares in companies that own property or other assets like money/bonds?

Erasmus Erasmus :
Funds that sell you shares, can invest in property. So, buying a share in such a company is essentially investing in a property trust company.

Funds that sell you shares, can invest in shares. An example of this are funds that invest in the stock index.

Funds that sell you shares can invest in money. For example, they invest in bonds which have a numerical value and expiry date values that are dictated well in advance. People may choose these types of funds as a method of parking money short-term until they become ready to invest it long-term.

Personally, I think in the long-term, anybody who invests will do well. Yes, there are some investments which are better than others, but such decisions do not need to be complicated. Simply choose when the real estate market is up/down or when the sharemarket is up/down. Then invest at the appropriate time. The people who do not do well long-term – are the people who do not invest at all.
Goo the Numbat Goo : The message is fairly clear. It matters less regarding what you are doing that in doing nothing at all.


Erasmus Erasmus : A final comment on investing in shares in the sharemarket. You should always retain the ownership of shares yourself and not give the ownership to other companies or organisations, if possible.

One pyramid company in Australia set up an investment structure whereby people invested in their company which then purchased shares. The company borrowed a great deal of money to buy the shares and at one stage became “overstretched”. The NAB (National Australia Bank) used its powers to sell the shareholdings of this pyramid company when it could not meet its capital percentage requirement.(LVR). (This means that a company can only have loans up to a specific value of their share portfolio. If their share portfolio drops in value, the company needs to inject cash into its portfolio – in effect paying off loans to reduce its  loan / asset value ratio).

In considering a decision, you must remember that many decisions have a “price”. The price may be in terms of time, or money, or resources. The price may not appear until after at least 12 months have gone by.

In this circumstance, when share prices dropped, the pyramid company became
"over-leveraged" ( had borrowed too much money). The NAB sold shares to bring the ratio back to its investment guidelines. Unfortunately, because share prices were low, selling shares crystallised a loss for the pyramid company and therefore a loss for its investors.

All in circumstances where the investors in the pyramid company could have avoided the forced sale because the majority would have been well able to meet a "call" by the bank for injection of extra funds into their share loan portfolios. They would not have been forced to sell.


Kinkajou Kinkajou : So tell us about borrowing money for investments?
Erasmus Erasmus : Borrowing to invest, also known as gearing or leverage, is a risky business. While you get bigger returns when markets go up, it leads to larger losses when markets fall. You still have to repay the investment loan and interest, even if your investment falls in value.

Borrowing to invest is a high-risk strategy , that should be undertaken only by experienced investors with financial reserves/ resources. If you're not sure if it's right for you, speak to a financial adviser.

A margin loan lets you borrow money to invest in shares. Margin lenders require you to keep the loan to value ratio (LVR) below an agreed level, usually 70%.

The LVR goes up if your investments fall in value or if your loan gets bigger. If your LVR goes above the agreed level, you'll get a margin call. You'll generally have 24 hours to lower the LVR back to the agreed level.

To lower your LVR you can:
Deposit money to reduce your margin loan balance.
Add more shares or managed funds to increase your portfolio value.
Sell part of your portfolio and pay off part of your loan balance.
If you can't lower your LVR, your margin lender will sell some of your investments to lower your LVR.

Margin loans are a high-risk investment. You can lose a lot more than you invest if things go sour. If you don't fully understand how margin loans work and the risks involved, don't take one out.

Goo the Numbat Goo : Investment property loans
Investment property loans can be used to invest in land, houses, apartments or commercial property. You earn income through rent, but you have to pay interest and the costs to own the property. These can include council rates, insurance and repairs.

Erasmus Erasmus : Borrowing to invest is high risk.
Borrowing to invest gives you access to more money to invest. This can help increase your returns or allow you to buy bigger investments, such as property. There may also be tax benefits if you're on a high marginal tax rate, such as tax deductions on interest payments.

But if you are investing in assets such as property, you will need to borrow money or you will be unable to purchase the investment property. Few people would have the cash reserves to purchase an investment property outright.

But, the more you borrow the more you can lose. The major risks of borrowing to invest are:
Bigger losses 
— Borrowing to invest increases the amount you'll lose if your investments fall in value. You need to repay the loan and interest regardless of how your investment goes.
Capital risk — The value of your investment can go down. If you have to sell the investment quickly it may not cover the loan balance.

Investment income risk — The income from an investment may be lower than expected. For example, a renter may move out or a company may not pay a dividend. Make sure you can cover living costs and loan repayments if you don't get any investment income.

Interest rate risk — If you have a variable rate loan, the interest rate and interest payments can increase. If interest rates went up by 2% or 4%, could you still afford the repayments?

Borrowing to invest only makes sense if the return (after tax) is greater than all the costs of the investment and the loan. If not, you're taking on a lot of risk for a low or negative return.

Most property investments are for long term investment -
with a view to long term Capital Gain.
Income is generally less a consideration.
Many countries are moving to stop the tax deductibility (through negative gearing limits / legislation) of investment loans for property. ( e.g. New Zealand).


Kinkajou Kinkajou: In the old days of high inflation, you earned a lot more money by borrowing as much as possible and then just hanging on. If you borrowed $100,000 and the property price doubled over time through the effects of inflation, you now owe $100,000 for a $200,000 property. In short, you now own half of the property, when you started out owning none of it. Inflation worked for you but you needed to be able to borrow as much as possible.

Goo the Numbat Goo : A friend has an investment strategy for property. Only buy one property at a time. Pay this off in full and only then look at purchasing another property. Keep loans to a minimum and keep your stress to a minimum as well. Yes you could earn more by leveraging more, but you will stress and worry less as well.

This is an excellent strategy for wealth in times of low inflation, which we have been having for the period 1991-2022.


Borrowing Money
Borrowing Money


Goo the Numbat Goo : With any financial decisions, there can be a price in terms of consequences to health or family in terms of stress, worry, legal complications or if things go wrong The key message is "don't be greedy". Make simple decisions and always work to reduce debt.

If you are sick or dead, you cannot help anyone much less yourself. So, in considering consequences of your actions is important to consider the effect of your actions on your own long-term health and welfare.

Dr Xxxxx Dr Xxxxx : A friend of mine was running a medical function. Some stockbrokers were talking about using their loan product. They were recommending that the doctors should borrow hundred thousand dollars each to invest on the sharemarket.

My friend suggested that this was not a good idea. He suggested that it would be better to borrow a million dollars. Everyone in the room was stunned, and the share brokers were getting quite excited at this recommendation. My friend then said: if you borrow $100,000 and can’t pay, you have a problem. But if you borrow $1 million and can’t pay, they have a problem.
It didn’t go down too well with the share broking fraternity at the function.


Erasmus Erasmus : Back to the Pyramid Company example.
For the majority of the owners of the shares in the pyramid company, the crystallised loss resulted in $1 million of investment being turned into $500,000 of money, as the shares were sold. The problem is that you still owe $500,000 that you do not have.

The situation is then again substantially distorted by the taxation issues associated. Because the money lost was a capital loss, in Australia it can only be offset against capital gains. This means that the money you have lost is not even tax-deductible (against your income). The money can only be offset against – for example – a capital gain made by selling a property.

The tragedy of the situation is that many of the people involved could well have met a call by the bank. For example, if the bank told them they needed to add an extra hundred thousand dollars to their portfolio, many of the people involved could quite easily have done so. But because someone else owns their shares, they lost the right to manage their investment. Someone else forced very unprofitable choices onto them.

Kinkajou Kinkajou : Do you know any other examples of sharemarket investments that have been problematic?
Erasmus Erasmus : I have seen another disaster situation unfolded with the root cause being the collapse of share valuations. Many people had money held in shares in superannuation fund trusts. The tax law dictates that a certain amount of money must be taken every year (for example 5% of the funds value). People also require a specific amount of money to live.

Many retirees held shares in a "superannuation fund trust". Their entire investment portfolio often was in shares held by the superannuation fund trust.

The law dictates that people must pay themselves a specific amount of money equivalent to at least 5% (generally) of the value of their superannuation fund assets every year. People also needed this money for day to day life expenses to live.

So, the basic problem is that people were forced to sell. Government rules forced sales of these "shares". Their need for money to fund living expenses also pressured them to sell.

The shares were worth half their normal value, (due to the collapse of the stock market), so to get 5% out or to meet your fixed living expenses, you needed to sell 10% of the fund, because the shares had collapsed in value.

People were in essence then forced to obtain this amount of money through the sale of their shareholdings in the Superannuation which in turn owned shares in other companies. They could not revalue their shares within the fund, as they did not own the shares directly. The Superannuation company was able to retain its' book value while reducing the price of its share units.

The situation was a mess and resulted in Pensioners forced to sell 30% of their fund(over 3 years) to fund their retirement, rather than the 15% they were originally budgeting on. A huge loss to their fund and to their future returns.


Consider the alternative. Had they owned the shares directly in stock market companies, and not been forced to sell, they would have been able to take the dividends and not sell the shares. In the long-term the shares would regain their value.
They could also revalue the shares themselves and reduce the annual payout for a few years - but preserving the long term asset value of their fund.

But for these people over say three years, they were forced to sell say 30% of the value of their fund to give themselves the 15% set income they required. (That is simply as I can summarise it).

Goo the Numbat Goo : The Moral of the story:
own your own shares,
be able to make a decision about your own shares

If you have money in a superannuation fund with a requirement to pull out a certain amount of money each year, diversification matters so that there is a separate income stream which would temporarily remove the requirement to be forced to sell shares in a collapsing market – in effect crystallising a loss for you.

(And this loss is not tax-deductible either, so that means it costs extra).


Kinkajou Kinkajou:

Other Financial Issues in Life:

You cannot help the poor by joining them. Look after yourself/ your family first. Sensible financial decisions underpin your life, health and wealth. Most financial decision are just quick little decisions with huge consequences long term. Think before you act for any decision involving money.


All you can do is all you can do and that's all you can do. Don't be greedy. The world is a big place. Never bite off more than you can chew. Always have an real belief that your plans are realistic.

Always consider what you can do if things go wrong. Change is the only constant in life. Everything in your life may be running well. And then change hits. For example, what would happen to your financial and investment plans if someone told you, you had cancer and - only had a limited time to live or needed some special treatment to survive.


One doctor mate relates a story about one of his pateints who paid $80,000 for a new immunotherapy treatment for his leukemia which had very poor survivability. He was told he would die within 12 months. The treatment worked extremely well and is now standard treatment for this type of cancer 10 years later. He is still alive and in good health, ten years later.

Perhaps it could be said that it was the best investment he ever made.

But he needed to have the money in the first place.



Kinkajou Kinkajou: True. Generally banks do not lend money to people dying of cancer as they may not be able to pay it back. Alternatively , they take a mortgage on your house - resulting in your wife or family being evicted as the house is sold to pay for your medical treatment after your death.

Dr AXxxxxDr Axxxx :Pleasant people, don't you think? Banks!