Ask Paul: A financial planner lost me tens of thousands of dollars
Years ago I had money I thought was invested by a financial adviser with a big-four bank in a portfolio that I had discussed with him at the time.
He did not comply with what we both had discussed and instead put 40% in American shares. This happened around 9/11 in 2001 and I lost $55,000 when the stock exchange was down for a week.
I took my money out of his hands and since then have managed it myself. The first years were good years, with interest high, but now, in 2020, the interest in term deposits is 1% or less. The government's deeming rate of 2.25% and the banks' low rates leave me way behind the eight ball.
I have $400,000 left; I am 77 years old and on a pension. Health seems okay at the moment but that can change quickly. I would like to maximise this capital without affecting my pension.
What do you suggest I do? I live in a lifestyle village where I own my house but pay $7500 in maintenance rent each year. - John
John, I am very disappointed to hear about your poor experience with a financial adviser. I don't see how any Australian investor would have 40% of their portfolio in US shares. I hope you have taken this up with the bank and received some compensation.
There is a surprising amount of complexity around investment and pensions. Here I need to take a cautious approach as I really only know a few key facts about your situation.
I am strongly in favour of your strategy not impacting your pension. Clearly, increasing your actual investment earnings up to the deeming rate should put you in a better situation. This, as you say, is easier said than done.
It sounds as if you are holding your $400,000 in term deposit-type investments. One option would be to consider investing part of your money in a conservative income-type fund. Appropriate investments for you could be a fixed-interest fund, an equity income fund or an income fund with a mix of assets. Examples include Vanguard's Australian Fixed Interest Index Fund and Perpetual's Diversified Income Fund, but there are a lot of similar funds.
The returns in 2019-20 were pretty close to the deeming rate. Unlike a term deposit, these returns will fluctuate in line with interest rate and market movements, but over time they have historically offered better returns.
As a self-directed investor, you would have to do your own research, but it seems to me that your best chance for capital preservation is diversification.