By BusinessDay reader Geoff Cossar
I've been married to the same woman for just over thirty years. In fact, we celebrated our thirtieth anniversary just the other day. And there to help us celebrate were our five children.
During those thirty years, I've been fortunate enough to be in employment all the time. My wife spent a good deal of that time doing even more important work at home with the tribe. Somehow we managed to accumulate a few savings and buy a few shares.
I'd always thought we'd done OK for ourselves. We've certainly been a lot luckier than our parents and our grandparents.
But now I find out that we're foundation members of one of society's most maligned demographic groups - the Mum and Dad Investor.
Perhaps if we'd accumulated a few less kids along the way, we'd have been able to buy a few more shares along the way. With the dividends re-invested over that time, we'd have a lot more shares today than we do.
But we're only Mum and Dad Investors - what do we know.
Still, I do consider us very, very lucky to be Mum and Dad Investors. No one who matters to me asks me how our investment portfolio performed over the past month, three months, six months or one year. And even if she did, she's not going to threaten to replace me unless our performance improves immediately to a significant percentage above the return on the ASX200 Accumulation Index.
Even with less performance pressure upon us, we still try to time our share purchases near what we consider the bottom of the market. And if we get it wrong by a few weeks or months, there's no great pressure. It takes nine months to build a baby - nothing significant is achieved overnight. And besides, ''we're in for the long haul''.
And while we're apparently not too smart, us Mum and Dad Investors are lucky in lots of other ways. I read just the other day that our Self Managed Superannuation Funds have an obscene percentage of cash in them. I know the Hedge Funds, and the Day Traders, and a few other punters have been buying and selling like crazy over the past few months, but the overall trend in equity markets has been down. I'm not so sure a couple of the Mum and Dad Investors aren't dumb like a fox as the expression goes.
But maybe it is just luck. We have a nice house and a little shack out of Melbourne. For me, that's plenty of real estate for the moment. We like to diversify our investment exposure, so we haven't been investors in some of the big property funds who've struggled over the past few months.
We did consider it because they were performing remarkably well. But we're only Mum and Dad Investors and didn't understand all the financial engineering the professionals were doing to achieve some of the results. All we knew for sure was that interest rates, and the cost of gearing, had been rising, and had been rising faster than rental growth.
We did twig just a bit when we actually took the time to read announcements from two of the largest property funds last year. In both cases, they'd ''delivered'' huge revaluation gains for their investors. Some of the gains occurred despite a fall in the rental achieved on some of the properties. Despite that lower income, the Valuer was able to justify applying a lower capitalisation rate to the property - in an environment where interest rates were rising - and provide an upward revaluation .
As Mum and Dad Investors, we couldn't quite understand it all. We thought it best to leave that sort of investing to the professionals who do know what they're doing.
It's not that the professional investors dislike us Mum and Dad Investors. They seem particularly keen to manage our money for us and bring skills to bear that they think we lack.
When the previous Federal Government introduced some new superannuation incentives, there was plenty of advice to the Mum and Dad Investors to pour all our savings into superannuation and take advantage of the brief window of opportunity to do so. I looked, and looked and looked, but I couldn't find much comment about how much Capital Gains Tax was going to be incurred by utilising this ''window of opportunity'' and whether the medium term benefits justified the upfront cost. It seemed that the sole purpose of investing was to build up your superannuation.
Perhaps it's not so surprising then that, according to a recent survey, 21% of the Mum and Dad Investors with a Self Managed Superannuation Fund don't understand what the Sole Purpose Test is in relation to their Fund.
As far as I'm concerned, the Sole Purpose of assets in our Self Managed Super Fund is to provide for our lives when we get older and stop working (which I hope never happens to me). We don't see the Sole Purpose of our lives now to be providing funds for our Self Managed Super Fund.
We know there are brilliant tax incentives to build up a huge amount in our Super Fund for the future. But we're only Mum and Dad Investors and we have a life in the present to worry about too. We need to have some of our investments outside the super environment.
It may be an old-fashioned, Mum and Dad Investor concept, but we believe in having a bit of cash on hand. And that doesn't mean having our liquidity locked up in a Self Managed Super Fund where we can't access it. If we wish to help out the kids with a few dollars, or help our ageing parents with something, we need a few dollars that we can access reasonably quickly. What use is maximising the superannuation tax incentive if the cost of obtaining it is to lock all your money away for years and years?
If we were professionals, we'd overcome such problems by borrowing via some exotic and maybe even tax-effective manner. But we're not professional people, we're just Mum and Dad Investors and we want to keep our personal debt as low as we can. We have access to a home-equity product if there's a need for a large borrowing and a credit card for smaller, short-term emergencies, but in an ideal world, we'd prefer not to use them.
As Mum and Dad Investors, we seem to do everything wrong. Perhaps not ''wrong'' - because our detractors don't want to insult us outright. Perhaps we're simply considered to be doing things less than optimally. Mum and Dad Investors manage billions and billions of dollars within their Self Managed Super Funds, and goodness knows how much outside these vehicles. With this amount of money under their control, one could ask just how much sub-optimal investment decisions are costing the Mum and Dad Investors.
I think the real question, though, is whether or not the investment professionals can actually get inside the heads of the Mum and Dad Investors and learn a thing or two for themselves. One issue emerging at the moment among the professional investment managers is the manner in which they treat and report taxation implications of the investment decisions they make day-to-day. These professionals need look no further than to the Mum and Dad Investors if they want some advice on how to manage things to maximise the after-tax result.
The investment professionals, especially those looking after long-term superannuation savings for Australian investors, might also be able to pick up a few basic principles from Mum and Dad Investors, for example, about longer-term investment horizons and currency fluctuations.
Regrettably, the investment professionals seem to think the stereotypical Mum and Dad Investor is the bloke who stands up at every major company's AGM and asks the directors for a full explanation of item 62a in the Notes to the Profit and Loss on page 48 of the Annual Report - and before he can be encouraged to sit down and shut up, gives the directors a final passing salvo about their excessive Directors Fees.
What we Mum and Dad Investors perhaps fail to realise ourselves is that we do manage billions and billions of investment dollars and that in most cases this wealth wasn't simply gifted to us by third parties. It represents our savings, and earnings on those savings, and maybe we haven't done too badly in accumulating and managing it.
Maybe we could have done better but when we look at the average returns the Fund Managers achieve, we need to remind ourselves that this is the average return of Fund Managers still in business. There's a phrase called ''Survivor Bias'' which suggests that the results of the failed Fund Managers are taken out when averages are calculated. What we're comparing ourselves to, in reality, is the best of the Fund Managers.
And at the end of the day, what the Mum and Dad Investors are doing now is exactly what we've always done. We're doing our best. We've always tried to do our best. At school, at sport, during our careers and during our marriages. For our parents, our mates, our kids and our spouses and even for our country.
And now, when we've got more time and more life experience than we've ever had before, we're trying to do our best to look out for ourselves for our old age.
We're very lucky people living in a very lucky country. So far, our best, on the average, hasn't been too bad. We don't doubt it could have been better. Ever since we were kids in high school, every term report we got concluded with ''could do better''.
If the worst Mum and Dad Investors have to deal with in future is a sharemarket downturn every eight years and a bit of misplaced disrespect from the professional investment community, life is going to remain pretty damn good.
