Misleading information told to investors in unit trust

Finance or Money, Income

Recently at a gathering in someone’s house, I was flabbergasted by what came out of a so-called investment consultant who is selling unit trust. Initially, I thought she is still in the insurance line but she told me that she had moved on to a few financial companies settling unit trust and now she’s with this particular independent investing company.

What she said really surprised me, coming from a person who is supposed to have years of experience in investment (because the insurance policies that she sold previously were also investment based)

I am now with this company where the leader is quite good. He helps the new agents to monitor the funds and do switching to enable to investors to make profit. So far, the investors have been quite happy and therefore they are bringing in more money. 

When she told me that, I turned to her and say, well, too much of switching is no good- and nobody can actually time the market. No one, even the experts can correctly predict the market accurately. Look at the folks at Wall Street- there were few times in the economic history that they never saw the crash coming until it was too late (dot com bubble, nationwide debts due to mortgages, etc). Even Morning Star ratings sometimes can be wrong.

My friends who have been in the investing line for years told me not all the time you make money switching- because you can switch and then sometimes investors even lost money. You can’t beat the market everytime.

So, never believe when any agent tells you that your investment will surely make money. Remember, no agent is allowed to make such guarantee to the customer- do you know it is a violation not to explain the risks properly and have a prospectus when explaining about a fund to a potential investor. If caught, their license can be revoked.

Anyway, she was not happy with my comments and went on to say that, so far, touch wood, our investments have been making money. You know, investors who have came in last year have managed to make a profit because we were monitoring the account and doing switching when it need be.” 

I replied, “of course they made money. Even without switching, any Tom, Dick and Harry that came in like middle and beginning of last year made money from their investment. Why is that so? Because the market was lower last year than now. I really regret not putting in my investment last year when the market was down- because if I did, I would have made something. Last month I put in some money and lost- so go figure- if you ask your clients to put in money now, they probably would not have made that much.”

Furthermore,” I said, “your leader seemed to be playing the investment like with the stock market. You cannot treat unit trust as stock market- ie you want immediate returns. Given time and average dollar costing, most unit trusts would likely make money in the long run. You need to have staying power. If you give your investors the impression that they can profit, they will come after you when you lost the money- because you will never know. This is dangerous. No wonder FIMM is now facing lots of issues with agents and are tightening a lot of guidelines this year. ”

Of course, she did not look happy and had nothing to say to what I have told her. But it scares me that folks like her may be selling these ideas to folks who do not have much knowledge about investment.

If you wish to have any returns above fixed deposit, you need to take risk. Even like buying property- sometimes, due to certain circumstances, the property prices in certain area depreciate (like in Bukit Beruntung) instead of appreciate.

Or even though the price increase, but the interest paid to bank, renovations due to tenants, etc does not even cover the original cost of the property.

A friend of mine bought a property and after all the headache- fighting with others to get the slot, renovating, having problem renting out and paying bank interest- she made some money alright after she sold the house- but she said the money was not worth the headache.

So, there are risks that you need to understand and be willing to take. But know that unit trust is for long term-if you want to see results, at least you need to park it about 5 years and above- sometimes, you may see something after 3 years. And have your own investment strategy- don’t just dump in your money blindly.

Like my friend who is in the finance regulating industry told me, we cannot just work for money. We must learn to invest some of it to make our money work for us. If not, we have to work much harder. She stayed away from offshore funds, share market or very volatile funds but would invest in unit trust. In her words, ‘I know unit trust is not sexy, but I can sleep better at night and need not worry so much about losing my investment.’ It’s for long term.

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