Investment advice

Ruapehu Bulletin, Volume 12, Issue 555, 27 September 1994, Page 14

Investment advice

BY WARRICK FlJNNELL, INDEPENDENT INVESTMENT ADVISOR Question - 1 am currently building capital and investments towards a retirement income. I am using personal logic with secure investments to eam 17 per cent per annum on my capital outlay. I would be interested to know that as a broker could you guarantee to equal or better this 1 7 per cent with suggested diversification of secure investments with little input. Maximiser. Answer - Yes and no. It depends on the time frame over which you wish to measure such performance whether the result is pre-tax or post-tax. Is the retum you ask about calculated on a simple or compound basis? Your letter states that you eam 17 per cent on your capital. Is this on the original capital or the compounded capital? If you invested $10,000 fiveyears ago it would be quite simple for your investment to be earning $ 1 7,000 per annum today. This would represent a compound return of 14 per cent compound over the term of the investment on

tne original investment. Even though it showed a 17 per cent simple retum. If we had managed your funds in the last five years the likely return would have been somewhere between six and 12 per cent per annum nett of tax depending on how aggressive you wished to be. That means if you are a passive investor the likely result would have been six per cent nett of tax. If you had been a more aggressive investor the result would have been closer to 12 per cent nett of tax. If we only use say the last six months as a measure the result would have been no more than 5 per cent per annum no matter what the strategy had been in a diversified portfolio. One thing I am sure of is that the greater return you seek the greater the ri sk and associated volatility. I do apologise for not answering you more specifically but it is impossible to do so without knowing what risks are acceptable to you and the method by which you have calculated your retum. We believe we can over a period of time for an aggressive investor achieve the equi valent of 1 7 per cent gross investment. It would ho wever be irresponsible of us to suggest we could guarantee that return. - Disclaimer - The advice given here is of a general and non-specific nature. It is essential to seek full advice for each individual case before any action is taken.