Crown Money Management

We have all trusted someone at one time or another because they seemed to ‘know what they were doing’.

When I was 25 and Crown Money was growing nicely, I decided that I wanted to learn more about investing and growing my wealth (outside of property). I was inexperienced with investing in shares as I only knew about finance and property.

So who do you call or go to when you want to learn? The ‘experts’ of course!

I got in touch with an ‘expert’ financial planner in Perth and sat down with her to discuss my financial position and learn how I could grow my investment portfolio other than through property.

She took down some of my details and showed me a few concepts and investment strategies which her business was implementing for other clients (her included). They sounded reasonable, so she began to prepare a financial plan for me. After a few weeks she sent me the financial plan to look through so that we could discuss it.

When I first saw it, my initial thoughts were:

“Wow, this is recommending me to invest some seriously large amounts of money into something I’m educated around”

My intuition kicked in and I felt uncomfortable with what I saw.

The advice to me (a 25 year old) was as follows:

Take out a $1,000,000 investment loan to buy a basket of Australian Shares.
Take out another $1,000,000 investment loan to buy a basket of Asian Shares.
Take out Life Insurance to cover it all
= Total commission to her of $27,000!

During the phone call to discuss the financial plan with her (the expert financial planner), she outlined the investment strategy was to grow my wealth through some geared Australian and Asian share investments and this should also help me ‘reduce tax’! “Ok, so tell me about the geared investments you’re recommending…” I asked.

She went on to tell me that they have capital protection, so if anything goes wrong, I won’t lose any capital!

That sounded reasonable; after all, if everything is 100% capital protected and I can’t lose my capital, then the worst-case scenario is funding the interest costs on the $2m in loans… which is still a very sizable amount of cash flow each month but could be doable. As she was the expert and sounded like she knew what she was talking about, I decided to go with her advice as I trusted her.

Lesson: The person with the most amount of confidence rules the situation. She was a lot more confident than I was, and as a result I followed her advice blindly without questioning it. Something that I’d come to regret…

Everything was implemented and luckily for me the lenders for one of the investment loans only allowed me to borrow $600,000 instead of $1m for the Australian Shares.

So within a month, I’d gone from wanting to get some advice and information about how I can grow my investment portfolio (other than through property), to being geared into $1,600,000 of investment loan debt (a $1,000,000 “100%” protected Asian share portfolio loan AND a $600,000 100% protected Australian share portfolio loan) ….

AND she’d made over $27,000 in commissions off that advice for just a few hours worth of work! Spot the winner…

Within a month of it being set up the markets started to crumble and before I knew it they’d hit the bottom and the investment portfolios went into CASH LOCK. This means that no interest/dividends would be paid for the next 5 years (when the investment finished).

Oh, Great! So now I have to pay $14,500 in interest every single month on the $1,6000,000 investment loan for the next 5 years with nothing to show for it at the end! This certainly wasn’t pointed out as a ‘worst-case scenario’ when she was selling me the investment strategy.

As disappointed as I was with her for her so-called ‘expert’ advice, I was equally disappointed in myself for not following my intuition and listening to what it was trying to tell me.

Now this is where it actually gets worse….!

Not only did I have to pay $14,500 every month in interest over the next 5 years ($870,000 in total) with absolutely nothing to show for it when the 5 years finishes, I get king hit from behind with even more bad news!

A few years into the ‘fizzer’ of an investment, and I hadn’t heard from the adviser about what my options were, I decided to get one of my team members (David) to call the investment company that is running this Asian basket of shares. I wanted him to find out if she (my adviser, whom I hadn’t had any advice from for over 3 years) was still getting paid a trial (ongoing) income stream from that Asian investment, which I was still having to pay for month after month. Dave reported back to me with the news that, YES, she was still receiving an income of $7000 every year from the Asian investment portfolio manager for “managing” my investment. And the news just keeps getting better…

Dave asked me if I knew how the investment worked, I proceeded to tell him that it was a product with 100% capital protection so I just have to keep paying the interest for 5 years and then the investment matures, the capital protection kicks in and I get to stop paying the interest (yay)!

“No, NOT REALLY!” Dave responded.

“What do you mean no, not really?” I asked curiously…

Well this asian share portfolio is only 70% capital protected, so at the end of the 5 years you’ve also got to deposit another $300,000+ in CASH to cover the 30% loss.

“What the F#ck ?!?! She told me it was fully protected. The written Statement of Financial Advice I have here in front of me says it’s fully protected.”

So Dave gave the investment portfolio manager another call just to clarify it again.

He did and then came back with the same response.

BANG! I was now on the hook for another $300,000 cash that I didn’t have laying around!

That was it, I was shattered! Enough is Enough…

I called my ‘expert’ financial adviser and demanded a meeting with her, which she reluctantly set up. I asked why she never told me that it was only 70% protected.

Not once did she ever say to me over the consequent 3 meetings, that she told me it was only 70% protected. She knew she’d stuffed up and she knew she’d f#cked me over.

I knew then that I had been sold something she clearly had no idea about, nor any idea about how it worked. In our meeting she actually asked one of her employees to explain how the investment worked (she wasn’t able to explain it to me personally because she actually didn’t understand it herself).

The expensive lessons I received from the experience were:

The person with the most amount of confidence rules the situation.
Don’t take investment advice from people who are not already in the financial position you want to be in (ie. retired, financially free).
Always go with your intuition.

I’ve also learnt that the smartest way to become rich is to study and model the ‘masters’. Don’t listen to anyone who hasn’t already been there and done that. There is no need to reinvent the wheel, just copy what other rich people have done and avoid making the same mistakes that they’ve made.

When the Forbes Top 400 richest people were interviewed about how to become wealthy, 75% of them answered – “Become and Stay Debt Free”.

So 75 out of 100 of the richest people all gave the same advice: stay debt-free personally. Eliminate all personal debt such as the mortgage, credit cards and car loans.

By doing this as quickly as possible, you will be able to put your hard-earned dollars into assets that will grow and give you an income stream in retirement. The faster you pay off your ‘bad debt,’ the faster you can look to retire!

Imagine having all of your income each month to do what you want to do… Some of you would invest it, and some of you would increase your lifestyle.

Remember to always buy assets (things that go up in value and produce an income stream) before you buy liabilities (things that go down in value, like cars and caravans). That way, your assets will end up paying for your liabilities.
Retirement is all about cash flow…

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