Why you shouldn’t look for a ‘pension’?Posted on November 27, 2016
I want a pension plan.
I want an individual pension.
With governments in huge and growing debt, and the population aging, it makes sense to save for your own independent retirement. But what sort of pension should you get? Investing, however, is not like going to the supermarket. It is usually a huge mistake to look for a product that has “Pension Savings Plan” on the wrapper. Why?
The reason is that insurance and investment companies simply use this title as part of their sales approach to you. Forget the titles and pay far more attention to the terms of the investment. Usually these “investments” (in many cases we use the term very loosely) are highly restricted so you can’t get your money out if you need it. They are also very expensive with layer upon layer of fees. There will be a very limited chance you will ever make money. The only reason your friendly local adviser is so keen on his recommendation is the large commissions he will receive once you start investing. If you achieve a return of 1% per annum, you’ll be doing well. That’s not even close to the best deal around.
What’s the real need? More Money
When you are saving for retirement (or for children’s education), the primary goal is to build the biggest pot of money you can. That’s it – don’t get distracted.
A few more % equals a lot more
Increasing your return from 1% each year to even just 4% will have a tremendous effect on your eventual result. Often that will mean doubling your money or more, instead of a barely noticeable gain. Furthermore, restrictions on accessing your money aren’t for your protection. They suit the investment company which then has a client’s money hostage. Special structures don’t “lock in its tax free nature for when you go home”. That is just an untrue sales line peddled by hard-selling brokers.
It’s the details that matter, not the marketing spiel
Any investment account with a discount broker is going to be miles better. Yes, they might not have invested money in glossy brochures of elderly couples walking along the beach. Possibly there will be a yacht or a luxury convertible driving along a ocean-side road in there too. You know the ones. They might not have pension plan or education plan on the tin, but a good deal often seems simple, because it is. In complications, fees usually hide.
Buy direct ETFs in a discount broker
You can reduce costs by investing directly into low cost funds traded on an exchange called ETFs. You can do it yourself, or get others to manage for you – either way. If you go even close to matching the market return of around 8% per annum and you’ll do very nicely over the long term, provided you stick to your plan. Your returns, and pension pot are almost guaranteed to be far far healthier than with a dedicated “pension plan”.
You can call a Managed Account anything you want.
We use managed accounts to accumulate wealth for our clients, whether the underlying need is build up wealth for retirement or to pay for their children’s education. Interactive Brokers is our preferred platform since the only management fee is ours and the trading costs are 90% lower than the next lowest in the market. Also, you can get your money within 2 days’ notice and the structure is clean, simple and transparent. But don’t let the boring name of “managed account” fool you. It can be called a pension fund, savings plan, rainy day fund, education plan, boat saving fund or whatever you want. It will still be better than any “tailored” solution you will find.
Bottom-line: It’s the investment deal that matters. Not the name.
About Caterer Goodman Partners
Caterer Goodman Partners is a Shanghai based wealth management firm established with a clear vision to provide a new level of personalized financial planning services for expatriates in Asia. Our financial advisors provide guidance for our clients in all areas of investment, specialising in managed accounts, money-market funds, retirement planning and alternative investments. At Caterer Goodman Partners, we offer our advice and experience to provide low cost, tax-effective and simple solutions to match our clients’ interests.
About Owen Caterer
Since graduation Mr Owen Caterer has worked with the Queensland Premier's Department in Trade Facilitation and then as a financial adviser in Shanghai from 2005 until 2010. He then rose to Senior Adviser, then Business Development manager and then to Chief Investment Officer responsible for portfolios to a value of US$280 million across Asia. Following that Mr Caterer left to found his own firm with a partner in the financial advisory and wealth management area. This focused on developing China and Asia's first fee-based financial advisory (rather than commission-based). This has grown to now have 8 staff and and managing almost US$35 million for clients throughout Asia. This business success was recognized as a finalist in the 2013 ACBA in the Start Up Enterprises category and are one of a small number of foreign managed firms to have a full asset management license in China. Owen has also been active in the community volunteering for the Australian Chamber of Commerce in Shanghai and acting as the Vice-Chair of the Small Business Working Group (2012-2014) and as the Co-Deputy Chair of the Financial Services since 2013 until the present. They have continued to grow their business and have now been selected as a small group of companies who are platinum members of the Australian chamber of commerce. The achievement they are most proud of is their efforts to reform the financial planning industry in China and push it away from a hard-sales commission driven model to a more ethical management fee and long term customer service model. Owen has a Graduate Diploma of Applied Finance from the Securities Institute of Australia of which he was a member as a Fellow of Finance for many years and also has an undergraduate degree from Griffith University in International Business. Owen's interests are tennis, running and his wife and two children. He speaks fluent Chinese, first arriving in China in 1997.
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