Investors Who Take The High-risk Road Can't Cry Poor

Sydney Morning Herald

Wednesday October 29, 2008

It is difficult not to feel sympathy for retirees and others who parked their superannuation dollars in cash management and other funds which have now frozen accounts. But they chose these institutions, reputable though many of them are, because they offered a higher rate of interest than the banks. The old axiom is: the higher the yield, the higher the risk. They can hardly cry poor now and ask the Federal Government to guarantee the accounts of those higher-yield investments.

Receivers to Hastings Capital ("Directors of failed finance firm targeted", October 27) hope to return between 55 cents and 65 cents in the dollar to 1160 small investors owed more than $39 million.

People who can afford to invest an average of more than $33,000 in one company should surely be intelligent enough to weigh up the risks against the promoted returns on their capital.

Leslie Pritchard Potts Point

The suggestion that ordinary investors are aware of the risks associated with investment funds ignores the reasonable thinking of such Australians. Government regulation has increasingly forced more people to rely on superannuation and other savings. Bank returns are minimal and well below any deeming levels set by past governments.

Funds such as Colonial First State that are owned by banks provide a more realistic return, with the image of security. Yes, the investments are in a variety of potentially volatile classes, but these funds have always provided transfer options and access not available with term deposits. Suddenly, it seems, these investors are being punished for responding thoughtfully to government policy.

Philip Cooney Wentworth Falls

If the Federal Government decides to guarantee the non-bank, high-risk investments of those who chased high returns through mortgage funds or other institutions geared to sharemarket fluctuations, it had better be prepared to cover my high-risk investments in Lotto on Saturday and the Melbourne Cup next week.

Mark Berg Caringbah

I don't know which super fund Grant Agnew (Letters, October 28) has his money in, but he should change it as soon as possible. To say "contributors have no choice but to pay in, and after that have no say in where their money goes" is out of touch with current fund management policy.

Plenty of funds allow you to move your money from bonds to cash to equities to property as the whim takes you. I thought Australian shares were overvalued last November and moved most of my super holdings to cash, thereby largely avoiding the fallout from the current debacle.

Les Nixon Holland Park (Qld)

Your editorial ("Extend the guarantees", October 27) said it was "absurd that nondescript credit unions should enjoy government backing while well-run cash management trusts and mortgage trusts - bearing some of the most respected names in Australian finance - should not".

This comment suggests a disappointing failure to grasp the nature of the prudential regulatory system. Credit unions, like banks and building societies, are authorised deposit-taking institutions (ADIs), licensed by the Australian Prudential Regulation Authority. Cash management and mortgage trusts are not.

ADIs are subject to strict, legally enforceable standards on capital, liquidity and risk management. Non-ADIs are simply not in the same prudential league.

Mark Degotardi Head of public affairs, Abacus - Australian Mutuals, Sydney

© 2008 Sydney Morning Herald

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