Wealth Creation Schemes

For the shares, currency, and commodities trading schemes, there is a very common pattern.  The general concept seems to be that you go along to a seminar and hear about the great returns that can be made by trading in these areas. There always seems to be a system. Typically this means investing in computer driven software, and of course paying for data feeds. After the initial free seminar, you pay for the Trading Course. Who is the likely winner? The promoter is of course, as in the meantime they have invariably generated several thousands of dollars of revenue, and will continue to make income via data feeds for as long as it takes for you to realise that you have probably made a mistake. For the above three schemes if you get involved, it is a lot easier to lose large sums of money than to make a lot of money.

 

A relatively new concept offered by promoters is a so called free one day look. One day is unlikely to be long enough to either lose or make any significant amount of money. Day trading seems to be addictive, just like gambling. Once more its effects can be enormous, because of the gearing of the investments that are being traded. Many day traders are not really financially literate, and do not carry out any great in depth analysis. A graph or trend line generated automatically on the computer does not imply that the trader really understands what is going on in the background.

 

Historically the investment schemes that have taken in the largest sums of money are the residential investment property schemes that are being promoted for New Zealand (mainly Auckland) and Australian property (mainly Queensland). Blue Chip was just one of them.

 

A number of years ago, we were asked to attend one of these seminars by a high profile client who wanted qualified advice. At this particular seminar, new Auckland residential properties were being promoted. Properties are supposedly sourced wholesale from a developer, and then sold to the investor at market valuation plus a procurement fee of close to 3%. The promoter then uses an associated company to lease the property from you for a period of say 3 ½ years. They in turn are responsible for arranging a suitable long term tenant, who at the end of the period has the opportunity of purchasing the property from you at a discount that is effectively the value of the rent that you will have received. The financing is also arranged for you, and also the rent is collected for you at a cost of 10%. On the assumptions that were being used, it initially looked too good to be true. Of course, it was. The growth assumption was high, and the interest rate was low. Fortunately our client followed our advice and did not invest.

 

We were also told of the successes of this scheme by the promoters. However a search of the companies’ office records show that the various companies involved in this scheme had only been formed less than a year earlier. Checking with the Property Investors Association also confirmed our doubts. Not all property promoters of course are tared with the same brush. The problem is finding one, that has a proven track record, and that you can trust.

 

Unfortunately with the wealth creation schemes, the odds are heavily stacked against investors. As the saying goes, if the returns are as high as they are, then it is probably too good to be true. What then should you do? It is natural to want to get ahead and kick start your investments. The golden rule is do not let your emotions get in the way. Promoters of such schemes trade on hype. Instead we recommend that you seek qualified independent advice. They will be able to advise on what is most likely to be best for you to achieve your financial goals.