Mary Holm: A few tips for would-be punters

Q. I have invested in a company that offers horse racing tips, and I have basically thrown my money in the trash.

I was approached by them about a year ago. The lady rang me and explained it to me and gave me big hopes and dreams. She told me so much about it, and everything good about it.

I told her that I didn't have any experience in horse racing. She said I didn't need to worry about anything, they would call me and give me tips every weekend, and all I had to do was just go and put money on the horse.

But it is nothing like that. I have to ring them all the time. Most of the time they put me on hold for about I don't know how long. Their tips are always wrong. The horses never win.

When I asked about getting my money back they said they don't do that. But they offered to sell their programme on my behalf. So I agreed to it, but they asked me to put a 20 per cent deposit of how much I wanted to sell the programme for. I decided to sell the programme for $7000, so I had to give them $1400 in advance as the broker's commission.

I was told that the programme would be sold in just under six weeks, and it has been just under six months now. When I ask to speak to the lady she is never in the office. I have left so many messages but she would never ring back.

I have lost a lot of money. I lose every week, but I still ring them and ask for the tips every week, and I lose again every week. I don't know why I keep ringing them. I haven't rung for a couple of weeks and I think I will just let it go. I don't know what I can do about it.

Please advise me if you think you can help with something. But my advice to everyone is to stay away from them.

A. Well, that's a new twist to a sad story, asking you to pay the broker's commission in advance for selling your programme.

I hate to say it, but I can't quite see them selling your programme to someone else when they can sell their own new programme and get much more. Also, it wouldn't look too encouraging to a new investor, buying somebody else's reject.

I've tried to get in touch with the company you named to get their side of the story. But more than a week has gone by, and I've heard nothing. They seem to make a habit of not responding to communications!

Thanks for your warning to others. I'm not sure there's much I can do to help you, beyond saying, "Yes, do stop trying". But I have a couple of suggestions.

Firstly, complain to the Australian Securities & Investments Commission, which lists the company as a registered company. Go to www.asic.gov.au and click on "How to Complain" in the top right corner. You could also contact the Queensland Office of Fair Trading, as the company is based there. Go to www.fairtrading.qld.gov.au and click on "Make a Complaint".

I've got no idea what your chances are of getting any money back, but it's worth a try.

By the way, when another letter about a company offering horse racing tips was published in this column two weeks ago, I asked to hear from any reader who has gone into an investment after a direct approach from a company they didn't know, and has been happy with the outcome. So far, nobody has responded.

Q. I have been a keen small-time punter for nearly 50 years, and am always amused by these outfits promising huge profits. The fourth paragraph of your answer two weeks ago summed them up perfectly - why are they offering their secrets to you instead of just making money for themselves?

Over the years I have bred and raced many horses with reasonable success (about 50 races won), but have never known when they were going to win because of the large number of variables involved. Having said that, I do know people who make a living from betting on horses. But they spend long hours watching race replays and trials, and also have to have the temperament to lay out large sums of money even when having the inevitable losing streak.

A few years ago my brother-in-law gave me the phone number of a company that was promoting horse racing tips (maybe it was the same people in an earlier incarnation). Out of curiosity I phoned them, but when I mentioned that I was a racing person the man said, "Oh, our system is not aimed at people like you." I wonder why!

Ian Barnes, an Australian from Noosa Heads, campaigned against this type of company for about 20 years until his death four or five years ago. He put out an annual guide that analysed many of these money-making schemes. Needless to say, most of them were losers. Ian was scathing in his criticism of what he called "flim-flam merchants" and the way they were allowed to advertise in newspapers.

Ian often said that trying to get your money back from a post office box would be very difficult. He also used to list some of the advertising quotes and his response to them:

* "You don't need to know anything about racing." If you knew anything about racing you wouldn't be tempted by this tripe.
* "Join our Winners' Syndicate. We don't lose - we win." No argument with this. They win - you're the loser.

A. Thanks for an enlightening letter. It would all be rather amusing if it weren't for the fact that people like our first correspondent are losing thousands of dollars - and that's before they even get to the racetrack.

Q. Why would I have to wait three years to see if my KiwiSaver cash investment is any good on a relative basis - as discussed in your column recently? Cash is generally defined as fixed-interest investments of less than 365 days and in practice many use 180 days.

If the explanation for Westpac's poor cash returns is market movement, then they had to be holding non-traditional cash assets in the portfolio.

This is another example of what is wrong with our disclosure regime. Investors should be told that, "We call this cash but it is not cash, and the returns that you get will not be cash-like, and you might even lose some money."

A. It all comes down to how cash in a cash fund is defined, and I must say I have a lot of sympathy with your viewpoint. I suspect most people would expect a cash fund to invest in savings accounts, short-term bank deposits and similar safe holdings.

However, BT Funds Management, which runs Westpac's KiwiSaver scheme, has a somewhat different view. "I must emphasise that this is not a bank account," says BT chief investment officer Paul Richardson. While 90 per cent of the cash fund is invested short-term, 10 per cent is invested in another BT fund whose holdings include some investments that mature in more than a year.

Richardson hastens to add that these are high-quality bonds, issued by local authorities, Fonterra and the like. Therefore, he says, there's virtually no danger of default.

However, with any longer-term bonds or similar, their value fluctuates. Let's look at what happens if a fund invests in $10,000 Nice Company bonds, which are paying 5 per cent interest, and market rates later rise so that similar bonds are paying 7 per cent.

If the fund were to sell its Nice bonds, it would have to accept less than $10,000 for them because they are paying below market interest. Even if the fund has no plans to sell the bonds, it must still record the drop in their value as a loss to the fund.

This may oversimplify it, but basically that's what has happened to Westpac's KiwiSaver cash fund. The value of its longer-term investments has fallen, explaining the fact that it was the worst performing KiwiSaver cash fund from the start of KiwiSaver, on July 1, 2007, to March 31 this year.

Since then, however, Richardson says the fund has performed well. In the most recent three months, it was fourth out of 11 KiwiSaver cash funds, and in time Richardson hopes that the longer-term investments in the cash fund will give it a superior return. The longer term is what matters, he says, given that nobody can invest in KiwiSaver for just a short period.

I buy that to some extent. Certainly nobody in KiwiSaver has been able to take out their money yet, except in cases of financial hardship, serious illness and so on.

However, once KiwiSaver has been around for a few more years, I suspect cash funds will be popular with KiwiSavers who are doing the smart thing and transferring their savings to cash in the year or two before they plan to spend the money - on either a first home or in retirement.

Sure, there will also be longer-term investors in cash funds because they are ultraconservative. But I would like to see KiwiSaver providers keeping their cash funds short-term, so that members who are using the funds as KiwiSaver exit points can't be hurt by taking their money out at a time when longer-term bonds are doing badly. Such bonds certainly have their place in KiwiSaver, but not in cash funds.

Where does this leave investors in Westpac's KiwiSaver cash fund? Since you can't take your money out for at least another year - and then only if you are buying a first home - you might want to wait and see if the fund's returns bounce back.

Or, if you really want to invest in cash, you might want to move to another provider's KiwiSaver cash fund. Check first, though, that it limits all its investments to the short term - preferably 180 days or less. Westpac isn't the only KiwiSaver cash fund with longer-term investments. No point in jumping out of the frying pan into the fire.

* Next week, I'll have more on last week's advice for the teacher and his wife on how to save for their first home.

Mary Holm is a seminar presenter, part-time university lecturer and bestselling author on personal finance. Her website is www.maryholm.com. Her advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.