How Would You Invest a Spare $1 million?

MELBOURNE AUSTRALIA 14 February 2007 – It is always pleasing to know that the hours (yes it does take longer than ten minutes to do this even though it doesn’t always appear as such) spent tip-tap-tapping away at the electrictronic typewriter each morning and evening isn’t entirely in vain.

We like to know that someone somewhere takes the time to read what we’ve written and then either forget it just as quickly as they’ve read it; enjoyed it and passed on the (lack of) wisdom to their friends; or even laughed out loud at the ridiculousness of it all.  We think Markets and Money reader and Black Range Minerals fan John from New Zealand falls into the latter category.

But at least John from NZ helps brighten your correspondent’s day knowing that someone somewhere is having a hearty laugh.

Also, our ever suffering DR readers occasionally like to make sure that we are awake too.  They like to throw us the odd hand grenade or two, just to see whether we quickly throw it away, or whether we try to eat it.  The craziest ones even try to get us to offer advice!

Anyway, one particular reader, “Paul”, from somewhere in Australia asks the following question: “Q1: How would YOU invest an unexpected $1M windfall should it land in your mail-box?  Q2: Would you do that same if it was $5M?”

Now that doesn’t seem too difficult does it?  Asking us to do our best Geoffrey Robertson QC ‘Hypothetical’ scenario is always a good bit of harmless fun.  Paul also suggests that we make a few assumptions as well, “- you are 60; have a successful business career; have ZERO debt; your financial situation is better than that of the average bear.”

Anyone out there think that that could perhaps be a close description of one of Paul’s “friends”?!

Incidentally, your correspondent did leave $1m lying around in a random mail box the other day – just for safe keeping, so there’s a reasonable chance it could be ours.  More than happy to check it out to see if we recognise the notes.

Anyhoo.  Assuming that it isn’t our $1m, where could we – if it was ours – invest it, based on the assumption that we could be kicking around on this planet for another twenty-plus years, and also have a few quid left to leave for the kids.

Just to make sure that we don’t stray unwittingly into the realm of ‘personal advice’ we would ask all DR readers who fall into the above category to avert their gaze during the next five paragraphs.

As an investor what are your choices?  Shares, fixed interest, cash, property, commodities, private investments – and derivatives or hybrids of the aforementioned.

All of which will have their champions extolling the virtues, rightly or wrongly of the importance, value and strength of each type of investment.  Not only that, but you then have to choose whether you want a domestic investment, principally in Australian dollars, or whether you would like some offshore exposure to US dollars or pound sterling or yen.

But perhaps we need a bit of help to decide.  One way is to look at past performance… which is not necessarily a guide to future performance (that one is for the Compliance Department), but it can help to frame the picture.

So, if we were to look at the All Ordinaries, fixed interest, cash, property, gold and the Dow Jones Industrial Average, which would we think had performed the best in the last six years?

Well, the All Ords has returned approximately 83%, Aussie dollar gold is up by 71%, the Dow Jones has given us a 26% return and the Aussie dollar has made a 60% gain.  Fixed interest and cash we won’t even bother doing the research.  We’ll take a punt that they haven’t got anywhere near the others.  If we’re wrong someone will let us know.  As for property, well it depends where you’ve bought, but it too has put in astronomical gains despite having cooled over the last year or so.

Maybe it is too obvious for us to extol the virtues of gold and commodities.  But guess what, take a look at the companies that comprise the Dow Jones Industrial Average and compare them to the companies that comprised it thirty years ago.  How many are the same?  Now take a look at the commodities contracts traded in Chicago and New York and compare them to those traded thirty years ago.

In thirty years time people will still need to eat and clothe themselves, but will they still be relying on the same company’s to do so?

Kris Sayce
for Markets and Money

Kris Sayce

Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Markets and Money e-newsletter in 2005.
He is currently the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service — Money Morning.

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