How overcoming fear of financial missteps can lead sophisticated investors to great reward

By Scott Parry

July 26 2019
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There is a misconception that those who are yet to invest are simply waiting to reach a certain age or income level before making the shift from saving to investing, writes Scott Parry.

Rather, my experience as a financial adviser has shown that Australians across the board are unfortunately hesitant to explore new pockets of potential wealth due to their fear of making a financial misstep.

This is particularly evident with Australians who are heading towards retirement. It’s concerning how many adopt a scarcity mentality when contemplating retirement, where they feel they have to adjust their lifestyle once they can no longer rely on a steady income through work. I’ve had clients worth tens of millions of dollars who are concerned that their savings won’t be able to support them, despite the various investment opportunities available today.

What’s driving this scarcity mentality?

When considering where to channel their hard-earned money, a lot of investors aren’t sure where to go for guaranteed returns and that peace of mind factor.

Their hesitation is understandable, given the Australian share market can be turbulent and low access to credit is expected to continue the downward movement of the property market over the next 12-18 months. In addition, a large number of investors are still dealing with a GFC hangover after being burned in the past with frozen funds, causing many to stick to traditional investments.

Investing in peace of mind

However, there doesn’t need to be a trade-off between having access to capital and financial flexibility and freedom. New sectors and platforms have emerged in recent years that are ripe with investment opportunities and can offer stable, competitive returns to help set more cautious investors at ease.

Peer-to-peer lending
Within the last decade, peer-to-peer (P2P) lending in Australia has given retail investors the opportunity to invest in consumer loans, a fixed income asset class that was more or less previously only available to banks. P2P lenders such as RateSetter offer a number of different markets, from one month to five years, for lending to creditworthy borrowers. This encourages investors to shift their mindset from chasing capital growth to bedding down a steady stream of competitive returns. For those who want to conserve capital and compound returns year on year, this can be an attractive investment option in a growing space.

In terms of structure, the biggest tick in the box is RateSetter’s provision fund. Knowing that a safety net of over $12 million dollars is available to shore up investors’ cash, regardless of whether a borrower misses a payment or defaults, can go a long way to reassuring people who are concerned about their returns. While the Provision Fund isn’t a guarantee, it’s comforting to note that so far investors have received 100 per cent of their returns and not one has ever missed a payment.

Neobanks
In terms of other emerging investment areas, neobank technologies are showing a lot of promise. This post-Hayne royal commission period will no doubt see changes to how Australia’s banking and financial services sector operates and neobanks such as Volt Bank are well placed to leverage everyday Australians’ demand for trust and transparency.

There will be ample opportunity to invest in these emerging players’ digital infrastructure, automated processes and data-driven, personalised services as they continue to build their offerings. While these companies aren’t listed yet, it is possible to buy in early through rounds of capital raising or equity crowdfunding.

Aged care sector
Outside of the finance space, I’ve certainly recommended that investors look to healthcare and the aged sector. Favourable demand forecasts indicate that there is a wealth of opportunity in this space, including investing in medical devices, facilities, providers and services. Taking into consideration the needs of Australia’s ageing population and the booming healthtech space, we expect this trend will have longevity.

Work to live, not live to work

If the name of the game is to have the financial freedom to live the life you want, then it’s necessary to overcome the psychological apprehensions that could prevent you from doing so. Australia’s investment landscape has evolved significantly in the past few years and there are more avenues for retail investors than ever before to realise their financial goals. I encourage all prospective and current investors to take the plunge and really consider strong, non-traditional investment options for peace of mind.

Disclaimer: Scott Parry invests through RateSetter and Volt Bank.

Scott Parry is the founder and CEO of Crown Money Management.

About the author

Scott Parry

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

About the author

Scott Parry

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

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