Opinion: ASIC needs greater warnings

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As if anyone needed reminding, we have recently been shown again by the movement in gold and our mining stocks such as BHP and RIO – very starkly – that investing is a complex process, and not ideally suited for the retail investor.

George Lucas, managing director of the boutique investment house Instreet Investment, says ASIC needs to place more emphasis on the complexity of investing and the importance of advice:

These sharp movements in BHP and RIO prices come at a time when the retail investor has never had more access to the investment markets.

Self-managed super funds (SMSFs) now hold nearly $440 billion of the $1.4 trillion of assets in super funds, accounting for 31.5% – the largest single chunk of Australia’s super pool.

The rise of the self-directed investor is all well and good, but while access to the investment markets has been well and truly democratised, the fact is that knowledge has not.

The markets don’t come with a health warning.

Well, they do, in the sense of the fine print in a product disclosure statement; “past performance should not be used to predict future performance,” “the value of your investment may go down as well as up,” and variations thereon. But they don’t come with a complexity warning.

Even if you buy BHP shares, and enjoy the benefits of exposure to the China growth story, with a global production portfolio covering most major commodities, including petroleum, copper, gold, iron ore, coking coal, energy coal, aluminium and nickel; you also get the worry of exposure to commodity prices, the Australian dollar, headlines on China’s Gross Domestic Product and inflation and manufacturing activity; as well as all the company-specific risk, such as management’s ability to execute their strategy – and field-life, grades, rising costs, hedging, strikes, boardroom ructions and executive pay revelations.

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