Opinion: ASIC needs greater warnings

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All of those can move the share price – and not always in the direction you might expect, or want.

For example, BHP has fallen by 16% since February; Rio Tinto is down 22% over the same period. Investors are worried about the impact on profits of rising costs, the strong Australian dollar, concerns about slowing growth in China and increasing supply coming onstream in major commodities such as iron ore and copper.

These are popular stocks for retail investors, who in many cases believe they are getting exposure to the China growth story. Yes, they are but the drivers behind the performance of BHP or Rio Tinto are a complex inter-play of influences.

Or take gold: the safe haven of all safe havens, regarded as the perfect store of value in times of geo-political and economic turmoil. But gold suddenly tumbled in April, losing 9.1% in a day – its worst daily fall on record – and slipping 13% in just two trading days.

Famed hedge fund manager John Paulson lost $1.52 billion on paper in gold’s April fall. Paulson invested about $9.5 billion across his fund family in gold, starting in April 2009, on the thesis that gold is the best hedge against inflation and currency over-supply.

There is absolutely nothing wrong with his theory – in fact Paulson has made a lot of money on it so far. But the strategy certainly suffered a temporary blip in April. The gold sell-off was part of a bigger trend as fund managers switched from commodities to shares, which they see currently as better value.

The inescapable fact is that all investing is complex. It would be easy for retail investors – seeing ASIC single out certain kinds of investment such as hybrids, alternative investments or structured products as “complex” – to get the impression that investing in gold or individual stocks is not complex, when it is.

The government requires us to invest to fund our retirement. It also requires us to take risks to achieve the long-term returns we require to do this, which in turn ensures that the money in superannuation is invested back into the economy as a whole and not just held in cash. Doing this is complex and singling out certain products above others does not help – least of all by allowing retail investors to equate “simple” access with “safe” or not complex

ASIC should be outlining processes that include advice and education around the entirety of investing; communicating the value of advice that its own research shows and spelling out that investing is complex, and if the investors do not ultimately take responsibility for understanding what they are doing – and do not obtain the appropriate advice – then nothing is simple or safe.

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