Thank you for downloading the Smart Investing podcast from index fund manager Vanguard Investments Australia, on the web at vanguard.com.au

This commentary is written by Vanguard Head of Retail Robin Bowerman. The title is Rewards of being an informed investor

It was first published on Monday 21 March 2011

And is read by Michael Mullins

Please remember that advice in this podcast represents a general view. It is recommended that you seek specific financial advice, before making investment decisions.

Without fail, many investors adopt practices that are detrimental to their financial wellbeing – and the legislators and regulators typically struggle to protect them from themselves.

Near the top of most lists of self-destructive investment practices must rank allowing your emotions to control your investment decisions, and investing in complex products which you don’t really understand.

Another self-destructive tendency is to build up big pre-retirement debts – buying non-essentials – with the intention of eventually repaying the money with your super savings. This is cutting into the investment capital intended to at least partly support you in retirement.

Any list of self-destructive actions by investors and super fund members could go on and on.

A fundamental means to help protect investors from themselves is to make them as informed as possible about personal finance. And that is one reason for ASIC’s launch last week of its new personal finance website, MoneySmart.

The site is about personal finance in general, not solely about investing.

Although certain aspects of personal finance are understandably extremely complicated – just try to simply explain how the superannuation system operates – much of it can come down to some straightforward basics. Unfortunately, these basics are often neglected or never learned.

Think about these examples of “unwise investment behaviours” given in an ASIC publication, Investing between the Flags, included on the MoneySmart website:

            1.         Borrowing to invest when you are having trouble paying existing debts.

            2.         Aiming to make as much money as possible in the shortest time.

            3.         Investing in a product that you don’t understand.

            4.         Putting all of your capital into one investment.

The media regularly publishes articles about experienced investors and business people who have enjoyed success but then ignore the basics of personal finance – and their wealth is often destroyed. There’s a crucial message there for everyday investors.

And that concludes the column

Rewards of being an informed investor

from Robin Bowerman, Head of Retail at index fund manager Vanguard Investments Australia

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Please remember that advice in this podcast represents a general view. It is recommended that you seek specific financial advice, before making investment decisions.