Everyone is an Expert

I was so excited to come across this monument in Edinburgh!  I talked to my Economics students about him for years, and there he was right before me.

 

“The more you know,

 

the more you know

 

how little

 

you know”

Aristotle 384-322BC

 

Some things never change! It seems this gem is lost on a lot of people.

Beware of those who are so certain and willing to give advice, qualified or not!

Skip forward 2000 years, and there’s wisdom aplenty.

Adam Smith was a Scottish philosopher and is considered to be the founding father of Economics.

Adam was a fan of self-interest.

He believed it was the most powerful building block of the market system that ensured what people wanted, and at what price they were prepared to pay, was produced.

He was also an advocate of specialisation – doing one thing and doing it well and relying on others to do their bit, i.e. the ‘division of labour’,

In other words, we should become experts at what we do and let others do what they do well, and productivity gains and enhanced outcomes will be the result.

Now, while the intricacies and efficiencies of pin-making illustrated Adam’s treatise, 21st century folk with fingertip access to cognitive tools can be tempted to think they know everything about everything.

Aristotle would be shaking his head.

 

 

A recent Yale University study in the Journal of Experimental Psychology concluded that search engines and the overabundance of information they provide at the touch of a screen, are making us think we know more than we do.

A little information can be a dangerous thing. We probably all know someone who shouldn’t have access to symptomchecker.com!

“Searching the Internet may cause a systematic failure to recognise the extent to which we rely on outsourced knowledge,” the study said. “… People mistake access to information for their personal understanding of the information.”

This misconception is so apparent when it comes to investing generally and particularly property investment. Many people are easily influenced by the media, whose mission it is to sell stories and bolster audience numbers and ratings. So their modus operandi is often to exaggerate, catastrophise and to disturb with misleading ‘half baked’ headlines and cherry-picked information. They also generalise. (remember the misnomer of the property market)

Being at a backyard BBQ seems to bring out the philosopher, politician and religious acolyte in many of us too…

It’s a notorious source of dubious investment advice, often from some who haven’t invested in their lives!

Sometimes it’s motivated by bad experiences, other times ignorance, other times fear and even by jealousy.

Making an investment property decision is an important one that should be made on the balance of evidence and qualified, professional advice, tailored to your particular circumstances, goals and preferences and importantly, your risk profile.

Taking control means deciding you want and need to create a better future, making a plan and then seeking support to implement it.

So, who are the team members you should gather around you and lean on?

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SMSF

A Self Managed Super Fund, or SMSF is a legally sanctioned, stringently regulated, tax-advantaged structure for accumulating wealth during your working life to either fund or assist in funding, your retirement.

Currently, in Australia, there are approximately 600,000 SMSF’s with almost 1.1M members. SMSFs control assets of close to $750B, or nearly a third of all superannuation assets.

Contributing to or holding assets in an SMSF affords the investor favourable tax treatment, but the tradeoff is strict compliance responsibilities and individual liability for the member trustees.

An SMSF can have up to 4 members, and all are equally responsible for making sure that the fund complies with superannuation and tax legislation. The Australian Tax Office imposes harsh penalties for stepping outside the guidelines.

Australia’s ageing population makes the welfare burden unsustainable. Compulsory super contributions are an investment for the future and a deliberate measure to ease the strain on the government’s purse strings.

How those contributions, compulsory or voluntary, are invested depends on whether you choose an industry or retail fund or undertake to do it yourself by setting up and running an SMSF.

SMSFs are established for the sole purpose of providing financial benefits to members in retirement and their beneficiaries. They have a Tax File Number (TFN), Australian Business Number (ABN) and transaction account, for contributions and rollovers to be paid into, to make investments and disburse funds to beneficiaries.

It’s important to understand that an SMSF has strict controls and high compliance costs in terms of effort and expense. For a short overview, take a look at this video from the ATO and seek professional advice!

 

ATO – What’s involved with an SMSF?

 

 

 

SMSF legislation allows non-recourse borrowing by an SMSF for a property.

‘Non-recourse’ refers to the fact that if the borrower (the separate entity, the SMSF) defaults the lender can only seize the assets held as collateral for the loan (the property). The lender cannot seek any compensation from the personal assets of the fund members.

Legislation allowing SMSFs to purchase a property under these provisions is a strong vote of confidence in the asset class’s relative predictability and the security of retirement funds.