The Cost of Convenience, Community, and Crowding Around the Middle

19.05.2016 • Investing

From Gowdie Family Wealth (Australia) – Would you invest in a product that took up to 30% of your capital value AND 50% of your capital gain? That’s not a misprint; please that read again: the product will take up to 30% of your capital value AND half of any capital gains you may make. Here’s how the product works: You invest $400,000.

In five years’ time, your investment is worth $500,000. You then decide to sell the investment. Prior to paying you, the product provider deducts 30% of the capital value — $150,000 — AND 50% of the $100,000 capital gain…another $50,000. Of the $500,000 withdrawal value, you get $300,000, and the product provider receives $200,000.

You put up 100% of the capital, took 100% of any risk and, for the privilege of doing all that, you’re subject to a 60/40 split of the proceeds from the sale. Does this sound like a good deal to you?

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