Warnings and Tips about Investing

Biggest Investment Culprits
It is generally believed that the biggest culprits for delaying the return of your funds are contributory mortgages. Other investments that could lose chunks of your cash are property bonds and property syndicates.

With the apparent bricks-and-mortar security of real estate behind them, these investments promise high returns. Some companies even use the words 'low risk'. But don't mistake them for genuinely low-risk choices such as bank term deposits.

Contributory mortgages and property bonds take money from small investors and lend it to a property owner or developer. As an indication of the riskiness, they may be offered to the public after banks have refused to lend the money. Property syndicates invest directly in buildings.

Because syndicates are designed to be held for a longer period of time, don't expect to get your cash back early. If you do, be prepared to take a loss.

Complaints about Contributory Mortgages - News Item in N.Z
In late 2001, the Securities Commission found that of the 21 contributory mortgage brokers in N.Z the commission had received complaints about 9 of them. 

Problems include:

  • Investors not getting money they believed they were entitled to.
  • Schemes not giving investors the information they should by law.
  • Company records in such a mess it was almost impossible to work out which investor's money had gone where.

The Securities Commission advised that not all complaints involved breaches of law. In December 2001, the commission took the unprecedented step of ordering a firm, N.Z Commercial Mortgage Brokers, to stop acting as a contributory mortgage broker. The commission said the company hadn't kept proper accounts and had failed to tell investors about a significant change in the terms of a mortgage.

This isn't the only company to have struck problems. In a small number of cases, investors in contributory mortgages haven't had their money back. More commonly, mortgages aren't repaid on time, meaning investors don't get their money when they expect it. You'll usually get your money back in the end - weeks, months or years later - but possibly without all the interest you are entitled to.

Contributory mortgages have their own regulations setting out the information investors must receive, which includes a property valuation. But they aren't required to issue investment statements (though some do), so you won't always be able to find a clear explanation of risk. Even worse, some details may be misleading.