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Loading ...Investment paying 12%pa - is it too good to be true?
October 1, 2008 by Josie Kay
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Q. I recently saw an investment for a sporting club raising funds that advertised 12% per annum compounded, calculated annually (over 5 years in unsecured notes.) I have no intention of investing, but the return is interesting and seems too good to be true. Have I misunderstood the 12% pa compounding annually.
Josie’s answer: Compounding annually means that they credit interest 12% interest on 30 June and the following year, they will pay 12% on the original investment, plus the 12% paid the previous year … and so on it goes until the end of year 5.
The reason I am skeptical is that niggling feeling I get as to why they simply don’t go to one of the big banks and pay them 8-9% pa.
Perhaps their bank did not like their proposal and reluctant to risk their money. For the investor, assuming they understand the risks, and prepared to lose it, 12% pa is a decent return (less tax of course). You just wouldn’t put all your eggs in this basket.
Scary thing is that plenty of people do put their life savings into these types of offers and then scratch their head when it does go wrong. I wish you all the best and thanks for sending me the information which I found interesting.
Take care. Josie Kay
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