This week, a rural couple with five children asked for advice because they were very badly cheated. Unfortunately, their example is not special, but typical, which is why I describe it, and tens of thousands of them have visited the country.
In early 2009, a “financial advisor”, a member of a well-known network, found them and wondered how many commissions could be drawn from these poor people. Because they didn’t have the money to save with so many kids, the “advisor” used the big trick the network had to do: buy a Swiss franc credit for life insurance, their only property, and invest the money they took with the loan unit-linked insurance, which yields billions of percent return. Pay the monthly installments from the proceeds, and here’s the magic, in the end the $ 18 million they received from the bank remains.
This was said by the “financial adviser” (I think he was a butcher two months ago, or carpenter), that meanwhile since mid-2008 the Swiss franc has appreciated by 45% against the forint and the Chinese stock price has put the deceived people’s money, Since November 2007, it has dropped more than 60% without stopping.
All in the midst of a global financial crisis
That is, the business was everything but just predictable and risk-free, he should have known that he was lying when he was giving the victims solid returns and fabulous profits. Luckily for them, the rumored agent found them late, so the Swiss franc strengthened to over two hundred forints and the Chinese stocks were also over a huge plunge.
Far worse than those found by the same agents in early-mid-2008. There was still the Japanese yen to borrow (the Japanese yen rose from $ 135 to $ 239, meaning that the borrowing went from $ 10 million to $ 17.7 million), and it still had to be bought on the Chinese stock index at 26,000 points, falling to 11,000,900 , and four years later it backtracked to 24,000 points, so far only 20 million have been invested in a $ 10 million investment, not including interest paid to the bank ($ 4 million over five years) and unit-linked costs, plus another couple million. Even in their nightmare, they would not have thought that such a well-run miraculous opportunity would bring down nearly 30 million in a few years.
Returning to the couple, the interest rate of the 18 million loan at an interest rate of 8.5% is HUF 127,500 per month, but due to the unfortunate appreciation of the Swiss franc it has risen to HUF 149,150 . In addition to this, the money that was to be paid into unit linked insurance monthly is HUF 90 thousand .
That amount should have been raised by the insurance
With the first and a half years of paying the agent and brokerage firm he worked for are deducted from the 5% “allocation fee” of each payment and charged a 2% management fee each year. That is, besides the nearly one and a half million initial cost, the insurance cost was 180 thousand HUF a year. (I wrote about unit linked insurance costs here.)
The couple asked me to see where they got nearly 10 million forints out of the 18 million taken and paid into insurance because they don’t understand that.
The saddest thing was that everything was fine. The bank was paid HUF 6,480,000 over four years only for interest. The amazing unit-linked insurance had an initial cost of nearly 1.5 million, deducted 5% when paying out the loan, or nearly one million to 18 million, then sold their units monthly, then transferred to the continuous premium unit-linked insurance, again they failed or paid the other half of the money withdrawn to the bank at interest.
The remaining shortfall was due to exchange rate losses
They had to experience that year after year, instead of the promised bush return, their money was melting down on their only property, their apartment. The tens of millions lost were offset by another three million losses due to the Swiss franc.
Neither their earnings nor any other circumstances left them with the option of selling the mortgaged home and paying back the reckless loan in the hope that the remainder would be enough for a smaller home. The conclusion? One is that thousands of families of unscrupulous agents have been destroyed in this way in order to earn millions in commission.
Another is that people were greedy and listened to people they shouldn’t have. I always say that people are more careful when choosing their next cell phone or microwave oven than who to trust their money.
You will never get rich in credit, you will just act like the people in the article. And finances are a very dangerous business, and you’re going to be very lousy if you don’t know it, but you still run into the letcho.