Investing Archives

Market crashes: The good, the bad and the ugly

13 January, 202117 September, 2021 Updated on17 September, 2021 Economy, Investing

Just as night follows day, it seems part of the regular cycle of the world’s share markets that market crashes and falling prices follow good times and rising prices. The impact of the COVID-19 Global Pandemic has been typical of such downturns, prompting a 35 per cent sell off in world share markets and a dramatic fall in economic activity. For many, it has prompted memories of other equally, and sometimes more devastating, downturns in the world’s share markets. The most famous was “Black Thursday” in 1929, which led to an 80 per cent collapse in share prices and sparked the Great Depression, lasting for more than 10 years. What caused it? The wild excesses of the roaring twenties when consumer confidence was at a record high and the introduction of margin loans, where people could borrow up to 80 per cent of the value of shares. This created a classic investment bubble, where optimism overwhelmed caution, and people started buying shares with the mistaken belief they would always increase in value. A drop in agricultural production due to droughts and a fall in economic production caused a sudden reversal in sentiment. A similar situation occurred 60 years later in 1987 where panic selling on Black Monday wiped approximately 30 per cent from the value of the key US market index, the Dow Jones – its biggest one-day fall. It put an end to the ‘Greed is Good’ mentality of the eighties and prompted a review of the relatively new, computerised share trading systems. Yet it seems investor’s memories are short. Not long after this, markets got caught up with a new investment bubble prompted by the development and growth of the Internet. Companies raced to find their place online, and suddenly, all Internet companies were considered a sure bet. This speculative buying ran out of steam when the Dot Com Bubble finally burst in 2000, wiping 45 per cent off the value of shares. Whilst sharing commonalities with previous crashes, the Global Financial Crisis of 2008, was also in many ways unique. It was the direct result of dodgy lending practices in the US housing market, which created a toxic class of home loans, commonly referred to as sub-prime loans. Typically, these lenders ignored the individual’s ability to repay the loans and instead focused on the belief property prices would continue to rise, and there would always be people prepared to rent these properties. It created a typical investment bubble in the US housing market. Eventually, people found they could not meet their repayments, nor could they sell the properties held as securities. Causing enormous problems within the US banking system and the collapse of several international banks. The lesson to be learnt from all these devastating crashes is that while no two were the same, they were all similar in nature. All were created by exaggerated investor beliefs that prices would never fall. Therefore, it is essential to think carefully before investing, ensuring each investment is made with a long-term mindset, and that sudden market corrections do not lead to panic selling. As history has shown, market downturns follow upturns, but as long as the investment is fundamentally sound, it will fully recover any lost value. Contact us today for sound investment and financial advice to withstand market volatility. The information provided in this article is general in nature only and does not constitute personal financial advice.

Why seeing a financial adviser could be your best Xmas gift

30 December, 202017 September, 2021 Updated on17 September, 2021 Economy, Investing

The run-up to Christmas is usually a hectic time. Aside from the shopping and Christmas parties, there are deadlines to meet, loose ends to tie up and, for many farmers, the last of the crop to harvest. Whatever Christmas looks like for you, it’s essential you spend your time and money in a way that brings you and others around you joy and deeper connection. This is a time of year where there are rarely work and other commitments that need attention, leaving us with the space to focus on deepening the special relationships around us. Put simply, Christmas is about quality time with loved ones, not overextending yourself by spending too much. Once the big day is over many of us are able to slip into a more relaxed mode, but as your focus turns to leftover turkey and pudding, or lounging on the beach, why not spare a thought for your financial situation? With everyone else relaxing, the Christmas holiday period can be an ideal time to check your finances and start the New Year with everything in order and heading in the right direction. As their clients hit the beach, the holiday period is often a quieter time for the financial advisers who remain on deck. That’ll make it easier to see a busy adviser. And while there’s always plenty to do down on the farm, that post-harvest period may be the perfect time for farmers to sit down with their financial advisers. If a rainy day puts a dampener on your holiday fun, why not dip into the filing cabinet and tidy up the paperwork? You may be able to get rid of old documents you no longer need (make sure you dispose of them securely), find new opportunities, or discover important things that you’ve overlooked. Is your cash working hard enough for you? Has your portfolio become unbalanced? Are your personal insurances all in order? Are you saving enough? So why not make a Christmas resolution, to call us and make an appointment to review your financial situation. You’ll come away well equipped with some New Year resolutions to keep your finances humming along for the year to come. The information provided in this article is general in nature only and does not constitute personal financial advice.

Quarterly Economic Update: July – September 2020

21 October, 202017 September, 2021 Updated on17 September, 2021 Finance, Investing

COVID-19 remained the big story of the last quarter. Tragically, by the end of September the pandemic had caused over one million deaths. That was up by 500,000 since the end of the previous quarter, and many countries were experiencing devastating ‘second waves’. While most of Australia managed to keep case numbers of coronavirus at very low levels, Victoria provided a case study in the severe human and economic impacts of having the virus escape control. Now it is epidemiologists, rather than economists, that we look to for advice on how to transition to a post-pandemic world. Unemployment ups and downs The official unemployment rate from the Australian Bureau of Statistics was 7.5% in July, but showed a welcome drop to 6.8% in August. Meanwhile, NSW claimed that 70% of jobs initially lost in the pandemic had been restored. However, when JobKeeper, people working zero hours but classified as employed, and a big jump in gig workers are taken into account, the real unemployment rate is much higher. Roy Morgan estimated that the actual unemployment rate is closer to 13.8% and the combined unemployment and under-employment rate is 22.8%. Still, both these figures were down from their peak in late March. Property problems The major property markets of Sydney and Melbourne declined for the fourth month in a row, with the ABS reporting that in the June quarter these major city housing markets dropped by 2.6 and 2.8% respectively. And the outlook for housing construction is none too rosy. Australia relies on immigration to generate the population growth that stimulates construction and supports the prices of existing dwellings. With our borders effectively closed that population growth will either be delayed or will fail to materialise. Rental income is also expected to decline, particularly in markets with a high proportion of overseas students who are unable to return to Australia. The markets After a bit of a rally through July and August the local share market ran out of steam, with the S&P 500 index finishing the quarter down by 1.4%. International markets continued to produce some excitement. Despite weakening a little towards the end of the quarter the MSCI All-Country World Equity Index rose 7.2%. Much of this was attributable to the US market with the S&P500 up 7.6% and the NASDAQ up 10.2%. The Aussie dollar also weakened slightly towards the end of the quarter, finishing flat against the Euro and British Pound, up 2% against the Yen, and up 3.8% (from the high 60s to low 70s) against the US Dollar. The outlook If you thought that interest rates couldn’t go any lower, think again. The RBA has flagged the possibility of a further cut in the cash rate with commentators predicting a cut of 15 basis points to take the rate to just 0.1%. Internationally, the US presidential election could see an increase in market volatility with the final outcome anything but certain. For further information on current market conditions, contact us. The information provided in this article is general in nature only and does not constitute personal financial advice.

Positioning your portfolio in turbulent times

23 September, 202017 September, 2021 Updated on17 September, 2021 Finance, Investing, Superannuation

As any experienced investor knows, all investment markets have their ups and downs. Regardless of investor experience, turbulent times are a cause of anxiety, and that can lead to poor decision-making. So, if turbulent markets are inevitable, even if their timing is not predictable, how should portfolios be positioned in anticipation of and in response to market volatility? What’s your objective? First up, it’s important to go back to your investment objective. Is it to grow wealth over the medium to long term? Or are you more concerned with preserving capital? Your objective also needs to take account of your risk profile. With your risk tolerance and objectives clarified, it’s time to get to grips with asset allocation. This is the process of deciding what proportion of your portfolio will be allocated to each of the major asset classes: cash, fixed interest, property and shares. Asset allocation is the engine room of your portfolio. The amount that you apportion to the major asset classes has the biggest effect on your portfolio performance. It has a greater bearing on your returns than individual asset selection. Asset allocation is also your key risk management tool, the more you allocate to shares and property the greater the volatility, and therefore the risk. However, in this context, risk isn’t always a bad thing. A higher risk portfolio may at times fall more in value than a lower risks portfolio, but over the long term it is also more likely to generate higher returns. Oops, too late Unfortunately, the motivation to position a portfolio for turbulent times is often a sudden upset in investment markets. But this doesn’t mean it’s too late to do anything. If your investment objectives and risk tolerance haven’t changed, rebalancing your portfolio (i.e. bringing the asset allocation back to its ideal position) may help to position it for the next upswing in investment markets. Waiting out the storms While positioning can help with portfolio risk management, many investors opt to wait out any storms. Why? Because for all the ups and downs, bull markets and bear markets, bubbles and crashes, major share markets have delivered solid long-term growth. In fact, it has been claimed that investors have lost more money trying to anticipate corrections, than they would have lost in riding out actual corrections. A detached view Concerned about the financial outlook and your portfolio’s current position? We can provide an impartial assessment of your portfolio, help you identify your objectives and your risk tolerance, and recommend investments to help you weather the turbulent times. Talk to us today to get started. The information provided in this article is general in nature only and does not constitute personal financial advice.

Unlocking financial secrets for different phases of life

9 September, 202017 September, 2021 Updated on17 September, 2021 Finance, Investing

One of the keys to financial success is to adopt the right strategy at the right time. As you move through the stages of life, here are some tried and tested ‘secrets’ that will help you build and protect your wealth. Teens and young adults Time is on your side so get saving. Through the magic of compound interest, a little bit invested now can grow into a big amount over time. Most young people don’t want to think about life in 50 years time, but if a 15-year-old starts saving just $10 per week into an investment returning 5% pa (after fees and tax), when they turn 65 their total outlay of $26,000 will have grown to over $116,000. Contributing those savings to a tax-favoured vehicle such as superannuation may provide an even higher final return. Single life Saving is still a key strategy as careers are established, but usually with a shorter timeframe and a specific purpose in mind – buying a home, for example. This is a time when savings strategies can be brought undone by the allure of desirable things and the ease with which one can go into debt. Take care not to indulge in too many luxuries, and avoid taking on any high interest debt, such as credit cards. Rather, commit to working out a budget and sticking to it. Family focus The time of kids and mortgages is also the time of peak responsibility. It’s likely that your most valuable asset is your ability to earn an income, and illness, disability or death could deprive you and your family of that income. The financial consequences of each of these possibilities can be managed with a blend of income protection, total and permanent disability, trauma and life insurances. Preparing for retirement With offspring launched into the world and earning capacity often at a peak, a wealth of opportunities open up for pre-retirees. By all means enjoy some lifestyle spending, but don’t forget to supercharge your super in anticipation of a long retirement. In times of normal interest rates, using surplus income to pay off any outstanding home loan is often recommended, however, when interest rates are very low, investing spare income into super and leaving debt repayments until later may deliver a better outcome. Golden years Australians are up there with the leaders when it comes to enjoying long and healthy retirements. That means retirement savings need to last, so a): don’t go too hard too fast in spending your super, and b): don’t invest too conservatively, particularly in times of ultra-low interest rates. On the plus side, if you’ve employed the above secrets in each phase of life, you should be in good shape to enjoy a long, financially comfortable retirement. Whatever your stage of life, there are many things you could be doing to secure your financial future. To find out more, talk to us today. The information provided in this article is general in nature only and does not constitute personal financial advice.

Are you investing or gambling?

26 August, 202017 September, 2021 Updated on17 September, 2021 Investing

The potential financial results of investing can feel limitless, and it can be tempting to think that just one stock pick could make you an overnight millionaire. Yes, stock-picking can have a place in your investment strategy, but if you’re using a “get rich quick” mentality, you may be gambling, not investing. What’s the difference? One of the key differences between investing and gambling is process and strategy. If you don’t have a process and strategy in place, it is a sign that you need to establish or refine your plan. Further, gambling focuses on emotions such as hope. Investing, on the other hand, is all about strategy. With a clear strategy, you know approximately how much your investments will grow and over what time horizons. How do you know if you’re investing effectively? If you’re unsure whether your current investment approach is working to realise your goals, think about your investment process and how many of the below five elements are included in your approach. Completing no research If you’re not completing any research and putting money into assets based on tips from friends or what you see on social media, you’re exposing yourself to increased risk and not doing enough due diligence. Investing in micro-cap stocks only Micro-cap stocks typically have a market capitalisation under $500 million and are ranked from 350 to 600 on the Australian Stock Exchange. With a relatively small market capitalisation, buying stocks in these companies can be cheap. The downside, however, is that these companies are usually in their infancy and experience volatile price fluctuations. There’s a place for micro-cap stocks in your investing. However, if you’re putting all of your money into these companies, you’re likely exposing yourself to unnecessary risk. Investing with short time horizons Putting all of your money into short-term investments or activities such as day trading is an indication that you’re too focused on short-term gains without a long-term strategy. There’s a place for short time horizons in your investing, but only once you’ve mastered the foundations such as establishing a long-term plan and ensuring you have adequate cash buffers. Lack of diversification If all of your money is invested in one asset class, you’ll be over-exposed to volatility in a single market. To ensure your money grows consistently over time, your money needs to be balanced across a range of asset classes and sectors. Having no investment strategy If you don’t have an investment strategy, your investing won’t be as effective as it could be. To start putting together an investment strategy, you need to think about things such as: building up adequate cash buffers; how much money you need invested to live comfortably off your returns; and when you anticipate you’ll start drawing an income from your investments. Moving forward with a long-term wealth strategy Investing in different asset classes such as equities, commodities, and fixed-income assets is a great way to build long-term wealth. To build this wealth, however, you need a strategy and process to follow. If you’re unsure how to develop an investment strategy, be sure to seek qualified financial advice. Investing in this advice now can reap great rewards in the years to come, ensuring your money is working to help you realise your financial and lifestyle goals sooner. Contact us to get started. The information provided in this article is general in nature only and does not constitute personal financial advice.

Shares are more than numbers

3 June, 202021 December, 2020 Updated on21 December, 2020 Finance, Investing

[fsn_row][fsn_column width=”12″][fsn_text] Whether it’s by direct purchase, via a managed fund or through superannuation, most Australians hold some form of share investment. Many of us are aware that if the numbers in the finance report on the evening news are mostly green that’s good and if they’re red that’s bad, but beyond that we give little thought to what shares are and why we should take an interest in them. What’s a share? When you buy shares, you aren’t just buying a piece of paper or a digital entry on an electronic register. You are actually buying a physical part of a company. It might be a tiny fraction of the total value, but it still provides you with certain rights and responsibilities, including the opportunity to participate in the direction of the company. Shares are real assets and depending on the size and stability of the company, you can even borrow against them. The benefits For most people, the most important aspect to share ownership is being able to share in the profits and growth of the company. For ordinary shares, a portion of the profit is usually paid out via twice-yearly dividends. Some profits may be retained to fund the growth of the company, and this should be reflected in an increase in share price over time. These capital gains can be realised by selling the shares. The downside is that, if the company does poorly, investors may see a fall in the value of their shares. Getting involved Beyond receiving dividends and (hopefully) watching the share price increase, many investors take little interest in their shares. But shareholders also enjoy the right to have a say in the running of the business, by voting for or against the appointment of specific directors and on resolutions at the Annual General Meeting. One share equals one vote, so large institutional investors such as superannuation funds usually have the greatest say, but even small investors can turn up at the AGM and potentially ask questions of the board. And groups of shareholders may get together to influence a company’s direction on a range of business or governance issues. Buying shares in up and coming companies is also a way of putting one’s money where one’s values and interests are, for example in renewable energy, recycling, medical technologies, batteries or emerging markets. The rewards of investing in shares can be enormous, and they’re not just financial. There’s real pride to be gained from looking at a company that has achieved great things and to know that you’ve played a part in its success. However, there is a financial risk associated with owning shares, so if you want to treat your share portfolio as more than just numbers on a screen, speak to us. The information provided in this article is general in nature only and does not constitute personal financial advice. [/fsn_text][/fsn_column][/fsn_row]

When an SMSF may be the wrong idea

20 May, 20204 May, 2022 Updated on4 May, 2022 Finance, Investing, Superannuation

Since the Australian Government introduced compulsory employer contributions to people’s superannuation funds in 1992, Australia’s funds invested in super have grown to $3 trillion. In this time, self-managed super funds (SMSF’s) have grown in popularity too. There are currently just over 1 million members with $747 billion in SMSFs across Australia. SMSFs can have between one and four members. While not yet legislated, the government has proposed allowing up to six members in an SMSF. Most SMSFs in Australia have two members (70%), with most other SMSFs having a single member (23%). According to the ATO, the average value of assets in people’s SMSFs is $320,000. The general recommendation is to have a minimum balance of $200,000 in your SMSF. While it can be tempting to see the potential of being in complete control over your super balance, it may not always be a good idea to set up an SMSF. Why set up an SMSF?Many people opt to set up an SMSF to have more flexibility in where they invest their money. Along with more investment options such as residential property and rare asset classes such as art, valuable collectables and physical gold, your SMSF income is taxed at a lower rate of 15%. Compared to the marginal income tax rate for average and high-income earners (usually between 30% to 45%), establishing an SMSF can be an attractive option. However, as with any other type of investing, there are potential downsides and SMSFs can carry significant risks and costs. What are the risks associated with having an SMSF?There are several risks associated with having an SMSF. To establish an SMSF, you are legally required to have an investment strategy. When you have an SMSF, you also need to ensure you get tailored advice from your financial adviser to mitigate the risk of making poor investment and financial decisions. Many SMSFs also choose to invest in one asset, such as residential property. This leaves your super balance overexposed to risk, compared to if you had a balanced portfolio in a super fund. Unlike a traditional super fund, an SMSF has time-consuming administrative tasks and costs. Some of the costs you may incur when you have an SMSF include annual compliance, audit and management costs, investment fees, brokerage fees, wholesale managed fund fees and advisory fees charged by your accountant and financial adviser. If you have an SMSF, it’s important that these fees don’t equate to more than 2% of your super balance. On a balance of $200,000 in an SMSF, the fees would ideally need to be below $4,000 per year. When you have an SMSF, you are in complete control of your investing, which means you are also solely responsible for keeping up to date with your compliance requirements. The legislation around SMSFs is constantly changing. If you don’t have a genuine interest in continually staying updated on these changes, or the fees to seek regular advice are going to push your annual costs over 2% of your balance, you need to rethink whether an SMSF is the right option for you. To summariseWhile establishing an SMSF can offer you flexibility in how you manage your retirement funds, there’s a raft of risks and costs associated with having an SMSF. Further, an SMSF can be a lot of work, so it may not be the right option for you if you’re unsure whether you want to commit to the ongoing financial, legal and administrative requirements associated with having an SMSF. If you are considering establishing an SMSF or deciding whether an SMSF is suitable for you, speak to us to obtain personalised advice for your unique situation. The information provided in this article is general in nature only and does not constitute personal financial advice.

Your wealth during the COVID-19 pandemic

6 May, 202021 December, 2020 Updated on21 December, 2020 COVID-19, Finance, Investing

There isn’t a single person in the world who hasn’t been impacted by COVID-19. As new case numbers start to slow in Australia, so too is our economy. This time presents new challenges as everyone gets used to a “new normal” and figures out the best way to weather the coming months. This article provides an overview of different measures the Federal Government has announced to support individuals and businesses, current market performance and what you should be thinking about when it comes to your finances and continuing to build long-term wealth. Government support for individuals and businessesThe Federal Government has announced two economic stimulus packages and the JobKeeper Payment to support individuals and businesses. An overview of the Federal Government’s measures announced to date is detailed below. Support for individualsThe Federal Government has announced a range of measures to help individuals. Eligibility to access these measures is determined on criteria such as your employment status or loss of income due to COVID-19. Some of the key measures include: two $750 payments to social security, veteran and other income support recipients (first payment from 31 March 2020 and the second payment from 13 July 2020); access to the JobKeeper Payment from your employer (if eligible) equal to $1,500 per fortnight; a time-limited supplementary payment for new and existing concession recipients of the JobSeeker Payment, Youth Allowance, Parenting Payment, and Farm Household Allowance equal to $550 per fortnight; early release of superannuation funds (see overview below); and temporarily reducing superannuation minimum drawdown rates (see overview below). Full details about the Federal Government’s measures to support individuals are available on the Treasury website. Early release of superannuationEligible people will be able to access up to $10,000 of their superannuation in the 2019-20 financial year and a further $10,000 in the 2020-21 financial year. To access your super early, you need to meet ONE of the following five criteria: You are unemployed You are eligible for the JobSeeker payment, Youth Allowance for jobseekers, Parenting Payment special benefit or the Farm Household Allowance You were made redundant on or after 1 January 2020 Your working hours have reduced by at least 20 per cent after 1 January 2020 You are a sole trader, and your business activity was suspended, or your turnover has reduced by at least 20 per cent after 1 January 2020 If you are considering early release of your superannuation, you need to consider what the potential long-term impacts may be to the growth of your super fund and retirement income. While $20,000 may not seem like a lot of money now, it could have significant compounding value if left in your fund. Understandably, people may not have any other choice to support themselves financially. Make sure you speak to a financial professional to understand your risks and if this is a suitable option for you. If you are eligible, you can apply for early release of your superannuation directly with the ATO through the myGov website. Temporarily reducing superannuation minimum drawdown ratesThe temporary reduction in the minimum drawdown requirements for account-based pensions has been designed to assist retirees who do not wish to sell their investment assets, while the value of those assets is reduced. The minimum drawdown rates have been temporarily halved. Support for businessesThe Federal Government has announced a range of measures to help businesses facing financial difficulty. Eligibility to access these measures depends on factors such as your turnover and how much your business’s revenue has decreased due to the COVID-19 pandemic. Some of these measures include: increasing the instant asset write-off threshold for depreciating assets from $30,000 to $150,000; allowing businesses with turnover below $500 million to deduct 50 per cent of eligible assets until 30 June 2021; PAYG withholding support, providing up to $100,000 in cash payments which allows businesses to receive payments equal to 100 per cent of salary and wages withheld from 1 January 2020 to 30 June 2020; and temporary measures to reduce the potential actions that could cause business insolvency. Full details about the Federal Government’s measures to support businesses and eligibility criteria are available on the Treasury website. How the banks are approaching home loansBanks have announced that homeowners experiencing financial difficulty can pause their mortgage repayments for between three and six months. It’s important to remember that, in most cases, interest will still be capitalised and added to your outstanding loan balance. When payments restart, your lender may require increased repayments, or the term of your loan may be increased. These are important factors you need to discuss with your lender. What should you focus on when it comes to personal finance?While it can be tempting to sell all your investments now as the market declines, this locks in your losses and puts your wealth in a weak position. If you haven’t already defensively positioned your investments, speak with a financial adviser about how to best adjust your investing over the coming months. You should also consider how to maximise your returns as the market recovers. Investing and building wealth is a long-term game. As such, you should be investing with a long-term time horizon in mind. What should I do next?During this time, you may face some challenges with your finances. Your ability, however, to understand the options available to you and what the current period means on a long-term basis is key to getting through this challenging time productively. Further, making well thought out decisions now will give you the strong foundations you need in your health and wealth as the world recovers and embarks on a new period of growth. Before you make any big changes to your financial situation, speak to us to obtain personalised advice for your unique situation. This is general information only

End of content

Did You Know?