Investment Market Update -Is it time to review your Investment Strategy?

12th Dec, 2012

It is hard to believe that 2012 is coming to close.  Unfortunately, investments markets have continued to be volatile with the market having a good rally early in the year, only to see it retreat significantly during the middle part of the year.  Thankfully, we have seen a modest rally in recent months and the prospects of a positive close to year is looking encouraging.But the good news is that most superannuation funds or investment portfolios should deliver positive returns for calendar year 2012.  Whilst cash and term deposit rates have fallen in line with reductions in the cash rate, bonds have benefited from the fall in interest rates and this should be reflected in solid returns for the this sector in 2012. Equities and Property should also finish the year in better shape than at the end of 2011.Although it is 4 years since the depths of the GFC (assumed to have occurred around February/March 2009), it should come as no surprise that recovery would be long and drawn out given the magnitude of the event; it  still has some way to go yet.Regrettably the media concentrates on the negative and this gives us the impression that the financial system is still as bad as it was 4/5 years ago.  Throw in political issues around the middle east, Iraq and Afghanistan; or our own hung parliament where both the major parties behave like spoilt children (the one with Ipad will do anything to keep it, whilst the one without it will also do and say anything to take it). Is it any wonder then, that we all feel a lack confidence and a sense that nothing has really changed or improved?The reality, of course, is that much has change over the four years particularly in respect to the financial system (we will leave politics to the politicians – that really is too hard). Back in 2008/2009 the world experienced a financial event that took us all to the edge of the financial abyss. Financial markets simply ceased to function for a period of days which meant that capital was simply not available and the assessment of risk turned on a dime. No longer was it safe to invest in anyone or anything.  It truly was the worst financial crisis since the 30’s depression.Whilst these comments are very much an oversimplification of the situation that occurred back in the 2008-2009 period; I hope these comments give you a sense of how hopeless the situation was at the time. The good news is that Australia  really did missed the worst of the GFC (even though it may not have seemed like it at times).The financial system and debt ridden governments still have much to do and it will take years before we get back to some sense of normality.  But over the four years we have seen much improvement in the financial system: capital is flowing again; the cost of that capital is moderating; and a light at the end of the tunnel is beginning to flicker ever so lightly. Repair of the financial system is well underway. For example:  corporate debt is generally lower now than 4 years ago; savings rates in Australia have moved from negative (pre GFC) to 10% of disposable income; many individuals and corporates globally continue to de-lever; Governments in Europe are beginning to address the inefficiencies in their economies and implement tough measures to rein in  debt (the benefits to flow from these actions  will take time to come through); the US also needs to address its Government debt levels  and hopefully we will see them make a start on that from 2013 onwards; whilst there is some concern around a slowing of the Chinese economy, we believe that lower growth rates in china are more sustainable and will prove to be a good news story; and, at home lower interest rates will eventually lead to a broadening of economic activity beyond the resources sector.Put simply, repair and renewal of the financial and economic systems is on the way and with each passing year the foundations become just a little bit stronger and we slowly move closer to a recovery of substance.With the media concentrating  on the 10 second sound “bite” and all the mis-information that delivers, our intention is to leave you with some hope and optimism that the future from an investment perspective may be brighter than we think.We know from experience that it is difficult to get our clients (and the public in general) to re-engage in managing their investment and superannuation funds. We understand that the disappointments experienced over the last 4 years are the driving force behind a lack of engagement in investment markets. We also understand that it can be very difficult to put ones toe back in the investment pond; especially now that cash is king.  However, it is worth reflecting that you could get 7% on a term deposit a few years ago, but now that return is 4% (or less) – this represents a 42% loss of income.  This might be ok if you are in the accumulation phase of your life, but what if you are in retirement? Risk is a relative concept and it is one that is often not well understood because risk is more dynamic than simply being defined as the loss of capital. Ignoring issues like inflation, tax, income, capital growth, diversification and, importantly, time and patience can also lead to diminishing   capital and/or capital value.I have recently joined the team at The Wealth Creation Group and bring some 25 years of experience in asset allocation and portfolio construction. I have the advantage of bringing a fresh perspective to the table and would welcome the opportunity to meet with you to discuss your concerns and aspirations. A solution can always be found, if people are prepared to work together through trust, education and understanding.The team at The Wealth Creation Group asks that you reflect on these comments and encourage you to take a more pro-active approach in 2013 in respect to your financial affairs.  The best way to start is to arrange a review meeting at your earliest convenience.We wish you and your family a happy and safe festive season and look forward to meeting with you soon.Yours sincerely,

General Advice Warning & Disclaimer: The information contained in this document is of a general nature and has been sourced on good faith as such it should not be construed as personal advice. Whilst the writer has adopted care, diligence and competence, the information has not been prepared taking into account any particular investment objectives, financial situation or particular needs. Opinions constitute our judgments at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Nathan Griffith, Samina Yip and Frank McCall of The Wealth Creation Group Pty Limited are Authorised Representatives of Apogee Financial Planning Limited ABN 28 056 426 932, an Australian Financial Services Licensee, Registered office at 105 –153 Miller St North Sydney NSW 2060 and a member of the National Australia group of companiIt is hard to believe that 2012 is coming to close.  Unfortunately, investments markets have continued to be volatile with the market having a good rally early in the year, only to see it retreat significantly during the middle part of the year.  Thankfully, we have seen a modest rally in recent months and the prospects of a positive close to year is looking encouraging.

But the good news is that most superannuation funds or investment portfolios should deliver positive returns for calendar year 2012.  Whilst cash and term deposit rates have fallen in line with reductions in the cash rate, bonds have benefited from the fall in interest rates and this should be reflected in solid returns for the this sector in 2012. Equities and Property should also finish the year in better shape than at the end of 2011.

Although it is 4 years since the depths of the GFC (assumed to have occurred around February/March 2009), it should come as no surprise that recovery would be long and drawn out given the magnitude of the event; it  still has some way to go yet.

Regrettably the media concentrates on the negative and this gives us the impression that the financial system is still as bad as it was 4/5 years ago.  Throw in political issues around the middle east, Iraq and Afghanistan; or our own hung parliament where both the major parties behave like spoilt children (the one with Ipad will do anything to keep it, whilst the one without it will also do and say anything to take it). Is it any wonder then, that we all feel a lack confidence and a sense that nothing has really changed or improved?

The reality, of course, is that much has change over the four years particularly in respect to the financial system (we will leave politics to the politicians – that really is too hard). 

Back in 2008/2009 the world experienced a financial event that took us all to the edge of the financial abyss. Financial markets simply ceased to function for a period of days which meant that capital was simply not available and the assessment of risk turned on a dime. No longer was it safe to invest in anyone or anything.  It truly was the worst financial crisis since the 30’s depression.

Whilst these comments are very much an oversimplification of the situation that occurred back in the 2008-2009 period; I hope these comments give you a sense of how hopeless the situation was at the time. The good news is that Australia  really did missed the worst of the GFC (even though it may not have seemed like it at times).

The financial system and debt ridden governments still have much to do and it will take years before we get back to some sense of normality.  But over the four years we have seen much improvement in the financial system: capital is flowing again; the cost of that capital is moderating; and a light at the end of the tunnel is beginning to flicker ever so lightly. Repair of the financial system is well underway.

 For example:  corporate debt is generally lower now than 4 years ago; savings rates in Australia have moved from negative (pre GFC) to 10% of disposable income; many individuals and corporates globally continue to de-lever; Governments in Europe are beginning to address the inefficiencies in their economies and implement tough measures to rein in  debt (the benefits to flow from these actions  will take time to come through); the US also needs to address its Government debt levels  and hopefully we will see them make a start on that from 2013 onwards; whilst there is some concern around a slowing of the Chinese economy, we believe that lower growth rates in china are more sustainable and will prove to be a good news story; and, at home lower interest rates will eventually lead to a broadening of economic activity beyond the resources sector.

Put simply, repair and renewal of the financial and economic systems is on the way and with each passing year the foundations become just a little bit stronger and we slowly move closer to a recovery of substance.

With the media concentrating  on the 10 second sound “bite” and all the mis-information that delivers, our intention is to leave you with some hope and optimism that the future from an investment perspective may be brighter than we think.

We know from experience that it is difficult to get our clients (and the public in general) to re-engage in managing their investment and superannuation funds. We understand that the disappointments experienced over the last 4 years are the driving force behind a lack of engagement in investment markets. We also understand that it can be very difficult to put ones toe back in the investment pond; especially now that cash is king.  However, it is worth reflecting that you could get 7% on a term deposit a few years ago, but now that return is 4% (or less) – this represents a 42% loss of income.  This might be ok if you are in the accumulation phase of your life, but what if you are in retirement? Risk is a relative concept and it is one that is often not well understood because risk is more dynamic than simply being defined as the loss of capital. Ignoring issues like inflation, tax, income, capital growth, diversification and, importantly, time and patience can also lead to diminishing   capital and/or capital value.

I have recently joined the team at The Wealth Creation Group and bring some 25 years of experience in asset allocation and portfolio construction. I have the advantage of bringing a fresh perspective to the table and would welcome the opportunity to meet with you to discuss your concerns and aspirations. A solution can always be found, if people are prepared to work together through trust, education and understanding.

The team at The Wealth Creation Group asks that you reflect on these comments and encourage you to take a more pro-active approach in 2013 in respect to your financial affairs.  The best way to start is to arrange a review meeting at your earliest convenience.

We wish you and your family a happy and safe festive season and look forward to meeting with you soon.

Yours sincerely,

Frank McCall On behalf of all at The Wealth Creation Group Pty Limited

General Advice Warning & Disclaimer: The information contained in this document is of a general nature and has been sourced on good faith as such it should not be construed as personal advice. Whilst the writer has adopted care, diligence and competence, the information has not been prepared taking into account any particular investment objectives, financial situation or particular needs. Opinions constitute our judgments at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Nathan Griffith, Samina Yip and Frank McCall of The Wealth Creation Group Pty Limited are Authorised Representatives of Apogee Financial Planning Limited ABN 28 056 426 932, an Australian Financial Services Licensee, Registered office at 105 –153 Miller St North Sydney NSW 2060 and a member of the National Australia group of companies. 

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Disclaimer: The information contained in this website is of a general nature and has been sourced on good faith as such it should not be construed as personal advice. Whilst the writer has adopted care, diligence and competence, the information has not been prepared taking into account any particular investment objectives, financial situation or particular needs. The Wealth Creation Group and WCG Financial Solutions Pty Limited accept no responsibility for any content contained in external links on other company websites or externally sourced information.