Back on the 26th of July Scott Francis joined Warren Boland on his "Weekends with Warren" segment on ABC radio.  We have eventually caught up and posted Scott's notes from this segment on our website.

In the segment, Scott looked at the topic investing for income.  He commented that "In really volatile times like these, investors often don't think about the income that their investments are paying to them.  Whether it be property, shares, cash of fixed interest, they often focus too much on the price of the investments.  However income can be a great investment benefit, and is actually more important in some ways to investors."

Scott went on to look at the strategy of focusing on income when planning a portfolio.  Click on the following link to be taken to a summary of the segment - Investing for Income - ABC radio segment.

Our page on The Reality of How Investment Marks Work has been updated to reflect more current data up to the end of June 2008. 

This page provides a concise summary of some points that investors should be considering particularly in the difficult investment market conditions we are experiencing at present.  It is well worth a read.

Regards,
Scott Keefer

The more I read from Shane Oliver, the more I become impressed with his balanced assessment of the current economic and investment conditions.  Over the weekend I read an article of his published in the Australasian Investment Review, a freely available online publication - Super Returns: Don't Be Greedy.

In the article Mr Oliver provides an analysis of the medium term return potential in investment markets.  He begins by commenting that recent returns from 2003 to 2007 were well above sustainable levels.  This is an opinion that we also subscribe to.   He goes on to look at indicative return expectations for the medium term using some simple models.

From these models he provides the following projected returns:

Oliver confesses that there are some drawbacks with the models particularly in terms of dividend yields but overall he is comfortable with the results.

Based on his data, investors with a reasonably balanced portfolio would be looking at 5.5% real returns (after the impact of inflation) over the medium term.

This figure is very consistent with the figure we use for projections for our clients regarding likely investment returns.  (We also consider a draw down rate of 5% in real terms as sustainable in retirement.)

The key message for me from Shane Oliver's analysis is that we all need to be realistic about the returns we should expect from our investment portfolios.  We would all love these returns to be higher, and maybe we will see a strong bounce back over the next few years.  However we need to be prepared that throughout history growth asset investment markets have tended to provide returns of 5 to 6% above inflation.  If you plan using these expectations and develop your portfolio so as to avoid the erosion of returns through high fees and heavy trading strategies you are much less likely to end up disappointed with your investment experience.

Take a look at our Building Portfolios page for more information on our approach to building investment portfolios.

Regards,

Scott Keefer

In his latest article written for Alan Kohler's Eureka Report, Scott looks at Centrebet's introduction of betting on interest rate outcomes and parallels this with investors using derivatives markets.

Click on the following link to read Scott's analysis - Rate cut the short-priced favourite.

In his latest article written for Alan Kohler's Eureka Report, Scott looks at whether it is really worth borrowing to invest in share markets.

Scott concludes that "Borrowing to invest remains a legitimate way of increasing the expected return of a portfolio, offering investors tax benefits, but these higher returns come at the cost of significantly increased portfolio volatility. Investors should be aware of this cost, the bias the financial services industry has toward borrowing to invest and the power of the simpler strategy of investing regularly over time in growth assets while building a passive income stream. They should consider all this before deciding whether the risk of borrowing to invest suits their situation. "

Click on the following link to read Scott's analysis - Is share gearing worth it?.

Now that the Beijing Olympics is done and dusted we wanted to put an economic spin on the results.

You may have become aware of the Sunrise program's (Channel Seven) Adjusted Medal Tally comparing Australia's results to the USA based on a per capita basis.  The results were very flattering to Australia.

We took this approach a step further and analysed the results of all the countries who won medals at the Olympics comparing the number of medals with the country's GDP from 2007 measured in US dollars.  The GDP data was taken from the International Monetary Fund's World Economic Outlook database - www.imf.org/external/pubs/ft/weo/2008/01/weodata/index.aspx

The top 10 countries on this basis were:

Other notable ranks were:

If we only were to look at gold medal winners the top ten were:

and

This just puts another perspective on the Olympic results.  I wouldn't be advising using the tables as a source of picking the best performing share markets for the next year.  Zimbabwe is not somewhere I would be throwing cash at the moment.  It might just be worth keeping an eye out though, as going on the record of forecasters this table could be as useful as some of the more classical methods of forecasting.

One definite use of the data is that it will hopefully quieten down a few of our friendly poms who, according to my sister living in London, are pretty happy with themselves given the success of the UK in the Olympics. (I think unbearable was her term!!)

Not so good when conversing with our friends from across the ditch in New Zealand who yet again seem to have been able to fight above their weight!!

I hope those who are interested in the Olympics have enjoyed the past two weeks and let's hope the euphoria is contagious for our share markets!

Good luck to our Paralympians!!

Regards,

Scott Keefer