It's a small world.  I rang an organisation called ?Young Care' last week and was answered by Jo.  As the discussion developed we realised that our parents were well acquainted to each other.  I was born and raised in Emerald and her family had a property just out of town.  Our families went to the same church and I actually spent a month working on their property during the Christmas holidays while at high school.

The reason for phoning was that we have recently established a client referral program, Friendly Directions', whereby we will donate $50 to a charity for any client who has been referred to us from another client.  We recognise the importance of ?word of mouth' referrals of our services to other interested investors and wish to acknowledge these referrals because they are a key part of our business. We value the fact that clients and friends of the business take the time to speak positively about our service to others.

We are passionate about the independence of our business, and have chosen not to pay money for referrals, as some firms do.

We have chosen ?Young Care' as the initial recipient of these donations.  Young Care's mission is to ?provide a dignified and relevant lifestyle for young people requiring nursing care'.  If you would like more information about this nationally registered, non-profit organisation please have a look at their website: www.youngcare.com.au

In this quarter just gone, we have made a $150 donation to Young Care to represent three new clients coming to our service from referrals.

I encourage you to take the time to have a look at the great work that Young Care are doing.

Regards,

Scott Keefer

Everyone likes to hear that something is more affordable.  My parents are retirees and I know for a fact that their eyes light up at the phrase.

The Association of Superannuation Funds of Australia commission Westpac to produce the Westpac AFSA Retirement Standard.  These are national figures that outline the projected costs of living in retirement.  The study provides detailed budgets for singles and couples looking forward to either a modest or more comfortable lifestyle in retirement.  The assumptions are based on the single or couple owning their own home.  Their most recent figures were:

The media release suggested that for couples seeking a comfortable lifestyle in retirement, costs had fallen for the second quarter in a row mainly due to a fall in food prices however health and transport costs had risen.

This study is good news for retirees.  It also provides a great resource for anyone planning for retirement who need help determining what income they will require.

For more details please go to www.superannuation.asn.au/Media-Release-17-May-2007/default.aspx

Regards,

Scott Keefer

Last night Scott and I had the pleasure of meeting with 25 clients and others interested in our perspective on the 2007 Budget. Scott also spent some time explaining how index funds work. We had a great evening and hope those in attendance enjoyed it as much as we did.

A few of the main points from our budget summary included:

• Tax cuts from July 1, 2007 of $150 for anyone earning below $25,000, $1,100 if earning $30,000 - $40,000 reducing to $750 for anyone earning $48,750 or more
• Increases in income that recipients of the Senior Australian Tax Offset can earn before paying tax, now $25,867 for singles and $43,360 for couples
• Doubling of the government co-contribution for those who made an eligible contribution in the 2005-06 financial year

The government also painted a fairly rosy projection of economic conditions up until June 2011 with economic growth to continue on at 3%, unemployment to remain low, and inflation to be around 2.5% (smack bang in the middle of the Reserve Bank's target range).

So what are the key messages for investors?

We believe that what the budget is telling us all that if we do not take the chance to improve our financial situation now (while all the moons are aligned!!) then it is going to a lot harder when conditions are not so positive.  Take the lead from the government which

• Spends less than it earns (government surpluses)
• Gets rid of debt (government debt all but eliminated)
• Invests in growth assets for the future (Future Fund & Higher Education Endowment Fund.)

We hope that you received some good news from the budget.  If you would like more detail please get in touch or have a read of Scott's article in the Eureka Report - More Cash for More Investments.

Regards,

Scott Keefer

'Tax Cuts for All' was the Budget Headline, and that was certainly the highlight.

A $750 tax cut for all Australian's was the highlight - and provided another year of tax cuts.  This is a tremendous economic environment in which to be creating wealth, and if people are not taking the opportunity now, they never will.  It is a time to rememer that things are not always this good financially!

There was an interesting move toward allowing the trading of forestry investment schemes.  This is potentially good for investors as a 'secondary market' will allow more flexibility in buying and selling these schemes.  It is only a small step, however it might see progress toward the development of another asset class - forestry investment - that is 'investment worthy'.

There was a bonus for people who made a superannuation co contribution last financial year.  This is a scheme where all people who earn less than $58,000 can make a contribution to superannuation and for every personal contribution of $1 the Government will add a further $1.50 - up to a set limit.

For full details of our 2007 Personal Finance Budget Summary please click here.

The 'S' word is buzzing around Australian homes, workplaces and an occasional BBQ - Superannuation.  Last year's Federal budget promised some great results for near retirees and retirees and the federal parliament has delivered on these promises by passing the necessary legislation with the details ready to be implemented as of July 1.

Some pundits suggest there may even be further benefits in the budget this week.  Watch this space for more details!

However, Bina Brown in the The Australian today put a dampener on the party questioning whether the current superannuation savings by Australians is enough to sustain us in retirement. (Warning: we're not saving enough for super)

Many agree that the 9% contributions made by employers will not be enough with employers, employees and government needing to make further contributions.

The government has started down this track by implementing the government co-contribution. Some employers are also coming to the party by make extra contributions based on extra contributions by employees while some employees are making the most of salary sacrifice arrangements to make tax effective contributions.  According to the article the majority of employees are not making these further contributions.

The big deterrent of course is that these funds are not available until we are 55 or older and there are a multitude of other purposes like education, family and a home to name a few.  The new laws also provide some powerful methods of accruing superannuation funds in the final years of work.

However if you can rearrange your personal budget to squeeze out extra contributions from your income take a look at the following simple steps.

Give us a call if you need more information.

Regards,

Scott Keefer

As a firm that strongly favours a 'well diversified, buy and hold, long term provides strong returns for investors' approach to investing - one that is justified by a mass of research - a headline like that in today's Australian that 'Hedge Fund Woes Hit UBS' is a quiet justification of our strategy.

Hedge Funds are really 'trading funds', with a broad scope to invest in shares, commodities, currencys - basically anything that trades and using a reasonable level of debt to boot! 

The Article in the Australian looks at Dillon Read Capital Management, and reported a loss for the quarter of about US$150 million.  Which is  a fair loss.  Keep in mind that UBS would have only picked Dillon Read Capital because they thought that they were the best at what they do.  Reporst also suggest that UBS has been hurt by hedge funds before, losing about $700 million in 1998 when Long-Term Capital Management LP collapsed.

Another $6.5 billion was lost in a recent hedge fund debacle - Amarnath Advisors.

Hedge funds sound great, however there is real risk involved and clearly when things to bad they go really bad.

Our thoughts - if one of the biggest and best financial services firms in the world - UBS - get burnt twice then it retail level investors must be doubly cautious!

Have a great (and hedge fund free) weekend!

Scott Francis

A big part of our investment focus is around the fact that you cannot manage to forecast what is going to happen in the markets.  Therefore we tend to keep an eye out for evidence of our opinion.  This is not hard - there is a fair bit of it out there.

Take this article from the Australian Newspaper on the 2nd of May.  It was talking about JP Morgan - one of the big financial service firms in Australia - and their forecast that the Australian stockmarket would be trading at a level of 5,930 points by the end of the year.  With the index now trading at 6,240 JP Morgan have decided that there forecast was wrong.

Of course, they don't jump up and down and say this.  They just 'revise' the forecast - up by almost 10% to 6,520 points. 

Is a forecast that is wrong by almost 10% 4 months into a year really all that useful?

Keep an eye out for failed forecasts.  They are all around us.  And don't be too swayed by them.

One important way of dealing with the lack of skill in forecasting is to carefully think about the asset allocation of portfolios.  Next week's e-mail update (Financial Fortnight that Was) will look at using asset allocation to build successful investment porfolios.  Please click here to subscribe!

Cheers

Scott Francis

This weekend's Sydney Morning Herald, in the 'Investing' section has a column entitled 'Monitor' by John Collett. 

It quotes a Standard and Poors report from the US, that says most share fund managers fail to outperform the index. 

The stat's are pretty impressive, and about what we would expect.  72% of large company funds fail to outperform the index over 5 years and 78% of small company funds fail to outperform the relevant index over the same timeframe.

The report shows similar results for global sharemarket investing.

This is what we would expect - the high costs of 'normal' managed funds means that it is very hard for them to outperform. 

Regards,

Scott Francis

An article reported on the 25th of April in the Courier Mail, and in a variety of other media outlets, that intelligence was not a relevant factor in investment success.

The report was based on a study published in the 'Intelligence' journal, by the author Jay Zagorsky from Ohio State University.

This should be good news for everybody, as it demonstrates that a huge intellectual capacity is NOT required for financial success.  Indeed, if the basic steps to financial success are spending less than you earn, investing regularly in a diversified portfolio of growth assets and so on - well then it does not take great intelligence to do that.

Indeed, there is evidence to show that a large IQ MAY BE A DISADVANTAGE for investment success.

MENSA, a group for people with the highest of IQ's have an investment club.  Larry E. Swedroe, in his book Rational Investing in Irrational Times wrote that:

"The June 2001 issue of Smart Money (a US Investment Magazine) reported that over the past fifteen years the Mensa investment club returned just 2.5%, underperforming the S&P 500 Index by almost 13% per annum." (RIIIT, pg 6-7)

It really shows that intelligence is not an attribute rewarded by the market.  If I had to guess intelligence would lead people to actively try and think of ways to outguess and beat the market.  They would have been better with a buy and hold index strategy.  So would pretty much everyone!

This morning's Courier Mail had an interesting article about superannuation.

It said that 80% of Australian have their superannuation parked in the 'default' option of their superannuation fund.

What that means is that most funds have three or four different investment mixes.  'Conservative', 'Balanced' and 'Growth' would be three common choices.  If, when you set up your superannuation fund, you don't make a choice you will end up with a pre determined default option - usually the 'balanced' fund.

It suprises me that 80% of people are simply in that default option.  Superannuation is your own money - take the time to invest it in the manner that is best going to suit your own situation.  Don't leave it to the fund to decide what is best for you!

This is particularly true of people close to retirement, where quite often the default option will revert to a 'conservative' or 'cash' type investment option.  For people for who this happened in the last 5 years, this would have cost them thousand and thousand of retirement dollars in missed returns from growth assets like shares and property.  This is a real worry - people close to retirement are still looking at a 30 to 40 year investment time frame.  You need your portfolios to be exposed to growth assets to provide the sort of investment returns that will allow you to enjoy retirement.

Don't leave it to Mr or Mrs 'Default' to make investment decisions for you!

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