Scott Francis has contributed an article to the latest edition Alan Kohler's Eureka Report which looks at returns on the US and UK markets in recent years.  Scott comments that these markets have provided below historical average returns.  Scott goes on to analyse the 5 unchanging realities of investment.  Click on the following link to read Scott's article - Reality check for share bears.

Browsing through the financial press today I came across a couple of references to AXA's Retirement Scope research.  AXA explains on their website that the purpose of the research is to better understand retirement issues worldwide.  It explores workers expectations and retirees experiences across 26 countries.

Some interesting findings from the report were that:

• 51% of Australians were prepared for life after work
• 39% of retirees admitting to never reviewing their plans
• 33% of working Australians know the amount of their future retirement income.
• the retirement income of the average Australian was $1,917 a month which was enough to cover household expenses.

Our brief analysis of these points is that there is a need for many more Australians to be more focused on retirement needs and not just in the last few years leading up to retirement but also in earlier stages of life.  One trap is that it is very easy to forget about assets held in superannuation accounts as access to this money is restricted.  However, it is our experience that earlier attention to contribution towards and the investment of these superannuation assets can make a significant difference to people in retirement.

For a brief analysis of what people should be thinking about in various life stages take a look at our Financial Planning for Life Stages page on our site.

Please drop us a line if you are concerned / interested in knowing more about whether you are making the most of strategies to build the size of all of your financial assets in preparation for retirement and in particular whether your superannuation assets are being wisely managed.

Kind regards,

Scott Keefer

The latest edition of our fortnightly email newsletter has been sent to subscribers.  If you would like to be added to the mailing list please click here to be taken to the sign up page.

The financial topic discussed this fortnight was investing with the market.  The latest edition also contained the following Market Update:

Market News

Market Indices

Since our previous edition, Australian and global sharemarkets have seen strong volatility.  The S&P ASX200 Index has fallen 2.00% from the 14^th to the 25^th of January.  It is up 1.57% from the same time last year but down 7.56% for the calendar year (2008) so far.  The S&P Global 1200, a measure of the global market, has fallen 6.18% over the same period.  The index is down 2.82% from the same time last year and down 9.38% for the calendar year so far.

Emerging markets have also seen negative movement with the MSCI Emerging Markets Index falling 7.88% since the 14^th of January.  It is up 15.67% from the same time last year but down 10.70% for the calendar year so far.

Property trusts have also experienced a rebound since the 14^th of January with the S&P ASX 200 Property Trust Index rising by 3.46%.  The index is down 22.08% from the same time last year and also down 9.73% for the calendar year so far..  The S&P/Citigroup Global Real Estate Investment Trust (REIT) Index, a measure of the global property market, also rose 3.42% over the same period.  It is down 22.52% from the same time last year and also down 4.58% for the calendar year so far.

Exchange Rates

As of 4pm the 25^th January, the value of the Australian dollar had fallen since the 14^th January with the Aussie dollar down 1.17% against the US Dollar at .8847.   It is up 13.48% from the same time last year and up 0.35% for the calendar year so far.  Since January 14^th the Aussie has also fallen 1.30% against the Trade Weighted Index now at 68.3.  This puts it up by 6.22% since the same time last year but down 0.58% for the calendar year so far.  (The Trade Weighted Index measures The Australian dollar against a basket of foreign currencies.)

General News

Since our last edition the Australian Bureaus of Statistics has released the official Consumer Price Index data indicating that the CPI had risen 0.9% in the December quarter of 2007 and 3% for the year to the end of December.  The ABS has also released labour force data for the month of December.  The data shows the unemployment rate falling to 4.3%

Scott Francis has contributed a small piece in the latest edition of Allan Kohler's Eureka Report.  In the piece he discusses the current yields on Listed Property Trusts in the context of the recent market falls.  Click on the following link to be taken to the item - Better Than Cash.

Today's headline in the Courier Mail was:

$100,000,000,000

That is how much investors lost on the sharemarket yesterday.

Fair enough I guess.  However the market is up today by a similar amount than it was down by yesterday.  However I don't think that this will make headlines in the same way that a downturn does.  It will be interesting to see where today's market recovery rates a mention.

That is one of the bias that an investor has to be careful of.  Over the last 5 years sharemarkets have added many times what was lost yesterday for investors.  The bad news has a tendency to make more news than ongoing good news.

Regards,

Scott Francis

In looking at what is going on in terms of taking a long term perspective, we like to look at the investment fundamentals.  A particular fundamental we like to keep an eye on in assessing sharemarkets are price-earnings (P/E) ratios.  This ratio is a measure of the price paid for a share relative to the income or profit earned by the company per share.  A higher ratio means that investors are paying more for each dollar of income produced by the companies.

In today’s Australian newspaper, UBS chief strategist David Cassidy is quoted as commenting that the P/E ratio on world markets had fallen to less than 13 times earnings – the cheapest level in almost 18 years.  Measurements of P/E ratios over the past 200 years place average levels at somewhere between a level of 14 & 15.

What this is saying is that there may have been some over-selling in markets and that taking a medium to long term view, share prices are good value at current levels.

The point of this discussion is not to encourage investors to jump into the market in a buying frenzy.  Markets may well continue falling for a while yet.  Rather, it is a reminder that markets are volatile and what could be a downward trending market today could quickly turn in to an upward trending market in the near future.  Those who take risks at timing markets could easily fall in to the trap of selling at lows and buying at highs.  A much better approach is a buy and hold for the longer term.

Regards,

Scott Keefer

The current volatility of investment markets throughout the world might well have numerous investors quite nervous even worried at the present moment.  At such a time it is really important to remind ourselves about the reality of how investment markets work.

Investment markets are not, unfortunately, always a smooth ride.  However, with a clear appreciation of this point savvy investors can properly plan for the bumpy ride ahead.  To highlight this point we have developed a page on our website that breaks down the issue of volatility and provides some useful strategies for investors.  Please click the following link to be taken to this page - The Reality of How Investment Markets Work.

On my travels to Indonesia over the past month I had the chance to read The Jakarta Post, the major daily published in English. On a couple of Sundays Colin Bloodworth contributed articles about the traps of greed and fear when investing.  I particularly found his analysis of the 'Fear Factor' well worth the read.  The edition on the 23^rd of December discussed the damaging impact of irrational fear when it comes to investment decisions.  This topic seems particularly relevant given the turbulent times on investment markets all over the world.

Colin made a sound point that fear is actually a natural defence mechanism that prevents us from harming ourselves.  However irrational fear is what we need to avoid in investment markets.  Some examples of fear he pointed to were:

• Fear of Being Left Behind
• We as investors fear being left behind while other investors take advantage of the latest hot offering.  The tech boom of the late 90s is an example of this.  Some investors who invested early in this boom made a lot of money.  But those who waited until the fear of being left out was too much jumped on just before the bubble burst.
• Fear of the Unknown
• This fear stops investors from placing their money in the best possible situation because they do not know or understand particular investments.  For instance those who keep their savings stashed away in cash or even a particular currency, or only invest in property because they do not understand alternative investments.
• Fear of Stock markets
• Not only do investors fear stock markets because they do not understand them, they particularly fear the volatility.  This fear leads to investors making timing calls that hurts their returns through buying when prices are high and selling when prices are low.  This is based on the fear of missing out (buying at highs) and the fear of losing more money (selling at lows).

Colin concludes his article by suggesting that these irrational fears can be overcome.  The first step is to face the fear and better understand the 'beast' you are confronting.  Secondly don't expect that you will have plain sailing all the way through your investment life.  Rather learn from the mistakes that are made to be better prepared for the future.

We believe it is a core part of our business and service to the community to assist with both of these objectives.  Please take the time to drop us a line or read further through our website.

We use a program called 'google analytics' to look at how our website is performing.  In looking at it over the weekend, I noticed that one page that is not even linked to the site has been very popular, entitled 'Benchmarking your Financial Position'.

The basis of the page is that it sets out milestones for people as they move toward financial independence.  It provides a guide for them as to how much they need at different times of their life, to meet a final retirement goal.  This is part of being 'businesslike' in terms of sorting out your personal financial situation.  Benchmarking is something that is widely used in business, and makes sense for individuals as well.  Other 'businesslike' financial habits include measuring your financial position (similar to a businesses balance sheet that lists assets and liabilities) and thinking about your cash flow (similar to a business that produces careful statments of cash flows, income and expenses).

The page on benchmarkng your financial position can be found by clicking the following link - Benchmarking your Financial Position. 

Regards,

Scott Francis