Skip to main content
rss feedour twitterour facebook page linkdin

Financial Happenings Blog
Thursday, November 25 2010
Bond returns have been strong over the past two years.  The investment we suggest clients use has returned 11.03% over the 12 months to the end of October and an annual return of 10.07% over the past two years.  This is a strong return from a defensive investment only invested in AA or higher rated government and corporate bonds.  When you consider that the expected return from the riskier equity asset classes is somewhere between 10 & 11% per annum a fair question to be asking is why bother with those volatile asset classes and rather stick with bonds?

To provide an answer to this question you need to have an understanding of how bonds work and the underlying risks.  Vanguard have published a simple discussion in an article on their website - Evaluating Bond Risk. The article explains that the historically low interest rate environment in the world economy has driven bond prices up and yields down.  These prices rises have been reflected in bond returns. As the global economy continues to improve and interest rates move upwards we should start to see a reversal of the recent phenomenon of low yields and high prices.  This highlights that there are risks involved with bond investments especially with long term bonds as prices are likely to fall.  Bond returns are likely to experience a less prosperous period at some point in the future.

The article highlights why we believe it is important to keep bond investments focused on high quality and lower time to maturity bonds in order for this exposure to provide a slightly better return than cash over the long term but with very much reduced levels of volatility compared to equities.  This is exactly how we choose our fixed interest / bond investments for clients.  The recent returns have been great but we should expect them to fall back to somewhere about 1 or 2% above the cash rate over the long term.

To get the growth clients need to fight inflation and build wealth there remains a place for a diversified portfolio of equities.

To find out more about our approach please take a look at our Building Portfolios page on the website.

Scott Keefer

Posted by: AT 07:58 pm   |  Permalink   |  Email
Sunday, November 14 2010
Scott Francis in his latest Eureka Report article questions whether fixed interest bond investments deliver a significant advantage over cash and term deposits.

He concludes that there is not a great deal of difference but the Australian bond index slightly wins out.

The conclusion Scott makes is that there is room for all three - cash, term deposits & fixed interest - in a well diversified portfolio and really the bigger question is how much of these assets combined should you hold in a portfolio compared to more volatile equities.

Please click through to be taken to Scott's article - Why invest in bonds?

Posted by: AT 08:28 am   |  Permalink   |  Email
Sunday, November 07 2010

The Fairfax newspapers ran an article - Sharp end of the stick - on Saturday highlighting fees being charged by financial advisers.  Since A Clear Direction Financial Planning was born in 2006, the mandate of the firm has been to provide clients with cost effective access to the best available portfolio investment solutions.  From the beginning we have avoided receiving commissions of any type and if we had to receive those commissions we have rebated them back in full.

The Fairfax article suggested some benchmarks for the fees being charged by advisers in the new era of commission free investing.  We thought it was an ideal time to see how this firm stacks up against those benchmarks for a $100,000 portfolio.

Administration Service Fees
Article - 0.80%
Our preferred service - 0.34%

Investment Manager Fees
Article - 0.80%
Our preferred investments - 0.40%

Adviser Fees
Article - 1.00%
Our fees - 0.55%

Article - 2.60%
Our fees - 1.29%

A few points to note, our preferred arrangement is to negotiate a flat annual fee with clients.  For clients with smaller balances this annual fee is prohibitive so we apply an asset based fee of 0.55% for starters.  We also try to get clients to manage their own cash where possible and do not charge an asset based fee on that amount.

Cost is definitely not the only consideration when choosing a financial adviser, far from it but it is an important aspect.  We are confident that we offer a really cost effective portfolio solution for clients who are looking for this type of service.


Posted by: AT 07:56 am   |  Permalink   |  Email
Monday, November 01 2010
Scott Francis in his latest Eureka Report article reminds readers of the importance of franking credits for Australian residents but highlights the potential traps from employing a dividend stripping approach.  For further details please take a look at the full article - Dividends, oh dividends!

Posted by: AT 06:40 am   |  Permalink   |  Email
Request for Information 
If you have questions, or would like more information, please go to our Contact page and leave your name and contact information.