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Financial Happenings Blog
Sunday, May 29 2011

An important consideration when determining your optimal asset allocation mix is to consider the potential risks and rewards to be realised from various asset classes.

The events of 2008 clearly remind us of the risks involved with investing in volatile asset classes such as shares but what should we expect to achieve from these investments?

Each year Credit Suisse publishes their Global Investment Returns Yearbook which looks at historical returns for major markets.  The 2011 yearbook which includes data up to the end of 2010 provides some very useful insights.

Over the 111 years of data available to the authors,
  • Equity returns have beaten inflation, treasury bills (short duration government debt) and bonds in all 19 countries included in the study.
  • Australia has been the best performing equity market with a real return of 7.4%.
  • The equity risk premium in Australia has been 6.7% over risk-free treasury bills.
  • The equity risk premium in Australia has been 5.9% over bonds.
  • The volatility experienced in Australian shares has been slightly higher than the global average.
  • A globally diversified portfolio of equities has provided a real return of 4.5% over Treasury bills and 3.8% over bonds
On top of this pure statistical analysis, the authors of the report – Dimson, Marsh, Staunton, Holland & Matthews provide analysis of two key investment issues:

  1. Whether we are experiencing a bond market bubble and the implications for investors?
  2. Whether chasing higher yielding share investments provides a better outcome over the long term?

The analysis contained in the report suggests that over the past 30 years, and especially the last 10 years, there have been strong returns from investing in bonds on a par with or better than equity returns across the globe.  (Australian shares have out-performed Australian bonds over that period.) Over the long term bonds have provided less returns with less volatility which suggests the returns from the past decade have been abnormal.  The authors therefore suggest that the strong performance from bonds should not persist especially within a low interest rate period with higher inflation expectations.

In terms of high yielding shares, the research clearly suggests there is a premium to be earned from investing in this style of shares over the long term as reflected in the long term historical data.  Over short time periods higher yielding shares may under-perform so it is not a free lunch.


So what can we take away from these findings?

I believe that the report reconfirms a number of the approaches to investment applied in client portfolios:

  1. If you can afford a long timeframe for your investments (preferably forever) than share investments do provide a significant premium over inflation, cash and bonds and should form a significant part of a portfolio.
  2. It has been prudent to have an over-weight exposure to Australian shares being conscious that this may provide a slightly higher level of volatility.
  3. Bonds have had a great recent performance history but this is unlikely to continue forever.  However we should not expect to see huge falls in bond prices especially at the lower maturity, higher quality part of the market.
  4. Bonds have provided a slight premium over more liquid defensive assets and therefore are a valid use as a part of an asset allocation to reduce volatility but provide a slightly higher return than investing in cash.
  5. Incorporating a higher yield / value strategy into asset allocations is a valid approach to lift expected returns.
Please take a look at our Building Portfolios page for further details of our approach.



Posted by: AT 09:11 pm   |  Permalink   |  Email
Friday, May 27 2011
The final in a series of charts that have been uploaded to the site in recent days looks at 15 years of return history for 21 emerging markets up until the end of 2010.

Equity Returns of Emerging Markets

The first page of the chart ranks the returns from each market year by year.

The second page breaks the chart down in alphabetical rather than year by year rank order.

An interesting take away was the under-performance of the BRIC markets - Brazil, Russia, India and China in 2010 and 2008. It is also interesting to see the huge swings in fortunes for markets from one year to the next.

It reminds us of the great difficulty in picking the best market in which to be invested in for the long term and also the risks involved with trying to pick "winning" emerging markets from one year to the next.  We think holding a portfolio invested in all of these markets makes better sense.

Click on the image to view a full page printable pdf copy

pdf Adobe Reader® required
download at

Posted by: AT 03:25 am   |  Permalink   |  Email
Friday, May 27 2011
Today we have emailed out the latest edition of our free email newsletter to subscribers.  In this edition we:

- discuss possible end of financial year strategies,
- look at two great charts depicting world market capitalisations and developed market equity returns year by year over the past 25 years,
- update major investment market performance,
- take a look at the schemes that fail investors more than others,
- outline recent blog entries,
- look at an article from the archive - 10 costly tax mistakes,
- outline recently published Eureka Report articles,
- provide a link to ASIC's new financial guidance website - Money Smart, and
- provide updated evidence of the three factor model in action.

Please note that there was a missing link for the developed market equity returns year by year over the past 25 years.  The link is here.

To view a copy of the newsletter please click on the following link - Clear Directions May Edition

To sign up to receive the newsletter directly into your inbox follow this link -
Sign up for Clear Directions
Posted by: AT 02:44 am   |  Permalink   |  Email
Thursday, May 26 2011

We have updated the Dimensional Fund Performance Graphs page.  The page includes periodic performance data, growth of wealth graphs and average performance bar charts for the previous 1 month, 3 months, 6 months, 1 year, 3 years, 5 years and 10 years.


Growth of Wealth Example


The graphs show a negative month of returns for all asset classes with all of the risk premiums under-performing the large company benchmarks.

Over the long run, however, the data continues to clearly show the existence of the risk premiums (small, value and emerging markets) that the research tells us should exist:

Australian Share Trusts - 10 Year returns


10 Yr Return

to April 2011

Premium over ASX 200

Accumulation Index

ASX 200 Accumulation Index



Dimensional Aust Value Trust



Dimensional Aust Small Company Trust



International Share Trusts - 10 Year returns


10 Yr Return

to April 2011

Premium over MSCI World (ex Aust) Index

MSCI World (ex Aust) Index



Dimensional Global Value Trust



Dimensional Global Small Company Trust



Dimensional Emerging Markets Trust



NB - These numbers are annualised returns for the 10 year period.

Please click on the following link to be taken to the graphs - Dimensional Fund Performance Graphs

For anyone new to our website, it is important to point out that we build investment portfolios for clients based on the best available academic research.  Take a look at our Building Portfolios and Our Research Based Approach pages for more details.  In our view, this research compels us to use the three factor model developed by Fama and French.  In Australia, the most effective method of investing using this model is through trusts implemented by Dimensional Fund Advisors.  We do not receive any form of commission or payment from Dimensional for using their trusts.  We use them because they provide the returns clients are entitled to from share markets.

However, academic theory is nothing if it can not be implemented and provide the returns that are promised by the research.  Therefore, we like to provide the historical returns of the funds that we use to build investment portfolios.

Please let us know if you have any feedback regarding these graphs by using the Request for More Information form to the right or via our User Voice feedback forum.



Scott Keefer

Posted by: AT 12:36 pm   |  Permalink   |  Email
Thursday, May 26 2011
The following table provides a really interesting way to look at year by year returns for 18 of the major developed equity markets in the world over the past 25 years.

Please click on the above image to view a full page printable pdf

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The take away is the great fluctuation in performance from year to year.  Australia has had very strong years such as 2001, 2002 and 2009 but years like 2008 remind that only investing here is by no means a sure bet to better investments held in other nations.  Another reminder of the importance of diversification
Posted by: AT 09:17 am   |  Permalink   |  Email
Thursday, May 26 2011
Today we have uploaded a great chart looking at the market capitalisations of major world markets in terms of US dollars as at the end of December 2010.

The chart shows that Australia was only 3% of the entire world market.  Some might ask why then do we suggest that Australian shares make up 50% or more of recommended growth asset allocations?  Our investment philosophy takes into account research suggesting that the franking credit benefits offered by Australian shares are not fully reflected into the value of Australian shares as they are not available to non-residents.  This suggests that over the long term there is an extra benefit from holding Australia shares for residents of Australia.  However we also acknowledge that including international shares provides diversification benefits for a portfolio.

For more information about our approach please take a look at our Building Portfolios page.

Please click on the chart to view a full page printable pdf copy of the chart.

pdf Adobe Reader® required
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Posted by: AT 08:58 am   |  Permalink   |  Email
Thursday, May 26 2011

The end of the financial year is an ideal time to consider your financial structuring for the year ahead.  However if you have not yet put plans in place for this financial year it is not too late to put them into action.  Here are some strategies to consider and as always, please seek individual financial advice before taking any action.

  • Making a personal contribution of up to $1,000 into super to receive the government co-contributions.
  • Making non-concessional contributions into super to get these assets into a tax friendly environment

a.     This can include an in specie transfer of assets if you use a fund that allows this

  • Making a concessional contribution into super to reduce tax payable on income and get assets into a tax-friendly environment
  • Making a contribution into your spouse’s super fund if they are a low income earner and by doing so receiving a tax offset whilst also getting assets into a tax friendly environment
  • Bringing forward any relevant tax deductions
To find out more details please take a look at our page - End of Financial Year Strategies to Consider
Posted by: AT 05:14 am   |  Permalink   |  Email
Monday, May 23 2011
Scott Francis in his latest Eureka Report article looks at the hidden tax rise contained in the government's latest budget.  He suggests that due to the phenomenon of bracket creep, the increase in average wages is providing the government about $3 billion in extra tax receipts.

Scott concludes that bracket creep is an important concept for taxpayers to understand; it sees them facing increasingly higher tax rates unless tax brackets change as incomes increase. The resulting increase in government revenue means neither side of politics has ever tried to fix the problem, which could be done by the relatively simple step of indexing tax thresholds to inflation or wage rises.

Take a look at Scott's article here - The tax rise no one noticed
Posted by: AT 06:27 am   |  Permalink   |  Email
Monday, May 23 2011
The Australian Bureau of Statistics is the official determiner of inflation in the economy.  The calculation for their Consumer Price Index is based on the cost to purchase a basket of goods.  This basket, including weightings, are currently as follows :
  • Food (15.44%)
  • Alcohol and tobacco (6.79%)
  • Clothing and footwear (3.91%)
  • Housing (19.53%)
  • Household contents and services (9.61%)
  • Health  (4.70%)
  • Transportation (13.11%)
  • Communication  (3.31%)
  • Recreation (11.55%)
  • Education (2.73%)
  • Financial and insurance services (9.31%)
(NB - these allocations are soon to be adjusted in the June quarter calculations.)

One potential problem with the inflation calculations as they relate to retirees is whether the basket of goods is a fair representation of what people in retirement are purchasing.  This is important because the latest publication issued in April suggests that prices for food, alcohol and tobacco, housing (including utilities), education and health have been the major contributors to inflation over the past year. Out of these I would suggest that retirees spend less on average for education but more on average for the other categories.

This would suggest that inflation has run at a higher rate than the 3.3% annual rate calculated by the ABS.

Today, The Association of Superannuation Funds of Australia have published their latest Retirement Standard report.  This publication attempts to calculate what a modest or comfortable lifestyle would cost for singles or couples.

These calculations are also subject to the risk that the definition of what retirees are purchasing used in the study does not match the actual situation but I believe it probably provides a better reflection due to the more concentrated focus.

The latest figures relating to the period ending December 2010 suggest the following levels of income would be required in retirement:

Modest lifestyle - single - $21,218
Modest lifestyle - couple - $30,708
Comfortable lifestyle - single - $39,393
Comfortable lifestyle - couple - $53,879

For further details as to how these amounts are calculated please refer to ASFA's Retirement Standard - December 2010

Using these calculations compared to past calculations should give a clearer indication of inflation being experienced by retirees.  According to the Retirement Standard figures for the 12 months to the end of December inflation has been:

Modest lifestyle - single - 6.11%
Modest lifestyle - couple - 9.36%
Comfortable lifestyle - single - 2.03%
Comfortable lifestyle - couple - 4.16%

The ABS official inflation figure for the same 12 month period was 2.7%.

The results from the ASFA Retirement Standard study are above the ABS data for all but singles looking for a comfortable lifestyle.

A word of caution, ASFA rejigged their definitions for determining calculations starting with the March 2010 study.  Therefore we have not yet seen a full year with these new definitions and calculation methods.  Not until the next publication will be able to be confident of what the data is telling us.

In a nutshell, it does appear plausible that inflation for retirees is running at a hotter pace than the ABS's official inflation figures might otherwise suggest.  This is very important for those in and preparing for retirement as a clear understanding of the movement of prices will help inform what a sustainable level of draw down from investments and superannuation pensions will look like.

Posted by: AT 12:34 am   |  Permalink   |  Email
Thursday, May 19 2011
Reports are being published today relating to a study conducted by an independent market research company commissioned by the Australian Securities & Investments Commission.  ASIC commissioned the study to better understand the personal consequences of investors not being fully compensated and to help inform submissions to the government review into whether a statutory compensation scheme should be introduced in Australia.

The following is taken from Andrew Main's report in The Australian - Move to compensate investors for bad financial advice

Among key findings were that investors who suffered the most had invested all their money, had not diversified or went into debt as part of their investment strategy....

Most investors' losses were associated with an underlying product that was either frozen or collapsed, and the impact of the monetary loss was immediate on investors who did not have a financial buffer. For others, the first six months from when they discovered their loss were critical....

Every single investor in the worst affected category, which usually involved losing their house, reported serious illness following the financial loss.

The key point I took away from the reporting of this study was that  the worst-affected investors covered by the new study were in the following types of scheme:

  • inner city unit developments,
  • mortgage investment schemes,
  • rural managed investment schemes such as forestry or horticulture,
  • structured investment such as hedge funds and infrastructure funds, and
  • investors who geared up against their home equity and took out margin loans to invest in assets which lost value.

My heart goes out to those who have been hurt by dreadful financial advice and I hope that the government can implement a structure to support those who were mislead or deceived.

It is also important that we all learn from the terrible misfortune of others and make sure that we are careful to properly investigate investment options and seek a second or third opinion if there is any doubt.

At A Clear Direction you can be assured that none of these investment options are in our preferred investment portfolio structure.



Posted by: AT 11:48 pm   |  Permalink   |  Email
Thursday, May 19 2011
The end of financial year sees many of us looking at our taxable income to see how we can legitimately reduce the tax burden.  There are a number of approaches recommended with some being totally acceptable where appropriate to your individual circumstances.  The following ideas are common:

- salary sacrificing into super to reduce taxable income including capital gains
- prepaying investment loan interest payments
- making a superannuation contribution for a low income spouse

Another strategy that was more common before the GFC was to invest in agribusiness schemes which were provided friendly tax arrangements.  Unfortunately many of these turned out to be poor investments and even though you could save some tax going in you lost a lot more through the failure or poor performance of the investment.

This is a key reminder for all of us that when searching for tax breaks it is crucial to weigh up the underlying investment first and then if this stacks up the tax break provides a bonus.

Unfortunately there are also promoters of a range of schemes that have gained the attention of the Australian Tax Office.  The ATO have produced a handy guide - Understanding tax-effective investments - to assist tax payers determine whether a proposed approach will be allowed by the ATO.  There are 16 categories mentioned including mortgage management plans, early access to super, scholarship trusts and a range of strategies around the use of trusts privately and in business.

The key message from the guide is to
carefully check the credentials of the provider of the advice and seek independent guidance.  The ATO suggests the alarm bells should be going off with arrangements that:
  • Offer zero risk guarantees
  • Do not have a prospectus or product disclosure statement
  • Refer you to a specific adviser or expert
  • Ask you to maintain secrecy to protect the arrangement from rival firms and discourage you from getting independent advice.
At this time of the year it is easy to rush into an arrangement that sounds brilliant and will relieve the tax burden in months ahead.  If you stumble into an inappropriate scheme the penalties are great not least of which is having the attention of the ATO squarely focused on you.  A circumstance that I am sure most of us would prefer not to have.


Posted by: AT 09:34 pm   |  Permalink   |  Email
Tuesday, May 17 2011
I like to keep abreast of a broad range of opinions and research relating to finances.  One of these sources is the prestigious Stanford Graduate School of Business.  A new piece of research out from Stanford suggests that time not money provides the greatest level of happiness. It might at first seem that this topic is unrelated to the financial planning process but digging deeper it actually defines the most important aspect of the relationship between a client and their adviser.

The authors, Jennifer Aaker and Melanie Rudd at Stanford University, and Cassie Mogilner at the University of Pennsylvania, published their findings in the Journal of Consumer Psychology this year - "If Money Doesn't Make You Happy, Consider Time".  The conclusion from the report is that for greater levels of happiness we need to spend our time wisely and in particular:

- spend time with the right people
- spend time on the right activities
- enjoy experiences without spending time actually doing them
- expand our time
- be aware that happiness changes over time

None of this seems to be rocket science but as the report points out we struggle to sit back and reflect on these 5 key points and often rather get caught up in the pursuit of money and objects.  If you are looking for a little more detail about the research it can be found here -
If Money Doesn't Make You Happy, Consider Time.

How can a financial adviser help?

Financial advisers are not life coaches, although it feels like it sometimes, however a key aspect of the relationship with a financial adviser is the confidence and peace of mind that it should bring.  We are here to at least help manage if not totally manage your financial affairs.  This ticks both the goals of money and time.  We should be working to ensure that you are smart with the money that you have but also by delegating some of the responsibilities to your financial adviser you are freeing up time both in physical terms but also the mental stress time that you need to exert thinking about your financial affairs.

This second aspect of the relationship is very difficult on which to place a value but for many it is well and truly the most valuable aspect of the relationship between adviser and client.

Posted by: AT 11:25 pm   |  Permalink   |  Email
Sunday, May 15 2011
A frequent point of discussion around investment circles is to consider the strength of national economies and make investment decisions based on the relative strength of these economic.  i.e. invest more in economies with strong economic growth and less in those with lower levels of growth.  If only it was that simple.  Research on this topic shows that there is no clear correlation between per capita economic growth as measured by gross domestic product and share market returns.  A study published in 2005 by Jay Ritter, Economic Growth and Equity Returns,  showed that for 16 countries there was actually negative correlation - countries with above average growth provided below average share market returns.

Jim Davis from Dimensional in the USA has also produced his own analysis looking at Emerging Market economies.  Larry Swedroe in his blog - Why Successful Economies Don't Mean Great Stock Returns - explains Jim's results:

Jim Davis chose to study the emerging markets because of the widely held perception is that the markets of the emerging countries are inefficient. At the beginning of each year, Davis divided the emerging market countries in the IFC Investable Universe database into two groups based on GDP growth for the upcoming year:
  • The high-growth group consisted of the 50 percent of the countries with the highest real GDP growth for the year.
  • The low-growth countries were the other half.

He then measured returns using two sets of country weights-aggregate free-float-adjusted market-cap weights and equal weights. Companies were market-cap weighted within countries. The results are shown in the table below.

The results show that there is very little difference in share market performance between high growth and low-growth countries.

Both studies suggest that economic growth potential was factored into the price of shares.  This reminds us that it is events in the future which we really can only guess at, that will determine which markets perform better than others.

We in Australia all too well understand this outcome seeing the returns of the Australian share market over the past year providing disappointing results from what is widely referred to as one of the strongest developed market economies in the world.  (NB - In US dollar terms the Australian share market has performed in line with but not significantly out-performed the world dominating, in terms of size, US market.)

So what should we take away from this?

These results suggest that investors should take care basing investment decisions on whether an economy has strong economic growth, rather we believe it is better to develop a wide diversification of investments across all the available world share markets.

Posted by: AT 11:14 pm   |  Permalink   |  Email
Wednesday, May 11 2011
A large part of our approach as investment portfolio managers and in running the business is to keep a lid on costs.  By keeping business costs low we can afford to charge lower fees to clients.  So too by keeping investment fees down we can provide a better outcome for clients.

The basis of the analysis is a simple mathematical equation.  On average investors should receive the average market return for a particular asset class less any fees incurred to gain that access.  This suggests that the more you pay in the fees the worse an outcome you are likely to achieve compared to others.

Some will argue that this is a false economy as the name of the game is to beat the market.  Unfortunately time and time again statistics like those contained in the SPIVA reports, Dalbar study and Morningstar analysis shows that the majority of active style managers fail to achieve this.

Jim Parker from Dimensional Fund Advisors has recentty posted commentary on the importance of keeping fees down.  Following is Jim's article:

Why costs count

A positive consequence of the financial crisis is a dawning among investors about the difference that fund fees can make to what they ultimately receive in their pockets. Even better, this new climate of transparency is a global phenomenon.

A report last year from fund rating service Morningstar1, no less, found that low mutual fund fees were better than "star" ratings systems in predicting winning funds.

"If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision," the study's author Russel Kinnel said, noting that in every time period and data point tested in the four-year study, low-cost funds beat high-cost funds.

These findings have been echoed this year by another research firm Lipper2. In an analysis commissioned by the London Financial Times, Lipper found that in the decade to the end of March, 2011, global equity funds in the US market delivered total returns of an average 66.22 per cent for the full 10-year period, against 50.02 per cent for UK funds. The results are on a local currency basis and gross of tax.

Lipper attributed the superior performance to a traditionally greater focus in the US on fund fees by independent boards of directors.

Even so, the UK market is changing, with new regulations stemming from a review of retail funds distribution due to come into force in 2013. The changes include a ban on commissions and a requirement that consumers receive upfront information about the fees they pay for advice.

While the review has not mentioned fees charged by funds themselves, the move by UK advisors toward a fee-for-service model is expected to result in advisors pressuring funds to lower their own management fees.

"The proposed changes to the way funds are distributed are such that the previous glacial pace at which apparent price wars had been fought over the previous 12 years has begun to quicken," Lipper's head of consulting Ed Moisson said in a separate study earlier this year3.

The Dutch government is following the UK lead, announcing last month that it also will ban commissions on financial services products and force banks and independent advisors to be more transparent about costs4.

In Australia, a similar revolution is underway. The federal government late last year, in response to an 18-month inquiry, announced proposed reforms5 aimed at lowering costs of superannuation, or pension fund saving.

Fully implemented, the proposed reforms are estimated to have the potential to lower fees by up to 40 per cent, lifting the retirement savings of a 30-year-old on average wages by $40,000 or 7 per cent.

Separately, the government in Canberra recently confirmed plans6 to ban all commissions to financial advisors from July 1, 2013, as well as other initiatives to bolster consumer protection.

"Fees and costs matter," the Australian pension reforms' authors said in their report. "They detract from members' retirement savings and need to be managed as diligently as the generation of investment returns."

The evidence supporting the case for a greater focus on fees and costs has been growing steadily for years. In 2007, analysts of the Harvard and London business schools published research7 on fees charged by 46,580 mutual fund classes offered for sale in 18 countries. Total assets covered more than $US10 trillion or about 86 per cent of the funds sold worldwide.

This study found a substantial variation in the level of fund fees around the globe, even after allowing for the size of funds, whether they sell to institutions or the retail market and whether they are index or traditionally active.

"The remaining differences are associated with a variety of factors, the most robust of which is that stronger investor protection is associated with lower mutual fund fees," the authors found.

This new global focus on the costs of investing is no accident. It represents an understanding, finally, that for too long investors have focused on things outside their control—like market ups and downs and media noise—at the expense of factors within their control—like adequate diversification, costs, fees and taxes.

As we have seen, legal systems and regulations are moving quickly in many jurisdictions to improve transparency around fees and ensure greater power to consumers in making smart investment decisions.

These changes are in keeping with the philosophy that Dimensional has embraced since its own founding three decades ago. Because the firm focuses on capturing broad dimensions of risk rather than the random movements of individual securities, it can trade patiently and keep costs low.

This unique approach results in lower fees to investors than those charged by traditionally active managers, while adding value beyond what can be achieved via a simple index approach.

Costs and fees make a difference. We have known that for a long time. And now the rest of the world is discovering the same lesson. That's good news for investors.

1. Russel Kinnel, 'How Expense Ratios and Star Ratings Predict Success', Morningstar, Aug 2010

2. Lipper performance comparisons, April 2011

3. Ed Moisson, 'The Pressure to Perform', Lipper Research, March 2011

4. 'Holland to Ban Commission in RDR-Style Reform', Money Marketing, April 27, 2011

5. Australian Treasury, 'Stronger Super', Dec 2010

6.'Future of Financial Advice', Information Pack, Australian Government, April 28, 2011

7. Ajay Khorana, Henri Servaes, Peter Tufano, 'Mutual Fund Fees Around the World', SSRN, July 2007

Posted by: AT 10:00 pm   |  Permalink   |  Email
Wednesday, May 11 2011
Dr Shane Oliver is the Chief Economist at the AMP and is a regular commentator on the economy and its implications for investors.  I do not always agree with his conclusions but I do think he is able to clearly articulate economic theory.

His latest contribution is an explanation of investor behaviour in an article written for the ASX - Why markets are irrational

You may think that it is strange that I refer to this article as this firm's investment philosophy is seemingly built on the backbone of the efficient market hypothesis and Dr Oliver clearly does not believe in this theory.  However it is not that issue that I think is most useful in this article, it is rather the explanation of investor behaviour and concepts such as irrationality, the madness of crowds and why bubbles and busts occur.  Dr Oliver, as do I, believe it is crucial for an investor to understand these concepts and act accordingly.

The concluded implications
for investors from the article are:
  1. Understand emotions. Investors need to recognise that investment markets are not only driven by fundamentals, but also by the often-irrational and erratic behaviour of an unstable crowd of other investors. Also, not only are investment markets highly unstable, they can also be highly seductive. Be aware of past market booms and busts, so when they arise in the future you doe not overreact – piling into unstable bubbles near the top or selling everything during busts and locking in a loss at the bottom.
  2. Consider how you react. Recognise your emotional capabilities. Be aware of how you are influenced by lapses in your own logic and crowd influences. An investor should ask: “Am I highly affected by recent developments (positive or negative)? Am I too confident in my own expectations? Can I bear a paper loss?”
  3. The right strategy. Choose an investment strategy that can withstand inevitable crises while remaining consistent with your financial objectives and risk tolerance.
  4. Discipline. Essentially stick to your broad strategy even when surging share prices tempt you to consider a more aggressive approach, or plunging values might suck you into a highly defensive approach.
  5. A contrarian approach. Finally, if tempted to trade, do so on a contrarian basis. Buy when the crowd is bearish, sell when it is bullish. Extremes of bullishness often signal market tops, and extremes of bearishness often signal market bottoms. But contrarian investing is not foolproof – just because the crowd looks irrationally bullish or bearish does not mean it can’t get more so.
The approach taken by this firm is focussed on points 3 & 4, getting the strategy right from the outset and remaining disciplined to that strategy.  A major reason for this approach is to protect clients from themselves and letting emotions dictate decisions.  If you can achieve this discipline around a strategy developed on strong principles you are streets ahead of the game.


Posted by: AT 09:31 am   |  Permalink   |  Email
Wednesday, May 11 2011
We have put together a concise summary of the issues raised in the 2011-12 Budget statement as they relate to personal finances.  Please take a look at the page on our website for more details - 2011 Budget - Personal Finance Summary.
Posted by: AT 09:23 am   |  Permalink   |  Email
Wednesday, May 11 2011
Scott Francis in his latest Eureka Report article comments on the extension of the Work Bonus for Age Pension recipients and shows the significance of this improved arrangement.

Please take a look at Scott's article for more detail  - Retirees' handy bonus.
Posted by: AT 09:13 am   |  Permalink   |  Email
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