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 Financial Happenings Blog 
Thursday, April 19 2012

I have just sat down to a cup of coffee at Starbucks and began reading through some reports I downloaded over recent months.

I found HSBC’s The Future of Retirement Why family matters report very interesting especially as it looked at surveys conducted with 17,000 people across 17 countries but not Australia.  As I read I pondered whether the findings were relevant to Australian families and quickly came to the conclusion that the vast majority of findings would probably be consistent with responses from Australians.

The key findings for me were:

-       65% of men said that they make all or most of the financial decisions in the house without any input from others, compared to just 53% of women who said that they were the sole decision-maker.  This gender gap is apparent across all age groups.

-       The only area where women are more likely to be the sole decision-maker is in household budgeting. Even here, the gender gap disappears among those in their thirties, with younger men taking a stronger interest in this aspect of financial planning than older men.

-       Significantly, women are far more likely to stop working full-time when they have children (47%), compared to just 1-in-6 (15%) men. The onset of parenthood not only reduces women’s role in the workplace, it also reduces their role in making financial decisions in the home. When looking at financial decision-making, the gender gap is greatest among men and women who have children.

-       A major gender gap exists in financial planning: only 44% of women stated that they had a financial plan in place for their own or their family’s future, compared to 54% of men.

-       Married people plan ahead in greater numbers and experience a smaller gender gap when looking at who exercises financial responsibility – 55% of married women and 62% of married men have made a financial plan.

-       In spite of the changing financial needs throughout people’s lives, 60% of respondents have never sought professional financial advice to help them, relying instead on their own knowledge or that of friends and family.

-       The majority of households have a predominantly risk-averse attitude, and are more likely to forego the benefits of long-term investing in favour of security in the short term. This view is particularly prominent among women especially in Western countries.

-       (Somewhat surprisingly) Only 13% of men and 18% of women thought that investing in stocks and shares was extremely risky.

From their findings, the writers suggest 4 key points of action households can implement to improve future financial well being :

1. Share decision-making. It is important that household financial planning is shared and takes into account the family unit and the potential financial needs of spouses, children and any other dependent relatives.

2. Review financial plans in light of major life events. Financial planning should not be static. Family events like births, deaths and marriages should act as triggers to start or review the family’s financial arrangements.

3. Sense-check decisions with a professional financial adviser. Even where plans are put in place, they will contain gaps. Seeking professional advice can help to identify and plug any gaps that might arise.

4. Take a balanced approach to managing investment risk. Households should balance the need to protect their investments in the short and medium term with the need to generate an adequate retirement income in the long term.

These are pretty common sense steps for households.  If you would like to discuss details further or engage an adviser to work with you on securing your future financial well being please do not hesitate to get in cotact. 

Regards,
Scott

Posted by: Scott Keefer AT 07:00 pm   |  Permalink   |  Email
Tuesday, April 03 2012
Many adherents to an active management approach to investing profess that you can successfully pick when to enter and exit markets so as to achieve a better result than the average market return.  The mantra rings true for a lot of investors – surely if you put enough research and effort into it you can beat the markets.

Each year Dalbar looks at this very issue by analysing the fund flows into and out of mutual funds in the USA.  (Mutual funds are like our managed funds here in Australia.)  They publish their results in the Quantitative Analysis of Investor Behavior (QAIB) report. -
http://www.qaib.com/public/default.aspx

The latest report has just been published and does not make good reading for the “Active Timers”.  The report shows that over the course of 2011, the average equity return for investors in equity market funds was negative 5.73%.  This sounds all right to Australian investors where the ASX200 returned negative 10.54% but in the US the S&P500 actually eked out a gain of 2.12%.

So the average investor underperformed the S&P500 index by 7.85%.  The report also showed that bond fund investors underperformed the Barclays Aggregate Bond Index by 6.50%.

The report goes on to show that over 3, 5, 10 and 20 year time periods the average equity investor has underperformed – a massive 4.32% per annum over the 20 year period.

Yet again the Dalbar study has shown that investors who have tried to pick the best time to enter and exit markets have failed to get it right.  You were much better off just holding on to the relevant index.

We in Australia may think we are smarter than the average American investor but my gut instinct suggests similar results would be replicated in Australia.

Regards,

Scott

Posted by: AT 12:46 am   |  Permalink   |  Email
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