Skip to main content
rss feedour twitterour facebook page linkdin

Financial Happenings Blog
Thursday, October 24 2013

It has been a number of months since we updated the website with Scott Francis' articles published in the Eureka report.  We have now caught up and welcome you to take a look at these pieces - 17 in total.


Posted by: Scott Keefer AT 03:54 pm   |  Permalink   |  Email
Monday, July 01 2013

For many years I have followed the writings and podcasts of Paul Merriman, a financial adviser based in the USA.  Recently Merriman has retired but continues to write and publish on financial advice particularly investment advice topics.  In a recent article 10 do's and don'ts for retirement investors he looks at 5 key dos and 5 key dont's in retireement.  Even though the comments are focussed on retirees in the US the broad concepts are just as relevent for us here in Australia.  So here are the 10 items for your consideration:

Retirement do’s

  1. Do take advantage of “the only free lunch on Wall Street” by building a diversified portfolio of mutual funds (managed funds in Australia). This will reduce your risk and probably increase your returns.

  2. Do buy funds with the lowest possible expenses. The average equity fund charges more than 1.3% a year, yet you can get most of the asset classes you need in good funds for a full percentage point less than that. This is equally important for bond funds.

  3. Do buy index funds instead of actively managed ones. This will be a big help in achieving both of the prior “do’s” I mentioned.

  4. Do invest in equity asset classes with long histories of successful returns. Based on years of careful study by academics I trust, this means U.S. large-cap blend, U.S. large-cap value, U.S. small-cap, U.S. small-cap value, international large-cap blend, international large-cap value, international small-cap blend, international small-cap value, and emerging markets. And for tax-deferred accounts only, it means U.S. REITs. (In Australia the asset classes include Australian large-cap companies, Australian value style companies, Australian small-cap companies, International large/value/small cap companies, emerging markets and Australian and international REITs)

  5. Do invest in the most tax-efficient manner. Unless you have unusual circumstances, that means maximizing your IRA and 401(k) accounts and (when you’re living off your money in retirement) using up your taxable accounts first. (In the Australian context this is about effectively utilising superannuation and superannuation pension accounts)

Retirement don’ts

  1. Don’t pay a sales commission to buy or sell a mutual fund. The commission is money that’s gone forever from your nest egg, and it inevitably and permanently diminishes the return you will get. (In Australia you can no longer buy funds that have commissions attached but any existing managed funds may still maintain a commission structure.)

  2. Don’t buy funds in asset classes with low expected returns or high levels of risk relative to their expected returns. Among the most prominent examples of asset classes you should avoid are commodities, gold and technology stocks. In addition, I think you should steer clear of pure growth funds, whether they invest in large-cap, midcap or small-cap stocks — and this includes international funds as well as U.S. funds.

  3. No matter how much you are attracted to an active manager, don’t buy actively managed funds. This is really another way of stating my third point above. Actively managed funds are guaranteed to have higher expenses than index funds, and their returns aren’t likely to be as high as those of index funds.

  4. Don’t speculate with your portfolio, even a small part of it “for fun.” If you have a properly diversified portfolio along the lines that I recommend, your investments will include all the “great opportunities” you will ever need. Speculating and playing the market will almost surely reduce your long-term returns. 

    If you absolutely can’t resist trying your luck, then spend (notice I am not saying “invest”) a bit of money that you can afford to lose and buy a lottery ticket.

  5. Don’t get snookered into thinking you have found a guru or anybody else who knows what will happen to the market in the future beyond statements such as “Stocks will go up in the long run.” Many people claim to have that knowledge, but nobody does. The sooner you can accept this fact the sooner you will be in touch with reality. 

    When you are in touch with reality, you are likely to invest more intelligently and productively.


These are great insights from a man with many more years of experience than me and well worth consideration for you investment portfolio.




Posted by: AT 10:13 am   |  Permalink   |  Email
Monday, April 29 2013

No matter what your opinion is on where investment markets will go next, one area of agreement is that markets have been volatile in recent years.   Nobel Prize Winner – William Sharpe – has recently provided his thoughts on investing in a turbulent market for the Stanford Graduate School of Business where he is a professor emeritus of finance - William Sharpe: How to Invest In a Turbulent Market

We think highly of Sharpe’s work and it forms a major part of the investment philosophy we use to develop investment portfolios for clients.

So has Sharpe’s views changed since the GFC started in late 2007?  
In a word, NO.

In the Stanford article Sharpe provides an overview of his four pillars of investing -
Diversify, economize, personalize, and contextualize.

In a nutshell these pillars are:

– invest in a broad range of shares and bonds – preferably all of them.

– keep costs low.

– make invest decisions that are most appropriate for your own situation.

– the price of an investment reflects the average opinion of investors about its future.  You may think your opinion is superior, but it pays to be humble, investing in the market rather than trying to beat it.

Sharpe provides some really important concepts that in our opinion should be the basis for developing a successful investment philosophy.


Posted by: AT 08:42 am   |  Permalink   |  Email
Friday, January 18 2013
I am in the process of writing a client update for clients reflecting on the past year and looking forward. The overall results have been pleasing with all major investment asset classes (barring cash) performing strongly.

If we look back at where we were at the beginning of January 2012  I think it would be fair to suggest that sentiment was poor.  2011 returns had been poor for everything other than bonds.  There did not seem to be any major progress with the European debt crisis, growth was slowing in China and the US had only a few months previous been through a bruising political period culminating in the downgrade of the credit rating of US government debt.  Not a great environment to provide confidence for the year ahead.

So why did things turn out so much better than what we might have expected?

The key driver in markets through 2012 seemed to be the hunt for yield underpinned by developments that were more positive than expected:

1) Increased Central bank stimulus measures including here in Australia.
2) The Chinese economy seems to have picked up after what appears to have been a stable political transition.
3) The US avoided the fiscal cliff  ... for now.
4) Euro breakup fears eased after the head of the European Central Bank (ECB) Mario Draghi  saying that the ECB will do whatever it takes to save the Euro

So what can we learn from the events of 2012?

Three really crucial lessons were evident for me:

1) Whilst current news might look negative (or positive), it's what happens next that is important for investment markets.
2) Trying to predict the next move for markets is very difficult.
3) The benefits from diversification are alive and well.

Jim Parker from Dimensional thrashes out these points in a little more details in his latest Outside the Flags article - Many Happy Returns.  The article included some interesting data about returns from 20 developed markets and 20 emerging market some of which you might find surprising.  I have included his article below.

Here's to a good year for 2013 hopefully with plenty of surprises on the upside!!


January 17, 2013
Many Happy Returns - updated
Vice President

The summer holiday season encourages media retrospectives about financial markets. It's fun to match these up with what people were saying a year before.

In December, 2011, the publication Barron's told investors to "buckle up". The consensus prediction of its panel of 10 stock market strategists and investment managers was for the US S&P-500 to end 2012 some 11.5% higher at about 1360. 1

"That sounds like a big gain, but a lot of things have to go right for the market to make such impressive headway," the writer said. "Even the most bullish of these Street seers fears stocks could be more wobbly in the next six months than in the six months past."

There was so much for forecasters to get right - a negotiation of the Euro Zone crisis, uncertainties over the growth of earnings, the roadblock of the US presidential election and the challenge for emerging economies to sustain high economic growth rates.

More than a year later, markets are still grappling with many of the same issues, though from different angles. Much of Europe is either in recession or growing only modestly, unemployment is high and a number of countries that share the single currency are unable to pay their debts. The US presidential election gave way to worries over the so-called "fiscal cliff", while Chinese exports have been hit by the slowdown elsewhere.

In the meantime, however, there have been solid gains in many equity markets, including parts of Europe and Asia, as well as North America. That Barron's panel forecast of the S&P-500 reaching 1360, which the magazine said was ambitious, turned out to be conservative. The index ended the year 13% higher at 1426. What's more, some of the strongest performances have been in emerging and frontier markets.

The table below shows performances for 2012 (to December 31) and annualised returns for the past three years of 20 developed and 20 emerging markets, using MSCI country indices. Returns are ranked on a year-to-date basis and expressed in Australian dollars.

Among developed markets, three members of the 17-nation Euro Zone - Belgium, Germany and Austria - were among the top performing equity markets last year. Leading the way among emerging markets was Turkey, which regained its investment grade ranking from agency Fitch in November.


While not one of the very top performers, the Australian market nevertheless delivered solid returns of 20% for the year despite the difficult international circumstances and the uncertainties at home over the extent of the slowdown in the domestic economy.

And while much of the media focus has been on the so-called BRIC emerging economies of Brazil, Russia, India and China, the real stars in the emerging market space these past three years have been the south-east Asian markets of the Philippines, Thailand and Indonesia.

There a few lessons from this. First, while the ongoing news headlines can be worrying for many people, it's important to remember that markets are forward looking and absorb new information very quickly. By the time you read about it in the newspaper, the markets have usually gone onto worrying about something else.

Second, the economy and the market are different things. Bad or good economic news is important to stock prices only if it is different from what the market has already priced in. My research colleague Jim Davis has done an interesting study on this. 2

Third, if you are going to invest via forecasts, it is not just about predicting what will happen around the globe. It also requires that you to predict correctly how markets will react to those events. That's a tough challenge for the best of us.

Fourth, you can see there is variation in the market performance of different countries. That's not surprising given the differences in each market in sectoral composition, economic influences and market dynamics. That variation provides the rationale for diversification - spreading your risk to smooth the performance of your portfolio.

So it's fine to take an interest in what is happening in the world. But care needs to be taken in extrapolating the headlines into your investment choices. It's far better to let the market do the worrying for you and diversify around risks you are willing to take.

In the meantime, happy new year and many happy returns!


1. 'Buckle Up', Barron's, Dec 19, 2011

2. Jim Davis, "Economic Growth and Emerging Market Returns", Dimensional, August 2, 2006

Posted by: AT 10:01 am   |  Permalink   |  Email
Tuesday, December 18 2012

A piece in the Sydney Morning Herald last month reported on a study conducted by Goldman Sachs.  The study found that Australians plan to stick with local shares or cash and term deposits - Investors stay close to home.

Recent history has shown that this investment philosophy has provided mixed results.

On one hand, Australian shares over the past decade (to the end of November 2012) have significantly out-performed international developed country markets as a whole when those exposures have not been currency hedged.

On a currency-hedged comparison basis (i.e. removing the impact of the rise of the Australian dollar over the past decade) returns from those same international markets have still been lower but much closer.

On the other hand, international fixed interest and international listed property have significantly out-performed their Australian counterparts.

Emerging Markets exposures have out-performed Australian shares slightly.

Cash and term deposits have under-performed fixed interest (bond) exposures.

But what has happened more recently?

International shares on a currency hedged basis have significantly out-performed Australian shares over 1 and 3 year periods.

International shares without currency hedging have out-performed Australian shares over 3 years and slightly under-performed over 1.

International listed property has significantly outperformed Australian listed property over 3 years with performance equal over 1 year.

International fixed interest has beaten Australian fixed interest over 1 & 3 years with both beating cash and term deposit indices over the same time period.

Whichever way you look at the data, an Australian centric basis for choosing investments has provided mixed results at best.

The data along with the theory should remind all Australian based investors that there is more to building a successful investment portfolio than simply using Australian shares and Australian cash and term deposits.


Posted by: Scott Keefer AT 12:00 pm   |  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.