December Newsletter 2009

December Newsletter 2009
By Gary Lucas, Director of MG Financial Planning
December 22, 2009

You Portfolio continues to recover

• November was again a positive month and the figures for the twelve months from 1^st December 2008 to 30^th November 2009 were very good.
• Clearly this recovery was necessary and will continue to be so after the previous falls, but we can take considerable comfort from the recovery.
• March was seen as the low point in this part of the economic cycle and remaining invested has been worthwhile.
• Those who gave up at that point and decided to sell out have paid a high price.

How strong have the last nine months been? 

The returns for the period 1 March to 30 November 2009 (9 months) are summarised below.

This reinforces the argument that returns can be above average after a severe downturn.  It also confirms how hard it is to try and pick winners and guess the right time to buy into markets.

The 2010 Outlook

• Trying to comment on the future in this business is risky. Opinions are at both extremes at the moment. The range of possible outcomes is as wide as we have seen in recent times. Many are predicting further significant problems and others feel we are looking at far better times. Of course the most common expectation, as is the usual safe route, is for a more settled, lower return year. Those in this corner are the experts that are most often wrong.
• There is still much nervousness in the financial markets. The reaction to the recent Dubai problem shows this. As I have said before, there will be tough periods where falls in value will have to be endured.
• What we do know is that Cash & Term Deposits are very likely to provide low returns although they will increase. Importantly Emerging economies have much better growth prospects and their Sharemarkets should outperform.
• Australia is looking in relatively good shape and should provide good value for those with exposure to our sharemarket.
• However as always trying to pick stocks and time the markets is impossible to do successfully on a consistent basis at the best of times. There is still plenty of uncertainty that means we are far from the best of times, making this unrewarding task of stock picking even tougher.
• The key challenge is - do Central Banks leave interests rates as they are and risk over stimulating the economy and causing inflation to jump. Or do they risk raising rates to early whilst there are still millions unemployed around the world. It is a very difficult task. Australia has increased rates and the US have chosen to keep them near zero. Contrasting approaches for economies performing at different levels.
• We are confident that our approach of diversifying part of your portfolio into sub classes such as small companies, emerging markets, infrastructure will continue be a sound approach. Given the uncertainty we believe that diversification, a well constructed portfolio and managing risk against your tolerance level is as important as ever.

Fund changes

• The events of the last 2 years have seen many changes in the industry. One significant change is that BlackRock have taken over Barclays. This means that you will no longer see the name of the Barclays on your Funds and it will be replaced with BlackRock.
• The former Barclays Funds involved were Index Funds which are simple low cost funds that do not require decisions by money managers on how to invest.
• This means that there is no need to reassess the Funds because of the change, but we will continue to monitor these and all other funds as part of our normal process.

Accident insurance - is it worth it?

• These policies pay a benefit for a claim that results from an accident.
• Whilst this sounds good, the reality is that the majority of claims are due to illness not accident. This simply means that you are paying for a policy that you are highly unlikely to ever claim on - even in the event of your death.
• If you have a policy like this you should talk to us as there will most likely be a better use for your money.
• This is not a recommendation to cancel the policy. You should not, as some cover is always better than none, but if you have one of these policies or someone is trying to sell you one, then you should talk to us.

A New Year - A great time to revisit your plan

• For many this is the season to reflect on the recent past and look ahead to how you would like things to be.
• Our approach is to do more than merely look at your investments, we want to help you organise your financial affairs so that you can achieve your personal and lifestyle goals.
• We would like the opportunity to discuss this further with you and ensure that you are doing all you can and that your plan is still consistent with your current circumstances and goals.
• If you would like to do this, feel free to arrange a time, otherwise we will address this when we contact you about your next review.
• We thank you for your support over the last year and wish you all the best for Christmas and the New Year.