News

A recovery but nothing to get excited about.

Overall we are seeing an economic recovery.  In some countries and regions this is quite sound.  This includes Asia, Emerging Markets in general and of course Australia.

Against this are those that are struggling such as the US and parts of Europe.  These countries are weighed down heavily by unemployment and debt – at a Government, business and individual level.  This is limiting the ability of those economies to grow at a reasonable rate.

This will limit returns

Investments are ideally suited to growing economies.  This doesn’t mean that we should direct all our funds into Emerging markets.  We still need a well diversified and well constructed portfolio, as over reliance on today’s environment can cause problems when it inevitably changes.

The currency wars

The Aussie dollar is benefiting from the efforts by other nations, mainly the US to reduce the value of their currency.  It also strengthens due to the progress of our economy and that of those we deal with such as China.

Ironically the US are expressing concerns about other countries keeping their currency artificially low whilst at the same time they are flooding the markets with US$ which reduces its value.

Did you choose the winner?

Not in the Melbourne Cup, but something possibly more difficult.  That is, the best performing asset class for the last 12 months.

The table below shows the return of the major classes that we follow for the year ended 31^st October 2010.

Twelve months ago it would have been brave to select International property to deliver the highest returns.   What does this tell us?

• Making money is not easy
• Last year's best performer is unlikely to repeat that position
• A poor performance one year doesn’t mean it will continue
• Having someone, like us, to be disciplined will add value.
• Diversification is important
• Other asset classes can help add value

Inflation, Interest Rates & Banks

It seems incredible that with much of the developed world operating with rates at record low levels that we could be going higher again.  The strength of our economy is the driving factor.  The Reserve Bank is focussed on containing inflation.

It was also fascinating to see the CBA raise rates even further.  They are arguing that it costs much more to get money from overseas, which is no doubt.  Of course they are not highlighting how much they are getting from Term Deposits and the ‘free kick’ they have been given by the Government Guarantee.

Unfortunately it gets worse as the Banks are pushing the Government for a change to tax laws.  There is an international proposal by the Global banking regulator to help avoid a repeat of the GFC.  This would affect the tax on some of the financial instruments used by the Banks, increasing their cost of funding.

What is the solution?

More regulation is unlikely to provide an overall benefit.  Although regulations that limit or ban exit fees make sense.  The risk is that Banks will simply increase rates or other fees they charge to everyone to offset this.

The argument for more competition is a good one.  Additional players will have the opportunity to gain market share and capitalise on poor treatment of customers.

Keep in mind that we can provide excellent Term Deposit rates with the Government Guarantee.  Please call Jamella Sim or Shona Anderson for assistance.

Our Portfolios continue to add value

Every month we measure the performance of the investments within our portfolios against their benchmark.  We are pleased with the results that show our approach is adding value. 

This does not mean that we can assume this will continue, so we are making changes to further improve the construction of the portfolios.  This process of adding managers that can offer better returns, lower risk and lower cost is ongoing. 

Term Deposits vs. Shares

With interest rates higher and continuing to rise, the issue of where to invest is a challenging one.  On the surface it seems easy to just invest in Term Deposits and remove the risks.  However it is rare that the long term return provided by term deposits will be sufficient to help you meet your goals.

Naturally much of our thinking is clouded by the events of the GFC and the losses that were suffered.   This significant event was very rare and one of the most extreme that has ever occurred.  This does not mean that it won’t happen again but is less likely.

The good news is that whilst Term Deposit rates are good, the after tax return from share dividends is at a similar level.  The tax benefits from dividends are very useful, particularly for those with superannuation or pension funds.

The attraction is that if your dividend is similar to the interest rate on deposits then any growth puts shares ahead as an investment option.

The table below compares rates and dividend yield.

The message is that whilst there is still uncertainty around investments in growth assets, shares provide a good value option to bank Term Deposits.

When venturing into growth assets, a well diversified and constructed portfolio that suits your risk profile will serve you best over the long term.

Merger update

Our Accounting Team has moved to 67-71 Foster Street and is settling in well.  The Financial Planning team is moving across as space becomes available.  Ben Lancaster will lead the move in late November, with the rest of us to follow once renovations are complete.

Ben Lancaster adds to DMG awards

Following our recent success at the Telstra Business awards, Ben Lancaster has reached the final 3 of the Financial Planning Association Value of Advice Awards.

This is a National award that is judged by a panel of Industry experts.  It assesses actual advice that has been completed which makes it very challenging and competitive.

It is a great achievement for both the firm and Ben and reinforces the approach we take and service we provide.

Ben will find out later this month where he is placed in his category.