Category : Investment

Be in Control of your Financial Well-being- Is Money Holding back your Happiness?

The Commonwealth Bank and the Melbourne Institute: Applied Economic and Social Research at the University of Melbourne, released a new benchmark measure of financial wellbeing of it stating weighing on the minds of a large number of Australians is their challenges of managing personal finances and putting enough money aside to ensure their financial futures. 

What is the CBA-MI financial scale? 

The scale combines banking data and peoples’ perceptions about financial outcomes.  The unique concentration of the individuals perception with the banking data reveals the barriers, drivers and behaviours that are linked to positive financial well being across both ‘self-reported and ‘observed’ scales. 

The financial Forecaster – Are they just fortune tellers in a suit?

From how the dollar will perform, to whether we should invest in property or shares, despite the past record of forecasters often ‘getting it wrong’, or playing it safe, consumers will continue to seek market predictions, almost as if they are searching to find that one person with the crystal ball.

Using last year as an example, many experts, including Mike Wilson from Morgan Stanley, predicted tech stocks would continue to head the market, allowing it to remain strong.  What happened? The likes of Apple and Facebook fell over 40% from their highs. Even the S&P 500 ended the year well below the predicted 2840 with a concluding result of 2500.

So why are the experts so often wrong? To put it simply, it’s because they generally fall into two categories, and either way, they are playing it safe.

The Australian Share Market Slumped to a Two-Year Low.

For around 12 months we have believed that Australian and Global equity markets have been extremely overpriced and riding on the strength of euphoria as we couldn’t find many opportunities for growth.

We had always been saying that the Australian and US equity markets have been overvalued and thus very early on had little exposure to both asset classes. Most Australian investors who aren’t our clients have a love affair with domestic and US shares thus seeing very large declines in their portfolios over the past 3 months {-12% to -22%}

Your E3 Visa remains safe.

An announcement by Congress, concerning the current status of the E3 Visa, left a vicarious feeling amongst Australians planning on making the move to the USA.  As it stood, the E3 visa came as a part of a 2005 Australian-US fair trade agreement under the Bush administration.  It had become the envy of many nations as, unlike many other visas, it allows its recipients, and their spouse, to work within the US unrestricted and has unlimited renewals.  The Visa is relatively cheap and allows Australians to by-pass many other applicants attempting to gain entry in the US.  To qualify applicants must be employed in a specialty occupation, have a legitimate offer of employment in the US, and possess the necessary academic or other qualifying credentials. 

Payday Loans – The crack-cocaine of lending.

Attractive advertising, paired with an individual desperation, is what helps to fuel the seduction of Payday (short-term) loans, and they are quickly becoming a menace to our society; more often than not leading people into a worse financial situation than where they began. 

Payday loans in Australia are part of the small loans market.  Statistics show that many people who apply for such a loan are already in financial hardship. They may have even already tried to apply for a small personal loan through a banking institution and been denied a loan.  The national consumer credit protection act mandates that all lenders ensure that the person applying for a loan can afford to repay the loan without substantial financial hardship.  Payday companies are not required to make such assurances for their clients and have made access to small loans of under $2000 increasingly easier with their online presence.

The Traps of some Industry Super Funds – A Precautionary Tale 

As from November 19, the first sizable industry fund, Australian super, will be making some significant changes to their fund, that may cause some concern for investors, especially if they were coming close to retirement.  These changes come as amid fears of a potential property market plunge.  Amongst the changes, property funds will be frozen for up to two years in the event of a crisis. Furthermore, the fund will prevent members from investing more than 70% of their savings in its property portfolio option.  

According to Kofkin Bond and Co, one of the most challenging changes will be the rule that states that, for up to two years, the fund has the right to freeze any attempts at withdrawing savings from the property option, as well as prohibiting funds out of, as well as any new contributions into, the options.  

There is a popular phrase thrown around by teenagers that also applies to investors: FOMO (fear of missing out)

Recently, we have been closely watching market valuations that have been indicating overpriced equity markets and it has us concerned. I liken the current state of the markets to that of the movie, The Big Short, which was based on   the GFC (Global Financial Crisis) (If you haven’t seen the movie and would like to know what’s happening in our current markets I urge ask you to watch it this weekend.)

Although we still have exposure to some growth assets including certain shares in both Australia and various regions, Having watched people’s wealth being destroyed during the GFC, has made us overly conservative has made us highly conservative for two reasons:

  1. Our job is to preserve our client’s wealth during both good and bad times
  2. If the bad times occur, we don’t want to be in a position where we simply must ride out the loss of capital. We strive to be in a position to be able to buy, great, however,  oversold, assets with cash.

Capital preservation should be paramount in investors’ minds.

There are moments in life where unnecessary risk is taken despite the warning signs. For example, swimming outside the flags at the beach when the surf looks exciting. The flags are there for a reason, they warn you about certain dangers like turbulent currents that could suck you out to sea. For the stock market, the warning flags are overvaluation and slowing growth and investors should take heed when they are waving.

The overvaluation flag has been waving in the wind for some time. For example, the Shiller Cyclically Adjusted Price Earnings index (S&P500 price-dividend by its trailing 10-year average EPS) has been flashing extreme valuation levels for the US stock market. Based on current US valuations, if you invested in the S&P 500 you could expect a ten-year return of -3.2%. The only time in history that the US market had higher valuations than today was just prior to the Tech Wreck.

Importance of Superannuation and Financial Advice

With little doubt, Superannuation (AKA Super) is likely going to be a persons longest-term investment and, therefore, deserves to be considered with a greater depth than perhaps their other financial investments.  There is no better time than now to engage in a conversation with a Kofkin Bond and Co financial adviser to ensure your Super is in order.

Super is not a short-term discussion

In the course of an average life, they may have many long and short-term savings and investment objectives. Saving for a holiday or a used car in your younger days may take a year or two, Whereas saving for a home deposit may take a little longer, and even then it may take thirty years, or more, to pay it off.

Why We’re Defensive in This Market Environment

Growing up in Australia, we didn’t watch a lot of baseball; it was mostly cricket and rugby. But those sports share many commonalities with baseball.

In cricket, there isn’t an umpire calling balls and strikes. Instead the batsman protects the wicket—two “bails,” or small pieces of wood balanced between three posts (known as stumps) behind the batsman. If the ball hits the batsman and would have otherwise hit the wicket (I’ll spare you excruciating caveats to this rule), or hits the wicket directly, or if a hit ball is caught, he’s out. But aside from protecting a much narrower “strike zone,” the batsman is under no obligation to swing. The batsman can wait patiently for a ball to hit. (But “hitting it for six” is every bit as exciting, I assure you, as a home run).