Tag : Investment

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.

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.

What are some of the risks inside an Australian expats superannuation fund?

We often hear Australian expats taking the age-old ‘set and forget’ approach when it comes to their superannuation. Here we wanted to explore some of the risks you may be exposed to in an Australian expats superannuation fund.

Generally, the superannuation can’t be touched for years. With this in mind, we are often asked why should expats bother looking into it before they jet off or even while they are abroad? A recent article out of the Australian Financial Review (AFR) has placed the spotlight on how our superannuation is invested and potentially exposing expats to investment risk that they may not have been aware of.

It points out the lack of transparency that members face when it comes to knowing where their super is invested and what the actual level of risk members take on by being in specific investment option (i.e. Balanced, Growth and High Growth).