Your relevant Budget summary: The short, the long or the video version – your choice

Last year I branded the federal budget as boring, I won’t be doing the same this year! It’s a tough budget with all Australians told to bear the burden.

Tony Abbot has dubbed it “pain with a purpose” and according to Federal Treasurer Joe Hockey, “the economy is growing at less than normal speed and the time to fix the budget is now.”

For families, there is a focus on healthcare and education; for high income earners, a new tax just for them; for pensioners – new eligibility rules; and for the rest of us – a little bit of extra super.

For anyone who just wants an absolute bare bones budget breakdown, I’ve prepared a summary of the main points below. At the very least you can pretend to care if one of your friends or family members raises the matter.

And for anyone who would like a more comprehensive look at what this year’s Federal Budget involved, I’ve catered for your taste too by including some links to a much longer report and even a video.

First, the summary.

Personal Taxation

• A levy of 2% will apply for three years to incomes over $180,000 pa, starting in 2014/15. It will increase the top marginal tax rate to 49%.
• The levy will increase the Fringe Benefits Tax rate to 49% for three years, starting on 1 April 2015.
• Tax offsets available for dependent spouses and mature age workers will be abolished on 1 July 2014.
• Income thresholds determining the Private Health Insurance Rebate and Medicare Levy Surcharge will not increase for three years, starting in 2015/16.
• Interest on HELP debts will increase, with a maximum rate of 6% pa from 1 June 2016.

Superannuation

• People who make after-tax (non-concessional) super contributions from 1 July 2013 that exceed the cap will have the option to withdraw the excess amount plus earnings on the excess. Currently these excess contributions are taxed at 46.5%.
• The timeframe for increasing the Superannuation Guarantee contribution rate to 12% will be amended. The next increase, to 9.5%, will occur on 1 July 2014 where it will remain for four years. From 1 July 2018, the rate will increase by 0.5% pa before reaching 12% on 1 July 2022.

Social Security

• The age at which people will be eligible to receive the Age Pension will increase to 70 from 1 July 2035.
• From 1 July 2015, Family Tax Benefit – Part B will only be available to families who earn up to $100,000 pa, down from $150,000 pa. This payment will also be limited to families whose youngest child is under 6.
• The amount of income earned to be eligible for the Commonwealth Seniors Health Care Card will increase each year in line with inflation from 20 September 2014. However, tax-free payments from superannuation pensions will be included in the income assessment from 1 January 2015 for new applicants.
• From 20 September 2014, the Seniors Supplement will no longer be payable to holders of the Commonwealth Seniors Health Care Card. However, cardholders will still receive the Clean Energy Supplement.
• People receiving the Disability Support Pension under age 35 may need to undertake a compulsory workforce participation plan.

It’s important to note that at this stage, the measures announced are proposals only and may or may not be made law. So don’t go acting on them just yet…

If you’d like to hear more of what I have to say on the matter, click here for a recording of my most recent “You & Your Money” radio segment on 98.1FM Radio Eastern and click here for your more detailed Budget report.

And if you’d prefer to watch a 6 minute youtube budget update, click here.

Talk soon,
Caren

How to write "right" in business

As business owners, we also need to be reasonably competent “writers”.

It’s always been important, but in this new age of the internet and social media, we’ve kinda been foisted into the world of publishing whether we like it or not.

And let’s be honest – most business owners don’t like it!

I’m lucky because I have had training in writing, and have a degree in literature BUT as I’m about to explain, even that doesn’t mean I get it right all of the time.

Click here to find out how I got it so wrong, and how you can get it so right! (write… love a pun…)

Talk soon,
Caren

Did you know there are only 4 ways to grow your business?

It may sound a little simplistic, but there really are only 4 fundamental ways to successfully grow your business - in other words to make it more valuable:

• Increase the number of customers (of the type you want to have);
• Increase the number of times customers come back;
• Increase the average value of each sale;
• Increase the effectiveness of each process in the business.

It's interesting to contemplate the fact that all of the business development strategies you might implement will fall into one of these 4 categories.

Any other strategy that does not belong in one of those 4 ways, for example cutting costs, may help you temporarily, but it won't grow your business.  Cutting costs won't make your business more valuable unless you turn around and re-invest the money into one of the 4 ways.

These 4 ways work best when used together in an overall strategy, but the mistake many companies make is to focus on just one of these 4 ways, and thus miss out on significant growth opportunities.  In particular, many business owners focus on winning new customers, often ignoring the other (often less expensive) ways to grow their business.

Let's look at an example of how the 4 ways can work together for you.

Let's say you have a customer base of 1,000.

1. You are able to increase the amount of inquiries (and thus new customers) by 10%. This means your customer base would increase to 1,100.

2. You are able to increase the number of times each customer purchases from you during their lifetime by another 10% (e.g., from once to 1.1.)

3. You manage to increase your average sale (or transaction value) by 10%, taking it from $100 to $110.

4. And improvements in your business processes have allowed the first 3 increases to occur.

Sooooooo, assuming everything else is equal, does it make sense to say that overall business would grow by 10%?

Well simplistically it looks like the business grows by 10% BUT something completely different happens.

When all 4 areas are increased by 10%, it has a multiplier effect of 33.3% - or $33,100 more income!

ie. 1,100 x 1.1 x $110 = $33,100

That's a pretty dramatic effect on the bottom line for a relatively small increase in each area!

For a handy reference diagram on the 4 ways to grow your business, just click here.

And if you'd like to hear more details about the 4 ways to grow your business, click here for a recording of my most recent "You & Your Business" radio segment on 98.1 Radio Eastern (or ask me about a one-on-one session to help identify the 4 ways you could grow your business.)

Talk soon,

Caren

Your relevant Budget summary. The short version or the long version – your choice.

I’m prepared to accept that there may be some people out there that find the Federal Budget a little boring. Hey, stop yawning – I haven’t even started!

For anyone who just wants an absolute bare bones budget breakdown, I’ve prepared a summary of the main points below. At the very least you can pretend to care if one of your friends or family members raises the matter.

And for anyone who would like a more comprehensive look at what this year’s Federal Budget involved, I’ve catered for your tastes too.

First, the breakdown.

Wayne Swan’s 6th and possibly last budget (his Swan Song??) was not as tough as expected. He’s anticipating savings of $44 billion over four years, with the budget expected to be back in surplus in three years time.

From an investor perspective, there were not many new announcements, as most of the changes to superannuation were announced a few weeks ago.

A summary of some of the changes that may impact investors are:

• The personal income tax cuts scheduled to commence on 1 July 2015, will be deferred. These tax cuts had already been legislated so this will actually require an amendment to the legislation. The changes were to be funded by the carbon pricing, which has been lower than anticipated and therefore will be deferred until the carbon price hits $25.40.
  
  
• The Medicare levy will be increased by half a percentage point from 1.5% to 2% from 1 July 2014 to provide funding for DisabilityCare Australia. This has already been introduced into Parliament and will most likely be passed before the election.
  
  
• The proposed increase to the Medicare levy will take the top marginal tax rate to 47% (previously 46.5%), which means a number of other tax rates based on this combination will also be increased to 47% from 1 July 2014. These include increasing Fringe Benefits Tax and the tax rate on excess non-concessional contributions.
  
  
• The Medicare levy low-income threshold for families will increase to $33,693 for the 2012-13 year, with effect from 1 July 2013.
  
  
• The net medical expenses tax offset (NMETO) will phase out from 1 July 2013, with a two year “phase-out” arrangement for those currently entitled to the offset.
  
  
• Swan announced a pilot program for age pension recipients when downsizing their home. Rather than having “leftover” sale proceeds means tested, they will be able to deposit up to $200,000 in a special bank account and it will be exempt from testing for 10 years (including the earnings). Importantly, the funds are only exempt if you do not make a withdrawal. This will be trialled over a 3 year period.
  
  
• There have been a number of changes which may impact families including removing the Baby Bonus in July 2014, changes to Family Tax Benefit A which is now only paid until the calendar year when the child finishes school, and “pauses” on indexation for certain family based payments (Paid Parential Leave,  Family Tax Benefit A & B) and child care rebate.
  
  
• The annual amount claimed as a tax deduction for self-education expenses will be limited to $2,000 per person. This doesn’t apply to employer funded expenses where there are currently no limitations (this doesn’t include salary sacrifice).
  
  
• Something that wasn’t mentioned in the budget was further discounting of the minimum pension from July 2013. We can probably assume by the omission that the discounted rate hasn’t been extended and will most likely refer to standard rates on 1 July 2013.

If you’d like to hear more of what I have to say on the matter, click here for a recording of my most recent “You & Your Money” radio segment on 98.1FM Radio Eastern and click here for your more detailed Budget report.

If you’d like a youtube update that runs for less than 4 minutes, just go to https://www.youtube.com/watch?v=xB2fpMSsZ3U

Talk soon,

Caren

4.4 billion reasons to protect your family (of which you may not have been aware…)

It always surprises me when people say that one of the reasons they won’t protect their family is because insurance companies don’t want to pay out claims. My response is usually a confused “Huh? Whaddya mean? Ummmmm, that’s their job…”

I’m a member of a great service called the Risk store which publishes insurance claim statistics each year. According to their figures, more than *$4.4 billion dollars was paid out in life insurance claims last year! We’re talking death cover, total and permanent disability, income protection, and trauma.

That’s $4.4 billion dollars paid out to help re-build family lifestyles, assets, and businesses after the devastating effects of illnesses and injuries.

To really break it down –an average of $17.6 million was paid to Australians every working day in 2012.

Ok, now think on this - not one of these claimants expected to claim on their insurance.

That’s a lot of people who didn’t ever want to claim – but had to. How glad do you think they and

their family were, to have been wise enough to plan for the unexpected?

And something else to think on - if these claimants hadn’t had insurance policies in place, where else would they have got that kind of money?

Don’t get me wrong, I have no doubt there are people with very legitimate grievances against their claim process, my point is that it’s a rarity and that there are at least $4.4 billion reasons in the last year alone to protect yourself and your family’s financial security.

In most cases conflicts over claims come down to the quality of the specific company or the definitions within the policy. That’s why you should always get professional advice from people (like us!!!!) who can not only help you select the best company and policy for you - but even more importantly - in the event that something unforeseen does happen, we deal with as much of the claim work as possible on your behalf.

We feel this is the most valuable part of our insurance service, and obviously our clients do too because we recently received this email from one of our clients after the claims process: “Thanks Michael for a tremendous result. You have been very professional & balanced in your advice through this somewhat unsettling period.”

So next time you’re tempted to justify not protecting your family by saying insurance companies don’t pay their claims, just remember that over $17 million dollars was probably paid out between breakfast and dinner.

Clearly this is a personal soapbox of mine, and if you’d like to hear more of what I have to say on the matter, click here for a recording of my most recent “You & Your Money” radio segment on 98.1FM Radio Eastern.

Talk soon,

Caren

With thanks to the Risk store for all statistics, and thought provoking claims information.

*Statistics based on claims from AIA Australia, AMP/AXA, Asteron/Suncorp, BT, Clearview, CommInsure, OnePath, Macquaire, MLC, TAL, Zurich.

What should investors be doing in 2013?

Today’s my first day back in the office since Christmas, and I’m pondering two important issues:

1. Why did I come back on a Thursday instead of just giving myself an extra two days break?

2. What was I thinking coming back on my birthday???!!!!

Interestingly, the financial world didn’t stand still while I was away. In fact it was quite busy!

Have you taken a look at our sharemarket lately? It’s trotting along quite nicely and putting a smile on the faces of lots of Aussie investors.

You may recall me griping last year about the US market’s record breaking returns compared to Australia’s lacklustre efforts, well it seems I was heard. I didn’t realise I had that much influence. I suspected, but wasn’t sure…

At its all-time peak in November 2007, the ASX All Ordinaries index reached 6,854 points. During the Global Financial Crisis (GFC) it fell as low as 3,091 points (a fall of 55%) on 10 March 2009. Yesterday it closed at 4,940, almost at that elusive 5,000, and a 59% recovery since the bottom…

This news also bodes well for the economy in general, because sharemarket recovery is usually one of the first signs of pending economic improvement.

Now, I’m often accused of being a bit of a Pollyanna by my family and friends, but when it comes to the sharemarket I’m realistic. There are fundamentals that even someone as optimistic as I am can’t ignore.

A few of the most important include:

• NO ONE can 100% accurately predict future sharemarket performance;

• The sharemarket IS NOT rational;

• Risk is an inherent part of sharemarket investment, and if it wasn’t, there’d be no point investing because that’s where the reward stems from;

• From inception, the sharemarket has ALWAYS returned to a higher point than its original peak, but no one can predict how long it will take;

• Sharemarket investment is a long-term commitment, and when you experience something as unexpected and unprecedented as the Global Financial Crisis, it may be longer than you originally anticipated.

There’s also no doubt that we’re living in an era where investor psychology is impacting the performance of the sharemarket more greatly than we’ve ever experienced. This is largely due to the almost instantaneous access investors have to information via the internet and media.

Unfortunately this information is not always understood or interpreted correctly and therefore the market is prone to over-react to what is, or is perceived to be, bad news. This isn’t going to change anytime soon, so we need to be prepared for market volatility even when it’s illogical.

I read an entertaining article in the Age last week by Marcus Padley who claimed that his new year's resolution was to stop occasionally and ask, "Is what I am reading, watching, listening to or doing, necessary, worthwhile or a waste of my time?" It made me laugh out loud, but I digress…

My point is that while our favourite economist, Felix Stephen, is forecasting a 7 year bull run from the end of this year (he’s also forecasting a correction and high volatility by this April), markets are quite literally unpredictable.

I would love to tell you that this recent market rally will continue, but I can’t. No one can. What I can tell you is that the investment philosophy of “set and forget” which worked in the early noughties has become somewhat redundant in this current environment.

So what do I think investors should be doing in 2013? I’m glad you asked.

1. Getting financial and market information from your Financial Adviser not the media. I’m not suggesting you shouldn’t take an interest in current affairs, but also make sure you get perspective that’s relevant to your personal circumstances, and without the scaremongering;

2. If you’re not reviewing your investment portfolio you should be; and if it hasn’t been formally reviewed in the past few years then it’s definitely time because changes almost certainly need to be made to reflect the current environment.

3. Don’t rely on “set and forget”, this just isn’t a sensible strategy in this post-GFC climate. One of The Hendrie Group’s primary focuses since the GFC has been sourcing strategies that include tactical decisions, and this should be a priority for investors.

4. If you’re thinking about retirement in the next few years then you should be getting advice NOW. Don’t wait until it’s too late to implement really effective strategies that might add thousands or tens of thousands to your retirement nest egg.

Hope you’ve enjoyed my birthday musings.

Talk soon,
Caren

GREECE is the word!

………or is it Spain?........Portugal?........USA?...
…..Italy?........France?...



In the olden days it used to be said that sharemarkets were efficient (because all investors had the same information on which to base decisions), and that today’s news didn’t effect sharemarkets because the markets worked on expectations of the future.

In these modern times, you could be forgiven for thinking that these long-held truths no longer apply, as markets gyrate to the latest news reports issuing particularly from the European scene.

John reckons he can lay the blame for all the ups and downs at the door of the communications industry. In the 70s, 80s, and even the early 90s, news travelled relatively slowly, and economics was not a regular feature of our daily news broadcasts.

The spread of computers, the advent of the internet, and the development of broadband have led to a situation where news of what’s happening in the world of finance anywhere around the globe reaches us almost instantaneously.

Couple this ready access to information with a dramatic increase in the number of small investors who can trade with ease over the internet, and we have a situation where daily market movements can be determined by these small traders, while the larger, longer term institutional investors sit back, and watch and wait.

We’re lucky, aren’t we????

Anyway…..to Greece.

For now, at, least the election result has averted a messy Greek default and exit from the Eurozone, which would likely have had a contagious effect on other European economies. European leaders met on 28/29 June, to hopefully can devise an acceptable plan for a sustainable solution to their systemic problems.

As part of this meeting they agreed to allow aid to be delivered directly to struggling banks, rather than through national governments. The upside being that banks can be re-capitalised without adding to the debts of individual countries.

The leaders also agreed to set up a joint supervisory body for banks across the Eurozone and approved a $160 billion stimulus package.

Meanwhile, across the water, the US economy has been showing signs of slowing, and may take a further hit in the new financial year as planned budget cutbacks settle in. The saving grace here is that, compared to Europe, the US is not fragmented in the same way (even though the political parties can sometimes make it seem that way), and no one fears a credit default by the US government.

With all that said, expect market gyrations to continue for some time, while the financial world settles down and anticipated stimulus packages kick in. Invest in the downturn, and wait for better times.

Should you loan money to friends or family?

A number of years ago one of my clients came to me to ask my advice about loaning a significant amount of money to her daughter. The first question I asked was whether there was any chance that her daughter might not pay her back, to which she replied “oh there is every chance she won’t pay me back.”

I knew her financial position and knew that she couldn’t afford that risk, so told her to explain to her daughter that she wasn’t in a position to help out.

But there are cases where we are in a position to help, and at the end of the day, the only person who can decide if you want to loan a friend or family member money is you, but I do have some tips.

Questions to ask yourself:

1. Will you suffer financially, if the loan isn’t repaid. If the answer is yes, then my recommendation is to walk  away. You don’t want to put yourself into financial hardship because of somebody else’s money problems.

2. Will your relationship be damaged beyond repair if the loan isn’t repaid. If the answer is yes, then again, I recommend walking away. You don’t want to lose your relationship AND your money.

In the very few times I’ve loaned money, I have gone into the arrangement with the attitude that if I never saw the money again, I would live with it. If I can’t feel that way, then I just don’t do it.

3. How formal do you want the arrangement to be? If someone asks to borrow money from you, particularly if it’s what you consider to be a sizeable amount, then you have the right to expect a formalised written agreement. The written agreement should state the amount borrowed, any interest that may apply, payment terms (how much and how often), and the date the loan should be finalised.

I’d recommend having the agreement drawn up by a solicitor, and I personally believe that the person borrowing money should foot the cost of any fees.

4. Will you charge interest? And if so, at what rate?

Often loans between friends or family members are no interest, or low interest, and this is of course up to you. You may wish to apply a market rate of interest, particularly if you believe there’s a reasonable chance that you might not get your money back. Perhaps it’s unlikely that person will be able to get a loan from a bank or other lending institution, and would be more than happy to pay the market rate to obtain the capital

You do need to be aware that legally you have to declare all interest to the ATO, even if it’s a loan between friends or family.

5. If it’s not a formal written agreement, what are your terms? Even if you decide not to formalise the agreement, I do think you need to be clear on the terms. You terms might include a structured amount to be credited to your account each month, or a lump sum to be paid at the end of a certain period.

6. And once you’ve decided the terms, what happens if the terms aren’t met? At what point are you going
to start jumping up and down, or at least giving a little nudge? That’s probably something you should also agree upon from the start. And if the loan is never repaid – what are you going to do? If an agreement is in place, are you going to take legal action?

Probably the best advice I can offer is to be totally up-front right from the start. You may feel a little awkward, but if someone has had the courage to ask you for a loan, then setting the terms should definitely be your prerogative and should be expected. Some ideas for approaching this might include:

“This is a lot of money to me, and while I’m happy to loan it to you, I will need it to be repaid in monthly installments by July. Is that going to work for you?”

“I won’t need the money for the next twelve months, but after that I really do have plans for it. Will you be able to pay me back by September next year? And will you do that as a lump sum, or regular payments.”

“I’m happy to loan you some money, but I have to be honest I’ve seen some relationships turn really sour when money is involved, and I would hate that to happen to us. Would you be agreeable to formalising the arrangement so that we don’t have to worry about any of that?”

“If you happen to miss a payment, do you want me to give you a reminder straight away, or give you a few days in case it’s just slipped your mind?”

At the end of the day it comes down to personal circumstances and your relationship with the person needing a loan. Just make sure you consider the risks involved and what you need from the arrangement.

Talk soon,

C

Hard not to be bitter…

It’s pretty easy to blame the US for the Global Financial Crisis (GFC). Even if they weren’t completely to blame, their housing slump and sub-prime debacle were a mighty big contribution.
You remember right? All those sub-prime mortgages where banks would loan money to just about anyone, and not only that but some were non-recourse (ie. if the bank forecloses and doesn’t get the full value of the property, there’s no further requirement for the homeowner to pay the balance of their loan). I’m no Julia Childs, but I see a really good recipe there – for disaster! Maybe something like this:

Mix way too many sub-prime mortgages with an over-supply of housing in some areas, and make a well in the middle. Gently fold in rising unemployment and a generous splash of foreclosures due to interest rate hikes. Pour into a tin lined with a collapse in residential housing. Bake at 180 degrees Celsius and test with a skewer and if gross domestic product (GDP) is falling it’s ready. Cool for (let’s face it, about 4 years) and what you have is a perfect GFC yeah?

So it’s a little hard not to be bitter watching their sharemarket screaming towards its highest point in history. In October 2007 the Dow Jones index reached it’s all time high of 14,164 and as I write, it’s at 13,125.

Of course that’s good, I’m not really whinging about their success BUT, in the words of Moving Pictures (or Shannon Noll if you didn’t get to experience the 80s), “What about me?”

In good old Oz, our ASX All Ordinaries index reached 6,854 points in November 2007, and where are we now? 4,348 as of yesterday. Still a long way off our all time high! Seems a tad unfair?

So what should we expect from sharemarkets going forward?

Prior to 2007, business cycles were reasonably long in duration, but it would seem now that they have shortened (eg. 3-5 years) in response to world monetary difficulties (probably euphemistic for some of the European countries). And of course there’s political and religious unrest, not to mention government instability in various geographic regions. So this relatively shorter business cycle began in mid-2009, and economists are forecasting that it possibly has another 12-18 months to run.

Anyone who listens to my radio program will have heard me say that “volatility is the new black”. It’s here to stay for at least this cycle. I did some research a couple of months ago and at that particular time our sharemarket had experienced movement of more than 1% in a single day 97 times in the 12 month period. WOW!! (By the way that’s an expression of amazement, not the Woolworths ASX code). Fortunately most of those times were “upward.”

Sooooooo, market volatility will continue for some time and we’re concerned that government stimulation packages haven’t been enough to sufficiently boost flailing economies. Depending upon a number of factors (eg. presidential and congress elections in the US next year, a programmed change to the political leadership in China, a continued thrust to hold the European Union together) there’s the possibility of a world recession in late 2012 – 2013. So my recommendation is to make sure you protect on the downside by taking a more tactical approach to portfolio management. For example, the current circumstances would seem to call for some strategic defensive positioning. In particular, holding enough equity exposure to take advantage of any market rallies over the next 6-12 months, but also putting measures in place to help protect against “downside” risk.

Alright, well that’s as technical as I’m prepared to get, it must be time for some cheese and bikkies (yes that’s my excuse for a glass of wine).

Talk soon.
C

A reminder about what “simplified tax returns” actually means.

I know I covered this last year following the 2010 Federal Budget, but I thought it was worth re-visiting as it’s a topic that seems to have caused some confusion.

You may recall at the time, Wayne Swan tried to promote the proposal by saying it will give most people “more time with their loved ones.” Talk about a stretch!! Methinks he needs a tad more spin doctor training.

The idea is that from 1 July 2012, individual taxpayers will have the option of claiming a standard deduction of $500 for work related expenses and the cost of managing their tax affairs. From 1 July 2013, the Government will increase this standard deduction to $1,000.

This is supposed to make it easier to lodge your own tax return, and in some instances this will be the case. The standard deduction is optional, you can still claim your full “actual” expenses if you believe they will be higher.

An important statistic to take into account that the government is not promoting is that the ATO have released figures showing that the actual average deductions claimed is more than $2,800.

So it begs the question - do you trust the government with your tax deductions? And please bear in mind they are talking about $1,000 of deductions, not a $1,000 refund. At the 30% marginal tax rate the ATO’s actual average taxpayer will be doing themselves out of almost $600 refund.

By making it simpler, are they really hoping that we’ll get lazy and forego our higher tax refund for the easier option? After all, it’s the government trying to save themselves money through reduced administration. Call me cynical, but I just don’t see the government introducing this policy to make my life easier, there has to be more in it for them.

Talk soon,
C

FEEL THE NOISE?

Oh man, it has been a noisy few weeks in sharemarket land. And most of that noise has been coming from the media – bless their often misguided, sometimes completely irresponsible, cotton socks.

This will be a fairly lengthy blog, but I think (hope) well worthwhile for anyone that’s wondering what on earth is going on. More importantly, it will provide some perspective.

But most importantly, there’s a prize offer at the end!!!!!

At my business, The Hendrie Group, our approach to managing finances has always been to identify long term goals and then to develop strategic plans to help meet those objectives.

As with all plans, nothing is set in stone, and there may well be variations along the way, to respond to changes both in your goals and to investment markets.

But we try to keep those changes to a minimum, by having a long term strategy, and filtering out the market “noise” which fills the media on an almost daily basis.

Those of you who regularly read my blog or listen to my radio program (98.1FM Radio Eastern Thursdays after the 9am news), will be accustomed to my periodic harangues about the need to be wary of sensationalism in media headlines and reporting. Not to mention, inaccurate reporting, media focus on “short termism” particularly in relation to investment returns, over-emphasis on the issue of fees, etc, etc ….. and to remain focused on the long term.

So, given the market gyrations of recent weeks, and the associated reports, I was pleased to read two articles which – in differing ways - reflected my philosophy.

In a topical article titled Why the fear industry has moved on from the Greek ‘crisis’ well-known and respected Australian finance journalist Michael Pascoe wrote:

“Is anyone feeling a little sheepish after all the hype about the potential Greek Armageddon last week? Probably not. The fear and worry industry immediately moved on to beating up the importance of China’s manufacturing industry numbers on Friday.

For all the theatre of protesters and police, the whiff of tear-gas in reporters’ constant pieces to camera, the repeated lines about the danger of Greece causing another global financial crisis….nothing much really happened.

…….Meanwhile, back at the headline factory, China’s indicator of manufacturing activity, the purchasing managers index (PMI) came in lower than expected for June. The Australian stock market allegedly saw that as a bad thing, indicating that China is slowing, albeit to a growth of about 9%. The Shanghai market saw it as a good thing, indicating that China is slowing and therefore Beijing won’t have to increase interest rates again. So it goes.”

(Market Perspective, The Sunday Age, July 3 2011, p22)

Jim Stackpool, a leading management consultant to financial planning businesses, says:

“Good financial professionals deliver certainty in a constantly uncertain world. Mining booms will come and go, international markets will fluctuate, countries - and companies the size of continents - will not perform predictably, natural and unnatural disasters will occur, and unforeseen threats will raise their ugly heads. The ramifications of each of these events will affect the assurance people seek, and good financial professionals anticipate this.

… (they) also understand our ‘natural financial wiring’… adversely affects most peoples’ decision making (that is most of us mere mortals tend to buy high and sell low), and they know how this thinking will most significantly affect the attainment of greater financial certainty in our lives.

Even more importantly, they understand their clients well enough to deliver the wealth management services required to reinforce and lead their clients on the financial journey most appropriate to deliver the assurance each and every client seeks.”

(Asset Financial Review, July 2011, p40-41)

(Note: All the bolding is mine for emphasis).
And finally, eminent Australian economist Shane Oliver (so not the media) wrote in his latest issue of Oliver’s Insights:

“A massive increase in economic and financial information flow is adding to investor jitters and driving a shift further away from long term-investing. This is likely to work against investors over time.

Investors should consider turning down the ‘news volume’ and refocus on investing for the long term, remembering the best time to invest is when everyone is gloomy. Averaging into weakness is a good way to go.”

(Oliver’s Insights, Edition 18, 29 June 2011)

So my message remains the same - stick with your long term strategy. Unless you really can’t stand the strain, in which case talk through your issues with your adviser.

Ok, now to the prize offer. If you have a Facebook account all you need to do to enter our draw is “like” our new Hendrie Group page before 31 July. The prize is a 26" Full HD LED Kogan TV with built-in DVD player and PVR. How good is that?

Talk soon,

C