‘Investing’ Category

Weather vs Climate

Weather vs Climate

Are you informed or inundated?

Dimensional’s Jim Parker illustrates the folly of trying to keep up with market sentiment based on the news of the day – a quick, easy to understand article worth reading. Read more here

Rick Maggi
Westmount I Financial Solutions

Lessons from 2014

Lessons from 2014

Plus 3 themes to watch going forward…

This edition of AMP’s Market Watch is a quick, simple read, but I think the most important reminder relates ‘market seasonality’ and the usual ‘Santa Claus’ share market rally phenomenon.
Read Market Watch here

Rick Maggi
Westmount I Financial Solutions

Interest rates remain on hold

Interest rates remain on hold

Where to from here?

The Reserve Bank of Australia has announced the outcome of its monthly board meeting, deciding to leave the official cash rate on hold at 2.5 per cent.

NAB chief economist Alan Oster said he expected no change in the cash rate until the end of 2015.

“The RBA still believes that a period of stability in interest rates is the most prudent policy for the time being,” Mr Oster said.

“While there are tentative signs of an improvement in household spending, they do not yet signal a sustained change in household and business conditions,” he added. In the absence of any “major surprises”, the cash rate is unlikely to rise until late 2015, Mr Oster said.

Westpac chief economist Bill Evans noted that the November monetary policy meeting minutes were “slightly more dovish” than October’s. “The growth outlook is a little less optimistic while there appears to be less hysteria around the potential risks associated with the housing market,” Mr Evans said. “Indeed there is no implication of a substantial intervention by the authorities. The RBA is clearly in an ongoing ‘wait and see’ mode,” he said.

It is also worth noting that in other quarters further interest rate cuts are being predicted for 2015. Deutsche Bank today went on the record predicting two 25 basis points cuts mid and later next year.

Our view at Westmount is that talk of interest rate cuts is premature at this point. Unless the Australian economy significantly deteriorates further, we expect the RBA to simply maintain current rates a little longer than previously expected. Of course, if rate cuts do occur, this would probably be a positive for shares and property, so it is critical to keep your portfolio diversified and flexible at all times.

Watch a full interest rate report from Macquarie here.

Rick Maggi
Westmount I Financial Solutions

China cuts interest rates

China cuts interest rates

…and why it matters

The recent decision by the People’s Bank of China to cut rates is a positive for commodities and Australian shares. Read more here

Rick Maggi
Westmount I Financial Solutions

Comment: FOFA amendments disallowed

Comment: FOFA amendments disallowed

Should you care?

Back in July, the government negotiated a deal with Clive Palmer to save the ‘FOFA’ (Future of Financial Advice) amendments. However this morning two cross benchers (Senators Lambie and Muir) did an about-face and joined Labor senators opposing the government’s FOFA agenda. We can only assume that we will now see the return of FOFA (the’full-strength’ version) unless a compromise can be found.

Considering Senator Lambie’s recent clashes with PUP leader Clive Palmer, this seems more like a personal grudge, along with a good helping of political naivety, but for better or worse, that’s the system we have.

So exactly what does this mean for you, as a client of a financial adviser? Hysteria and vested interests aside, probably very little.

If you already have a good relationship with a non-aligned financial adviser who provides an efficient and meaningful service to you at a fair price, you won’t notice much (or any) change to the way he or she interacts with you.

Let’s not forget that FOFA (Labor’s full strength version) was introduced almost 18 months ago which, among other things, effectively banned investment commissions and ramped-up disclosure requirements, creating a more transparent, trusting environment for investors, retirees and professional financial advisors alike. And contrary to media reports, this law was welcomed by virtually all concerned, including financial advisors, and continues to this day.

The FOFA amendments or FOFA ‘lite’ (introduced by the Liberals) sought to reduce some of the new law’s excessive ‘red-tape’ without jeopardising the lion’s share of consumer protections. Personally, I thought a regulatory adjustment made some sense, but that’s history now.

I’ve spent over 30 years in financial services and I believe that the vast majority of financial advisers I’ve known over this time are ethical, educated, well-meaning people who sincerely want the very best for their clients, and to also run profitable practices for themselves and their employees. That’s just good business.

So naturally, it has been disappointing to see the reputations and motives of solid professionals being publicly denigrated during this lengthy, polarising process.

My advice is to ignore the cynics with obvious vested interests. If you’re comfortable with your current financial adviser, hold on tight and follow your own instincts, chances are you’re in very good hands.

Time to move forward.

Rick Maggi
Westmount I
Financial Solutions

Punchbowl removed: The end of ‘Quantitative Easing’

Punchbowl removed: The end of ‘Quantitative Easing’

End of an era…

After a year long phasing down period, last night the US Federal Reserve finally ended its quantitative easing (QE) program, introduced at the height of the Global Financial Crisis back in 2008.

Since the worst days of the GFC, unemployment has fallen, consumers are spending again, businesses are investing and banks are lending. So after all is said and done, QE seems to have actually worked – the US economy is now well and truly into expansion mode and looking a lot stronger than Europe and Japan that have taken longer to adopt QE.

It would be fair to say that, while the US economy isn’t exactly booming, the Fed Reserve’s decision to take the economy off life-support was, at least for now, an important sign that the US may now be able to finally stand on its own two feet.

While the punch-bowl may have been removed from the table, the music continues to play. Consistent with the Fed Reserve’s softly, softly approach, they’ve also indicated that interest rates won’t be going up in a hurry, even as the US economy continues to recover – an encouraging signal to the US (and the rest of the world) that concrete evidence of a sustainable recovery will be needed before interest rates are finally raised in earnest.

The ending of US QE is also a positive for Australia and removes a source of upwards pressure on the Australian dollar (great for exporters).

Rick Maggi
Westmount I Financial Solutions

Warren Buffet: The Power of Patience

Warren Buffet: The Power of Patience

Advice from one of the world’s most successful investors…

Warren Buffett is perhaps the greatest investor of all time, and he has a simple solution that could help an individual turn $40 into $10 million.

A few years ago, Berkshire Hathaway CEO and Chairman Warren Buffett spoke about one of his favorite companies, Coca-Cola, and how after dividends, stock splits, and patient reinvestment, someone who bought just $40 worth of the company’s stock when it went public in 1919 would now have more than $5 million.

Yet in April 2012, when the board of directors proposed a stock split of the beloved soft-drink manufacturer, that figure was updated and the company noted that original $40 would now be worth $9.8 million. A little back-of-the-envelope calculation of the total return of Coke since May 2012 would mean that $9.8 million is now worth about $10.8 million.

The power of patience
I know that $40 in 1919 is very different from $40 today. However, even after factoring for inflation, it turns out to be $540 in today’s money. Put differently, would you rather have an Xbox One, or almost $11 million?

But the thing is, it isn’t even as though an investment in Coca-Cola was a no-brainer at that point, or in the near century since then. Sugar prices were rising. World War I had just ended a year prior. The Great Depression happened a few years later. World War II resulted in sugar rationing. And there have been countless other things over the past 100 years that would cause someone to question whether their money should be in stocks, much less one of a consumer-goods company like Coca-Cola.

The dangers of timing
Yet as Buffett has noted continually, it’s terribly dangerous to attempt to time the market:

“With a wonderful business, you can figure out what will happen; you can’t figure out when it will happen. You don’t want to focus on when, you want to focus on what. If you’re right about what, you don’t have to worry about when”

So often investors are told they must attempt to time the market, and begin investing when the market is on the rise, and sell when the market is falling.

This type of technical analysis of watching stock movements and buying based on how the prices fluctuate over 200-day moving averages or other seemingly arbitrary fluctuations often receives a lot of media attention, but it has been proved to simply be no better than random chance.

Investing for the long term
Individuals need to see that investing is not like placing a bet on number 32 on the roulette wheel, but instead it’s buying a tangible piece of a business.

It is absolutely important to understand the relative price you are paying for that business, but what isn’t important is attempting to understand whether you’re buying in at the “right time,” as that is so often just an arbitrary imagination.

In Buffett’s own words, “if you’re right about the business, you’ll make a lot of money,” so don’t bother about attempting to buy stocks based on how their stock charts have looked over the past 200 days. Instead always remember that “it’s far better to buy a wonderful company at a fair price.”

Warren Buffet in 90 seconds

Rick Maggi
Westmount
I Financial Solutions

Share market correction

Share market correction

Should we be concerned?

Share markets have seen a bit of volatility and a pullback over the past month. This has been particularly so for Australian shares.

So is this bump in the road a correction or a new bear market? For our clients, particularly those either in or close to retirement, now may be an opportune time to discuss your strategy with us. While we might be relatively optimistic going forward, it’s important to get the investment, superannuation and/or pension mix right for you.

Read more here

Rick Maggi
Westmount I Financial Solutions