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Finding opportunities in a volatile market

The past 3 months have been big both locally and overseas.

Which makes now a good time to update you on the current outlook and explain what this means for your investments.

Global politics and the sharemarket
In Europe the current debt problems aren’t going to just go away. You’ll continue to hear reports of potential debt defaults, and of potential problems in the European banking system.

While we all hope that the political leadership of countries such as Spain, Greece, Ireland, Germany and France will soon take the kind of steps needed to prevent further Europe-wide economic and financial issues, there are political hurdles in the way.

Some of the current governments are facing upcoming elections; Spain in November this year, followed by presidential elections in France next year. Many of the steps that need to be taken are going to be politically unpopular, and it is hard to see many of Europe’s politicians wanting to face the polls after taking those steps.

In the US, despite Standard and Poor’s announcing the first ever downgrade of the US Treasury’s debt, Treasury bonds are still very much in demand. In times of equity market turmoil, it is clear US Treasuries are still a key safe haven for investors.

What this means for your investments
In times like this active management of your investments is crucial to delivering good strong medium to long-term returns.

Such market volatility and individual share volatility, provides a great backdrop for investment managers with strong investment processes and discipline. They can pick up shares at very attractive prices relative to their medium-term growth opportunities.

While the level of economic activity has slowed down particularly in western economies, is perhaps not as dire as media reports have suggested.

Ironically, in these times, high quality equities may actually prove to be more of a safe haven in a world dominated by government debt concerns. Many companies around the world are in a very strong financial position, with historically very low levels of debt, and able to invest in and grow their businesses.

Any questions?
As always, we’d be very happy to meet or talk with you over the phone.







Why you need a return above inflation

Rises in the price of goods and services, is known as inflation. Inflation erodes the value of your money. For example, $100 in the future may not buy the same amount of goods as $100 today. To prevent the value of your money being eroded, your investments need to earn a return equal to or above the rate of inflation in the long-run.
For your investments to more than keep pace with inflation, you need to invest in assets which are expected to deliver higher returns in the long-run (like property or shares).
The following graph shows how an investment of $100 in the Australian share market in 1900 would have grown in "real" or after inflation terms. By the end of 2008, this $100 would have grown to $208,059 in real terms. Cash on the other hand would only have grown to $207 - a significantly lower return in real dollars.



There were many periods in history where cash did not keep up with inflation. Eg during World War I and II, post World War II and the 1970s. Of course there were also times when the share market did not keep up with inflation, however the returns in the long-run have significantly compensated.

*Source www.mlc.com.au