Where to From Here?

By Jason Fittler

The last couple of weeks have seen history in the making. Today I want to recap on a couple of issues. Below are the losses or gains you have made over the past 5 years. This is based on the ASX200 accumulation index.

1.    Market has fallen 27% from it high.
2.    Year on year the market is down 28%.
3.    Over the past 2 years you are down 6%.
4.    Over the past 5 years you have made a return of 72% or 14% per annum.

As you can see from the above figures if you are indeed a long term investor you have in fact, over the past 5 years produced a good overall result.

The problem with most investors is they focus on the short term; investors who have been in the market for the past 5 or 10 year would most likely think that they have lost money. I would expect that only a few would still be happy with their overall return.

The volatility in the market has caused even the most experienced players to throw their hands up in the air and declare that they have no idea what will happen next. As a professional investor I get paid to advise you where the market is going as such below is my view on the current market.

The issues:-
More bad news is to come, over the coming 12 months I would expect the following:
•    unemployment to increase,
•    interest rates to fall,
•    company earnings to fall,
•    the US dollar to pull back slightly however I do not expect to see the Aussie dollar move much above 0.90 US cents,
•    House prices to fall or stay at these levels,
•    Inflation to rise,
•    Base metal prices to fall.

The result:-
Our market will stay relatively flat, there will be day to day volatility, but when you take a look at the longer term charts the market will have moved sideways. This is a time for consolidation; each investor needs to decide how to position themselves in this market.

•    Traders; look for options, write covered calls, sell puts and look for the extra income.
•    Super fund looking for growth; invest as a contrarian, go against the trend and buy sectors which look cheap. Right now - banks and resources; in the next 12 months - the property sector.
•    Super funds in pension mode; chase the income through the preference shares issued by the top 20 stocks.
•    Geared investors; shuffle your portfolio to make sure that it is paying you maximum income while still maintaining your loan ratio. Now use surplus income to pay down debt.
•    New investors; no gearing, use surplus income to invest. Make sure you have a regular investment being made each month. To do this I would look at index funds. Best exposure for a small amount of risk.

Message:-
The market will come back but it will take time, in 5 years you will look back and wished you had bet the farm. Investing is a long term game, focusing on your losses will only increase them.

Focus on what to do from here keep working your investments and seek out advice but be careful where you get it from. A lot of commission based advisers are hurting right now as their income has dropped substantially over the past 6 months… As such they will tell you anything to get a sale.

Get the right advice, the right strategy and put it into action.     

Until next week.

When you need advice, we are always ready to listen and help.
Give us a call (07) 4771 4577.