While we have had a busy year and have (almost) finished unpacking our boxes after moving in to the new office at Karalta Connect at Erina, as the year comes to a close let’s look back on some of the issues dominating the news.

 

 

All around the world we have had sovereign debt issues, elections, rescue packages and continuing Eurogeddon, along with talk of a ‘Fiscal Cliff’ in America and falling interest and bond rates. Pessimists are telling us the US will be going into recession and Europe is a time bomb. Here in Australia the mining boom is ‘over’ and house prices will plummet.

 
So what to do against this backdrop of a wall of worry?
 
  • Don’t react to what Mario Draghi or Ben Bernanke might be thinking of doing.
  • Don’t try to speculate, trade and time the markets.
  • Don’t flip back and forth reacting to the daily news cycle.
  • Do invest in companies (or funds) that have good prospects for tax effective LONG TERM growth.
  • Do invest in companies that are making good profits, are strong and are likely to grow.
 
And most important of all – review and understand your overall investment strategy.
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Are you a glass half full or half empty kind of person? Most people individually say half full, but collectively Australia sees itself as half empty. Our view on our own economy and business is pretty negative, yet this is very, very different to how the rest of the world sees us. They see us as a triple A rated country with a good economy, significant resources, a strong banking sector and having avoided recession in the GFC, etc.
We also have high interest rates relative to most of the world and this is one of the reasons for our strong currency. Interestingly, as interest rates fall the defensive assets (bonds) become ‘riskier’ and the ‘risky’ assets (shares and property) become less so.
These lower rates will encourage more investment into more productive assets (shares) and help drive growth. The banks are offering term deposits at 4%, but bank shares are paying dividends of more than double that rate.
This is an example of customers demonstrating extreme defensive behaviour. Once the mood turns, demand will rise significantly. The only question is when!

 

  Credit Rating     Current Yield       1 Year Rate Yield      5 Year Rate Yield     
Low Risk            
Commonwealth Government Bond                                                                AAA       2.77% 2.70%
Term Deposit Westpac AA-        4.35% 4.65%
Term Deposit NAB AA-        4.40% 4.60%
Listed/Hybrid        
NAB Income Securities BBB+ 6.33%    
Macquarie Income Securities BBB- 7.66%         
Shares - Forecast June 13 Grossed Up Annual Dividends        
ASX      8.59%    
Telstra      9.41%    
Westpac      10.03%    
NAB      11.26%    

 

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