Looking to the Future

‘Procrastination is the thief of time’ is a phrase that has been hijacked by the finance industry and reappeared as procrastination being ‘the thief of wealth’. If you are waiting for the right time to buy back into the market, then you may well be losing an opportunity to build your wealth.

‘Procrastination’ is a grand word but it has simple Latin origins, pro meaning ‘for’ and cras meaning ‘tomorrow’…for tomorrow. And that is what sharemarkets are all about. They don’t look to yesterday but focus on tomorrow.

Tomorrow in the market
Stock prices and sharemarkets are often forward-looking; a concept which is tricky to grasp. A company’s shares tend to rally on the expectation of a good result, rather than wait for the announcement of that good result. If the announcement does not meet expectations, the share price can drop.

And it’s much the same for the market overall. It is said the sharemarket generally runs six months ahead of the actual economy. With some commentators believing we will start to see a global economic recovery in 2013, these factors might well be underpinning recent rises in the major sharemarkets around the world, even though our local market has lagged behind the US.

Recent market performance
Since January, global shares have risen around 11 per cent, led by the US. The Australian All Ordinaries index has risen more than 5 per cent to around 4,400 although back in May it topped 4,500, underlining the continued volatility in the market. Either way, it’s nowhere near its November 2007 peak of 6,873 but still well off the bottom of 3,111 in March 2009.

These ups and downs reflect continuing uncertainty and the shakiness of investor confidence in the market. Indeed, a recent survey by the Melbourne Institute and Westpac showed only 5.5 per cent of Australians nominated shares as the wisest place for their savings.

The next move
Market sentiment does appear to be cautiously changing, reflected in recent media stories pointing to a more sustained market upswing. There are signs of support at key levels, suggesting an unwillingness to push prices lower. This, in turn, has reduced volatility in the market.
The International Monetary Fund has projected global growth for 2013 of around 3.75 per cent, despite Europe’s issues, a sluggish US and a slowdown in China.
In addition, as interest rates trend down in Australia, some of the money previously invested in shares, but now in bank deposits and fixed interest, should start to flow back into the sharemarket, lifting prices as it does.
Of course, positive commentary and optimism don’t fix major problems in Europe nor do they mean a bull run is just around the corner, but it would be fair to say most negative factors have already been priced into the market.
The latest move by the US Federal Reserve to buy $US40 billion a month in mortgage-backed securities has proved a welcome short-term boost as has the German constitutional court’s approval of the big rescue fund for troubled euro zone members.
But global markets are still wary of the slowing pace of China’s growth, while closer to home the high Australian dollar and falling iron ore prices cast a shadow.

Shares pay dividends
Some market pundits believe Australian shares are currently cheap, which in turn means the dividend yield is higher. Add to that the benefits of franking credits on Australian share dividends and the fact 63 per cent of companies increased their dividends in the latest reporting season, and the argument for re-entering the market gathers momentum.
Share investments often represent only one part of your asset allocation, as determined by your risk profile, needs and goals. Once you have set your share investment strategy, generally speaking, you should stick with it and look to the long term.
Indeed, if you had not needed to sell your shares to provide an income in the wake of the GFC, then the losses would have only been paper losses. In time, most shares will recover lost ground and while you may have seen no capital growth over the last few years, dividends have continued to be paid.
Warren Buffett is famous for saying you should be fearful when others are greedy and greedy when others are fearful.
With the wisdom of this famous investor in mind, maybe it’s time to stop procrastinating and start looking to tomorrow — today.

www.perthfinancialplanning.com.au

Changing with the Times

If variety is the spice of life, then most Australian investors have had their fill of excitement in recent years. While our economy has outperformed most of our traditional trading partners since the GFC took hold in 2009, Australians have remained concerned that an economic catastrophe is still lurking around the corner.

Despite solid growth and some areas of the economy shining, our outlook, as measured by consumer sentiment, has been in the doldrums. Positive drivers such as low interest rates and low unemployment were being overshadowed by negative news from Europe and uncertainty about the future strength of the local economy.

New realities
One reason for this uncertainty may be the extensive change Australians have been experiencing since 2009. With new realities like a strong dollar and dominant resource industries driving major changes in the economy, for some people the personal impact has been significant.

This ‘structural economic adjustment’ is not new of course. Changes occur to the structure of every economy for different reasons. The days when agriculture was our strongest sector have long gone, as we have moved towards an economy now dominated by the services and resources sectors.

More and more Australians are changing their lives – from where and how they live to the type of work they do – to be able to earn a living and prosper from these adjustments. Ebbs and flows in the economy can undoubtedly cause individuals and families considerable pain. People have their hours cut, or find themselves out of work and having to relocate or needing to re-skill themselves to take advantage of new opportunities. Any change can be difficult, especially if you are not prepared or lack the ability to adapt.

New opportunities

Similar adjustments are happening in the retail sector, as spending and buying habits change and increasing numbers of people shop online. Retailer and founder of Harvey Norman, Gerry Harvey, spent years resisting the online retail world before the opening earlier this year of harveynorman.com.au. But changes have also created opportunities for innovation and new ways of retailing, such as StyleTread. While shoppers are turning from bricks to clicks, they are helping grow new online businesses like shoe retailer StyleTread. The business is not alone in competing for Australia’s $2 billion shoe spend, but after less than two years they now have a warehouse holding 100,000 pairs of shoes and employ 20 people. They also generate new work for transport companies like Australian Air Express who deliver the shoes and pick up returns under StyleTread’s 100 day return policy.

Gaining from change
Many of the adjustments individuals and businesses have already made, as painful as they may have been on a personal level, actually add resilience in case of future economic shocks.

At an individual level, these changes include saving more and being more cautious about taking on high levels of debt, as well as weaning ourselves off easy capital gains from constantly rising property prices. Together with adjustments made by businesses such as redirecting banks’ funding away from short-term foreign borrowing, these responses give the economy stamina for the future.

One fact you can bank on — both the local and global economies face further change. While structural change is often beyond our control, you can be sure most well-managed businesses are actively working to position themselves for future growth.

It takes strength and stamina for Australians and Australian businesses to meet the challenges of our new economy. Although sometimes painful, the changes made today are designed to strengthen our position for tomorrow and for future generations to come.

www.perthfinancialplanning.com.au