Borrowing and Wealth ManagementWe all know that many people have become very wealthy through the use of borrowing. These people are often lauded as brilliant entrepreneurs and we are encouraged to emulate their success. But the last couple of years have again starkly reminded us that borrowing also comes with considerable risk and, potentially, financial ruin.
Employee Share Schemes - Are the proposed changes all bad news?For many, receiving shares or options from your employer is a welcome benefit. There are usually no immediate tax or cash flow implications and you simply get access to a new investment that, hopefully, will grow in value.
The 'secret' to wealth creationMany in the financial planning and wealth management industry want you to believe they hold the secret to creating wealth. They'll guide you into the right investments. They'll use their superior technical skills to minimise tax. And, perhaps, they'll suggest you borrow and invest to accelerate your wealth accumulation.
International shares: To hedge or not to hedge?In our recent article, 'Should you hold international shares in your investment portfolio?', we argued that there are diversification or risk reduction benefits from holding international shares as part of a share portfolio. To keep it manageable, we did not directly address the exchange rate risk that comes with owning shares denominated in another currency.
How far to financial freedom?In our introductory meetings with potential new clients, we want to obtain a preliminary view of their 'Net Investment Wealth'. It quickly gives us an idea of how far along the road to financial freedom or independence they have come and how far they have to go.
The Golden Rules of InvestingWhen it comes to investing, there is an inordinate amount of information and opinion that is freely available. Most people have an opinion about the direction of the economy, markets, which asset classes or sectors will do best, and which specific securities will out perform. And most of these opinions are supported by valid reasoning and sometimes by informational 'evidence'.
Ownership of family wealthWhich structure is best? Family wealthFor our clients, there are predominantly four ways they hold their personal wealth. Which structure is best? It depends. But given our emphasis on focusing on the things you can control, the structure choice is one that needs serious consideration. There are a number of often competing factors to take into account, with taxation, asset protection and succession / estate planning usually most prominent. This article considers some of the issues.
Franked dividends and your investment strategyMany D-I-Y investors skew their investment portfolios towards shares that pay franked dividends. This is particularly prevalent amongst trustees of self managed superannuation funds who appear to over value the benefit of franking credits. There appears to be a view that franking offers 'a free lunch', resulting in its overemphasis as a driver of investment strategy. We believe investors should not favour particular shares simply because they pay franked dividends. The usual thinking behind such behaviour is, in our view, flawed.
Financial Planning: Personal Financial Advice or 'Product Flogging'?The financial planning industry (and a number of accountants dubiously playing on the edge) has come under intense fire recently. The downturn in investment markets has exposed a number of products that have not turned out to be in clients' best interests. These include high yield mortgage funds, absolute returns funds, agribusiness and protected equity products and excessive margin lending.
Fortune favours the brave!If you're feeling pretty uncomfortable about the current state of financial markets you can be reassured that you're not alone. Almost all investors are experiencing some discomfort from the recent falls in asset values, yet some handle it better than others. How you manage your emotions in relation to the market's volatility can have a big influence on your investment outcome over the long term. In this article we explore the influence of our emotions on financial decisions and look at what we can do in times like these.
What does Warren Buffett think you should do?Are you looking for the best way to build wealth? Why not seek the advice of the world's best investor? Warren Buffett says that the best way to maximise your wealth is to focus on your career and to invest in index funds. You may find that surprising advice from a great investor, yet it does make a lot of sense. If you're devoting your free time towards trying to out-smart the market at the expense of building your career skills, you may want to re-think your strategy.
Is there value in trying to time your entry and exit from the market?This article aims to address the pros and cons of the investment strategy known as 'market timing'. Market timing is the strategy of making buy or sell decisions of financial assets by attempting to predict future market price movements. The prediction may be based on an outlook of market or economic conditions and the strategy is based on the outlook for the market as a whole, rather than for a particular financial asset.
Mortgage or Super?Are you better off reducing your mortgage or contributing to super? A lot of people ask this question. Unfortunately, as with many wealth management decisions there is no straight forward answer. The appropriate choice depends on a number of issues, some of which we address in this article. The obvious starting point is to look at the numbers. Assume you have 15 years until you can access your superannuation benefits free of tax.
Investment GobbledygookThere are no orphan shares, A lot of what passes as serious investment commentary is simply 'gobbledygook' i.e. nonsense or drivel. It defies share market realities and is at odds with the philosophy that markets work. Yet, unfortunately, some of the people and organisations generally regarded as finance experts are the main proponents of this gobbledygook. Let's consider a couple of examples.
Five Things To Remember In Difficult Times'I have not looked at any of my holdings and don't intend to. I don't want to be tempted to jump because I think I'd be more likely to jump in the wrong direction than the right one. My advice has always been to choose a sensible diversified portfolio and stop reading the financial pages. I recommend the sports section.' Quotation attributed to Richard Thaler, professor of behavioral science and economics, University of Chicago Graduate School of Business.
Property Investing - Listed or Unlisted?The Government's plan to provide a rescue package to help the ailing commercial property sector has sent shivers down the spines of many investors. The package is driven by the fear of property trusts being unable to refinance their short term debt. Most notably, the probability of refinance by foreign lenders, who are coping with their own problems at home, is considered to be quite low. The implications of not being able to obtain funding (i.e. re-financing) are that property assets may have to be sold in a short period of time.
This Time it's DifferentThese words are often referred to as the four most dangerous words in investing. They are often uttered at the peak of bull markets but what about their application with respect to bear markets? While every market cycle differs in terms of the specifics of the situation, the underlying influences can have similarities. A well-cited study performed by two finance professors from the University of Chicago found that financial markets are always vulnerable to what they called a liquidity shock - a sudden tightening of credit.
Is This You?By most measures, you're doing pretty well. You either have a successful career, as a professional or business executive, your own growing and vibrant business and/or are independently wealthy. You set and achieve high standards for yourself. But you feel that your personal financial affairs may not be as well positioned and as organised as other aspects of your life. You are not driven by money for the sake of it, but 'money related' issues on your mind may include:
Protected Equity Products: Can you have your cake and eat it?They are promoted as an opportunity to benefit from share market growth, without the risk of losing capital. They involve borrowing up to 100% of the purchase price of a basket of shares for a minimum period (generally 3 - 5 years). You keep the dividends and any gains and are protected against investment loss.
Market Timing? ... that's easy!Years ago at a foreign exchange course we were asked to participate in a practical simulation game. Prior to commencing the game one of the participants had a moment of clarity. Participant: 'So, what you're saying is that we should buy low and sell high?'
Organiser: 'Well ... Yes.' Participant: 'Oh, that's easy!' What seems so easy in theory is anything but in practice. It's a valuable lesson which few learn until late into their investing lives. Timing your entry and exit from a market is an appealing concept that seems a simple and smart way to add value.
Should you hold international shares in your investment portfolio?Invest in international shares for reduced risk ... Many individual investors, particularly do-it-yourselfers, do not hold international shares in their investment portfolios. Why would you, they ask - returns have been poor for almost a decade now. But the argument for allocating part of your share portfolio to international shares is not based on returns. Returns cannot be reliably predicted - past performance does not provide a guide to future performance.
Should cash distributions drive investment decisions?It is not at all uncommon for those in retirement and near retirement to be concerned about the amount of cash distributions their investment portfolio is paying. Often, their objective is to be able to live off this cash and, thereby, keep their initial capital intact. Typically, such investors understand they need to be concerned about the long term safety of their portfolio. But, at the same time they require some scope for capital growth to avoid the possibility that they will run out of money.
Why have a Self Managed Super Fund?Not for higher investment returns ...istock_000008794467xsmall, There has been an above trend increase in the number of self managed super funds ('SMSF') set up recently. Such spurts usually occur when investment returns have been poor. The expectation appears to be that better returns will be achieved with a self managed fund. However, there is no clear link between investment performance and super fund structure i.e. self managed, industry, corporate or retail public offer.
Are home loan interest rates really low?Lowest home loan rates in 50 years ... for_sale1, 'Lowest home loan rates in 50 years' scream the headlines. Best time to borrow and buy property claim the real estate agents. With an increased home savings grant for first home buyers, it's easy to believe that there will never be a better time for existing renters to stop paying 'dead money' and buy their own home. And many baby boomers, who created a lot of their wealth by jumping into the residential market in the 1970's and early 1980's, are probably now encouraging their children to take the plunge because it worked well for them.
