Ignore the Hype

Gareth Daniels is an Authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee

As I have mentioned before (and no doubt mention again) when reading articles in the papers, watching news on TV or even listening to the radio to and from work, it is always vital to objectively consider the information we are being given.

As a history student, I was taught to always consider who has produced the source of the information, who their intended audience is and why it may have been produced. That foundation can serve us well when considering decisions that relate to our long term financial security.

At the heart of this is accepting that popular media constantly misuses the word ‘investor.’ Many of you may have heard Peter Thornhill speak or even read his book Motivated Money. He correctly spends time focusing on the difference between speculation and investing; the first being the “buying or selling of commodities or stocks… in the hope of an unexpected rise in the price“¹ and the second being “use of money productively so that an income is obtained.

Peter goes on to note that “speculation is described as investment simply to legitimise activity that has nothing to do with investing.

I read with interest the article This asset manager thinks Australian property ‘calamity’ is coming, so he sold all the firms shares². Consider this article in conjunction with the process of analysing a source:

Who has produced it: A national media organisation that knows doom and gloom predictions sell papers

Who is the intended audience: The misconception that all investors are speculators and all speculators are investors means they are attempting to reach as many people as possible. Regarding the interviewee, I would suggest he is trying to reach future potential customers (pitching for business as he apparently knows better than the market) and those clients to whom they have just returned their money (justification for selling the fund).

Why has it been produced: Again, for the publication it is the desire to get eyeballs on their paper and website and for the interviewee, future potential customers by an apparent display or foresight whilst pacifying those clients to who they have just had their money returned by way of defense of their actions.

Philip Parker may be a top fund manager as the article notes, but by what bench mark? The ASX top 200 is cited in the article, all well and good but it is the capital value of this bench mark that is the apparent measure? I would prefer to measure against corporate profits shared out as income via dividend. I would also not like to get sucked into the yield trap, jumping in and out of different assets and significantly increasing the likely effects of market timing risk.

If values are over inflated then surely it is speculators that are at risk with their hopes of gains at considerable risk that should be worried. Investors who own quality assets for the long term to be in receipt of income, should not even dedicate a second of their time to read an article clearly aimed at speculators. It can become stressful to build wealth via a fund manager who believes that over the long term, through active management³ they can beat the market rather than simply owning the best that the market has to offer. The latter allows you to confidently ignore the short term fluctuations in perceived value and and enjoying the true value of a repeating, tax-effective and increasing income stream over time.

What is intriguing is the (potentially) strategic move by this fund manager. Despite the litany of unfulfilled doomsday predictions that regularly crop up, the article even sites a few, these are readily forgotten, whilst the ones that do appear to come true elevate those that predicated them to genius status. So, this firm and it’s investment team either get lauded as the special few that were able to read the tea leaves correctly, or they simply “enjoy their time off” before returning to the fold to make further predictions; attempting to reach those that believe in speculation rather than investing. All this whilst the rest of us carry on with our investment strategy, focusing on what is important to us and critically analysing the overload of information that we are unnecessarily bombarded with.

 

1. Thornhill, P. (2015) Motivated Money; Sound Financial Advice for the post GFC World, 5th Revision. Australia: Motivated Money, pg 12

2. Patrick Commins, B. (2017) This asset manager thinks Australian property ‘calamity’ is coming, so he sold all the firm’s shares. [online] Business Insider Australia. Available at: https://www.businessinsider.com.au/this-asset-manager-thinks-an-australian-property-calamity-is-coming-so-he-sold-all-the-firms-shares-2017-5 [Accessed 7 Jul. 2017]

3. The belief that a manager knows better than most can pre-empt economic cycles, property bubbles, threats of war and crisis around the world and a whole host of other fads. They are effectively trying to speculate their way to wealth via capital appreciation.

 

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product.
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Financial Planning: FAQ’s

You're not the only one asking yourself these questions!

As a person who has spent majority of their life in the financial services industry, I was sure I was well versed in taking care of my finances. I understood the basic principles:

Have a diversified portfolio, stick to a budget, and save for the future.

Both my parents worked in the banking industry and I had been exposed to discussions about money from a young age. I streamlined into commerce subjects for Year 12, and went onto study semesters in subjects such as Financial Accounting and Income Tax Law which would probably put any other sane person to sleep. Nevertheless I genuinely enjoyed learning about finances, and I chose to study accounting both at an undergraduate and postgraduate level.

However, sitting in my first Common Sense Investing presentation given by Income Solutions, and on that day presented by the company’s founder, David Ramsay, I realised that I knew very little about my own finances.

I was also about to turn thirty, and with the end of our twenties we all have some real world experience under our belts – we’ve tried some things, failed at some and succeeded at others.

Living as a thirty-something brings a lot of new and interesting financial challenges.

Do we have enough money in our emergency fund for a rainy day?

Should we be spending all our savings on our wedding? (My other half glares at me as I write this second line).

I realised I needed to make a few changes if I was going to secure my family’s financial future. I have gained a lot of exposure to this area of planning for the future in my time with Income Solutions; working closely with David, Elise and the many team members of our Geelong office.

 

Here are a few questions that have struck me both personally and professionally now that I have hit the big 3-0 this year:

 

I do not have a lot of spare money to invest, nor do I have thousands in savings. Why do I need a Financial Planner?

Advice from a financial planner is not necessarily for people paying taxes in the highest tax bracket and earning a six figure salary. Making sound financial decisions in your early twenties can have a significant difference to your future. Financial planners can give advice on the choices you make, your lifestyle and not only where you see yourself in 10 years, but how to get there.

 

Where is the best place to keep my money that I do have?

The conundrum of a fixed deposit or investing in the share market. Managing your savings wisely is important to your long-term wealth creation plans, and can guard against financial disadvantage should the situation ever arise. Each savings strategy is different, based on the individuals situation.

 

When is the right time to sign up for a mortgage?

The first goal for most young professionals is to save up for that first house; whether it be the dream home, the older house that needs renovations or a house in a different area that can be leased and used as an investment property. There are a lot of options and factors to be considered such as risk, debt, interest rates and it is important to remember that what is right for you may not apply for someone else.

 

Where is my super and how does it work?

Your superannuation matters – most Australians rely on their superannuation balances to fund them in retirement. Most of my own friends working in a variety of fields – engineers, doctors and casual work – seem to not know where there super is and how it is invested.

 

How important is life insurance?

Under-insurance is a big problem –the possibility of becoming totally and permanently disabled is not something you consider in your 20s. However, these tough questions need to be asked and answered to help secure your future.

 

What is budgeting and why is it important?

Budgeting doesn’t mean you need to pinch your pennies and not enjoy yourself. It is more about having an idea of where you are spending your money and finding ways to cut down on that frivolous spending that drains your bank account. It is used for planning and for control. Financial planners can assist you with committing to a budget in order to make an agreed-on outcome happen.

 

 

There is no one right time to be thinking of the future. It needs to be happening, always. If you are working full-time, part time, in-between jobs, just taking a few months off work to spend time with the family, or you are pondering starting your own business, we will be able to help manage your goals and dreams. You may be, like myself, entering an age where the thought of retirement and other financial issues become a bit more ‘real’ or you just want a better understanding of how your money will deliver the lifestyle you want.

If any of the above queries have resonated with you as they did with me, or if you have any other burning questions and want to learn how to better strategize for your future, drop by Income Solutions and we’ll make time for a chat.

 

Tharaka Leeniyagoda

Associate Financial Planner

 

Please note: The advice in this article is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.

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Why you shouldn’t panic!

Staff Blog

There are times in life where you listen to the news with a heavy heart, and a slight panic.  It’s fair to say the big news stories of the last few weeks have left me feeling this way, following the tragic loss of life in Orlando Florida, and the murder of Jo Cox in the UK.   Label them what you will – hate crime, terrorism – it doesn’t matter how they are portrayed, the reality is that in the global village of today’s world you acutely feel the pain of these events as if they happened down your own street.

As Business Development Manager at Income Solutions, I make sure I keep up to date with the news and read as many articles as I can.  As a Financial Planning firm, we are very interested in behavioural investing and the flow on effect big news events have on the way people view investment markets.

Last week I’ve read articles around SPECULATION of the Brexit outcome – Britain’s decision leave the European Union, for which Jo Cox was passionately campaigning against.  I was horrified to read one article where the author was promoting changing investment options for superannuation investors based on what MIGHT happen.  For example, the author’s suggestion is that the Australian share prices MIGHT be affected by this decision.  The author’s strategy was to sell now while the price is high and then hold cash until it’s right to buy back into Australian shares at a low price.  The author doesn’t predict when that “right time” might be.

NO!  I feel so strongly against this sort of SPECULATIVE advice that I’ll just repeat that.  NO!

Let me give you a definition of speculation, taken from the Macquarie Concise Dictionary: Trading of commodities in the hope of profit from changes in the market price, engagement in business transaction involving considerable risk but offering the hope of large gains.

Now let’s consider your superannuation – a long term INVESTMENT designed to provide you with income when you retire.  From the same source, the definition of investment: The investing of money or capital in order to secure profitable returns, especially interest or income.

Let’s face our own reality.  Unless you are a qualified investment analyst with access to financial reports (which you know how to read and understand), I doubt you have the skill set to know how to time to market.  Event trained and experienced Fund Managers who spend their working week researching and making investment decisions don’t always get it right.  I honestly can’t think of one scenario in 25 years in the industry where I recall a happy outcome.  My over-riding memory of clients who have taken this step is seeing their stress and feeling their loss.

Besides, you seriously have better things to do.

Instead, invest in yourself.  Be the best you can be at your chosen profession or even just life in general.  Set some goals, lifestyle and/or financial, and work hard towards achieving them.  Then outsource – just as most people don’t service their own car or build their own house, your investment decisions should be outsourced to a trusted Financial Planner.  Let your only investment decisions be around how much energy you can place into making your world a better place to live in.  If you can achieve this, by extension of the positive things you are doing, you can contribute towards replacing those heavy news stories with more good news stories.  Even if it’s only the local news.  What’s more, you’ll be spending time enjoying life.

Alison Adams
Business Development Manager

 

Please note: The advice in this article is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.

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