From Tony’s desk – Worries, Legislation and Roller Coasters part 2

Are you worrying? Covid? Wars? Share markets? Inflation? Rising costs of living? Interest rates? Recession? Home prices?

What will happen? When will it end? What about my money?

Luckily you have an investment philosophy that will help cope with all of the above. Well you may not have but we certainly do :)!

We call it the bucket strategy. It allows us to theoretically place different investments into different buckets to help preserve your capital and purchasing power throughout times like these.

Share markets can be volatile and in times of greater uncertainty like some of the worries above they become more erratic ie. BHP “BHP” has risen more than 12% for the year whereas Bitcoin “BTC” (a crypto-currency) has fallen more than 56% for the year. We’d have these in our long term bucket – we don’t draw monies from these unless we’re making a profit.

Fixed Interest is (less) volatile but can leave you with capital loses – many of the specialist fund managers in this asset class haven’t made you 1 cent over the past 12 months. We tend to use term deposits instead of fixed interest as it doesn’t lose you capital. We generally place these styles of investment into the medium term bucket – we don’t draw off these unless we’re making a profit.

Cash. It’s boring, it doesn’t pay a lot but then it doesn’t fluctuate much either. It is stable, relatively safe and tends to have $1 units. So when expenses are drawn from your fund ie. insurance premiums or pension payments, we know how many units are going to be drawn to pay the expense. When the long term and/or medium term buckets dip in price we use our $1 units in cash to buy more long and medium term units at a reduced value.

This helps us preserve your portfolio and the all important purchasing power throughout volatile or worrying times in the markets.

Legislative Changes

As at 1 July 2022 there are a raft of new superannuation amendments that, hopefully, will allow most people to build or rebuild their retirement benefits.

Contributions into superannuation have been amended and extended – I won’t go into it here but we are assessing each client to see if those amendments can benefit you ion some way, shape or form.

Account Based Pension income stream draw down rates have been retained for another year at the 50% reduced Covid minimum draw down. That means that if the standard minimum draw down rate from your ABP is 5% you can draw 50% less or 2.5%. WHY? It helps to preserve the capital balance of your account.

Deeming rates have been left on hold for at least another year.

 And now to the boring Tony part – investments!

I’m not sure if many of you are aware that I was involved with the management of money for fund managers. I spent 11 years assisting them with either the investment or explaining to external parties how the investment and hence the investment markets work.

I’ve witnessed and been involved in each market correction since 1986 – including the CRASH! The 1st one in 1987 not the GFC or Covid crash 🙂  And each time the market has come back. Differently, but has come back. The current market is one of the fastest rising cash markets that I can remember.

At the beginning of 2022, 5 year interest rates were barely over 1%. Why would you tie your money up for that little reward? Throw in the worries above – particularly inflation – and 6 months later you’ve now got 5 year interest rates at 4.20%.

The RBA in it’s rate decisions have eluded to having to make a few rate increases to head off rising inflation. Westpac believe that there will be 3 consecutive rate rises – June, July and August then 2 further ones in October and November – taking us to 1.25% by the end of the year. But the RBA has increased rates twice already – starting from 0.1% they increased rates in May (election time) by 0.25% then in June by and extra 0.5% – we are now sitting at 0.85%.

Not that all providers are passing that on just yet but that is another area that we are watching keenly to increase your returns.

Investing new monies or when an investment has been cashed in always presents challenges. I read somewhere between 10-20 market related/economic update emails per day. I digest and filter that content to assist us in formulating our investment philosophy for you.

That raises investment decision questions.

Do you invest in a “hot volatile market” that it is over-valued and heading into a fair gale (see all of the worries above)? Remembering that if we invest $100 today it could easily be $93 by the end of the day in the share market.

Do you play the patient game keeping your ear to the ground, your eye on market news and try to time your entry??

Do you swap out of investments that are earning us less for investment that will earn us more??? The bucket strategy assists us here.

Do you dollar cost average???? The bucket strategy assists us to a small degree in achieving this one.

Do you take on more overall risk in a portfolio by investing in riskier assets????? Your answers to determine your risk tolerance profile may not allow this.

Luckily this is what we do for you. We’ve been investing like this for a long time. It works and it allows you to sleep at night.

If you want to chat about this story or anything to do with your portfolio, our investment philosophy, where we are investing or your risk profile please give us a call.

We’re still here working for you 🙂

08 82715427


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