October 13, 2016

Pondering presidential market impacts

Stock markets are pretty efficient at processing new information. Shocks, naturally, are unwelcome and it can take some time for markets to rationally analyse and understand the impacts of particular geopolitical events. Take the Brexit vote for example. On the day the vote was announced (June 24) the Australian sharemarket fell 3 per cent while the broader global sharemarket index was down even further. Three weeks later the Australian market was up 3 per cent and while the global market index did not recover as strongly it was at least back into positive territory. The initial surprise of the vote […]
September 22, 2016

The effects of sub-zero interest rates

In Germany, a government ten-year bond yields less than zero; its Investors actually lose money! Huh? What triggers a situation like this and could it happen in Australia? Australians currently enjoy – or not, depending on their circumstances – record low interest rates. The prevailing cash rate is currently 1.5 % and some economists are suggesting it could go lower. Many of the world’s economies have been there-done that. Their central banks have made the decision to explore previously uncharted territory: the sub-zero interest rate zone. So why would anyone buy an investment with a negative return? The short answer […]
September 15, 2016

Sequencing risk: the order of things

As financial advisers, we talk a lot about risk, so what is sequencing risk? Let’s begin with an example… Jennifer and Sue each contribute $20,000 per year to their superannuation funds for 10 years. They both earn an average return of 5% per annum, after tax and fees, and from Years Two to Nine they earn identical returns each year. The only difference is that Jennifer’s portfolio returns 8% in the first year and -8% in the last year; whereas Sue’s returns are -8% in Year One, and 8% in Year Ten. This doesn’t seem like much of a change, […]