February 14, 2018

How to make your term deposits work harder

Despite continued record low interest rates, there’s still a place for term deposits in an investment portfolio. In 2011, the average term deposit could earn you around 6 percent per annum. Since then, the times, they have a-changed – and so have term deposit rates. Since the Global Financial Crisis (GFC) we remain a little nervous around risk, so despite average term deposit rates now being closer to 2.5 percent, they’re included in our portfolios for the capital security and diversification components they offer. The Reserve Bank of Australia (RBA) sets the cash rate via its monetary policy. The aim is […]
February 7, 2018

Should we be worried about the recent falls in stock markets?

No, but read on to find out why: It looks like the market will finally get something that happens, on average, about once a year: a 10+% percent drop—the definition of a market correction.  They aren’t.  Corrections are unnerving, but they’re a healthy part of the economy—for a couple of reasons. Reason #1: Because corrections happen so frequently and are so unnerving to the average investor, they “force” the stock market to be more generous than alternative investments.  People buy stocks at earnings multiples which are designed to generate average future returns considerably higher than, say, cash or bonds—and investors […]
February 7, 2018

Beyond share prices

Investors shouldn’t overlook that there are two components to sharemarket returns – dividend yield and capital gains (or losses). Few investors would have missed the news reports of late pointing out that although Australia’s sharemarket has broken through the 6000-point mark, it’s still below the record pre-GFC high. But looking at share price movements alone can give investors a misleading impression and encourage them to overreact to short-term market shifts and other market “noise”. And by excessively focussing on asset price movements, investors may overlook the rewards from compounding total returns (as returns are earned on past returns) and from […]