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Monday

01Mar2010

Safety in The Market

By Jason Fittler

Once again this week the Storm Financial collapse has raised its ugly head.

This article is not about the payout but about how you can make sure that this does not happen to you.

There are some simple steps to protect yourself when investing in the stock market.

1. Make sure all of your investments are held in your name. Sounds simple but you will be surprised how many investors lost money through having their shares held on trust.
2. Make sure you have regular updates from your adviser, either through monthly reports or online access to your portfolio.
3. Understand what you are invested in, this is easy with direct shares and property but more difficult when dealing with Trusts, Managed Funds and Super Funds.
4. Make sure your adviser knows you and you them, keep in front of your adviser. Make regular contact, do not just wait for them to contact you.
5. If borrowing to invest make sure that you are involved with the lending process, do not just let your adviser take care of it. Read the documents and know the risk.
6. Never sign something with out reading it. Get legal advice if you are unsure on anything. Legal fees are a type of insurance.

All too often investors skip some of these steps due to time constraints, you work hard for your money you need to take the time to make sure it is being looked after properly.

March 1, 2010 |

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Friday

19Feb2010

EVA Part 2: Eee Veey Aye

By Matthew Smith

In part one, we had a look at why Economic Value Added (EVA) and EVA Momentum (EVAM) are fantastic ratios to employ when deciding whether to pull the trigger and purchase a particular business.

Enough with the theory let us apply these ratios in practice to help guide you in selecting the best businesses in the Australian equities market.

The starting line up of businesses will be the ASX 100. We will use a tough five gate model to help us determine the greatest businesses.

Zero accounting adjustments have been made as a 10 year period is more than enough to iron out any oddballs.

The Five Gates

Gate 1 - Sustained double digit dividend growth for 10 years
Gate 2 - An average return on capital employed of > 12% over 10 years
Gate 3 - A positive return on incremental capital employed
Gate 4 - A positive EVA average for 10 years
Gate 5 - An average EVAM of > 1% for 10 years

To make the final cut a business needs to pass through each gate, and here are the results of those businesses that made it through all five gates;

These are the best of the best and the greatest businesses in Australia. You can see for the past 10 years Woolworths & Woodside Petroleum have added on average $570 million of value each year for its owners.

We hope all these stocks are on your 'to buy list' as they are certainly on ours!!

Note: We haven’t published the results for Gates 1 through to 3 in this article, however, if you would like this information please let us know. Call (07) 4771 4577.

February 19, 2010 |

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Friday

19Feb2010

How to Grow Your Wealth? You Only Need Commitment.

By Jason Fittler

One question I am often asked is how much I need to get started in the share market. My answer is “You only need commitment.”

When starting to invest you need to keep in mind that Financial Advisers generally get paid in line with the amount you are investing. As such they will spend more time with large investors. If you are a small investor this can be a barrier to entry into the market.

Do not take this as an insult but merely how business is done in all sectors of the market.

For example, try calling your bank these days, if you only have a savings account they want little to do with you, if you have a home loan then they show a bit more interest. Image if you were the CEO of BHP, I am sure you would have a team of people running after you.

You can however as a small investor arm yourself with some fundamental knowledge before having a meeting with a Financial Adviser. Below I will discuss some of the key issue you should be across as a small investor.

1. Buying direct shares? If you are looking to invest less than $100,000, direct shares are not a good long term strategy.
2. Borrowing to invest, for a small investor gearing is a great way to improve your overall return but you must also consider your cash flow when gearing.
3. Ongoing investments. As a small investor you will never get larger unless you commit to making further investments. All small investors should be making regular contributions to their investments at least monthly.
4. Putting off investing. It is and has always been, time to invest in the market. Make investing as much a part of your life as your birthday.

Let’s work through some examples.

First, excuses for not investing.

I will invest once I have;
•    Paid off the house
•    Brought a new car
•    Gone on a holidays
•    Kids are out of school
•    Gotten older, I just want to have fun now
•    Can afford it

To these people I say “Enjoy the age pension”, if you are working you should be investing, if not make sure you love your job because you will be doing it for a very long time.

Once you get pass the excuse stage, next issue is how you should invest.

If you have less than $100,000 to invest I do not recommend direct shares. The issue is diversification, for example if you have $10,000 invested in 10 different shares and you are chasing an 8% return being $8000 pa. If one of these shares were to fall over this would wipe out a full years return. I normally like to see at least 20 shares in a portfolio.

If you have less than $100,000 I recommend that you look to invest through a listed index fund or through a Self Funding Installment Warrant in a listed index fund to maximize the benefits of gearing.

When you start small there are two things which will help accelerate your return, gearing and regular contributions. First let’s take a look at gearing.

Gearing

Let’s say you have $50,000 to invest, you are able to achieve a return of 10% or $5000 pa not bad. If you were to borrow another $50,000 and make your total investment $100,000 your return would be $10,000 less interest of $3,750 (interest rate of 7.5% on a $50,000 loan) giving you a return of $6,250 on your initial investment of $50,000 or 12.5%. This extra 2.5% will make a large difference over ten years, without gearing in ten years your portfolio is worth $130,000, with the gearing $162,000. This is a 24% improvement; gain is after loan has been paid out.

If you are young or making up for lost time gearing is a sensible strategy which should be fully explored.

Property verse shares, an age old battle.

When it comes to gearing, investors are much more willing to invest in property. They are also willing to gear up to 95% something you would never do with shares. Putting aside the issue of which is better when you are a small investor, there is a more important issue, one which is generally over looked.

Cash flow is very important to building a portfolio and especially if you have other commitments.

If buying an investment property and borrowing above 50% of the value of the property, the property will be cash flow negative. This means that the cost of interest, rates, insurance and repairs will be more then the rent you receive. As such you will have less money in your take home pay.

This lack of cash flow will indeed limit the funds available for other investments and most likely cramp your lifestyle.

When gearing through either a margin loan or Self Funding Installment Warrants this will not be the case as the income from your share portfolio will cover the costs, being interest.

Let’s take the above example and we invest $50,000 in Self Funding Installment Warrants SFIW, which is paying a yield of 6%. As SFIW are geared 50% and the interest rate is currently 7.5% the total interest expense is $3,750 ($50,000 @ 7.5%). The income on the investment is $6,000 ($100,000 @ 6%) as such there is no drain on your cash flow. This means that this will leave you more money to make further investments.

Cash commitment

Nothing tells you more about a persons intentions then their ability to commit cash to achieve their dreams. Think about this in your personal life. There are a number of significant times when you have committed cash to your dreams;

1.    Buying your first car to gain independence.
2.    Paying your way through University to obtain a career.
3.    Overseas travel to broaden your horizons.
4.    Engagement ring to show her how important she really is. Not to mention the cost of the wedding.
5.    Your first home to raise your family in and giving your kids security.
6.    Salary sacrifice into super so you have a good retirement.

A cash commitment to your investments is the same thing. It shows the level of commitment you have to achieving financial freedom. Let's work the above example of investing $50,000, but this time we will add $500 per month into this investment.

With no gearing and a 10% return adding $500 per month, your investment after 10 years would be $225,000 or 73% more than not making a cash commitment. Add in the gearing and the value would be $270,000 or 66% more. If you maintained your gearing at 50% over this 10 year period, which means if each month you invested $500 you borrowed another $500 the value of the portfolio after the loan was paid out would be $560,000 a return of 330% above the initial investment.

Gearing works if used properly. Please also keep in mind I use the example of $50,000, you do not have to have this much. The principals are the same on smaller amount and the percentage returns are the same.

The point

If you are a small investor you have real options which in as little as 10 years can turn you into a very large player.

Time waits for no one, if you would like advice on how to get started, give us a call on 07 4771 4577.

February 19, 2010 |

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Saturday

06Feb2010

EVA Part 1: This is not a Woman's name

By Matthew Smith

As a business owner your primary goal in life is to get your managers to increase shareholder value.

To work out if your managers are in fact either creating or destroying value can be a difficult and daunting task. You are bombarded with many financial ratios from managers and investment analysts which are supposed to aid you in ascertaining how a business will perform.

However, what you may not realise is that many of these so called performance metrics such as; Return on Capital/Equity, Earnings per Share & Profit Margins are not a reliable guide and are very misleading. These ratios do not show you how a company has truly performed, which, in essence comes down to whether or not your highly paid managers have made the correct decisions.

Everyone loves a business with a high return on equity, I don’t know of anyone who doesn’t.

A large business actually paid its managers their bonuses based on the increase in the return on equity. This remuneration policy adopted by the board of directors has caused managers to load up the balance sheet with debt which has increased profits and decreased the equity.

The business in question is in fact a recent fantastic example of the heavy reliance which has been misplaced in the Return on Equity ratio by owners and managers, the business was Lehman Brothers.

The only two ratios that will ensure your highly paid managers are making the correct decisions and are creating shareholder value by not starving the stars and feeding the dogs are Economic Value Added (EVA) & EVA Momentum (EVAM).

EVA is a financial performance measure which calculates the true economic profit of a business. EVA is calculated as net operating profit after income tax minus a charge for the cost of capital employed.

This metric allows you to establish if management's decisions have created shareholder value, merely broken even or destroyed some of your shareholding's value.

EVAM is the next step on from EVA, and is currently the only financial ratio that cannot be fooled with by managers or analysts. EVAM is a percent metric and is calculated as the businesses economic profit (or EVA) divided by its revenue from the prior period.

EVAM in plain English is the size-adjusted change in economic profit and qualifies itself as the missing link in business management as it possesses all of the following qualities;

•   Its based on economics not accounting
•   Its a measure to maximize
•   Size neutral
•   Situation neutral
•   Acts as a early warning system
•   Market calibrated

How come I am writing about this?

I am an investment professional who believes in education and aiding you to be fully informed. I aim to help create greater transparency in the corporate governance arena and I wish to see management's interests become truly aligned with your objective of maximising shareholder value as a business owner.

Grow your investments, give Matthew a call on (07) 4771 4577

February 6, 2010 |

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Saturday

06Feb2010

How to Have a Rich and Rewarding Retirement

Making money is about discipline, most people do not have the courage to stick to their convictions and achieve the result they want.

Rather than talk theory I have decided to use my family as a real life scenario.

My wife and I would like to have an income of $100,000 pa in retirement. To do this I will need $1.2 million when I retire. If I want to leave something to my kids I will need $5,000,000.

I have 20 years to save $1.2 million.

Here is the plan.
1. I will split my return between income and capital growth. This will make sure I am moving ahead in time of low capital growth. (Like now)
2. I will have most of this in Super, as at present this is the most tax effective environment.
3. I am comfortable taking some risk and understand that from time to time my capital will go backwards.
4. I am time poor so I do not want any investments, which will require effort from me. So property is out.
5. I want professional advice so I will factor in there fees into the overall return.
6. I will take a long term view.

To achieve this result in 20 years we will need to salary sacrifice $26,000 into super each year and achieve a return of 8% pa.

Over the past 20 years the All Ords Accumulation index achieved a return of 21.5% pa as such this is where I will invest.

By taking on this challenge, our take home pay will decrease by $1,500 per month. This is a small price to pay to have a rich retirement, the alternative is to do nothing and live on a pension of $23,750 for us both.

Time
When investing, time is on your side. If you are young, these figures play in your favour.
For a 20 year old you will need to invest $4600 pa or $390 per month.
For a 30 year old you will need to invest $10,500 pa or $890 per month.

Would like a rich and rewarding retirement?

Give us a call on 07 4771 4577 and let us help you put a plan into action.

February 6, 2010 |

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Thursday

28Jan2010

ELB’s...The Secret to Wealth

How to have $1,000,000 at retirement.

By Jason Fittler

I often hear people tell me what they would do if they won the lotto or somehow received a large amount of money. They talk about how much easier life would be if they just had more money or got lucky. I call these people the “Have When’s”. These people all have two common problems. The objective is too large, they are unable to see how they would be able to obtain great wealth and they are not prepared to do what is necessary to achieve their goal.

“There is no victory without sacrifice”

Like everyone one else, my goals seem insurmountable, until I discovered ELB’s. Extraordinary Little Bits, ELB’s break down a large task into small manageable bits.

Let’s say you would like to have $1,000,000 in retirement, you are currently 40 years old and have around $100,000 in your super fund and a mortgage of $250,000. How can you be debt free and have a $1,000,000 to retire on?

The magic of ELB’s

To pay out your home loan over 20 years at an interest rate of 7% you will need to pay $24,000 per annum off the loan. To save $900,000 inside of your super earning 8% you need to save $23,000 per annum. In short you need to save $47,000 per annum. In Queensland the average annual salary is $61,500 after $12,500 goes to the tax man you will be left with $49,000. The task still looks insurmountable?

Let’s break it down; you have a couple of decisions to make. No one said it would be easy.

1.    Get a higher paying job.
2.    Both husband and wife work.
3.    Back grade your house.

For now I will go with example two, both husband and wife are working.

Step one salary sacrifice into super, as detailed above you will need $23,000 going into super for the year or $11,500 each. On $61,500 salary your employer will have to pay $5500 so both husband and wife, each need to salary sacrifice $6000. This will reduce your take home pay to $45,000 per annum. Or a household take home income of $90,000 per annum. Step one is complete, stick to the above plan and you will have your $1,000,000 in retirement. Keep in mind that $1,000,000 will provide you a super pension of approx $90,000 for 25 years.

Step two, pay out the house. As detailed above you have a $90,000 take home income. To pay the loan out you need to put 26% of this towards your home loan. Leaving you $66,000 per annum to live off, anyone who thinks that this would be a problem needs to trim some fat. As such step two is done and the above objective has been achieved.

ELB's breaks down a big problem into small manageable parts. By focusing on these smaller goals we can achieve our dreams.

The catch is you will need to make some hard decisions, this is where most fail. Will you?

Let’s take the ELB’s one step further with the above example. Paying out a $250,000 loan over 20 years at 7% will cost you $215,179 in interest. By increasing your payments to 30% of household take home pay or $30,000 per annum you will pay the house off in 12 years and save $100,000 in interest. If you then continue to pay the $30,000 per annum into savings at 8% you would have an extra $300,000 in retirement. Again ELB’s at work.

If you employ ELB’s into your life there is one golden rule. Never go to bed without taking at least one small step towards the end goal for that day.

Good luck.

Like help with your ELB's? Give us a call (07) 4771 4577.

January 28, 2010 |

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Wednesday

13Jan2010

The 10 Most Common Mistakes in Investing

Stock Market Mistakes to avoid.

1. Treating stocks like property. You should never buy stocks and simply just hold. You must keep up to date with what is happening to your company. Companies are living breathing entities; in short they are people making decisions - some good, some bad. A house is a lump of concrete which goes up and down based on the economy, a company can change focus and the price can over shoot, as such regular monitoring of your stocks makes sure that you take advantage of the opportunities and cut any losses.

2. Focusing on transaction costs not profit. If you’re worried about the transaction costs on a investment chances are it is not a good investment. Profit is what counts not costs.

3. Trying to cherry pick only good investments. What happens in the market is out of your control, to reduce risk you need a diversified portfolio. Some shares will go bad it is a fact of investing, deal with it and move on.

4. Buying hot tips. You might hear one of these a year. I hear about 20 a week. 99% fail.

5. Using discount brokers. Yes they are cheap, but you need to put in considerable time to make sure you have researched your stocks and keep up to date with current issues in regards to your stocks. If you do not work this would suit. If you do work, always consider if you will make more money working a little longer and paying someone to look after your investments or by spending your time on doing the investments yourself.

6. Buying magic software. (Charting programs) These are a scam. If the program was fool proof why sell it to the public you would make way more money trading with it.

7. Holding bad stocks. If a stock does not turn out how you plan, sell it and move on. Nothing is gained by holding.

8. Not taking profits. Do not hold a stock and try and suck out every dollar. If you make a good gain take it and move on. You will never go broke taking a profit.

9. Not sticking to the game plan. If you buy a stock for a short term gain, only hold short term. If the announcement does not come, get out and move on. If you are buying for a long term hold and the price dips, continue to hold for the long term. Stick to the game plan, know when you will sell before you buy.

10. Taking advice from the media, friends, family or taxi drivers. Get professional advice. Do the research or pay someone to do the research. Investing is a long term full contact sport.

Are you making any of the above mistakes?

We are always ready to help. Give us a call (07) 4771 4577.

January 13, 2010 |

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Wednesday

23Dec2009

How Much Wealth You Accumulate Depends Largely On How Much You Spend

Spending Patterns

By Jason Fittler

Why is it that we spend more money on our loved ones at Christmas? Why not buy our loved ones presents whenever the mood takes us? Simply put – conditioning. We are told each year that we should buy people presents on their birthdays and Christmas, eggs at Easter, flowers on valentines day and gifts on Mothers and Fathers day.

Do not get me wrong, I am not saying we should not buy presents for family and friends but merely pointing out how we are conditioned to spend. Some people find comfort in buying new things others relieve guilt from not spending enough quality time with their family by purchasing them presents. Whatever the reason, all of us have a spending pattern. What is important is to identify this pattern and control how we spend our money.

Accumulating wealth depends largely on your spending patterns, those who spend more each year than they earn will quickly go broke.

Since early 2000 this was the case for most Australians and Americans, this is why lending climbed to new levels and personal households debt levels climbed. When an economy bottoms (much like we are about to experience) you see the effects of living outside your means. Those who adjust to the new economic constraints, will survive, those who do not, will go broke.

The important thing is to change your spending patterns and not dip into your savings to prop up your lifestyle. Downturns in the economy can last many years, and will consume all of your savings. Most importantly make sure you continue to invest, it is true that in economic downturns, investments are cheap. This is due to people selling assets to maintain lifestyle.

Things to look out for in an economic downturn.

1.    Higher interest rates – when the interest rate moves up increase your payments to the bank by the same proportion.
2.    Holidays – take a look around the world, during these times you can normally get cheap flights. Also look to go to countries with devalued exchange rates. (The USA comes to mind right now)
3.    Gifts – buy quality not quantity.
4.    Food – cut out the junk, you will save money and weight.
5.    Credit Cards – pay them out each month or cut them up. It is not a time to live on credit, the interest will kill you.
6.    Motor Vehicle – think repair instead of new. If you must buy, second hand will save you thousands.
7.    Media – do not spend because the media tell you the economy is recovering, they do not have a clue.
8.    Investing – continue investing, assets you buy now will be the ones that look after you in retirement.

Our wealth is directly in proportion to our spending or saving habits, never lose sight of this. Long term care and attention to your spending habits will provide you with a wealthy retirement.

My favorite saying is “Look after the pennies and the pounds will take care of themselves”

Have a good Christmas.

December 23, 2009 |

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Friday

11Dec2009

Patterns and Behaviour

By Jason Fittler

Remember when we talked about market crashes and it was all focused on 1987? Now 1987 is being spoken about as a mere correction in what is a larger pattern. Take a look at the below weekly chart of the All Ordinary Index since 1982.

I want to talk about patterns and how they affect the market, I want to expand on the last 27 years of the market. Please keep in mind, I am not a technical analysis, I work on fundamentals and only use technical analysis for short term price predictions.

Working on the below chart (make sure you take a look at it before reading on) what we can see is a number of significant periods;

1.    The bull market for 1987 started in last 1986 and ran for approx 12 months.
2.    The rate of rise in this bull market was slower than the rate of decline. It only took 3 months wipe to out all of the gains from the 12 month bull market.
3.    It was not until 1997 that the market reached the heights of 1987.
4.    In 1991 we saw the market re-test the 1987 lows.
5.    The next strong bull run started in 2003 and went for 4 years.
6.    Again the rate of raise of the bull market was slower than the rate of decline. This time the fall took 12 months to find the bottom.
7.    If we take a look at the trend from 1982 to today’s value we see that the peaks of the prolonged Bear market which came out of the 1987 crash sit neatly under the rate of increase line. This pattern will repeat itself.

What does this all mean? Patterns are caused by behaviour, when we take a long term view of patterns we can start to form a picture of long term behaviours of the market. Keep in mind that the market is merely made up of people. People making decisions on how to invest their money. Going back 27 years we can see that the market is following a similar pattern to the last big drop. Now, we can start to make some predictions of what the market might do, going forward.

Predictions;
1.    The market will consolidate for a period, this will allow investors to get their heads around the change in market conditions. Moving out of hunker mode and back into business as usual mode. This is happening right now.
2.    We could expect that this would be followed by a small bull market rally pushing the market back towards previous resistance. I have two targets here 5100 and 5700 as such I would expect to see the market hit this level in the coming 12-18 months.
3.    As in 1991 we expect to see the market re-test the lows of March 2009, this could however be years away. As such there is money to be made in the near term. Also note that the re-test, does not necessarily need to go as low as the previous low.
4.    After this we can expect good growth moving forward.

How to make money.
These patterns allow us plenty of opportunity to make money, after all this is what it is about.

The first strong rebound has already happened and for those investors who had the stomach to invest at the bottom have indeed reaped the rewards.

The next stage about to start is a more prolonged growth at a steady rate, companies getting back to business as usual. This is the time of the more risk adverse investor. You can now buy stocks which are paying good dividend and have solid growth prospects over the coming 3-5 years.

Make sure you are part of this as the market may indeed turn down at some point, but this is the benefit of owning shares, you can easily sell and take some profits.

The next down turn; the patterns would indicate that at some point this will happen, this is not a negative but merely an opportunity. When you see the market pull back, increase your holding in cash with a view to invest when the lows are re-tested.

Do nothing.
Many investors will sit on their hands and do nothing while waiting for the market to re- test the lows. This is possibly the worst plan and perhaps the share market is not for you. The market will fluctuate all of the time, we know this, staying out will produce the worst overall return. Be in or out but never sit on the fence.

What next?

Start looking for high yielding good quality shares. As for now it is business as usual.

This will change at some point, when it does we will let you know.

For more information give us a call (07) 4771 4577.

December 11, 2009 |

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Emissions Trading Scheme (ETS),

Thursday

03Dec2009

Think Global, Act Local

By Jason Fittler

Emissions Trading Scheme (ETS), is going to be a big part of our lives and economy in the future. Regardless of your views on global warming, the reduction of pollution is a good thing.

But what is the best way to achieve this? I believe in thinking global and acting local. Do what you can in your world, at home in the office or within community groups to reduce pollution.

When we move to the world stage my thoughts turn to investing, there is no doubt that an ETS will be brought in, but how is this going to affect your investments? What we do know is that the cost of living will increase, there is no way around it and here is why.

To produce a Mega Watt of electricity via a coal power station costs $25, via a gas power station costs $40 and wind costs $100. The government has already passed the CPRS (Carbon Pollution Reduction Scheme) where by 2020, 20% of the electricity sold needs to be sourced by renewable energy. If the supplier of the electricity can not do this, then they will need to purchase credits to offset the non-renewable energy they’re using above 80%. At present these credits cost around $30 per mega watt, I would expect this to increase to $40 over time.

By doing this the government is making Wind Power more competitive with coal, keep in mind that the government is giving wind farms $30 credits to sell for every mega watt of electricity they produce, this reduces the cost of a mega watt of electricity from a wind farm down to $70.

So how do you position your portfolio to benefit from this change?

The two key picks are Origin Energy and AGL Energy, they are both well invested in Gas and Wind farms.

Next stock I like is a company call Infigen Energy which is focused in the wind farm sector. The Geothermal sector is a more speculative play, it has the potential to produce base load electricity something which wind can not do right now, the problem with this sector is that they are unable to prove the technology, if they do, great gains will be had.

The carbon storage sector is also a good play, you can gain exposure here through CO2 Group Limited, this is where they store carbon in trees. Origin and AGL have contracts with this company.

What about Nuclear energy? This is by far the most efficient way to produce electricity, however, the government is determined to exhaust every other avenue before going down this road. It will also take 10 years from commission to product of a Nuclear power station and the cost for construction is much higher than a coal fire power station. The best play in the sector is Paladin Energy Ltd.

As for Coal, the three best things are it is cheap, cheap, cheap but I suspect that these companies will have major capital costs in the future. As such hold these for the income, as it will take a decade before the real impact of the changes are felt by these companies.

For more information on any of the above companies, give us a call (07) 4771 4577.

December 3, 2009 |

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Thursday

26Nov2009

Passion

By Jason Fittler

Do not spend your whole life waiting to find your passion. Passion does not come from divine intervention, it comes from commitment.

Make the commitment to those people and pursuits which are important to you and passion will find you.

I suspect most people are not passionate about superannuation, shares, options, warrants, term deposits, economics, managed funds, exchange rates, transition to retirement pensions or investments.

I bet you are however passionate about what you can spend your money on, things such as holidays, cars, boats, family, friends, property, jewellery and retirement.

I however, take a laptop on holidays, log in to the market every day to keep in touch with what is going on. I sit up late at night to read the latest prospectus or research on a company. Reading the financial review to see what happened yesterday and to keep abreast of the latest news is a morning ritual, I can not start the day without it. (I do not drink coffee)

Finance is not a job for me it is a lifestyle and I am not alone. We do this job because we love the job, we are passionate about the job. It is much a part of our lives as breathing.

I remember the first time in primary school when the Commonwealth Bank came to our class, we received a free piggy bank (you remember them, they look like a small bank, were made of tin and had no hole in the bottom to get your money out, if you wanted your money you had to cut them open) and a ruler. There is a common saying amongst stockbrokers, “he will retire when he is dead”, investing is very much a part of our lives.

Message:
If you are not passionate about investing, find someone who is, have them look after your investments, leaving you time to pursue your passion.

(Beware of the adviser who is passionate about money, this is totally different to being passionate about finance)

November 26, 2009 |

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Commonwealth Bank,

Jason Fittler | in

General,

Retirement,

Superannuation

Wednesday

18Nov2009

Education and Investing

It costs a lot to get an education, but more if you do not have one.

A little knowledge will more often than not get you into trouble. In our world it seems little value is placed on knowing all of the facts, as technologies improve we are able to communicate more often and at the same time provide more information.

The problem is we do not have time to read and understand the information. More is not always better.

As such we have become accustom to making decisions on the back of snippets of news, headlines or summaries of information. Without realising it, we make misinformed decisions, form opinions and take actions based on this lack of knowledge. Quite often this leads to loss of money, time and emotions.

The answer is simple, stop trying to understand everything and become a master of something. Do what you do well and have others look after what you can not do well. You should apply this to all areas of your life, but today apply it towards your investments.

Making money is not an easy job, there are many variables when looking to invest, such as Macro-economics, Micro Economics, Exchange rates, Interest rates, Unemployment, Retail spending, Cash Flows, PE Ratios, Discounted Cash Flow, Dividend Forecasts, Net Tangible Assets, Superannuation Laws, Tax rates, Investment Structures, margin loan, margin calls, gearing ratios etc.

It takes time and resources to collate and assess this sort of information, as such if you are to be a long term successful investor you need to have someone who can provide you this information.

That is why we belong to an International Company, where we have access to over 200 research analysis, 400 other investment advisers, Economists and CEO’s of listed Australian Companies.

When investing never go it alone, you will make ill informed decisions with too little information. Long term, this is a recipe for disaster.

PS. We are always available to help. Give us a call (07) 4771 4577.

November 18, 2009 |

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Tuesday

03Nov2009

Should You Invest in the USA?

Hindsight is always perfect, with hindsight we can see the mistakes we have made.

But this is not the purpose of hindsight. I think hindsight should be used to make observations on the future.

Australia has seen a fantastic recovery over the past 6 months. Profits have been made, retail sales in Australia have recovered quicker than the rest of the world. We are now worried about inflation, interest rates have moved up with it our dollar.

In hindsight we all would have invested the farm back in March 2009.

Australia is only 3% of the world markets, the largest - the USA - is yet to see retail sales bounce like they have in Australia, interest rates are still low, companies have not gone through the capital raisings we have seen and their dollar is weak. Does this sound familiar?

Think back to March 2009 and the same was being said about Australia. Given that the USA has not seen the economic improvements of Australia and now knowing what these improvements meant to our market, we should use hindsight to take advantage of the gains to be made in the US.

There are two key reasons to invest in the US.

First, at some point in the future retail sales will improve over there, with it we will see some positive economic growth.

Second, our dollar is sitting at the top of the range, if the US dollar starts to strengthen this will benefit your overseas investments. I think right now is a good time to start building exposure to this market.

Do not bet the farm, but look to be involved.

Hindsight will let me know if I am right.

November 3, 2009 |

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Tip of the Week

Wednesday

28Oct2009

Double Gearing

By Jason Fittler

I often wonder if the founders of Storm Financial really thought about the negative side of naming their business Storm, given the now destruction it has caused. One of the fall outs of the collapse of the Storm Group is the new legislation on gearing.

First you need to understand the model,

1.    borrow as much as you can against the equity in your home.
2.    invest these funds into index funds and then borrow as much as you can against this investment.
3.    if you have any capital growth, borrow against this equity as well.

This is called double gearing.

The government has taken steps to make sure that this structure is never used again. It is obvious that this is a high risk strategy, in positive markets you have great gains and in negative markets you risk being wiped out.

In turn, gearing is now considered a bad strategy; this could not be further from the truth.

Gearing is a genuine strategy to improve your overall return if used correctly. The issue with Storm was not the strategy it was the adminstration and products used to execute the strategy.

In the current market we are currently coming off a very low cost base, those of us who have used a gearing strategy over the past 6 months have done very well for themselves. But how do you gear up your portfolio while limiting your down side?

Warrants – in this market my favourite product is the self funding instalment warrant over an index fund. This product gives you the protection of a stop loss, a low interest rate the same as a margin loan, the benefit of better up side in a rising market and the benefit of lower fees.

We will be releasing a video on our web site in the coming weeks to talk about gearing through self funding instalment warrants, specifically in relation to index funds. If you would like to take advantage of this product make sure you take the time to watch. It will only take around 10 minutes, but I guarantee it will be the most productive 10 minutes you will spend that day.

PS. If you would like a jump start on warrants, give us a call (07) 4771 4577.

October 28, 2009 |

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Wednesday

21Oct2009

Risk

It is only when we are faced with loss, that we start to understand what level of risk we are really prepared to take.

There have been many opportunities in the market over the last 100 years to find out exactly what level of risk you are prepared to take. The most recent, the Global Financial Crisis, has once again highlighted the definition of risk.

Money is made in direct proportion to the level of risk you can handle.

Money is lost when you do not invest at your risk level.

Let me explain, in good times when people are making lots of money from investments, greed takes over, it’s not that you want more, it’s more that you feel you are being left behind. Most investors are more concerned about missing out than they are about the risks they are taking.

The effects of this sort of activity is felt when the market turns down. Now large losses are occurring. When you look at how much you have lost you have the falling feeling in the pit of your stomach. This is your body’s way of telling you that you have invested outside of your comfort zone or risk level.

Compounding your losses is the next stage of investing outside of your risk zone. Now that the walls are closing in, failure is in the air, all you want is for the losses to stop. Once again you act outside your risk level and move your investments to cash. You have now effectively destroyed any chance of making back the money you have lost.

Strangely, this decision to move to cash is made at the bottom of the market.

The repeat offender, the investments will then remain in cash until almost at the top of the next cycle when once again the investor is concerned that they are missing out.

To avoid the above mistakes it is important that you understand your risk profile, take the time and effort to do this and you will 100% of the time grow your wealth at the perfect rate for you.

You will at times make less then others, but you will resist the urge to change your investment style.

Other times you will make more, but once again you will resist locking in your gain and moving to cash. Staying the course will produce the results you are looking for.

Investing is not a group sport, it is not a race, it is a journey to the destination of your choice.

PS Before you invest find out your level of risk. Give us a call (07) 4771 4577.

October 21, 2009 |

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Thursday

15Oct2009

Shareholders Benefits

By Jason Fittler

Some listed companies offer shareholder benefits as a means of attracting new investors whilst fostering loyalty and support from existing shareholders.

The benefits schemes are welcome but should not outweigh the more important considerations of the risk of the investment and future growth potential.

Below we list some of the companies that are offering shareholder benefit schemes.

To see if you are entitled read the attached PDF.

October 15, 2009 |

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Company News

Tuesday

22Sep2009

Is Your Super Enough?

"If you do not take care of your super, it will not take care of you."

The average Australian wage is $57,000 pa, lets assume that you receive this amount for 35 years from age 30 to age 65. Each year you would receive $5,130 super contributions, if you compound a return of 8% pa on this investments this would give you $880,000 in retirement. Adjusted for inflation of 3%, you would have the same as $312,000 today.

Could you retire today on $312,000? On an average return of 8% this would give you a pension of $31,000pa for 20 years. This is 45% below today’s average income. In short, yes you could live on it but your life style would suffer.

Many people believe that their super will take care of them in retirement, the simple fact is, if you do not take care of your super it will not take care of you. I hear a lot of arguing about Industry Funds verse Retail funds, the main issue is fees, industry funds are cheaper.

At the end of the day it is like two fleas arguing about who owns the dogs they live on. To enjoy your retirement you need to do more. Fees are irrelevant, net return and savings are important. To achieve the lifestyle you want in retirement you need to put more effort into your super, this means stop spending as much as you do and start saving.

To retire with the same as today’s average wage you will need $560,000 today dollars in your super fund. In 35 years you will need $1.5 million.

To achieve this you have one of two choices;

1. Increase your super contributions from $5130 to $8700 pa. You could do this through salary sacrifice and save tax. In real terms this means salary sacrificing around $68 per week.
2. Achieve a better overall return in your super fund, if you could achieve a net return of 10.55 as opposed to 8% you would achieve the required $1.5 million super in retirement.

If you did both you would end up with $2.6 million giving you a $92,000 income in today’s dollars, this is a 61% better income than what the average Australian receives now.

Message

Stop worrying about the fees you pay and start worrying about what advice you are getting. This advice was given to you for free, for those who listen you will have a great retirement. For those of you who understood, then seek and pay for advice you will have a far better retirement.

What sort of retirement will you have?

If you would like to learn more, give me a call on 07 4771 4577.

September 22, 2009 |

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Tuesday

15Sep2009

Timeless Principles: Seven Cures for a Lean Purse

By Matthew Smith

The gathering of wealth is but one facet of life that many individuals have sought to achieve from the time of antiquity and which still continues today. Individuals seek to accumulate wealth for a variety of reasons; one of which would be considered the most wise and noble is to provide a secure income for your family.

A problem that is prevalent in the vast majority of households in our modern society is that niggling 'want' for a more secure and comfortable lifestyle for our family. This 'want' boils down into a need for ever-lasting financial security.

Most individuals see the best way to solve this problem is by seeking increases in their salary or wages. This misconception, along with another, is that high income earners are definitely wealthy - these are both common fallacies among the vast majority. An increase in household income is fantastic but it will not ultimately solve your problem.

The doctor or lawyer may have a large home and drive a much fancier car than the school teacher or carpenter, but, the same problem arises with higher income earners as it does with lower income earners. The higher income earners generally become higher consumers…it is likely that the more you earn the more you will spend.

The vast majority of households don’t yet understand that the income they earn does not belong to them. It belongs to the grocer, petrol station and butcher and so forth.

To provide a solution to this problem is easier than you may think. To gain financial security you must learn and embrace the rules that govern money. These rules are timeless principles and are adapted from the novel 'The Richest Man in Babylon', which also gave cause for this piece to be written.

Timeless Principles: Seven Cures for a Lean Purse

Cure 1 - Pay yourself no less than 10% of your income
This is where the bulk of your wealth will be created from. Paying yourself no less than 10% of income and saving it for investment will reap untold rewards. By living on 90% of your current income you will not notice a difference in lifestyle. Never stop paying yourself no less than 10% of your income first.

Cure 2 - Control your expenses
By controlling your expenses you are able to identify your needs from wants and take charge of your outgoings.

Cure 3 - Make your investments work for you
Once your investment starts producing income let it multiply by re-investing the income and watch your investments compound over time.

Cure 4 - Consult wise men so you do not lose your savings
You do not seek out the advice of a taxi driver to complete your income tax return; you seek the knowledge and advice of an accountant. You are wise to seek the counsel of individuals who are knowledgeable in handling money.

Cure 5 - Own your own home
By owning your own home you have the cheapest form of housing available. Apart from insurance and taxes, it is far cheaper than renting a home.

Cure 6 - Ensure an income for your retirement and that of your family
You will not be able to work forever. You should focus on working and saving hard to provide a passive income for your retirement. The earlier you start the greater the compounding effect will be.

Cure 7 - Increase your ability to earn
By increasing your knowledge you will be better equipped to make wiser decisions in regards to your investments. Never pass on an opportunity to expand your knowledge. Educate your children on these rules from a young age so that the next generation may out perform the previous.

Those who are wealthy and are financially secure simply know and understand these rules that govern money, and more importantly…obey them.

Want to know more... please give me a call on (07) 4771 4577

September 15, 2009 |

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Budgeting,

Estate Planning,

Retirement,

Saving & Budgeting

Tuesday

15Sep2009

Activity Based Investing and Cost Based Investing

Activity Based Investing,

Have you been told by a financial planner, investment adviser or stockbroker that you can expect to receive an average return of 8% per annum?

When we take a long term result and average it out over the number of years we come up with a Cost based investing return, or the average. Although this is useful in estimating return it really has little to no bearing on what your actual return will be.

Cost base investing seems logical and easy to understand; however, when you have down turns in the market this method of estimating your returns comes unstuck.

Activity based investing is a better measure of performance and will over the longer term produce a better overall result. Activity based investing only calculate returns for year to year, there is no long term average return only real returns. Take a look at the below graph of the return in the All Ords over the past 30 years.

This is not a smooth line showing regular increase in your portfolio. As you can see some years have had good returns others no so good.

A cost base investor would have continued to hold their investments during these ups and down looking for that average return. An activity based investor would have changed there investment style to suit the market, selling down their investments into cash when the market was producing an above average return and buying back in when the market under performed.

The activity based investor will always produce a far better result. Keeping in mind that both investors have the same fundamental belief that the market over the long term will go up.

I will have more information out on activity based investing in the near future.

PS. If you would like to learn more RIGHT NOW... give me a call on 07 4771 4577.

September 15, 2009 |

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Cost Based Investing,

Jason Fittler | in