The Allure of Gold
Gold as a safe haven
The allure of Gold, as a viable long term investment option, has shot to new heights in the past five years. While this is perhaps understandable given its status as a safe haven, should it be a fundamental component of an investment portfolio?
There is a lot of misunderstanding about gold, its role in the financial system and use within an investment portfolio. We aim to address some of these misunderstandings.
A Brief History of Gold
Gold first became a transferable form of money around 560 B.C. when gold coins (stamped with a seal) were used by merchants to simplify trade. The coins were valued according to their inherent gold content. In 1066, Great Britain developed the British pound (symbolising a pound of sterling silver) and other units of currency based on their inherent metal value. During this period, gold (and silver) represented the main means of exchange (i.e. money).
Is the nation’s financial planning on track?
What trends in key financial planning indicators should we expect?
As wealth managers, we spend a lot of time working with our clients to structure their affairs to give them the best chance of achieving their desired financial futures. And we’re not just talking about structuring in terms of setting up self managed super funds, family trusts and the like. We’re talking about the structure and composition of their personal balance sheets. To us, this is the foundation of good financial planning.
We thought it would be interesting to look at the change in the financial position of the average Australian household over the past 20 years. Given the aging of the baby boomers over these two decades and their growing need to prepare for imminent retirement, we were surprised with what we found.
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Should past performance affect your willingness to take investment risk?
Past investment performance is seductive
It’s a difficult task being a good investor. You’re keen to celebrate when your investments perform well, yet you’re also looking for opportunities to acquire new exposure when prices are low. Unfortunately, good investment performance and low prices rarely go hand in hand. This creates an ongoing dilemma for wealth accumulators – do you want your investments to go up or down in the short term?
Many investors are reluctant to invest new money in asset classes that show poor recent performance, instead preferring to increase their exposure to the better performing asset classes. This seems to be a logical thought process, but is it conducive to the achievement of your wealth accumulation plans?
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Is your Investment Strategy personalised?
Knowledge of investments isn’t everything
The availability of investment news and information has been increasing over time. This has led to an improvement in most people’s understanding of general investment concepts. It has created the opportunity for many to choose to manage their own financial affairs.
Knowing “where” to invest your money is an important part of the financial management equation. However, by itself, it’s far from comprehensive in terms of an investment strategy.
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Is residential property a good investment?
The arguments in favour of residential property investment appear overwhelming
Housing prices remained reasonably firm through the worst of the “Global Financial Crisis” and have risen steadily over recent months. Many do-it-yourself investors, badly bruised by the battering taken by domestic and international sharemarkets, are seeing investment in residential property as a “safe” investment alternative.
The arguments in favour of residential property investment appear overwhelming and include:
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Forecasting the Market – Skill or Luck?
How good is your crystal ball?
We’ve just been through (arguably) the worst share market downturn since 1929. We’ve also experienced a recovery that few predicted was possible at the start of 2009. Why were we not able to predict these events earlier and with more precision?
You may think it’s because you don’t have access to the information that the experts have. Yet most of the experts find successful predicting just as tough. While it was hard to ignore some of the apocalyptic predictions that were being thrown around during the depths of the downturn, acting on them would have proved very costly.
So, which predictions do you follow and which do you ignore? Or is there another way to manage your financial affairs.
Taxes, investment costs and investment returns
High before tax returns may not be best …
If you accept the often repeated warning that past investment returns do not provide a guide to future performance, you would be smart enough to not select a fund manager based simply on their recent results.
But what if you knew for certain (which you couldn’t) that a particular investment manager would return 1% p.a. above their relevant market indicator, before investment costs and taxes, for the next 10 years. Would you select that manager in preference to one that guaranteed you the market return? As we demonstrate, not necessarily.
Your objective as an investor should be to maximise your investment returns after-tax, costs and inflation for the amount of risk you accept i.e. your net risk adjusted return. In this article, we will focus on the importance of taxes and investment costs (e.g. fund manager fees, transaction costs). We have discussed the risk issue extensively in our “Foundations of Financial Economics” articles and, excluding inflation indexed bonds, there is little an individual investor can do, directly, to take account of inflation.
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Is Rent Money, “Dead Money”?
Rent is the price of housing accommodation
The home building industry often promotes to potential young home buyers that rent money is “dead money” i.e. money down the drain. It encourages them to stop paying rent and, instead, use the money to pay off the mortgage on their own new home.
I became very aware of the power of this self serving message when my 24 year old daughter proclaimed that she wanted to buy her own property as soon as possible, as rent was “just dead money”. Although impressed by her determination to take on such an obligation, I couldn’t resist the opportunity to give a basic economics lesson.
The reality is that rent is not dead money but the cost of purchasing housing accommodation. It is essentially the same as paying for a hotel room for an overnight stay or for a two week vacation in a luxury holiday resort.
We all pay the cost of housing accommodation, whether we rent from a third party or we own our home. And this is the case, regardless of whether or not we have a mortgage.
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The Holiday House Is A Lifestyle Choice
The holiday house purchase decision: emotional or logical?
You’ve just spent two glorious weeks at the end of January at your friend’s beachside holiday house with your young family. The stress of the past year’s hard work has vanished and you’re feeling great. You’ve reconnected with your partner and your five and eight year olds have been reacquainted with a parent.
It’s about the worst time possible to make a rational investment decision but you decide that you should buy your own holiday house, now. A couple of hours drive from home, so that you and the family can recreate the bliss of the recent holiday every weekend.
Why you need a personal cash flow budget
Surely the wealthy don’t need to budget …
It is true that some high income earners have no idea how much they spend, simply too busy making money to take the time to work out how they are spending it. And there are some people who consider you are not really wealthy if you ever have to ask how much anything costs. Budgeting is so demeaning.
However, it is no coincidence that all major businesses budget and account for their cash inflows and outflows. It is unlikely any lender or potential shareholder would provide them with funds if they didn’t. They would be viewed as financially irresponsible.
If you’re serious about personal wealth management, we believe that household cash flow budgets are a necessity, not a nice to have or something only the less well off need to worry about.
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