Financial Newsletter Sunshine Coast
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Handling Market VolatilityWe thought we would take this opportunity to write to you about the recent market turmoil. We don’t want to discuss the reasons for what has gone on as there is plenty in the press about it. Instead lets focus on giving you some insights into how professional investors react during these events and how your Futuro advisor can assist. As we write this the US Market has seen swings of 400+ points both positive and negative. These have been on the back of a downgrade of the US credit rating by Standard and Poors (S&P), statements about interest rates by the US Federal Reserve and the release of employment figures. The Sovereign debt issues found in Europe have only added to the market emotion and Australian investors have not been immune as the Australian Stock Exchange (ASX) exhibits its own volatility. What this also exhibits is that the markets are driven by emotion rather than facts. Greed and fear when they take hold can drive markets without any rational decision making behind them. Remember the tech boom when companies were given enormous valuations but had no revenue? Emotion is a large player in the financial markets and no one can predict what may happen in the shorter term. Remember the past However, when markets are volatile they hit the headlines, and there always seems to be more stories compared to when
markets are performing well. Fear sells newspapers! Is this time different? Certainly the factors contributing to the uncertainty are different but will the longer term outcome vary, probably not. Unfortunately we cannot say what the short term will do and this does have an effect on people’s objectives. Bounces do occurJust have a look at the last few days. If you had given in to panic and sold on the first hint of recent turmoil you would have missed the bounce which occurred the next day in the market and be left with a considerable loss. When share markets go down it pays to remain calm and not make any hasty decisions. After all, markets move in cycles. However, when there is uncertainty, it can be hard to resist the temptation to bail out of the market. But in doing so you’re effectively accepting losses and preventing yourself the opportunity to benefit from the market recovery. In fact, as you can see on the table below, after these major corrections, it’s not usually that the share market has not only Share market bounce backs Date of Fall off High | % Fall in 10 day period | 6 Months later
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Newsletter Archive
A guide to shaking off the doom and gloom Summer 2011 Superannuation death benefit Spring 2011 Riding the financial rollercoaster Spring 2011 Share market bounce backs volatility August 2011 Financial plan baby bonus or paid parental leave Winter 2011 Financial interest rates in 2011 March 2011 Financial investing in 2011 December 2010 Estate Challenges: Financial Summer 2010 Financial Planning Warren Buffett Spring 2010 Intergenerational wealth planning September 2010 Three stages of retirement August 2010 Reconsider your financial goals? July 2010 What does a financial adviser do? June 2010 Federal Budget 2010 - 2011 May 2010 Henry Tax Review May 2010 End of year tax tips April 2010 Wasting your money on insurance? Summer 10 Financial Planning Summer 09 Financial Planning Spring 09 Investment Returns In Perspective September 09 Retirement planning August 09 Financial New Year's Resolutions August 09 Financial Planning - Budget, Tax Tips, Stock Market Winter 09 Age Pension and Superannuation Federal Budget June 09 Economic and market highlights June 09 End of Financial Year Tax Tips 09 May 09 Investor Newsletter Autumn 09 Investor Newsletter March 09 Superannuation Newsletter Summer 08 Retirement Newsletter Spring 08 Tax Minimisation Newsletter Winter 08 Superannuation Newsletter Autumn 08 Superannuation Newsletter Summer 07 Financial Newsletter September 07 |
Learn from the best
We are also reminded of a story we sent out at the bottom of the GFC in relation to Berkshire Hathaway, the investment company run by Warren Buffet, one of the truly great investment minds, and its purchase for $5Billion of approximately 7% of Goldman Sachs in September 2008. Berkshire Hathaway subsequently sold out this year for the sum of $8.65Billion.
In 2008 Buffet wrote the following in his annual letter to his shareholders:
"In good years and bad, Charlie and I simply focus on four goals:
(1) maintaining Berkshire’s Gibraltar-like financial position, which features huge amounts of
excess liquidity, near-term obligations that are modest, and dozens of sources of earnings
and cash;
(2) widening the “moats” around our operating businesses that give them durable competitive
advantages;
(3) acquiring and developing new and varied streams of earnings;
(4) expanding and nurturing the cadre of outstanding operating managers who, over the years,
have delivered Berkshire exceptional results.” www.berkshirehathaway.com
Why do we bring this up? It highlights several key concepts used by professional investors and Futuro advisors.
First, there is opportunity when markets are volatile.
Second, don’t be afraid to take a profit.
Third, diversify your investments.
Finally and most importantly make the investment strategy fit your goals and not the other way around.
What to do
Revisit your goals, not just financial but personal. Remember you may not be able to have it all your own way. If you are a
retiree and your main focus is income, talk to your advisor about ways this may be achieved. Yields are strong on some
investments but your capital may go up and down with the market. This may not matter over the longer term but you will need
to cope with the emotional ride. Otherwise, if capital is to be preserved then yields may be dramatically reduced.
Similarly, accumulators should be reviewing their savings and debt programs to see if these can be improved in any way and to
ensure their personal goals may be met over the longer terms. If circumstances have changed then your advisor may be able
to provide some insight as to how small changes can mean large benefits in the years to come.
Talk to your advisor in depth about your personal goals as these outcomes need to be reflected in the investment strategy you.
Disclaimer: Disclaimer: This document was prepared by Futuro Financial Services Pty Ltd ABN 30 085 015 (AFSL number 238478) without taking into account any person’s particular objectives, financial situation or needs. It is not guaranteed as accurate or complete and should not be relied upon as such. Futuro Financial Services Pty Ltd does not accept any responsibility for the opinions, comments and analysis contained in this document, all of which are intended to be of a general nature. Accordingly, reliance should not be placed by anyone on this document as the basis for making any investment, financial or other decision. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend investors obtain financial advice specific to their situation before many any financial investment or insurance decision.
Disclaimer
All representations and information contained in Futuro in Focus are made in good faith and are believed to be correct at the time of preparation. Articles are of a general nature and they do not purport to be specific investment advice. Individual needs or other considerations have not been taken into account, thus information contained herein should not be relied upon as a substitute for detailed advice. Futuro Financial Services will receive fees or brokerage from the provision of advice or placement of investments. You may, by contacting our Privacy Officer on 07 3018 0400 or by writing to Futuro Financial Services Privacy Officer GPO Box 942 Brisbane QLD 4001, request not to receive further editions of Futuro in Focus.
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