Financial Newsletter Sunshine Coast
Welcome to Unique Financial Partnerships, keeping you up to date with all financial planning, self managed superannuation funds, tax minimisation, life insurance, on the Sunshine Coast and around Australia.
The information in this newsletter is current at the time of printing. Contact us for updates.
BUFFETT ON EQUITIES
Without doubt, the last three years have to
be one of the toughest periods on record for
world markets and the aftershocks from the US
‘meltdown’ will likely continue into 2011.
In tough economic times we turn to gurus such as
Warren Buffett for inspiration:
In our view, it is folly to forgo buying shares in an
outstanding business whose long-term future is
predictable because of worries about an economy or a
stock market that we know to be unpredictable.
Buffett turns on its head the idea that you do not buy
because the market has become expensive or cheap.
This is because he does not buy the market, he buys
stocks, and he only buys quality stocks. Buffett does not
buy the whole market instead he is a ‘fund manager’.
Buffett’s secret is that he knows the right price and
waits for the right time. Then he acts fearlessly. This lack
of fear is based on absolute conviction however; most
of us have doubts because we do not have the type of
clarity of focus on price and time that Warren Buffett has
demonstrated over the last half century.
Warren Buffett is one of the most well-known
contrarians. In other words, he is an investor who buys
when most people are selling and sells when most
people are buying. In practice, this is very difficult to do,
but if done successfully, can improve returns.
The chart below lists in order each of the Top 200
companies in the ASX. We can see that most of the
market value is on the extreme left hand side of the
chart and there is a long list of companies that barely
impact the index. The red curve is the cumulative
addition of each company’s value to the index.
If a line was drawn up from the bottom axis at the
50th largest company, it would show that the top 50
companies account for nearly 80% of the total value.
What this means is that 80% of market returns
over the medium term come from 50 out of 200
companies.
As few people have Buffett’s buying power (and the
time he has to study the market), the problem for
investors is one of having enough money to ‘build’ your
portfolio.
The top 10stocks
ASX Code |
Company |
% of the ASX200 |
BHP |
BHP BILLITON LIMITED |
12.78% |
CBA |
COMMONWEALTH BANK |
7.43% |
WBC |
WESTPAC BANKING CORP |
6.63% |
NAB |
NATIONAL AUSTRALIA BANK LIMITED |
5.07% |
ANZ |
AUSTRALIA & NZ BANKING |
5.06% |
TLS |
TELSTRA |
3.37% |
WES |
WESFARMERS |
3.20% |
WOW |
WOOLWORTHS |
3.06% |
RIO |
RIO TINTO |
2.88% |
WDC |
WESTFIELD GROUP |
2.34% |
So what does all this mean?
- The world’s greatest investor is a contrarian,
- Always buy quality, don’t focus on markets.
- Get good advice.
Undoubtedly, with hindsight, we will look back on late
2010 as a buying opportunity that we did know about.
Yours is all about the conviction to follow quality advice
and invest now. Speak to your Futuro adviser today.
PERFORMING YOUR OWN WEALTH CHECK
If you rely heavily on your income to meet
regular expenses then you should have some
form of income protection insurance.
According to industry research, during their lifetime
50% of all Australians over 30 will suffer a major medical
condition that prevents them from working. However,
only one in 20 has personal insurance cover.
Sick leave will cover a salaried person for a while, but
this will eventually run out. The loss of family income
and increased medical costs may force the sale of the
family ‘castle’ in some scenarios.
Income protection insurance involves the transferring
of risk from you to an insurer. In the event of a serious
illness or injury, the insurer would pay a proportion of
your salary or wage until you have recovered sufficiently
to work again, or up until the maximum benefit period
as stated in the policy.
When should you consider income protection?
Your biggest asset is probably not your home or
superannuation balance. If you multiply your yearly
salary by your years to retirement, you may be surprised
by the result. For example, for someone aged 25, 40
years earning $50,000 per year is $2 million. Now that is
definitely something worth protecting!
Any time is a good time to review your personal
situation but you should do so at least annually. There
are also certain events during life which should prompt
consideration of cover, such as:
getting married or divorced
having children
buying property or any other asset involving debt
starting your own business
setting up a Self-Managed Super Fund
putting together a financial plan
Payment of claims
The devil is always in the detail with policies and it
pays to get advice from a qualified professional when
it comes to choosing between the various options
available. This will avoid any surprises when making a
claim.
Payments begin after a waiting period and can last
varying periods, depending on the insurance cover
options you choose.
Did you know?
One in three working age
people will be off work for
more than three months due
to an accident or illness and
that 50% of these will still be
off work after six months.
Tax Deductible
Unlike most personal insurance premiums, income
protection insurance premiums are generally tax
deductible.
It is important to consider your financial commitments,
such as rent, mortgage and other debt payments,
when you think about insurance. Remember that if
you have accumulated sick leave, annual leave or long
service leave, you may not need to claim on insurance
immediately, so you reduce the cost of your policy.
If you haven’t reviewed your insurance needs lately,
don’t wait to become a statistic. Your Futuro adviser can
help you work out the right level of cover you need to
ensure your financial security.
THE CASE FOR DEBT AND CASH FLOW MANAGEMENT
The family home and ‘good debt’ are generally
the cornerstone of a complete and effective
financial plan.
Good debt allows you to utilise someone else’s money
to leverage your wealth creation. For most Australians,
equity in the home is the number one priority, the
question is; should this be the case?
Often people wait until the mortgage on their family
home is paid off before looking to invest. Unfortunately,
this approach fails to take advantage of time. When you
eventually find yourself ‘debt-free’, the length of time
available to be exposed to growth assets is so short that
you are unable to take the best advantage of the power
of compounding.
By investing earlier whilst still paying off the home
mortgage, you have the ability to generate further
wealth.
Investors can expect two different types of return on
an investment.
1. Income (eg. interest or dividends)
2. Capital growth (eg. when the stock market rises or
property increases in value)
Striking a sensible balance
The decision to plan for income, growth, or a
combination of the two, normally stems from your tax
position, your immediate requirements for cash and
your longer-term plans.
Using debt efficiently
Traditional ‘geared’ portfolios rely heavily on capital
gains as investment income is generally a lot less than
the cost of the debt. This puts enormous financial
pressure on the investment portfolio to perform, even
over the short term. It also means that unless you
can afford to hold the investment for a relatively long
period, while meeting your cash flow shortfall, you are
vulnerable to poor investment performance.
A better approach is to:
1. Create an efficient geared investment portfolio to
generate capital growth and income over time.
2. Revise your personal cash flow management.
3. Seek appropriate advice relating to super, insurance,
tax and estate planning.
Under this alternative proposition, rather than merely
looking at the value of the investment portfolio, which
is vulnerable to market and investment performance
outside your control, it focuses on your overall wealth.
The aim is to produce a positive cash flow, with a
primary focus on the reduction of personal debt.
Once you have a positive cash flow, you are better able
to increase your net position (assets minus liabilities).
This is achieved by accelerating your investment
program and exposure to long-term growth
assets, which will eventually lead to the successful
achievement of your financial goals.
If you would like to review your current portfolio and
utilise your debt more efficiently, contact your Futuro
adviser.
THE POWER OF GIVING BLOOD
If you would like to help others in a way that is
convenient and takes little time, perhaps you
could consider regularly donating blood.
According to the Australian Red Cross blood service,
the majority of donated blood goes to people with
cancer and people who have suffered traumatic
accidents, burns or who undergo surgery. With one in
three Australians needing blood, and our population
aging, the need for blood and blood products can only
increase grow in the future.
If you are looking for a way to give back to your
community, call or visit your local blood bank and start
giving today.
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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