Category Archives: Latest Articles

Working after kids – is it worth it?

To work, or not to work? That is the question many Australian women (and some men) have to consider after having children. Sadly, both options can have long-term negative financial consequences. While it would seem obvious that not working is likely to set your bank balance back, going back to work can also be costly….

Millions but not all to benefit from 2017 super changes

With changes to super now in effect, numerous Australians will get a leg up, many being low-income earners. According to the Association of Superannuation Funds of Australia (ASFA), more than four million Australians will benefit from the super changes that came into effect on 1 July 2017. The industry body said while many would be…

Don’t be driven by short-term sentiment and emotion

short term sentiment imageArguably, the most common fear holding an investor back from achieving a great return is a misunderstanding of what happens when markets fall (as they invariably do).

In order to use fear to our advantage, we would be well served to seek to understand the following three principles around shares and their value:

  • A share is simply a small slice of company ownership;
  • A company’s value ultimately depends on its present and future potential cash flows;
  • Value may not always equal price.

Multi-billionaire and world’s most successful investor, Warren Buffett, has defined investment as “the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power – after taxes have been paid on nominal gains – in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date.”

In other words, it requires patience. Buying a stock (or house, or managed fund) and simply hoping the price goes up soon is, most certainly, not investing. While we may naturally feel emotions based on what the price does over this shorter term, history has shown it is vital not to let these emotions steer our financial decisions.

Focus on quality and don’t speculate

A share is simply a slice of ownership in a business. For this reason, focus should be directed at the quality of the businesses and their prospects for the future, rather than a chart with a line that wiggles up and down as the price rises and falls.

Unfortunately, in the financial media, there is a clear focus on explaining short-term fluctuations in share price. Commentators often try to attribute every little rise and fall to a particular event or issue. The risk is that an investor may start taking their cues from price movements – which is driven by short-term sentiment and emotion, rather than value – which is ultimately driven by the cash flows a business generates now and into the future.

Benjamin Graham, often known as the ‘father of value investing’, famously said that “Price is what you pay, value is what you get.” While the price of a share will certainly fluctuate, (sometimes multiple times per second, every day of the year!), the value of a company’s future cash flows is likely to be far less volatile.

Speculation; ie: buying and blindly hoping that a price will go up soon, might be considered the antithesis of investing, and shouldn’t ever be considered a safe strategy. Mark Twain once aptly mused that, “October is one of the most dangerous months to speculate in shares. The others are July, January, September, April, November, May, March, June, December, August and February.”

If a share price falls sharply, yet the value of the business’s future cash flow doesn’t change, this may provide a wonderful opportunity to purchase further shares at a discounted price, hence maximising the potential return and reducing the potential for loss. A skilled fund manager will take advantage of this by applying this principle to a portfolio of businesses in order to further reduce risk to the investor through diversification.

Paradoxically, as an investor, your hope should generally be that prices fall in the short term. Volatility is the friend of the long-term investor.

That is not to say asset price volatility doesn’t matter. For example, self-funded retirees being forced into selling units at a temporarily reduced price in order to fund their lifestyle isn’t an attractive proposition. For this reason, financial planners commonly emphasise the importance of maintaining an adequate cash reserve – particularly in retirement.

Whether you are invested in a managed fund, direct shares or an investment property, price matters at precisely two times – when you buy and when you sell. The return on an investment depends on these prices and the distributions you receive over the investment period.

For these reasons, most quality fund managers will tend to remain focused on the fundamental prospects of the underlying companies owned, and think as a business owner rather than a ‘stock picker’.


Source: AMP Capital


The clock is ticking on major changes to superannuation that come into force on 1 July 2017.

The changes are wide-ranging and are likely to affect everyone’s retirement savings. But it can pay to plan ahead both to take advantage of the existing rules, and to make the most of the new super landscape. Here are some of the major changes and how they may affect you. New limits on non-concessional contributions…

Your options in aged care explained

With multiple avenues to explore, thinking about aged care earlier rather than later could provide you or your loved one with greater flexibility. It’s possible that in the future you, or someone close to you, may need some form of care or daily living assistance. With lots of information to sift through and the conversation…

Federal Budget 2017: Overview and what this could mean for you

Snapshot On Tuesday 9 May, the Federal Government handed down its Budget for the 2017–18 financial year. According to Federal Treasurer Scott Morrison, this year’s Budget is founded on the principles of fairness, security and opportunity. Mr Morrison claims that the government’s proposed measures will raise almost $21 billion in revenue over the next four…