Returns fall but still running

It would be premature to call an end to the bull market, but investors need to pare back their return expectations amid an increasingly volatile environment.

And central bankers, rather than China’s flagging economy, pose the biggest risk to equity markets in the longer term.

Those are some of the risks highlighted by JBWere New Zealand’s Investment Strategy Group, whose latest asset allocation update describes the global economy as “stuck in third gear”.

Last week, the United States Federal Reserve opted to keep interest rates unchanged within a zero to 0.25 per cent range due to heightened uncertainty in world markets.

The US interest rate setting has been a major contributor to the equity bull run that has taken place over the past several years.

JBWere said an eventual US rate hike was not an “insurmountable hurdle” for equities.

“Our focus is the dynamic between wages, growth and inflation. Strong growth, accelerating wages and rising inflation are what have historically hurt equity markets. Why? Because it is this dynamic that turns the Federal Reserve from growth cheerleader to punch-bowl remover.”

JBWere strategist Bernard Doyle said central bankers became dangerous for equity investors when they began worrying about inflation and hiking rates accordingly.

“At the moment no central banker in the world has that as a real concern,” Doyle said. “It’s when we get far closer to that point that we’ll start worrying about an end of the bull market.”

But Doyle said JBWere had been “dialling down” clients’ return expectations. “A double-digit (return) year in equities is not the norm.”

The S&P/NZX 50 Index gained 18 per cent in 2014, following a 16.5 per cent lift in the previous year.

As of Friday afternoon, the index was up only 2.7 per cent in the year to date and 4 per cent below its August 3 peak.

JBWere’s New Zealand equity manager, Rickey Ward, said investors often associated bull markets with double-digit returns.

“A bull market can still be high single-digit returns – it’s just positive sentiment around a market rather than the actual return you get from it,” Ward said.

But, with volatility increasing, JBWere has been putting clients into overseas hedge funds, which can profit in both rising and falling markets.

“A big push for us has been filling out our suite of low-correlation assets, including hedge funds,” Doyle said, adding that seven of the eight hedge funds JBWere clients were invested in had positive returns in August, one of the most volatile months for equity markets in recent years.

Ward said the local sharemarket’s recent “pull back” was creating buying opportunities. “Fletcher Building is a good example – look back a year ago and it was trading above $9, or close to. It went to $6.95 the other day and on what new news? The economy’s still pretty strong and Fletcher has got a forward order book of $2.4 billion … for any long-term investor that presents an opportunity in a very good company.”

Doyle said he didn’t think the Chinese economy was heading for a so-called “hard-landing”.

“We think it’s a bumpy, managed slowdown,” he said, adding that a severe downturn would put political stability at risk. “A (Chinese) recession would have political ramifications that they’re keen to avoid.”

NZ Herald – 21 September 2015

Sky high stocks point to coming crash

Here’s a somewhat scary statistic for those meant to know about these things. After a six year bull market, the typical stock in America’s S&P 500 shares index is valued on a multiple of more than 18 times estimated forward earnings. This is not just expensive by historic standards but super expensive. In fact, according to analysis by Goldman Sachs it ranks in the top 98th percentile of historic valuations since 1976 – or in other words one of the highest in nearly 40 years.

It scarcely needs saying that these peaks tend to signal the top of the cycle, with some kind of bear market or crash just around the corner. But hold on a moment, you might say, we’ve barley recovered from the last downturn. It surely cannot already be time for another? Regrettably it can. Most business cycles last little more than seven years and if anything they tend to be getting even shorter. The US economy contracted in the first quarter and has shown few signs of significant recovery since. As for the eurozone, spring has brought a rare burst of growth, but few believe it will last, let alone be strong enough to undo the damage caused by the crisis.

Meanwhile, the prospect of Greek default continues to hover over everything like a permanent sword of Damocles, threatening at any moment to plunge much of the advanced world back into financial and economic turmoil. If economic prospects look so precarious, why are stocks, bonds and other asset prices so high? Part of the answer lies in central bank money printing, or so called “quantitative easing”. This has now all but ceased in Britain and America, but where the Anglo-Saxon world has left off, Europe, Japan and China have taken over. The world is awash with cheap liquidity.

This in turn is creating new sources of financial instability to replace the old incubators of it in the banking system. History rarely repeats itself exactly, and if looking for crisis there is absolutely no point in looking for them in the last one. Banks are no longer a threat to the financial system or the economy. To the contrary, they have become so shrunken by credit loss and neutered by regulation that they have gone be the other way, and if called on to help counter renewed turbulence elsewhere in financial markets would no longer be up to the job. As Kevin Corrigan, head of fixed income a Lombard Odier, puts it: “New regulation designed to make the financial sector less risky has paradoxically damaged  the shock absorbing capabilities of the banking sector, and thereby made other parts of the system more risky.”

Banks are no longer willing to act as warehouses for ordinary buyers and sellers of financial assets. Denied this ‘market making” capacity volatility in some markets has already picked up significantly, with often violent swings in prices and yields form one day to the next. With eurozone bond yields climbing sharply this week, Mario Draghi, president of the European Central Bank, warns us to expect further turbulence to come. So where do the new threats come from?  Hedge funds and other leveraged operators such as private equity – according to popular imagination, the original evil of finance- can reasonably be excluded. Even if they were thought dangerous, they are too small to be systematically important. Rather the main threat comes from conventional asset managers. Their portfolios have been swollen to bursting since the onset of the crisis by central bank money printing. Recent analysis by the International Monetary Fund found that globally these funds today hold intermediate assets worth some US$76 trillion ($106 trillion), equivalent to 100 per cent of world GDP. Via burgeoning bond markets, they have come to replace the banks as primary sources of finance for governments, corporations and even households. The upshot is that great chunks of credit intermediation have shifted from the banking to the non-bank sector. Assets under management of some of the bigger players in advanced economies are as large as those of the largest banks, and show similar levels of concentration. Now add to these markets the wholly price incentive buying power of the central bank printing press, and all the conditions are again in place for a major train crash. Normally an investor judges value on the basis of perceived prospects for the asset involved – credit – worthiness, market position, the outlook for growth, inflation, interest rates and so on.

The central bank printing press has rendered these market judgments substantially meaningless, and by flooding the system with cheap money, encouraged indiscriminate, herd-like pursuit by asset managers of credit risk almost any price. Worse, the downtrodden banks no longer have the capacity to act as effective market makers if and when perceptions change. In a panic, prices would plummet, with nothing to act as financial fire breaks. Nobody can tell you when the next crisis will come, but the notion that governments have somehow got on top of the forces of financial instability is for the birds. Credit expansion obeys the water bed principle – push it down in one area, and it merely rises up somewhere else. Central bank money printing undoubtedly helped stem the last crisis, but if it has also sown the seeds for the next one, you have to wonder about its long term consequences.

Article from NZ Herald, Thursday 11 June 2015 – Telegraph Group Ltd

Reserve Bank right to fight housing bubble

There has recently been considerable commentary and even criticism of the Reserve Bank of New Zealand for holding interest rates above other countries despite CPI inflation being temporarily below the 1-3 per cent target range. The RBNZ has also been criticised by Treasury for failing to make a robust case to “intervene” against the housing market with policies such as LVR that attempt to curb the most aggressive lending practices.

Some have even called the RBNZ Muldoonist. Is the criticism justified? Should the RBNZ simply leave the market to its own devices and allow Aucklanders to indulge in our favourite pastime of swapping debt funded houses among ourselves at ever high prices? There are many arguments and stories justifying the Auckland housing bubble. Immigration is perhaps the most frequent cited. Try telling somebody in Florida, Nevada, Spain or Ireland that this factor will prevent a subsequent bust. Likewise construction costs. Likewise restrictive planning rules…. the list goes on.

The Auckland bubble is big. Deutsche Bank estimates overall NZ housing is 30 per cent overpriced relative to income and 82 per cent versus rent, with Auckland presumably being worse. However such extremities are nothing that the world has not seen before and nor are the usual stories that temporarily justify it.

A recent study involving the Federal Reserve Bank of San Francisco looked at 17 advanced economies since 1870 and examines the long term economic impact of housing bubbles, equity market bubbles and bank loan booms. The findings are that the financial stability risks of a moderately leveraged equity market boom/bust are very small but the risks from a loan financed housing boom are huge. In recent times, the impact of the Nasdaq crash in 2000 was painful for those who paid absurd prices for companies specialising in vapour ware but the wider economic impact was limited. Indeed, the sharp interest rate cuts by the Fed to limit its aftermath arguably paved the way for the remarkable housing and credit boom that followed and whose bust in 2008 is still being recovered from today. The study finds that over time, real house prices experienced a number of booms and busts but largely trended sideways from the 1870s to the 1950s, after which they have risen substantially in conjunction with bank loans. Examples of past boom/busts include the Australian real estate boom of the 1880s financed by overseas inflows and immigration which blew apart in the early 1890s and caused a deep recession verging on depression.

A US real estate boom/bust in the 1920s centred on outside money investing in Florida and preceded the equity market crash of 1929 by several years. Rather than immigration financial deregulation was the driver of the Scandinavian boom of the 1980s and bust of the 1990s.

Japanese real estate peaked in 1991 and the study points out that by 2012, the nominal value of real estate was about half of its 1991 level. House prices always go up … yeah right. Contrastingly, the study finds numerous examples of popped equity bubbles that did not turn into wider financial crises because they had very little bank finance underpinning them. Without a parallel credit boom, equity bubbles have no statistically significant effect on the depth of the economic recession that follows their bust or the speed of recovery.

The study finds that when an equity bubble coincides with a credit boom, the subsequent economic recession lasts a year longer than it would otherwise have and there is a 3 per cent drag on the level of GDP per capita after five years; that is, the economy is 3 per cent smaller than it would otherwise have been. As an example, NZ in the aftermath of the 1987 crash springs to mind. Conversely, house price bubbles have been less frequent but their busts have been far more damaging due to their loan financing frequently taking the banking system down with them. A house price and credit bubble crash, “can sink the economy for several years running so that even by year five the economy is still operating below the level at the start of the recession.”

Spain and Ireland since 2009 are clear recent examples along with those cited earlier. Hopefully, NZ will not join them in the period ahead. These findings are stark. Auckland’s credit financed housing bubble is a grave threat to the NZ economic outlook – never mind the “reasons” of immigration, building costs, land availability and so forth. Every bubble in history has had its reasons. These pass but the permanent effects of the bubble bursting most certainly do not. Immigration may weaken; planning rules can change but the mortgage debt that has funded the price bubble remains. Thank goodness that Graeme Wheeler and the RBNZ are beginning to pay attention to the issue. It is simply bizarre that they are being criticised for being the one official institution to show some leadership and tentatively use their limited tools to lean against Auckland house prices.

The RBNZ’s tools need to be sharpened rather than tempered, with other countries providing plenty of evidence for the success or failure of tools such as stamp duty, removing the tax advantages of so called investors, overseas investment restrictions, loan restrictions et al. The evidence is compelling that the aftermath of a credit financed housing bust is dire. Those who do not learn the lessons of history are doomed to repeat them.

Article from NZ Herald Thursday 2 July 2015 – Matthew Goodson

Bull market still has legs after 6 years

This article outlines in my view the need to be cautious/careful of share markets. As you are no doubt aware markets go in cycles and when markets get too frothy they correct. With this in mind thought should be given to capital preservation.

In 2009 the stock market was filled with panic. The housing market had gone under and General Motors was on the verge of bankruptcy reorganisation. The United States was in a deep recession, and stocks had plunged 57 per cent from their high in October 2007.

Fast-forward six years, and investors are enjoying one of the longest bull markets since 1940’s. The Standard and Poor’s 500 index has more than tripled since bottoming out at 676.53 on March 9, 2009. The bull has pushed through a US debt crisis, an escalating conflict in the Middle East, renewed tensions with Russia over Ukraine and Europe’s stagnating economy.

So has this bull run its course? Most market strategists have not yet seen the signs that typically accompany a market peak. Investors are yet to become rash, or overconfident.

“Bull markets end not because they grow old. They end because some excesses build,” says Stephen Freedman, head of cross-asset strategy at UBS Wealth Management.

Why do stocks keep rising?

It’s a powerful combination of higher corporate profits and a growing economy. The main driver is company earnings. Companies slashed costs in response to the recession that began in December 2007. That helped boost profit margins when demand began to recover. As a result, earnings per share have risen consistently since the end of the recession in 2009. Companies in the S&P 500 are forecast to generate record earnings of US$119.35 ($163.40) a share this year, nearly double what they earned in 2009.

Hiring is picking up and costs are down, and that means Americans are more confident about the economy that at any time since the recession. Unemployment has fallen to 5.5 per cent from a peak of 10 per cent in 2009. A plunge in the price of oil has pushed down petrol prices and put more money in people’s pockets. Most economists forecast growth of more than 3 per cent this year. As investors become more confident about growth, they are willing to pay more for stocks.

What role has the Federal Reserve played?

The Federal Reserve has held its main lending rate close to zero since 2008. It has bought trillions of dollars in bonds to help hold down long-term interest rates. By cutting rates, policy-makers have encouraged businesses and consumers to borrow and spend. The historically low interest rates in the bond market have also made stocks look better in comparison.

How does this run compare with previous bull markets?

There have been 12 bull markets since the end of World War II, with the average run lasting 58 months, according to S&P Capital IQ. At 72 months, the current streak is the fourth longest in that period. While this run could be described as middle-aged, it is still a few years short of the longest streak, which started in 1990 and stretched 113 months into 2000.

If you invested US$10,000 at the bottom, how much would you have made?

The S&P 500 has returned 253 percent since March 9, 2009. That means an investment of $10,000 would now be worth $25,262. Investing the same amount in the Dow Jones industrial average over the same time would have turned $10,000 into $22,428.

How long can it continue

All bull markets must end. That’s simply the nature of financial markets. However, few analysts are calling the end of this one just yet.

The U.S. economy is continuing to strengthen and inflation remains tame. And while the Fed has ended its bond-buying program, other global central banks, like the European Central Bank and the Bank of Japan, are still providing stimulus to their economies.

“I don’t anticipate that stocks will face any challenges in the near-term,” says Michael Arone, chief investment strategist for State Street Global Advisors. “If there were some type of a recession, or a slowdown in the U.S., that would hurt for sure … but I don’t see that on the horizon.”

Also, many of the excesses that accompany bull-market peaks haven’t surfaced, says UBS Wealth Management’s Freedman. Think of the housing boom that preceded the bust that began in 2007, or the dot-com mania of 1999 and early 2000.

“Because the recovery has been so sluggish, nobody has had time to go overboard with the type of behavior that’s come back to haunt the markets,” he says.

What kills bull markets?

Typically, it’s a recession. Four of the five bull markets since 1970 ended as investors got spooked by a recession, or the anticipation of one.

Bank of America analysts say that the most likely threat to the bull market would be rising inflation. That could cause a sell-off in bonds, sending shock waves throughout financial markets.

Another threat is a slump in earnings. That could happen if the surging dollar, already at a 12-year high against the euro, grows even stronger, making U.S. goods more expensive to customers overseas and translating into fewer dollars to corporate bottom lines.


Article from NZ Herald 11 March 2015 by Steve Rothwell

John's Portfolio

I have some direct share investments and I thought I’d provide an update on changes in my portfolio and the reasons for these.

During 2014 I bought some Google shares at US$1201 per share. They have since split into A and C shares. The reason for investing in these is that Google is now well established and has substantial cash flows and numerous business interests in growth areas of the technology world. Staying on the technology theme I invested in E Road which is a NZ Technology company which supplies software to the transport industry. I paid $3.55 a share for these which are currently sitting at $3.79. I recently sold my Santos shares (at a small loss) for $11.66 based on the drop in oil prices. I am pleased I did as they are now sitting at $7.55 a share. I used the proceeds to buy Sirtex Medical which is a company that makes a product that treats liver cancer. I took the opportunity to sell a small number of my Tower shares (for a profit) in their share buy back offer. I made a modest investment at float time in Orion Healthcare which I am sure you are all familiar with (Hospital software among other products). Lastly I added funds to my investment in the Devon Alpha Fund.

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If you are interested in exploring this please contact me and I can supply you additional information.

Global Markets

The global economy is likely to show improved growth in 2015, despite no shortage of gloomy headlines, according to Credit Suisse, with growth expectations and central banks likely to set the tone for sharemarkets.

This is even though China is slowing and Japan and Europe need significant stimulus to improve off a low base. But the investment bank says the headwind of lower energy prices will help global industrial production and goods demand lift by 3 to 5 per cent next year, led by the US, which should be able to post growth of at least 3 per cent. Combined with China reporting a growth rate in the high 6 per cent range, this should be enough to boost global gross domestic product growth to 3.4 per cent in 2015, compared with an expected 3.1 per cent in  2014.

“I’m surprised by the degree of negativity at the moment among investors and also policymakers,” says Robert Parker, senior adviser in the investment, strategy and research group, Credit Suisse. “The reason why I say I’m surprised is first of all, if you look at the United States, the economy data is actually very good. Whether you look at investment spending, consumer spending, export numbers, everything is consistent with 3 per cent-plus growth for the next 12 months in the US,”

The second plank in Parker’s positive case is that the negative perception of Europe is changing. “The reason for that is because a lot of stimulus is being thrown at the European economy at the moment. We are very confident that the European Central Bank will keep interest rates close to zero for at least two years. It is expanding its balance sheet from 2 trillion Euro ($3 trillion) to close to 3 trillion Euro probably by the second half of next year.”

Parker also expects to see “in the next month or two’ some easing in fiscal policy by Germany. “Germany is under intense pressure to ease fiscal policy. This is what’s changed, I think, in the last six months in Europe, is that policymakers have seen voters moving away from conventional centralist policies to either extreme left or extreme rights parties. That’s pushing the policymaker, both at the ECB and the ministries of finance, to adopt a much easier policy and really throw stimulus at the euro zone economy because we can’t tolerate the weakness in the economy that we’ve seen in the last six months” he says. Credit Suisse forecasts average real GDP growth of 1 per cent in the euro zone 2015.

Then there is China. “This year, China will grow at over 7 per cent but next year, China will probably grow somewhere just below 7 per cent. We’re looking at a gentle glide path downward in terms of the outlook for Chinese growth – but to a soft landing, nota hard landing,” Parker says.

As for Japan, which unexpectedly slipped into recession in the third quarter of 2014 while the poor third-quarter GDP number caused Credit Suisse to revise down its 2014 growth forecast form 0.9 per cent to 0.5 per cent, the postponement of the value-added tax hike planned for 2015, the continued aggressive monetary easing, as well as signs of the weak yen is finally beginning to boost exports, have induced the bank to lift its growth forecasts for both 2014*15 (up to 0.9 per cent) and 2015-16 (up 1.1 per cent).

Subsequent to that call, Japanese Prime Minister Shinzo Abe won a sweeping victory in the snap elections he called for December consolidating his power in the Diet and giving him a further mandate for deep reforms.

Parker says the growth outlook is being stimulated by the late-2014 fall in energy prices, which he describes as a “tax cut” for the world, although it is not good news for the budgets of producer nations such as Russia or Saudi Arabia. “It is a stimulus for some sectors that really matter, for example manufacturing, and the US household sector, which accounts for the bulk of US GDP.

“On the back of what we think is sustainable recovery in the US jobs market, there are positive feedback effects into credit growth, consumer confidence, and business confidence on the back of that,” Parker says. “Most importantly, gains in employment and wages and the resulting improvement in consumer spending are finally encouraging companies to raise investment spending.” And means the Federal Reserve can begin, at some stage in 2015, to normalise – that is, raise – interest rates. Credit Suisse expects this process to begin around midyear.

The Fed will act – cautiously – because the US unemployment rate and core inflation trend are both close to their expected long-run trend,” Parker says. The Bank of England will follow suit with tighter monetary policy, but easing will continue in Europe and Japan. “This is likely to result in both a weaker euro – and yen –  against the US dollar but, notwithstanding the concerns over ‘competitive devaluation’.”  Parker says currency weakness will boost the export earnings of Japan and Europe, particularly Germany, which has been hurt by both Chinese slowdown and its sanctions on Russia. “You cannot escape these linkages. Yes, the slowdown in China has had an impact on German exports, but not a shock impact. The point to make on German exports and particularly the capital goods producers like the car makers, is that as the euro comes down against the dollar, their profitability and profit margins are expanding very fast indeed. If we get further declines in the euro against the US dollar, which I think is inevitable, the profitability of German industry is going to be extremely positive,” Parker says.

While ECB governor Mario Draghi’s top priority is to eliminate deflation and risk, Parker says the ECB would like to see a much weaker euro. Credit Suisse is calling the euro at $US1.20 by the second quarter of 2015, against $US1.25 at present, after flirting with $US1.40 earlier in the year. “The point about that is that it’s simultaneously very good for offsetting deflation risk, and for export competitiveness,” he says.

For reasons of improved export competitiveness on currency weakness, Europe and Japan are Credit Suisse’s preferred equity markets in 2015. “Both are under-valued in terms of their fundamentals, and we expect both  to benefit from monetary policy and low commodity prices – especially for energy,” Parker says.

Article from James Dunn 20-26 December 2014

Portfolio Investment Entities

The introduction of the PIE regime was a response to the over-taxation of managed funds, which was a major barrier for investors, when considering the whole range of investment options. In the past, funds would pay tax at the company rate (it was then 33 cents in the dollar) and those on a lower rate (say 19.5 per cent) could not claim back the difference. In effect, investors were taxed 33 per cent regardless of what other income they had.

So, the PIE regime was born – and a good thing for investors too. The playing field was tilted away from managed-funds investors but now it has been levelled (in fact, tilted in favour of managed funds in many cases).

Managed funds may now apply to become PIEs (nearly all have) and when they have been registered as PIEs they will deduct tax from each investor’s returns and distribute the income with no more tax for the investor to pay. However, the investor has to tell the managed fund what his or her tax rate is for PIE purposes. This is called the Prescribed Investor Rate (PIR) and it is different from your ordinary tax rate. PIRs are calculated by adding together the ordinary taxable income that some has (e.g. from wages, salary, NZ Super etc.) to the income that they  derive from PIEs. This table shows you what your PIR will be at various income levels.

Note from the table that you cannot pay more than 28 per cent tax if you invest in a managed fund which is PIE. This is especially useful for high-income earners who are on the top rate of tax (33 per cent). If these same people made investments in something that was not a PIE (e.g. if they were direct investors in shares, bonds, bank deposits or property syndicates) their investment income would be added to the income they earn from their salaries and this would be taxed at 33 per cen. By investing in a managed fund is a PIE, their investment is taxed at no more than 28 per cent.

No investment should ever be made solely for tax purposes. However, once a particular type of investment is chosen, you should certainly look for the most tax-efficient means of making the investment and PIEs often fit that bill. For example, if you decide to invest in commercial property; you could choose to invest in a small property syndicate in which case income from the syndicate would be taxed at your own rate. However, if you decide to invest via a managed fund that was a PIE(e.g. Kiwi Income Property Trust o MAP NZ Office Trust) you could be taxed at your PIR which could be lower.

One area where this can be important is for those making term deposits and holding cash with their banks. Banks have established ‘cash PIEs’ – managed funds that invest in term deposits and the like and these have been able to get PIE status. These ‘cash PIEs’ are more tax efficient than ordinary term deposits and savings accounts with much the same risk – except that some of these PIEs may not carry the government guarantee. You should check before investing.

How does currency affect my investments

Investors who have monies invested offshore have an additional risk which is currency. Currency can magnify gains or losses on the assets themselves. Sometimes the movement of the currency ends up being more important than the performance of the asset. It is possible to eliminate currency risk by taking out a currency hedge. This is a financial instrument that guarantees that an investor can change foreign money for a certain rate in the future. The problem is that the cost of such hedges can be quite expensive and difficult to manage for private investors.

While currencies can be quite volatile over the short term the long term trends of currencies is more open to fundamental analysis. Two key drivers of a countries currency are interest rates and GDP growth. If both of these are increasing there will be a greater demand for that countries currency and conversley if these are failing the currency will soften. At present NZ’s dollar is strong against other currencies due to our solid economy and relatively high interest rates. While our dollar is likely to remain high over the next 12 months pressure is building for further declines after that.

For your information currency hedging is used across your AMP Super and Kiwisaver funds. This has the effect of smoothing returns.

How do I determine my risk profile?

Lots of doctors I meet have no or little understanding of investment which is not surprising given your focus and time is spent in obtaining your qualifications, treating patients and keeping up with your education.  I would encourage you to make it your business to learn about investments. The main aspects of determining your risk profile centre around the following:

  1. Your time horizon
  2. Your investment experience/knowledge
  3. Your job security
  4. Your comfort level with market volatility

1. Time Horizon

If you have a long time horizon which typically you do for retirement savings (assuming you start in either your 20’s 30’s or 40’s) you can choose riskier (and also higher returning) investments such as shares and property. The reason for this is that even though share and property markets experience losses from time to time they always recover and move higher over time. If you have shorter time horizons such as 1-3 years you need to opt for safer investments such as cash and bonds. These investments experience low volatility however also no (cash) and low growth (bonds).

2. Your investment experience/knowledge

It would be fair to say that if you have had experience in owning shares or managed funds for example that have suffered historical losses you are more likely to be comfortable owning these in the future. Also knowledge of investment markets can prepare you for losses or give you insight as to when you may sell or switch to cash.

3. Job security

You are pretty fortunate that you have excellent job security. This means that you can take more risk with your investments than people whose job security is not that great such as some senior management roles in listed companies.

4. Your comfort level with market volatility

Some people are naturally conservative and are risk adverse which means they should only be opting for low risk investments such as conservative, cash or bond funds. If you are more of a risk taker and prepared to accept volatility, on the premise that your longer term gains will be greater you need to be including a reasonable percentage of shares and property in your portfolios. As long as you stay invested when markets lose ground you will be rewarded as they always recover (even though it can be a fairly long wait at times).