When we invest in the share market we like to see our shares increase in value – obviously – but when the market isn’t performing well instead of joining everyone in the doom and gloom, don't forget about dividend income.

In Australia, unlike many other countries, we are fortunate that most of our companies pay an excellent rate of dividend. These usually include credits for tax paid by the company, referred to as “imputation” or “franking” credits. As an example of the benefit, if you deposit your money in one of our major banks’ online savings accounts you will probably receive an interest rate of around 3% per annum. And these rates will follow the movement of interest rates.

If you buy shares in that bank you are likely to receive a dividend in the region of 5-7% per annum. It is even better if the dividend is fully franked, as this would be equivalent to a pre-tax rate of 7-9% per annum. And when a market downturn causes share market prices to fall, most companies continue to pay a steady dividend.

Not all Australian shares are fully franked or have as high a yield as the example above. However, if you look at the average dividend yield for the All Ordinaries Index it is in the region of 4% with an average franking rate of 80%. This can give you a pre-tax return of some 5%.

The moral to this story is when planning your share portfolio don’t focus entirely on the growth aspect – remember the dividends.

For more information, contact us at Leenane Tempelton on 02 4926 2300 or email success@leenanetempleton.com.au

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When it comes to investing, many people are their own worst enemy. Fuelled by a desire for short term gains or the fear of losing money, they buy and sell at the wrong time based on emotional responses. These emotions are often triggered by events or noise that can exaggerate or misrepresent the facts, and are already factored into market expectations.

The current market conditions can be described as a “risk on/risk off” environment. This is characterised by the dominance of emotionally-driven factors over the traditional fundamentally driven arguments, and results in extreme short-term volatility and low levels of long-term confidence.

Changing the way we think

We’re in a world of heightened global geopolitical uncertainty thanks to unrest in the Middle East and the lack of political cooperation around resolving the problems facing the US and Europe. This has created strong headwinds that have hindered the outlook for global economic growth and economic prosperity. These elevated levels of uncertainty and confusion, combined with the continued political brinkmanship around the world, have led households and businesses alike to become significantly risk averse.

But it’s important to understand that financial markets aren’t perfectly synchronised to global or domestic economic trends.

Although markets will eventually return to the primary fundamental drivers of long-term performance and we shouldn’t lose sight of these factors, it is important to recognise the current drivers of market behaviour and adapt your investment strategy to take advantage of the opportunities it presents and the potential risks it imposes.

Timing has never been an exact science

If you’re going to try and pick the right time to invest in markets, there’s a lot of information you have to understand and analyse to get it right. In reality, you’ll never successfully pick the top or bottom of the market. So in a world that’s driven by so much sentiment and uncertainty, where assets that carry risk trade up or down irrespective of their fundamental valuation, you become a contrarian investor, i.e. you don’t follow the crowd, because being a consensus investor doesn’t take you anywhere.

To survive the turbulence and turmoil of financial markets today, you need to be nimble. Traditional market timing, in the context of a trading strategy, has more emphasis on the fundamental drivers of markets rather than indiscriminate risk on/risk off trading. Ideally you should take on some risk from time-to-time in a market that can offer you great opportunities. Then at some time in the future when there’s nothing but good news in the market, you offload some of that risk. But you do this in small amounts – the classic dollar cost averaging argument.
 

Maximising your potential success

Successful investing doesn’t come from accumulating cash and waiting for the right time to invest, nor from frantically trying to withdraw your money when times get tough. Dollar cost averaging, or regular investing, essentially averages the price you pay per unit of the investment and mitigates the risk of buying at the top of the market.

What this means for investors

• It is important to recognise that geopolitical uncertainty and social turmoil is now the norm rather than an exception, and it’s important to pay close attention to forces that shape the financial market landscape.

• During periods of high volatility and nervousness, financial markets offer unique opportunities to acquire assets that are cheap, attractive and of great value.

Always speak with your financial planner before making your investment decisions.

Source: Advance Asset Management Limited, December 2011

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With all that is happening in the financial markets around the world at the moment, it is only natural to be wondering where to invest and to recognise that you may need some assistance. And it may not just be for you, it may also be for your family, and your extended family. With spring weather upon the markets and investments can become a popular topic for discussion around the BBQ with friends and relatives.

So instead of taking advice from your friends and relatives who may not be qualified, it makes good sense to seek advice from a financial advisor and financial planning experts. After all it is your savings and your future for you and your family that is in question.

The financial advisors at chartered accounting firm Leenane Templeton in Newcastle are available to offer you assistance. You can have a one hour, no obligation, no charge consultation to discuss your needs with them. OK, but how can they help you?

Our financial advisors can help you assess your present financial position and listen to your personal goals as well as your financial goals and then determine whether you are in good shape to meet them and, if not, what is the best way forward to ensure you do achieve your desires. Knowing what your goals are puts you in a better position to make the right choices, and helps your financial advisor develop an appropriate plan for you and to tailor it to your needs.

The financial advisors at Leenane Templeton are always available to assist you in achieving your goals.

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