Immense fear has now engulfed the market just like it has engulfed society through the perceived necessity to stockpile toilet paper. COVID-19 is undoubtedly impacting world trade with borders being closed and the world’s ability to trade normally being heavily curtailed.

In times of extreme market volatility like we are experiencing now, investors are faced with two choices:

1) Sell out and move to cash

2) Ride out the ‘storm’

Option 1 may feel like the safest thing to do right now but history has told us that this can actually do more harm to long-term returns than good.

This is due to the following:

1) As share markets can fall quickly, they can rebound just as quickly and getting the timing right to reinvest can be difficult. This may mean you ‘sell low and buy high’ which is the exact opposite of what is generally required to achieve strong investment returns.

2) If you are selling, someone is buying. For a trade to take place, there has to be a buyer and seller. Selling quality shares after they have dropped means someone else is buying that asset at a massive discount.

3) A well diversified portfolio includes exposure to ‘defensive’ asset classes such as fixed interest and cash. In times of market volatility, fixed interest assets can counteract market falls which smooths out the volatility and cash can provide liquidity to fund withdrawals such as pension payments.

The alternative is to ride out the storm and history has shown us that markets have always recovered and gone beyond previous highs. Whilst volatility may continue, our portfolios contain a mix of different assets and have been designed to weather such events.

If you would like to discuss your portfolio, please contact us.

The post Dealing With Market Turbulence appeared first on Newcastle Financial Planners & Financial Advisors.

During market crashes or downturns we often hear of share markets ‘losing’ billions of dollars. But what happens to all that money and where does it go? In fact, the answer is that it is purely a book figure – a ‘paper loss’. There is no magical drain other than the metaphorical one to explain this economic concept.

To put it ‘simply’ – imagine a real estate agent estimated the value of your home as $450,000. Next week a second agent estimates it would sell for $400,000. Have you lost $50,000? No, even though no money has changed hands, you may feel poorer. This is the difference between value (what someone may be prepared to pay) and the price at which a sale actually happened.

It’s the same with the share market. When there are more buyers than sellers, the price of a share increases and holders of that share feel richer. Conversely, when there are more sellers than buyers, share prices fall. The holder of devalued shares has not actually lost any money – unless they sell the shares and realise the loss.

Share speculators get burnt by rapid changes in value because they want to realise short-term profits. Investors hold on to the shares in quality companies through the price fluctuations because they believe in the future of the business and the flow of future dividends. We hope that better explains where the money goes!

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

The post Where does the money go? appeared first on Newcastle Financial Planners & Financial Advisors.

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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In Australia, the Reserve Bank of Australia (RBA) left cash rates on hold at 2.5 per cent throughout the third quarter of 2014. In July, RBA Governor Stevens enhanced their efforts to talk the currency downward. Australia’s terms of trade worsened as the drop in export prices exceeded the drop in import prices. August saw the Governor discuss currency intervention, noting that it was an option on the table, despite the fresh talk of intervention from the head of the RBA, solid domestic data kept AUD well supported throughout the month. However, disappointing reads on the Chinese economy, concerns over the current global geopolitical climate and improving US domestic data in September, saw a dramatic fall in the AUD of -6.4 per cent.
 

The European Central Bank (ECB) left their key interest rates unchanged through July and August, however President Draghi increased the likelihood of additional ECB policy easing at the August FOMC meeting, acknowledging the sharp drop in inflation expectations. Market commentators are concerned with the economic impacts of geopolitical tensions in Ukraine on the Euro-area and the likelihood of downside risk to growth. At the September meeting the ECB cut all the key rates by 10 basis points. They also announced a purchase of asset backed securities and covered bonds, with details to come in October.
 

The Bank of Japan (BoJ) left its monetary policy stance unchanged at their July meeting, maintaining their monetary policy statement’s positive outlook for both growth and prices. Monetary policy stance remained unchanged through August, but a larger-than-expected drop in GDP growth in response to the consumption tax hike and a further widening in the trade deficit increased pressure on the BoJ to revise its outlook. By September slowing domestic data prompted concern around further BoJ easing, and expectations of impending Government Pension Investment Fund reform, contributed to a weaker JPY which tested levels not seen since 2008.
 

Source: BlackRock
 

Call (02) 4926 2300 or email us here at Leenane Templeton.
 

Speak to our award winning financial planning team today to discuss this economic update further as well as investment options.

The post Economic update – third quarter appeared first on Newcastle Financial Planners & Financial Advisors.