The Sunday Mail (Queensland)

Take a deep breath and hang in there

- NOEL WHIT­TAKER Noel Whit­taker is the au­thor of Mak­ing Money Made Sim­ple, and nu­mer­ous other books on per­sonal fi­nance. His ad­vice is gen­eral in na­ture and read­ers should seek their own pro­fes­sional ad­vice be­fore mak­ing any fi­nan­cial de­ci­sions. Email: noel

WHAT a week it’s been – the Dow Jones had its eighth big­gest de­cline in history, mar­kets all over the world tum­bled, and of course the Aus­tralian mar­ket crashed as well. For the ner­vous it was a time to won­der if this is the start of another global fi­nan­cial cri­sis, for the ex­pe­ri­enced in­vestor the big de­ci­sion was whether to sit tight or jump in and buy.

This is def­i­nitely not the start of another global fi­nan­cial cri­sis.

That was a credit event caused by bil­lions of bad debts that re­sulted from ir­re­spon­si­ble lend­ing.

The cat­a­lyst for the big falls this week was Chi­nese in­vestors punt­ing on the stock mar­ket us­ing mar­gin loans. As the mar­ket fell, shares were forcibly dumped to cover mar­gin calls.

Nat­u­rally, the tur­bu­lence of the week has re­sulted in a string of emails ask­ing whether to get out of the mar­ket, and if su­per­an­nu­a­tion is still worth­while.

For starters, it would be ex­tremely risky to exit the mar­ket af­ter the huge falls we have just ex­pe­ri­enced – all you would be do­ing is con­vert­ing a pa­per loss into a real one. In any event, un­less you have a di­rect share­hold­ing, it is not pos­si­ble to make a fast exit. Re­deem­ing all or part of your port­fo­lio re­quires forms to be com­pleted and pro­cess­ing time to oc­cur. Al­low a week at the least.

And don’t con­fuse su­per­an­nu­a­tion with as­sets like prop­erty or shares. Su­per­an­nu­a­tion is sim­ply a ve­hi­cle that al­lows you to hold as­sets in a low tax en­vi­ron­ment. Any­body whose su­per­an­nu­a­tion is in­vested in shares would have suf­fered a loss of value this week, but so would any­body who held shares in their own name.

Let’s look at the sit­u­a­tion ob­jec­tively.

The only re­al­is­tic in­vest­ment op­tions are cash, prop­erty and shares. In my view the Aus­tralian econ­omy is flat, with jobs con­tin­u­ing to be cut, and ac­tion by Green groups stop­ping in­fra­struc­ture de­vel­op­ment.

The cur­rent fall in the share­mar­kets tends to make peo­ple feel poorer and less con­fi­dent of spend­ing, which will make eco­nomic con­di­tions even worse. If this is true, the only di­rec­tion for in­ter­est rates is down.

It is re­ally up to each in­di­vid­ual to de­cide where they want to in­vest, but do you re­ally think savvy in­vestors will choose to move their money to term de­posits pay­ing 2 per cent when they can get bet­ter than 6 per cent franked from shares like the banks and Tel­stra? If stocks like this are held in a su­per­an­nu­a­tion fund in pen­sion mode the frank­ing cred­its will take the ef­fec­tive yield to close to 10 per cent. That’s five times what you can get in term de­posits.

The Aussie dol­lar got ham­mered too, but this has an up­side as well as a down­side. It will be great for ex­porters and the tourism in­dus­try, and will cush­ion any falls in shares held by in­ter­na­tional man­aged funds.

Think about it: if the in­ter­na­tional share val­ues fall 4 per cent and the Aussie dol­lar falls 4 per cent, you will not have lost any value at all. I think fall­ing rates will push our dol­lar down fur­ther, which should make in­ter­na­tional eq­uity trusts great per­form­ers for the rest of the year. So don’t be con­cerned about the cur­rent tur­bu­lence; hang in there and think about adding to your port­fo­lio if you can. Don’t for­get there is now over a tril­lion dol­lars in su­per­an­nu­a­tion, and em­ploy­ers are con­tribut­ing 9.5 per cent of pay­roll all the time. Much of this money will find its way into the share­mar­ket and this will pro­vide tremen­dous buy­ing pres­sure year in year out.

Over the long term, share-based in­vest­ments will still give great re­turns.

 ??  ?? FAN­NING FLAMES: An in­vestor holds a fan as she mon­i­tors share prices at a se­cu­ri­ties firm in Shang­hai.
FAN­NING FLAMES: An in­vestor holds a fan as she mon­i­tors share prices at a se­cu­ri­ties firm in Shang­hai.
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