It’s hard not to get caught up in the financial news headlines and wonder what the best approach could be for investors here in Australia. All Western eyes have been fixated on the ongoing financial crisis in Greece, which began in 2009, depleting the income of many Greeks. Unemployment has increased, and elections and resignations of political leaders has completely transformed the country’s political landscape.
More recent news headlines reveal a financial disaster unfolding in China, which has the potential to be even more significant than the financial devastation felt by the Greeks. Some are calling it a repeat of China’s 1929 – the year the most infamous stock market crash occurred in history, prompting the start of an economic catastrophe of the Great Depression.
This most recent event saw a 30 per cent fall in the Chinese stock market – a loss of value roughly equivalent to the UK’s entire economic output last year. It caused 940 companies to suspend trading on China’s two main indices.
But the financial news in Australia is a world away from what’s being experienced in both Greece and China. The investment opportunities here are endless, and many of our clients have yielded strong returns within their investment portfolios.
If you would prefer to stay on the safe side for now, there are plenty of low-risk options out there. But low-risk doesn’t mean you shouldn’t seek expert financial advice, so make sure you seek out our services before ploughing money into even a low-risk option.
If you’re heading for retirement, make sure your cash investments are working inside your chosen superannuation fund, with tax concessions able to help preserve your capital and increase your compound. Too often, people reach retirement age after years of not being sure what’s occurring within their superannuation fund, and get a bad surprise to find their funds haven’t been invested wisely, or at all, for years on end, resulting in a retirement fund far less than they need. You may wish to consider term deposits. These are a safe haven for savings, with a government capital guarantee of up to $250,000. However, their rates have been falling (as have fixed-rate mortgages), now ranging from 2.35 per cent for a 90-day term deposit to 2.75 per cent in a threeyear period. Bear in mind though, that after tax, the returns are low.
Dollar cost averaging is also a risk-averse investment strategy that might work for you, as it reduces the impact of volatility on large purchases of financial assets, such as equities. It works by dividing the total sum to be invested in the market into equal amounts to be fed into the market at regular intervals, which reduces the amount of risk of incurring a substantial loss resulting from investing the entire lump sum before a fall in the market. Dollar cost averaging isn’t always the most profitable way to invest a large sum of money, though risk is minimal. Your decisions will of course be dependent on your appetite for risk. If you can tolerate short term price volatility in favour of longer term gains, then lump sum investments during low entry points might be for you. You might like the sound of one of the above options, but please don’t actually make any investments (no matter how large or small) until you’ve sought expert advice. Too often, we hear stories from people who walk through our doors and seek our expert advice after they’ve already lost a sum of money to a poor investment. Be sure to do your homework, and seek expert advice from an Independent Financial Adviser like Maddern.
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