Year In Review – 2012

2012 Year in Review

Economy & Markets: Overview

Throughout 2012, investors did not have to look hard for reasons to avoid the financial markets. Economic news provided abundant cause for anxiety, prompting some investors to consider fleeing to cash. Some investors responded to the headlines and acted on their fears. Unfortunately, on the sidelines they missed the opportunity to capture the strong returns across the markets in 2012.

The year opened with lingering concern about the weak US recovery and debt crisis. Many pundits predicted another lacklustre year for stocks and more volatility. Some predicted a euro zone breakup. The global economy was showing signs of a slowdown, while the US elections and spectre of the “fiscal cliff” prompted caution.

Despite the steady stream of bad news, major market indices around the world delivered double-digit total returns, with Australia outperforming most other developed markets. And while the media constantly talked about volatility driving investors away, market wide volatility actually fell to its lowest level in six years.


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Hands off our super

Many media reports are suggesting Bill Shorten the minister for Financial Services and Superannuation is about to raid the superannuation piggy bank to keep their promise of a budget surplus. (Labor is reportedly considering increasing superannuation tax) While it is prudent to ensure governments are run on budget over the business cycle it is very poor governments that try to achieve surplus at all cost. Superannuation is a great structure for building wealth for retirement see What is Super but many Australians are distrustful of the super system and constantly changing superannuation rules. I can certainly understand their distrust and confusion. Over the last number of federal labor budgets we have seen continuous tweeks to the system to help improve the budget bottom line.

  • Salary sacrifice contribution limit was $50,000 in 2007 for those under age 50 and $100,000 for those above age 50. The current [Read more…]

Living with Volatility

The current renewed volatility in financial markets is reviving unwelcome feelings among many investors—feelings of anxiety, fear and a sense of powerlessness. These are completely natural responses. Acting on those emotions, though, can end up doing us more harm than good.

At base, the increase in market volatility is an expression of uncertainty. The sovereign debt strains in the US and Europe, together with renewed worries over financial institutions and fears of another recession, are leading market participants to apply a higher discount to risky assets.

So developed world equities, oil and industrial commodities, emerging markets and commodity-related currencies like the Australian dollar are weakening as risk aversion drives investors to the perceived safe havens of government bonds, gold and Swiss francs.

It is all reminiscent of the events of 2008 when the collapse of Lehman Brothers and the sub-prime mortgage crisis triggered a global market correction. This time, however, the focus of concern has turned from private sector to public sector balance sheets.

As to what happens next, no-one knows for sure. That is the nature of risk. But there are seven simple lessons that individual investors can keep in mind to make living with this volatility more bearable. [Read more…]

Getting insurance through your Super?

Would you and your family really be covered by the insurance in your super?

Many Australians choose to be insured through their super as a low cost option and an option that only requires a tick in a box. This option is not underwritten which means that you can be insured without undergoing any medical assessment. Sounds great to most people and there is nothing extra to organise. However there are a number of pitfalls in taking this option. [Read more…]