Table Of Contents
What we have learnt
We have had a fabulous response to last week’s article on A Simple Investment Approach for your low income earning bank accounts. In this article I provided general advice:
1. on the risks involved with searching for a higher yield,
2. how to use our earnings growth approach to know what companies to invest in, and what to avoid, and
3. how to earn and draw a monthly income, of between 4% and 6% by utilising our Draw Down Approach.
I also touched on the importance when investing through an adviser or accountant, to make sure that all investments are in your name, and that the investments are made directly with any institution, platform or broker.
Never deposit funds into an adviser’s name, company, or trust account, even if that adviser is a relation.
The best economic conditions
Last week I attended a bi-annual Portfolio Construction conference, and listened to 40 highly qualified and experienced people speak on pertinent economic and investment factors that are occurring, or are likely to occur.
Usually there is a wide variance of opinion, but this time nearly all speakers agreed on the world’s economic direction and what would be the best investments over coming years.
Most interesting was an economic analysis of the US. Their economy is expected to expand by 7% this year and 5% in 2022, which now means that they have the best economic conditions for investing in 50 years. Let’s hope they are right.
Our crazy market
I have observed some comments from Wentworth residents about how crazy they think the share market is at the moment. Since November’s market turn around, some of our best ‘growth’ companies have had their share price slashed by up to 25%, and in the gold sector by more than 50%.
Just six to nine months ago, I was being asked regularly about gold and gold stocks. There was a real buzz at that time that gold was one sector that was safe and would do well. How quickly times change.
The drop in the share prices of quality growth companies has been because of the ‘sector rotation’ into ‘value’ and ‘cyclical stocks’. Value stocks are those companies that are trading at a cheap value, and cyclical stocks are stocks that move up and down with the economy. The banks are an example of a cyclical stock and we have seen a recovery in their earnings and consequently their share price. They still have a long way to recover to the point of matching their 2015 earnings, and in the case of three of the banks, my analysis estimates that it will take another 10 years at their current projected earnings rate.
The recovery of cyclical stocks may last three months, it may last 18 months, we simply don’t know. One thing we have learnt from the past is that investors should be very careful when investing into cheap value companies, as they are often cheap for a reason.
An invitation
If you have surplus funds in bank accounts earning low interest, investments that aren’t performing, your financial circumstances are changing, or you just need some financial direction, then please come in and meet with me to discuss your options and the best strategic direction you can take. Your initial discussion with me will be provided without cost or obligation.
Disclaimer: This informationis general advice only, & has been prepared without taking into account theobjectives, financial situation, or needs of any individual. It is not aspecific recommendation to buy, sell or hold any product or security. Readers shouldseek financial advice before making a decision & should consider the appropriatenessof this advice in light of their own objectives, financial situation, &needs.
Peter Lanham
