Monthly Newsletter - February 2010

Editors Note

This edition includes an inspirational quote, a funny picture, a market commentary with the main index returns during January 2010 and a feature story. I encourage you to make comments.

World sharemarkets had a shaky start to the year with all major markets falling during January.

Inspirational Quote

Remember, success is not measured by heights attained but by obstacles overcome. We're going to pass through many obstacles in our lives: good days, bad days. But the successful person will overcome those obstacles and constantly move forward.

Bruce Jenner (Olympian, Speaker and Entrepreneur)

Funny Picture

In some countries, safety regulations limit the number of passengers allowed onto trains. However, in other parts of the world, it's not if you can find a seat but if you can find somewhere to hang onto! 

Market Commentary

World sharemarkets had a shaky start to the year with all major markets retreating over the month of January.

Performance scorecard to 31 January 2010: 

Indexes used: Australian shares: S&P/ASX 300 Index, Australian listed property: S&P/ASX 300 A-REIT Index, International shares: MSCI World ex-Australia Index (net dividends reinvested), Australian fixed interest: UBS Australian Composite Bond Index, International fixed interest: Barclays Capital Global Treasury Index (hedged into Australian dollars), Cash: UBS Australian Bank Bill Index.

In the US, shares finished the month down 3.5%, Europe -3.7%, Japan -0.8% and Pacific (ex Japan) down 6% (all in local dollar terms - based on the relevant MSCI regional indexes). The Australian dollar's fall against the US dollar over the month marginally improved returns for Australian investors. The Australian sharemarket's fall of more than 6% was its worst monthly fall since November 2008.

After a strong recovery over 2009, significant debt issues in some European countries, namely Greece, Spain and Ireland, sent markets into retreat. While the economic picture in the US is improving, President Obama's proposed new banking regulations were negatively received by markets. Investment markets were also concerned that slower credit growth in China would restrict economic growth and commodity prices.

After a strong rally up until October last year, real estate investment trusts struggled over the last three months. Despite its recent performance the sector is looking a lot stronger than it has for a couple of years.

AMP Capital's head of investment strategy and chief economist believes the "recent weakness in shares and other growth assets is likely to be a correction rather [than] the start of a new bear market." While he is expecting higher volatility than the last nine months of 2009, profit growth and historically low interest rates are expected to underpin further sharemarket gains this year.

The Reserve Bank of Australia (RBA) left interest rates on hold at its first meeting of the year in February as it waits to see the impacts of its previous three rate rises. The latest RBA statement says: "if economic conditions gradually strengthen as expected, it is likely that monetary policy will need to be adjusted further over time to ensure that inflation remains consistent with the target over the medium term."

The International Monetary Fund expects world growth of 3.9% over 2010, which is in line with the average growth over the last decade. Growth is expected to be stronger in the Asian region than the more advanced economies.

On the local front, investors are eagerly awaiting earnings updates as corporate Australia reports its half-yearly results. 

The Market Commentary has been sourced from Vanguard Investments Australia Ltd.

Feature Story - 10 Rules for Achieving Financial Freedom (Rule 9)

Follow all 10 rules and you will be on the way to achieving financial freedom.

Rule 9 - Reviewing your insurance cover

Wealth protection (or insurance cover) helps you protect your ability to create wealth.

Your wealth creation plan will be based on the assumption you will stay healthy and live to a certain age. But there may be unforeseen circumstances which can impact your plans. Insurance cover may help you to continue meeting your financial goals if you lose your ability to work or suffer a serious illness.

Insurance cover shifts the financial burden created by personal risks to insurers who can afford to cover them by pooling the premiums paid by their customers. It provides peace of mind that you and your family are financially secure by paying an ongoing income if you can't work because you're temporarily or permanently disabled, or if you die.

The different types of insurance cover are:

• Life insurance which can provide financial protection for your dependents if you die.

• Total and Permanent Disability (TPD) is additional to life insurance and pays a lump sum if you can't ever work again because of illness or injury.

• Income protection generally pays you up to 75% of your monthly income if you can't work due to illness or injury until the policy anniversary prior to your 65th birthday.

• Trauma insurance pays a lump sum if you suffer a specified traumatic event such as the diagnosis of cancer or coronary disease.

As your wealth grows and personal circumstances change, your need for insurance cover may also change, so it's important to review your insurance cover regularly to ensure you're not under or over-insured.

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Past Issues

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Important Information

The above information provides an overview or summary only and it shouldn’t be considered a comprehensive statement on any matter or relied upon as such. The above information doesn’t take into account your personal objectives, financial situation or needs. It’s important for you to consider these matters before making any financial decision and I recommend you seek help from a financial adviser.