Monthly Newsletter - March 2009

Editors Note

This edition includes an inspirational and funny quote, the main market index returns during February 2009, a market commentary and a feature story. I encourage you to make comments.

Inspirational Quote

There is one quality that one must possess to win, and that is definiteness of purpose, the knowledge of what one wants, and a burning desire to possess it - Napoleon Hill.

Funny Quote

Did you hear about the guy that lost his left arm and leg in a car crash?
He's all right now.

Market Statistics

The table below shows the monthly returns for the main market indices during February 2009.

Market Commentary

World equity markets, as measured by the MSCI World Accumulation Index, fell by 8.6% in February on more negative economic news during the current reporting season, where a number of large companies cut or suspended their dividends for the first time in decades. Critically, investor sentiment was further fractured on evidence of deteriorating unemployment conditions in the US which reached 25-year highs and which threatens to deepen and prolong the recession by undermining consumer income, spending and overall confidence. Oil prices (WTI) firmed from $36 to over $44 per barrel after the International Energy Agency expressed concerns that there could be supply shortages next year as demand picks up and economies recover.

Worldwide shares were affected by news that US insurance giant AIG made record losses in the fourth quarter of 2008 and needed another $30bn from the US government while Bank of America and Citigroup stock prices fell below $3 and $2 respectively, with the US government reaching a bail-out deal to increase its stake in Citi from 8% to 40%. The lack of detail on President Obama's US banks rescue plan, unsettled investor sentiment towards month end which moved stock prices to even more compelling valuation levels.

The US equity market fell by 10.3% as the decline in the US economy was much worse than previously expected. Consumer spending has fallen sharply as many US consumers are holding on to whatever disposable cash they have, while home and investment values continue to fall, exacerbated by lack of credit. President Obama's $787bn stimulus package was received with mixed results, on fears that the steps taken may prove insufficient.

In Europe equity markets fell by 9.1% as the major economies head toward recessionary levels not seen since WWII. The crisis in emerging markets of Eastern Europe only added more uncertainty to European markets as the IMF announced it expected more requests for financial aid from this region. In the UK, the equity markets fell 7.1% even though interest rates fell to record levels, as the government looks to aggressively avert a major slowdown. The Japanese equity market fell by 4.5% in February after announcements that the nation's industrial output shrank dramatically and exports fell sharply (over 45% from a year earlier) as developed nations cut back on orders. Similarly, Hong Kong and Singapore fell 4.8% and 9.1% respectively as deteriorating trade conditions threaten to drive the economy into its first full-year contraction since the Asian Crisis in 1997-8.

The financials sector was worst hit in February falling another 15.4% followed by Healthcare (-11.2%), Industrials (-11.7%) and Utilities (-10.1%). Energy retreated by 8.3%, Consumer Staple stocks declined by 6.6%, Consumer Discretionary (-4.8%), IT (-4.5%) and Materials (-4.3%). The best performing sector in a difficult month was Telecommunications (-2.9%).

Australian stocks sank to a five-year low as they fell for a sixth consecutive month in February after the deepening global recession and the slowdown at home prompted many companies to lower earnings expectations. The benchmark S&P/ASX 300 Accumulation Index fell 4.6% in the month.

The Market Commentary has been sourced from Global Value Investors Ltd and Barclays Global Investors.

Feature Story - A lifetime of investing

"We should all be concerned about the future because we will have to live the rest of our lives there." Charles F Kettering

Whether you're investing for the next 10, 20 or 30 years, history suggests that time is on your side and that the returns from investing for growth will reward the volatility you endure along the way.

Time is on your side
Remember back to when you originally put your investment strategy together? You probably identified some financial objectives that were years into the future. You might have worked out that the most appropriate strategy to meet those long-term objectives was to invest in growth assets, such as shares. This was because despite any short-term volatility, they are still the best vehicle to give you the increase in value you need to meet those objectives.

Nothing has changed; despite the sustained volatility, growth assets are still your best choice for long-term growth.

When is a crisis not a crisis? When it happened 10 years ago.

The chart below also highlights the long-term benefits of patient growth investing. Each of the market crises shown below - including the 1987 Stockmarket crash, 1994 Bond crisis, Credit crisis, Iraq invasion - were world-changing events that saw stockmarkets plunge and investors wonder whether their capital would ever recover, just as you are probably wondering now. Whilst we do not know how long this downturn will last, for example, we can see the 1987 Stockmarket crash lasted 51 days. Given time however, companies managed to adapt to the new world order and got back to making money for their investors. They will do so again.  

Dollar-cost-averaging - now is the time to start

Many investment experts highlight the value and benefits of dollar-cost-averaging. This is where you invest a set amount of money on a regular basis (eg as you do with your superannuation contributions). This strategy enables you to buy more units in a fund when prices are falling and less when prices are rising. Right now, you can buy a lot more for a lot less. Over time what happens is that the average price at which you buy your units is lower, which makes it easier to make a profit.

You are also rewarded with this approach because:

• as you are regularly investing, you avoid the temptation (and the likelihood of failure) of trying to time the markets by buying when you think prices are at their lowest, and then selling when prices are at their peak. Not even the experts get this right all the time.

• it requires no self-discipline (other than getting started). Dollar-cost-averaging makes it easy to invest; it's set and forget.

A simple way to start dollar-cost-averaging is to set up a regular contribution plan into a managed fund or increase your regular superannuation contributions through salary sacrificing. Even though most people laugh at the thought of having spare cash at the moment, if you can manage it, there are great rewards to be found a few years down the track when you see how much your savings have grown. In the current market, you have a great opportunity to buy assets that are now much cheaper than they were even a few months ago.

Remember: you're a serious long-term investor

Our compulsory superannuation system means every working Australian is also a serious investor, whether it is a conscious choice or not. Over the years you will accumulate a significant amount of money, and you have no choice but to think of it as a future gain.

So why not apply that thinking to your other investments? Of course, you have more flexibility and choice with investments outside super, but if you are planning to grow your wealth over the long-term, the same discipline applies: you will be rewarded for riding out periods of volatility in growth asset markets.

Whatever the state of the current market, remember that the best growth comes from long-term investments such as shares which will grow your wealth through good times and bad. However if you still have concerns about whether your investment strategy is still appropriate to meet your needs, we strongly recommend you speak to your financial adviser. Put your needs first, and worry about the market's movements second.

Senior Investment Strategist at Advance Asset Management, Felix Stephen, says that thinking about your superannuation is a good way to train yourself to think long-term because it forces you to look at what your investments do for you down the track rather than what they are doing today. "If you're investing for the next 10, 20 or 30 years, there is no doubt you will experience more bear markets during your investing life," says Felix. "However, history suggests that time is on your side and that the returns from investing for growth will reward you for the volatility you endure."

This feature story was prepared by Securitor Financial Group Ltd, owned by Westpac Banking Corporation.

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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.