Monthly Newsletter - October 2009

by Andrew Newman
in Newsletter
30 Oct 2009 | 0 Comments

Editors Note

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

World equity markets rose during September on growing confidence that the global economy is improving and appears to be expanding. The Australian market also rose in September after evidence hardened that the economy would only experience a minor downturn.

Inspirational Quote

Whatever you do, do with integrity. Wherever you go, go as a leader. Whomever you serve, serve with caring. Whenever you dream, dream with your all. And never, ever give up.

David Gergan (Director for Harvard Kennedy Schools)

Funny Quote

It's been a rough day. I got up this morning, put a shirt on and a button fell off. I picked up my briefcase and the handle came off. I'm afraid to go to the bathroom - Rodney Dangerfield.

Market Statistics

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

Market Index	Sep 09
S&P/ASX 200 Accum	6.24%
Dow Jones	2.27%
S&P 500	3.57%
Nikkei	-3.42%
AUD/USD	4.61%
Oil	0.93%
Gold (USD/oz)	5.93%

Market Commentary

World equity markets, as measured by the MSCI World Accumulation Index (AUD Hedged)delivered double-digit gains over the September quarter of 15.0% on growing confidence that the global economy is improving and appears to be expanding again. Asia, including China and India, is driving the global recovery with strong economic growth supported by the stabilisation and modest recovery in the Developed markets as record levels of stimulus packages have already started to take effect.

The US equity market (in local currency terms) rose 15.6% over the quarter as investors turned their attention to 2010 earnings with analysts announcing a series of upgrades on major US companies. The momentum in the market and improved sentiment was enhanced by Federal Reserve Chairman Ben Bernanke's statements that the US recession was probably over. However, economic releases on unemployment and manufacturing in late September did throw some cold water on the idea of a smooth and speedy recovery. It also signaledthat the market had run well ahead of the economy and that the recovery is most likely to be weak and protracted, constrained by ongoing job losses, sluggish income growth, lower housing wealth and cuts in lending by banks.

The $US continued with its fall against the major currencies and in fact has become a funding currency of choice for carry trades. This is placing downward pressure on the $US as is the expanding US budget deficit. Predictably, oil and commodity prices moved in the opposite direction as Gold went beyond $1,000 oz with oil prices rising above $70 pb.

In Europe, the region overall grew by a sold 20.3% (in local currency terms) buoyed by the turnaround in economic activity and pick-up in export orders. The strongest performers over the quarter were Greece (+27.4%), Austria (+24.0), Belgium (+23.6%), Spain (+22.4%), and Italy and UK, both gaining 22.1%.

At the end of the quarter, the market was wavering between confidence and apprehension about economic growth and corporate earnings. More support was found for cyclical type stocks on the back of generally positive news leaving the more defensive stocks less supported. As a result, the Financials sector led the market over the quarter with a strong rise of 22.9%, followed by Industrial stocks (+16.8%), Materials (+15.5%), Consumer Discretionary (+14.4%) and IT (+14.4%). Solid gains were made by Consumer staples (+12.0%), Telcos (+11.4%), Healthcare (+11.1%), Energy (+10.8%) and Utilities (8.7%).

Australian stocks surged for a second consecutive quarter in the three months ended 30 September 2009 after evidence hardened that the economy would only experience a minor downturn and companies reported better-than-expected earnings and outlooks. The benchmark S&P/ASX300 Accumulation Index gained 21.6% during September 2009, to end the quarter more than 50% above its March 2009 lows.

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

Feature Story - 10 Rules for Achieving Financial Freedom (Rule 5)

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

Rule 5 - Salary sacrificing into superannuation

Allocating a proportion of your savings towards salary sacrificing into superannuation has a double benefit (1) building your investments in a low tax environment and (2) reducing your taxable income - potentially putting you into a lower tax bracket.

As you are making contributions with salary before tax, you are potentially doubling the amount you are putting towards super if you are on the top marginal tax rate of 46.5% including the Medicare levy. If you contribute $1,000 per month of salary before tax into super, you would only reduce your salary after tax by $535 per month. The effect of making this extra contribution in a low tax environment is remarkable.

Consider the following example:

Current Age	30
Retirement Age	65
Current Super Balance	$50,000
Current Salary	$80,000
Annual Investment Return	8.0%

Based on the above values and using the superannuation calculator at FIDO calculator, at age 65 you'll have accumulated $558,000 in super. This is enough to provide $50,000 per annum indexed at 3% per year until age 81.

However, if you can salary sacrifice $250 per month, at age 65 you'll have accumulated $727,000 in super (or an extra $169,000). This is enough to provide $50,000 per annum indexed at 3% per year until age 91 (or an extra 10 years). To enjoy a better lifestyle, this is enough to provide $66,000 per annum (or an extra $16,000 per annum) indexed at 3% per year until age 81.

Making salary sacrifice contributions to super is a great way to create wealth.

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Past Issues

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Important Information

Information provided in this newsletter is general in nature and does not constitute financial advice. While I have taken reasonable care in providing this information, it should not be construed as being specific to your investment objectives, financial situation or particular needs. It's important for you to consider these matters before making any financial decision and we recommend you seek financial advice.

Monthly Newsletter - October 2009

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