Latest data from the Westpac ASFA Retirement Standard reveals that retirement costs are rising faster than inflation.

ASFA says this is due to the different spending patterns of retirees. Generally retirees own their own home so housing costs are not a major factor. Instead, retirees tend to focus their spending on food, health, transportation and recreational activities.  

Food costs increased by 1.4% over the December quarter, with fruit prices rising substantially due to adverse weather conditions. The other major cost contributors were domestic holiday travel and accommodation, which rose by 6.6% over the quarter.  

Over the December quarter, total costs for a couple living a comfortable retirement increased by 0.9%. Such a couple would now need an annual income of $51,727 to support their lifestyle. 

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.

Australian superannuation funds finished 2009 strongly, thanks to a record 6 month rally in the second half of 2009, according to ratings house SuperRatings.

The median balanced superannuation fund lost 19.7% in 2008, making it the worst year on record.

However, the median balanced superannuation fund returned 12.9% in 2009. This return came almost exclusively during the second half of 2009, with the first 6 months virtually flat. This rally was the largest half-year result since the introduction of compulsory super in 1992. In December 2009 alone, the return was 2.19%.

The main driver for this rally, according to analysis by SuperRatings, was the Australian sharemarket performance, with the fixed interest area providing additional returns.

The figures also indicated that the global financial crisis has dampened consumer commitment to investing in super, with personal or discretionary contributions falling by over 40% in 2008/09.

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.

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: 

Index	1 Month (%)	6 Months (%)	1 Year (%)
Australian shares	-6.2	9.9	35.7
Australian real estate investment trusts	-3.0	17.8	17.6
International shares (AUD)	-2.9	0.7	-3.3
International shares (hedged)	-3.2	9.1	32.5
Australian fixed interest	1.3	3.8	1.7
International fixed interest (hedged)	1.0	3.4	6.3
Cash	0.3	1.8	3.4
AUD/USD	-1.2	6.9	39.8

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

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.

The cyclical case for global growth is intact

The past two years have been characterised by extreme market trends with the worst bear market in equities since the Great Depression, followed by the biggest recovery. Over much of this period, correlations have been very high across equities, credit, government bonds, currencies and commodities.

By the end of 2009, the market had transitioned to a somewhat different state. The trajectory of the recovery in equity and credit markets had flattened considerably, and the US dollar was showing some signs of recovery without causing a retracement in risk assets. The bond markets were also under pressure again, particularly at the long end, as concerns about stronger growth and supply were steepening the yield curves (to record highs in the US). These moves more than likely reflect position squaring at the end of a tumultuous year, as well as early positioning for 2010 thematics.

Some previously strong correlations may be breaking down as part of this process which is a positive development for diversification opportunities in 2010.  Nonetheless, we expect trading conditions to be typically fickle in January, as the competing themes for 2010 play out in relatively thin markets.

The strong correlation between Australian equity returns, commodity returns and the Australian dollar, since late 2007 to the end of 2009, is shown in the
graph below. 

We continue to expect the cyclical case for global economic growth to prevail in the first half of 2010 including:

• extreme policy settings;

• accommodative financial conditions; and

• ongoing strength in emerging economies and the inventory cycle.

At the same time we acknowledge that structural negatives will remain extremely powerful and may leave the global economy vulnerable if anything goes wrong.

The inflation data is very ‘noisy' at present. The headline inflation rate is ramping higher as extremely low commodity prices from a year ago are cycling out of the annual rate.At the same time, core inflation is quiescent at around 1% in the developed economies. In particular, inflation fears have been eased by a very low core inflation result in the US for November, underpinned by an extremely weak shelter component (which comprises about one-third of the core measure). Beyond the next couple of months, the inflation outlook appears to be benign in the major core economies for the next couple of years with deflation a bigger risk than resurgent inflation over that period. Disinflation will be underpinned by the extremely large output gaps in the key developed economies. Unusually strong commodity prices for this stage of the economic cycle will partially militate against this fall, reflecting ongoing strength in the commodity-intensive emerging economies.

Since March 2009, markets have largely normalised as extreme risk premia were priced out of many assets. One major remaining opportunity in markets appears to be the extreme steepness of yield curves (characterised by the US where the 2-10 year yield curve fleetingly reached record wides in December). The steepness of the yield curve in the US reflects the twin influences of the Federal Reserve remaining on hold for ‘an extended period' and enormous supply putting pressure on the long end of yield curves. The fact that the first move to tighter monetary policy by key central banks (the Federal Reserve and the Bank of England) will more than likely be the cessation of quantitative easing is one reason why curves may be staying very steep for now. Ultimately, we still expect a significant flattening once the core central banks (the Federal Reserve, European Central Bank and Bank of England) start to lift cash rates.

As an aside, we also consider the steepness of the curve to be a confirming indicator of a relatively robust economic recovery - just as the inverse yield curve in 2007 was an early warning sign of recession.

The US dollar is finally showing some signs of life with a recovery which has put it back at levels that were first traded (on an index basis) in early June as shown in the following graph.

The problems in peripheral Europe together with some relatively robust data out of the US (compared with both Europe and Japan) appear to have sparked a re-assessment of the US dollar outlook. There is a reasonably strong valuation case for a stronger US dollar against the Euro and Japanese Yen. As to whether this is the start of a major up-trend in the US dollar will depend on whether the recent run of better economic data continues, and ultimately leads to a major re-appraisal of the outlook for US monetary policy. Absent from such a change in Federal Reserve policy, we suspect that the US dollar will reemerge as the favoured funding currency for carry trades.

Outlook

We remain constructive on emerging markets versus the major developed markets reflecting far superior economic fundamentals and better growth prospects. For this reason, we also favour commodity currencies where the terms of trade are likely to continue to be an important support to the economy. Finally, we generally favour equities versus bonds as the relative yields remain attractive for equities.

Investment Review and Outlook is reproduced with the permission of BlackRock Investment Management (Australia) Ltd (BlackRock) and is written by David Hudson. BlackRock assumes no liability in respect of the above information. Investment Review and Outlook contains general information only and is not intended to represent general or specific investment or professional advice. The information does not take into account your individual financial circumstances and that you are recommended to consider seeking financial advice before making any decisions.

Editors Note

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

World equity markets advanced 5.3% during the December quarter and ended the year on a positive note that most developed nations were growing again supported by improving economic indicators. The benchmark S&P⁄ASX300 Accumulation Index advanced 3.4% during the December quarter.

Inspirational Quote

Failure should be our teacher, not our undertaker. Failure is delay, not defeat. It is a temporary detour, not a dead end. Failure is something we can avoid only by saying nothing, doing nothing, and being nothing - Denis Waitley, Speaker and Author.

Funny Picture

It's only PAPER MONEY! 

Market Commentary

World equity markets advanced 5.3% over the December quarter and ended the year on a positive note that most developed nations were growing again supported by improving economic indicators. Strong growth and economic activity in emerging markets has spurred an increase in commodity prices in tandem with the weaker US$ and low interest rates. Oil prices firmed around $80US pb, with copper reaching $3.3US /lbs and gold hitting historical highs of $1187 per oz. The last 6 weeks of the quarter saw markets begin to take stock of current positions after an astonishingly strong run in the preceding 8 months, fuelled by the accommodative environment created by central banks and governments globally. The main question being asked by investors is the sustainability of current economic activity and therefore, future earnings growth, once the positive effects of the monetary and fiscal stimulus and the inventory cycle begin to unwind.

The US equity market rose by 6% over the quarter (in local currency terms) buoyed by slight improvements in housing, spending, business investment and unemployment numbers. Indications are that the recovery in the US will be a drawn-out affair with unemployment and credit tightness being a major hurdle to improved consumer confidence and spending. In response, the Federal Reserve reconfirmed its commitment to be accommodative for as long as is necessary, by keeping its benchmark interest rate near zero for an "extended period" to spur growth.

Euro-zone equity markets (in local currency terms) posted a gain of 4% for the December quarter with France and Germany leading the way on rising export orders due to the inventory cycle and improved economic activity, particularly in Asia. The Greek market came under heavy pressure due to its fiscal issues and credit downgrading, falling 20.1% followed by Austria (-8.1%) while the UK posted a gain of 6%.

The financials sector declined (-3.3%) with ongoing signals of its fragility. The best performing sector was materials (+11.4%) followed by IT (+8.7%), healthcare (+7.8%), consumer discretionary (+6.9%) and consumer staples (+6.7%). The energy sector posted a gain of 5.8% and industrials (+4.4%) while relatively more modest returns were provided by the telco and utilities sectors with gains of (+4.8%) and (+3.5%) respectively.

Australian stocks gained during the fourth quarter of 2009 as the benchmark S&P⁄ASX300 Accumulation Index returned 3.4%.

The table below shows the monthly returns for the main market indices during December 2009:

Market Index	Dec 09
S&P/ASX 200 Accum	3.74%
Dow Jones	0.80%
S&P 500	1.78%
Nikkei	12.85%
AUD/USD	-2.00%
Oil	2.69%
Gold (USD/oz)	-7.01%

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

Feature Story - 10 Rules for Achieving Financial Freedom (Rule 8)

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

Rule 8 - Reviewing your investment strategy

How have your investments performed over the past year? Have some done well while others languished? Maintaining large holdings in asset classes or individual investments that are overvalued increases portfolio risks. Rebalancing a portfolio involves selling assets that have become overvalued and buying assets that have become undervalued. This strategy is based on the premise that no asset will consistently outperform and ensures you will not be over or under exposed to any one asset when markets turn.

You should also stress test your portfolio. What would happen to your bank, property or infrastructure holdings for example if interest rates suddenly jumped 4%?

Reviewing your investment strategy is a great way to create more 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.

Fidelity's Investment Clock can be a useful tool to help understand where we are in the economic cycle. The clock currently shows we are in the "Overheat phase".

In the past month, some growth indicators have dipped back slightly. Other lead growth indicators are expected to peak in this quarter and Q2. The combination of these signals suggests scaling back cyclical positions. Equity markets are already factoring in a peak in lead indicators and have been rising less rapidly. This may see stocks enter a period of slower growth.

The Investment Clock generates future growth and inflation readings based on past trends and the current momentum of lead indicators. These indicators are updated on a monthly basis to build an expectation of how the global economy may perform over the coming three to six months. The growth reading suggests the relative weighting of cyclical and defensive assets within a portfolio, while the inflation reading suggests the weighting of financial assets versus real assets. 

The above article is provided by FIL Investment Management (Australia) Limited. 

Important Information

The information provided is general in nature and does not constitute financial advice. While we 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.

In order to achieve your financial goals, it is important you have the right mindset, and the following video from http://www.thesecret.tv is a powerful visualisation tool that can help you.

Every good thought, every good word, every good emotion, and every act of kindness, is lifting the vibration of your being to new heights. And as you begin to raise your vibration, a new life and a new world will reveal itself to you. As you experience this video you will emit positive forces of energy across Planet Earth that will reach every single living thing on it. You will lift yourself, and as you lift yourself, you lift the entire world. 

The Secret is an empowering and life changing DVD that is presented by internationally renowned scientists, philosophers, ministers, teachers, film makers and authors. For more information and to watch the first 20 minutes of the Secret, click http://www.cmpfinancialplanning.com.au/success-products.

When Tania Curtis was told that she had an 80 to 90 per cent blockage in her left main artery and a blood clot lodged in her heart, she thought the angiogram operator at Sydney's Sutherland Hospital was joking.

A week earlier, the 47-year-old mother of four had been jogging with her personal trainer around an oval in Kurnell when she experienced a sharp pain in her chest - "like a bolt of lightning" - that radiated down her left arm. While the pain lasted only a few minutes during which she "turned grey", the trainer sent Tania home and told her to get a check-up before exercising again.

As fate would have it, Tania already had a doctor's appointment booked for the next day. And while her electrocardiogram and blood tests came back normal, the doctor fast-tracked an appointment for Tania to see a cardiologist.

Tania was convinced that the episode in the park was just a bad bout of indigestion, even when the cardiologist insisted she undergo an angiogram, which was booked in for 19 March 2009 - her 20-year wedding anniversary.

But instead of spending that evening celebrating the milestones with her husband John and their children - Ryan, 19, Stephanie, 17, Lynden, 13, and Kathleen, 11 - Tania found herself in intensive care at Prince of Wales Hospital having undergone an emergency double bypass operation within hours of her angiogram.

Eight months on, Tania is back in the pink of health and pursuing the fitness program that she had started six months before her life-changing episode in the park.

"I came very close to dying and feel very lucky to be here," says Tania. "My father Norm died from a heart attack in 1971 aged 38. When I was found out that I had to have open heart surgery, I was really concerned about how my mother, Dorella, would react. "Being a woman, I never thought this would happen to me. Women in their early 40s tend to put on weight in the tummy region as oestrogen begins to leave their bodies. The reason I started my fitness campaign was because I wanted to lose this weight, which I thought was to blame for some breathlessness I'd begun to notice when I walked briskly."

Tania, who has been a vegetarian since her mid 20s and doesn't drink or smoke, says that her genetic predisposition made her a prime candidate for heart attack; it was just a matter of time.

"My other arteries were perfectly healthy, so lifestyle factors weren't to blame for my condition," says Tania, who is now an Ambassador for the Heart Foundation. "I smoked when I was young but gave up 20 years ago. Had I kept smoking, like my father, or had a bad diet then this would have happened to me a lot earlier.

"The cardiologist described my blockage as the ‘widow maker'. Had I not sought medical attention when I did, he says I would almost certainly have died.

"Everyone's signs of an impending heart attack are different. Some people experience a pain in the ear; others get breathless or have a heavy, crushing feeling in the chest.

"My father had tingling pain for six months, which the doctors attributed to indigestion because he didn't fit the profile of someone at risk of heart attack.

"My advice is to listen to your body and if it gives you signs, no matter how subtle, that something's not right, see your doctor. It's better to have a heap of tests that come back negative than leave your family motherless or fatherless because you were too embarrassed to see a doctor about some seemingly trivial symptoms."

Tania says a CT scan, which is often covered by private health insurance, can rule out or confirm any artery blockages. "In light of our family history, I'll make sure all of my kids get tested for heart problems when they're older," she says.

Tania, who went back to her part-time job at Kurnell Public School After School Care a couple of months after the operation, says being fit not only helped her pull through the operation but also sped up her recovery.

"The ambulance officer who looked after me on the trip from Sutherland Hospital to Prince of Wales said I had the best ECG results for someone with a 90 per cent blockage that he's ever seen," says Tania. "I didn't really have time to get too upset between when I was told about my heart condition and the operation because everything happened so fast.

"What was really scary was waking up at 2am the morning after the surgery in a great deal of pain and not being able to talk or move my head because I had an incubation tube down my throat. All I could do was whistle.

"Apparently, this had been left in because I was experiencing problems breathing and waking up after the anaesthetic."

The day after surgery, Tania was walking in her hospital room; within a week, she was convalescing at home.

Tania said that while her husband had to go back to work straight away after her operation, she had a lot of help from her family - her two brothers, mum and sister-in-law - while she underwent eight weeks of cardiac rehabilitation as a day patient at Sutherland Hospital. The program involved a couple of hours of education per week, as well as several hours of supervised stretching and aerobic exercises.

"In hindsight, blindly embarking on an intensive exercise program with my family history of heart disease, fitness level and a tummy fat was a bit foolhardy," says Tania, whose only visible side effect from the surgery six months down the track is a deep vertical scar on her chest. "If you're very unfit, it's always a good idea to have a medical check-up before pushing yourself too hard on the exercise front."

Tania says she didn't have to make too many lifestyle changes after her health scare, though she is still trying to shed a few kilos and now takes several forms of medication in addition to the blood pressure pills she was already on. She began exercising again in earnest after rehab finished and now jogs and does several boxercise classes per week.

"The only real change I've made is to try not to worry so much about trivial things," says Tania, "to let things wash over me, as my mother likes to say."

While the stark reality is heart disease remains the major killer of Australians, the good news is that most of us can make lifestyle changes to improve our heart health including:

• maintain a healthy weight

• be physically active

• enjoy healthy eating

• know your blood cholesterol and blood pressure levels

• be smoke free

The above article is provided by Zurich Financial Services Australia Ltd. 

Important Information

The information provided is general in nature and does not constitute financial advice. While we 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.  

The markets are now turning to 2010

Risk assets continue to be supported by a combination of continued ongoing economic recovery and ultra-stimulative policy settings. In particular, the US Federal Reserve reaffirmed its intent to keep the current extreme monetary policy settings for an ‘extended period'. These comments underpinned risk assets and supported a significant rally in fixed income markets globally. Meanwhile, global economic data was good enough to re-assure investors that the recovery was on track, even if it is not accelerating.

As such, the focus for markets is naturally turning to 2010 and a powerful cyclical case for robust economic growth can be seen, as outlined below:

• extreme policy settings and the rally in equities and credit has created much easier financial conditions and abundant liquidity;

• individual economies are being supported by a highly synchronised global economic recovery;

• very steep yield curves (an historically reliable pre-cursor to strong growth) as evidenced in the chart below;

• a resilient corporate sector supported by a high profit share for this stage of the economic cycle;

• a healthy balance of new orders relative to inventories; and

• household sectors have re-built their savings rate to reasonable levels, given the extremely low interest rates on offer.

Of course, the offsetting structural impediments to growth remain formidable. Indeed, this is the reason for the extreme macro-economic policy settings. These impediments were highlighted by the Chairman of the US Federal Reserve, Ben Bernanke again during November. In particular, the provision of credit by banks remains impaired and is a key constraint on households and businesses. In addition, the labour market is extremely weak which is undermining household income growth providing an additional headwind for household spending.

The difficulties of the ongoing deleveraging process were also apparent late in the month with the developments at Dubai World. While these events appear to be too small in scale to spark a relapse into widespread risk aversion, they do highlight the ongoing stress in the system caused by huge borrowings against assets that are falling in price; generate limited cash flows to service the debt; and are generally illiquid.

Finally, the global imbalances, which were a key contributor to this crisis, remain quite intractable. Demand growth needs to be re-balanced away from the developed economies towards the emerging economies; exchange rates need to be re-aligned and fiscal policy in the developed world put back on a sustainable path. There are not many signs that these adjustments are likely to occur any time soon. Refer to graph below:

Outlook

The markets are faced with two extreme and opposing forces - structural negatives versus cyclical positives. At this stage, we continue to expect the cyclical dynamic to prevail in the first half of 2010, while the inventory cycle and fiscal policy remain supportive. Moreover, in our judgement, the main risk to growth, in that time frame, is to the upside. The financial crisis reached its peak just nine months ago and global economic recovery started only five months ago. As the memory of the crisis recedes and confidence improves, it is conceivable that many companies will ramp up capital expenditure and hiring. If that were to occur, it would transform perceptions about the global economic recovery from modest and tentative, to robust and sustainable. In this context, it is intriguing that the recent trend in US jobless claims has been in line with previous vigorous recoveries in the mid 70s and early 80s.

We remain of the view that inflation risks may come back into focus given the:

• upside risks to growth;

• very low inflation numbers that are being cycled from a year ago; and

• the increase in inflation expectations in the market - reflected in higher break even inflation rates.

Such a scenario would significantly bring forward the expected timing of the first tightening of monetary policy in many countries. We remain focussed on the opportunities this may create in short dated fixed income and yield curves. We retain a bias towards risk assets (long equities and commodity and carry currencies - those with higher relative cash rates) although this position has been moderated as many of these markets have become range bound.

Investment Review and Outlook is reproduced with the permission of BlackRock Investment Management (Australia) Ltd (BlackRock) and is written by David Hudson. BlackRock assumes no liability in respect of the above information. Investment Review and Outlook contains general information only and is not intended to represent general or specific investment or professional advice. The information does not take into account your individual financial circumstances and that you are recommended to consider seeking financial advice before making any decisions.

Editors Note

Merry Christmas and a Happy New Year. I wish all my Blog readers peace and goodwill for the festive season and good health, happiness and wealth for 2010.

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

The major world sharemarkets, with the exception of Japan, recovered from their falls last month to post solid gains during November.

Inspirational Quote

Every decision you make - every decision - is not a decision about what to do. It's a decision about Who You Are. When you see this, when you understand it, everything changes. You begin to see life in a new way. All events, occurrences, and situations turn into opportunities to do what you came here to do - Neale Donald Walsch (Author).

Funny Picture

Supposedly a picture of retrenched employees from Lehman Brothers Bank who staged a protest by blockading the entrance to the Bank's Headquarters in New York.

Market Commentary

The major world sharemarkets, with the exception of Japan, recovered from their falls last month to post solid gains in November.

Performance scorecard to 30 November 2009:

Index	1 Month (%)	6 Months (%)	1 Year (%)
Australian shares	1.8	26.1	32.5
Australian real estate investment trusts	1	26.1	-5.1
International shares (AUD)	2.8	3.8	-7.3
International shares (hedged)	3.4	16.7	23.3
Australian fixed interest	1.5	2.6	3.4
International fixed interest (hedged)	1.2	5.1	7.2
Cash	0.3	1.7	3.6
AUD/USD	1.3	14.4	40.6

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.

Positive economic news and new corporate listings, Myer and Kathmandu, helped to lift confidence in the Australian sharemarket in November. The resources sector surged over the month with the materials sector rising by around 8% as commodity prices remained strong. Despite volatility within the sector, Australian real estate investment trusts delivered a positive return over November.
 
In the Reserve Bank of Australia's (RBA's) November meeting Governor Glenn Stevens commented how economic conditions in Australia had been stronger than expected and measures of confidence had recovered. While inflation had been falling for the past year the RBA expects it to rise over the coming year in line with expectations.
 
The US market performed strongly over November returning 4.5% (in local currency terms) as the economy recorded its first positive quarter of GDP growth in more than a year. Unemployment continues to present a problem with the unemployment rate rising above 10% in October.

Later in the month, news out of the middle east shook markets and highlighted that credit problems continue to plague the global economy. Dubai World (Dubai Government's financing arm) announced it was seeking a stand on more than US$60 billion of debt repayments for a period of six months.  

The Australian dollar continued to strengthen over November. After reaching a high of US 94 cents the local dollar settled at US 90.4 cents by month end. 

The RBA lifted the cash rate for the third consecutive month at its 1 December meeting, with the official rate now sitting at 3.75%.

In the November RBA meeting Governor Glenn Stevens said: "The adjustments at the October and November meetings will work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead."

Falling bond yields helped to lift the Australian bond market over the month. Strong demand for government bonds from the banking sector and downward revisions to budget forecasts helped support the sector. 

Mr Stevens remarked that global growth had resumed. "With economy policy settings likely to remain expansionary for some time, the recovery is likely to continue during 2010 and forecasts have been revised higher."

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

Feature Story - 10 Rules for Achieving Financial Freedom (Rule 7)

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

Rule 7 - Borrowing to invest

Borrowing to invest or gearing, increases the amount of funds you can invest in an asset. That can either boost your returns or multiply your losses, depending on how the asset performs.  That makes gearing a potentially risky proposition. However, as long as it's entered into cautiously and as a long term investment, gearing can be a very effective way to creating wealth, particularly for people on higher marginal tax brackets.

To take full advantage of the tax deductions associated with negative gearing, geared investments should generally be held by the partner in a couple on the highest marginal tax bracket.

For example, instead of saving $5,000 per annum to invest into an ungeared portfolio, this same amount could be used to cover the interest (after tax deductions) on borrowings of $109,951 to invest into a geared portfolio. This is based on a margin loan interest rate of 8.5% and the highest marginal tax rate of 46.5%. Based on margin loan interest payments of $9,346 and a tax refund on the interest payments of $4,346 per annum, the net cost is $5,000 per annum.

Assuming an annual return of 10%, after 10 years of regular savings and allowing the benefits of compound interest using a geared portfolio, you'll have $185,274 (consisting of $50,000 contributions and $135,274 investment returns). This is more than double the amount from using an ungeared portfolio, where you'll have $84,252.

Assuming an annual return of 10%, after 20 years of regular savings and allowing the benefits of compound interest using a geared portfolio, you'll have $682,745 (consisting of $100,000 contributions and $582,745 investment returns). This is also more than double the amount from using an ungeared portfolio, where you'll have $310,478.

Gearing is a great way to create more wealth.

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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.