September 22, 2016

The effects of sub-zero interest rates

In Germany, a government ten-year bond yields less than zero; its Investors actually lose money! Huh? What triggers a situation like this and could it happen in Australia? Australians currently enjoy – or not, depending on their circumstances – record low interest rates. The prevailing cash rate is currently 1.5 % and some economists are suggesting it could go lower. Many of the world’s economies have been there-done that. Their central banks have made the decision to explore previously uncharted territory: the sub-zero interest rate zone. So why would anyone buy an investment with a negative return? The short answer […]
September 15, 2016

Sequencing risk: the order of things

As financial advisers, we talk a lot about risk, so what is sequencing risk? Let’s begin with an example… Jennifer and Sue each contribute $20,000 per year to their superannuation funds for 10 years. They both earn an average return of 5% per annum, after tax and fees, and from Years Two to Nine they earn identical returns each year. The only difference is that Jennifer’s portfolio returns 8% in the first year and -8% in the last year; whereas Sue’s returns are -8% in Year One, and 8% in Year Ten. This doesn’t seem like much of a change, […]
September 8, 2016

Your marathon investment portfolio

A recent cover feature in The Economist magazine asks readers to imagine a future world where you celebrated your 94th birthday by running a marathon with your school friends. The article was using the illustration of extremely fit old-timers – well past their present life expectancies – as a means to emphasise just how much longevity has increased over the past century and is continuing to rise. It may be a hard for us to imagine in 2016 that the point will ever be reached where 94 year-olds are running marathons with their school mates. Nevertheless, considerable advances in medical […]