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    predict the short term movements of the stock market I haven t the faintest idea as to whether stocks will be higher or lower a month or a year from now What is likely however is that the market will move higher perhaps substantially so well before either sentiment or the economy turns up So if you wait for the robins spring will be over A little history here During the Depression the Dow hit its low 41 on July 8 1932 Economic conditions though kept deteriorating until Franklin D Roosevelt took office in March 1933 By that time the market had already advanced 30 percent Or think back to the early days of World War II when things were going badly for the United States in Europe and the Pacific The market hit bottom in April 1942 well before Allied fortunes turned Again in the early 1980s the time to buy stocks was when inflation raged and the economy was in the tank In short bad news is an investor s best friend It lets you buy a slice of America s future at a marked down price Over the long term the stock market news will be good In the 20th century the United States endured two world wars and other traumatic and expensive military conflicts the Depression a dozen or so recessions and financial panics oil shocks a flu epidemic and the resignation of a disgraced president Yet the Dow rose from 66 to 11 497 You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain But some investors did The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy

    Original URL path: http://www.motivatedmoney.com.au/pressclippings.php?iid=aufk6ywsr2 (2014-07-08)
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    simply served as a shot in the arm for property investors The Economist magazine calls the worldwide increase in house prices the biggest asset bubble in history I ve long argued that diverting more of our tax dollars to the property market is only going to make the situation worse The market will eventually sort out the affordability issue a good example can be found in the US right now with the disastrous sub prime crash Despite the best intentions of governments to make housing more affordable Australian homes ranked as the least affordable of an international survey released late last month Peter Thornhill of Motivated Money succinctly summarised the situation when he asked When has throwing a heap of money at something ever made it cheaper So in light of all this I wasn t expecting too much as I perused the new policy from the new government One thing that immediately stuck out like a sore thumb was the use of the term saving in the naming of the policy I haven t heard that used in any official capacity since 1991 Yet rather than targeting spending as the FHBG did the FHSA rewards first home savers for developing a long term savings plan In an era of 100 per cent home loans focusing on accumulating adequate savings before entering into the biggest purchase of your life has Barefoot grinning from ear to ear Here s how it works As long as you re 18 and are eligible for the FHBG you can open a First Home Saver account which will be offered by most banks and superannuation funds from July 1 You can invest the proceeds across a multitude of asset classes just like your super fund An initial contribution of 1000 is required and a maximum of 10 000 indexed can be deposited into the account in any one year Anyone can make contributions family friends sugar daddies Individuals with incomes of up to 80 000 who contribute 5000 to their account receive a government contribution of 750 the contribution varies for incomes higher than this The earnings of the fund are taxed at 15 per cent rather than your marginal tax rate and withdrawals are tax free As with superannuation the funds in the FHSA are locked away for a minimum of four years and they must be used to buy a first home otherwise they will be rolled into your superannuation and not touched till you re in sandals and socks Still with me To make it a little clearer this week I caught up with federal Housing Minister Tanya Plibersek to discuss the FHSA and get her thoughts on the major issues of housing in Australia Our discussion is available as a podcast from www heraldsun com au The Federal Government has been in power for all of eight weeks just enough time to call its first summit and the minister is still finding her feet in her newly created portfolio That aside

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    each year as per government rules rising to 14 per cent by the time he is 95 The 200 000 in his cash management account is earning a 4 per cent annual interest rate With the balance of 1 8 million John would either put the entire amount into shares or 900 000 in shares and the other 900 000 in a range of term deposits In this study the shares will enjoy capital growth of 5 per cent a year and the term deposits will return an average 7 per cent a year For the purposes of this exercise Webber assumes the use of Macquarie s internal model income portfolio for his sharemarket exposure As a result of this strategy John would receive 84 204 in dividends 27 969 in franking credits and 8000 in income from the cash management account Capital growth would amount to 900 000 for a total annual return of 210 173 In the other scenario of 200 000 in cash 900 000 in shares and 900 000 in fixed interest the annual income produced would be 42 102 in dividends 13 984 in franking credits 63 000 in fixed interest income and 8000 cash income Capital growth on the shares would be 45 000 This comes to a total annual return of 172 086 Clearly the first strategy s returns are much higher yielding 22 per cent more income and in turn extending the life of John s income stream Webber is a firm supporter in having your income stream investing directly in shares rather than through a managed fund in order to maximise the franking credits If you are in a managed fund there s often a watering down effect on the franking credit side because you can t control how the fund

    Original URL path: http://www.motivatedmoney.com.au/pressclippings.php?iid=waprk2e09b (2014-07-08)
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    after tax not pre tax salary This contrasts with salary sacrifice contributions to superannuation made from pre tax salary with the only tax payable being the 15 percent tax when the contribution goes into the fund As a result superannuation will be the more tax effective option for all but those on very low incomes As already noted however super s preservation rules and legislative uncertainty mean there are good reasons for building up at least some savings outside super The motivation for using managed fund savings plans rather than other non super investment options include Imposing savings discipline on yourself Saving for a specific goal such as the deposit for a home buying a car or financing overseas travel Reducing risk via dollar cost averaging Peter Thornhill principal of Motivated Money and a specialist in investment psychology says the discipline imposed by savings plans is one of their most important features They can be a very effective way of ensuring you actually save part of what you earn rather than spend it all he notes Thornhill adds however it is crucial to do at least two things before you set up your savings plan First work out how much you can really afford to divert to it This is mainly a matter of assessing your discretionary spending and seeing what you can do without Unless you go through this process honestly there is a risk that in the first flush of enthusiasm you will actually start trying to save too much each month If so the financial pain may quickly dampen your savings commitment and with the stroke of a pen you will bring the plan to an early end Second set yourself a goal you want to achieve and a time horizon In some cases the goal will

    Original URL path: http://www.motivatedmoney.com.au/pressclippings.php?iid=dne9zdy03a (2014-07-08)
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    the 1990s and in particular the bursting of the dotcom bubble in 2000 01 was to eventually lower rates to the point where in real terms they were negative In a world where capital flows seamlessly around the globe what used to be called the Greenspan put the knowledge that the former Fed chairman Alan Greenspan Bernanke s predecessor would respond predictably to financial market problems created a succession of bubbles that seem to have appeared with ever increasing frequency There is a bit of a chicken and egg conundrum to the waves of bubbles that have rolled through markets over the past decade with many regulators believing that it is the very success of central bankers in focusing on and containing inflation that creates the settings under which bubbles emerge The periodic eruptions in financial markets have had only a very limited impact on real economies other than in Asia over the decade It is unclear whether the Fed s history of intervention explains that relative stability indeed prosperity or whether economic growth would have been unaffected had it ignored the financial market upheavals It is apparent however that the subprime crisis owes a lot to the combination of excess liquidity in financial markets and strong global economic growth creating the kind of optimism that causes lenders and investors to be unconscious of risk In markets where many of the participants are unregulated like hedge funds where the global pool of equity and debt is swollen where financial innovation produces more and more complex instruments for slicing up risk and returns it isn t surprising that risk is largely ignored and increasingly mis priced The leverage within hedge and private equity funds and the terms on which funds were made available became possible only because of that mis pricing

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    more to spend on other things a new car or whatever Or they could have greatly increased the size of their mortgage roughly doubled it without any increase in repayments and thus afforded to move to a better house We know which way most people ended up jumping They opted for the better house But because so many people did this about the same time the main thing they achieved was to bid up the prices of homes more than double them in fact See what I m saying No matter what good fortune comes our way rising real incomes a second income for the family the halving in interest rates most of it goes into our homes Now if our fixation on housing meant we wanted to buy more of them two homes for every family that wouldn t be so bad The housing industry would just go flat chat building more homes on the edge of the city or building holiday houses at beaches up the coast Similarly if we just wanted bigger more opulent homes that wouldn t be so bad As a matter of fact we do want bigger homes The average floor area of newly built houses just keeps growing increasing by almost a third over the 15 years to 2000 And we know how much money goes into renovations and extensions Even so with rising incomes we could handle bigger flasher houses without much bother No the real problem is that what most of us aspire to is better located homes homes that are closer to the centre of the city closer to the beach or closer to the harbour That s a problem because the supply of well located land is fixed You can pile more dwellings on the same bit of land of course and we ve built a lot of high rise apartments lately but the supply of well located detached houses is declining as a consequence The point is that because our willingness to pour more and more money into housing is mainly about our desire to move to a better located home the main thing it does is push up the prices of houses and units In the mid 1980s the median Australian house price was four times average annual earnings Today it s seven times That s the fundamental reason housing has become so hard to afford And it s largely our own doing All of us who have been home owners for years have done it to all those who d like to be home owners The actions of governments have played some role but not a huge one They can hardly be blamed for getting on top of inflation and allowing interest rates to fall The 2 percentage point rise in interest rates since May 2002 has merely taken them from a temporary low to a little higher than average It s true that the halving of capital gains tax by the Howard Government in 1999

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    credit instruments soaring levels of household debt extreme appetite for risk shown by investors and entrenched imbalances in the world currency system Behind each set of concerns lurks the common factor of highly accommodating financial conditions Tail events affecting the global economy might at some point have much higher costs than is commonly supposed it said The BIS said China may have repeated the disastrous errors made by Japan in the 1980s when Tokyo let rip with excess liquidity The Chinese economy seems to be demonstrating very similar disquieting symptoms it said citing ballooning credit an asset boom and massive investments in heavy industry Some 40 per cent of China s state owned enterprises are losing money exposing the banking system to likely stress in a downturn It said China s growth was unstable unbalanced unco ordinated and unsustainable borrowing a line from Chinese premier Wen Jiabao In a thinly veiled rebuke to the US Federal Reserve the BIS said central banks were starting to doubt the wisdom of letting asset bubbles build up on the assumption that they could safely be cleaned up afterwards which was more or less the strategy pursued by former Fed chief Alan Greenspan after the dotcom bust It said this approach had failed in the US in 1930 and in Japan in 1991 because excess debt and investment built up in the boom years had suffocating effects But the bank also said that tightening interest rates during an upswing was likely to bring significant practical difficulties a fact the Reserve Bank of New Zealand knows well The RBNZ has lifted interest rates to 8 per cent this year in an effort to slow the economy and ward off price rises But the high rates have attracted global investors who have driven the New Zealand

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    key to wealth creation for an investor Thornhill says investors too often speculate on prices and don t appreciate the value of a company which is what investing is all about Arun Abey who with fellow guru Paul Clitheroe founded financial planning firm and fund manager IPAC agrees with Thornhill Ensure that whatever you invest in has the fundamental basis for making money he says That sounds simple but the internet bubble had some good ideas and few profits Fincorp went bust because investors did not look behind the reassuring labels that included property and mortgage security Yet quality assets have to be good value So it comes down to how much you pay according to Abey Commercial television stations had a monopoly but savvy entrepreneurs still overpaid for them Christopher Skase Channel 7 Westfield s Frank Lowry Channel 10 and Alan Bond paid Kerry Packer 1 billion for Channel 9 then sold it back for 270 million At the wrong price no one can make money Diversification aims to reduce risks in assessing quality and value A good investment today can be less so tomorrow because of new technology Portfolio Partners founder David Slack agrees with Thornhill that investors should aim for companies with consistently strong return on capital plus good prospects He cites Macquarie Bank s success in exporting niche financial products overseas and expects it to beat market expectations on earnings As well the stock is currently good value at a 15 per cent discount to its historical price to earnings ratio In practice investors should read everything including business page gossip columns and sharemarket announcements Wilson Asset Management founder Geoff Wilson says Observe trends that are happening around you such as the drought and think about the ramifications for companies for which it is a negative

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