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Investment Fundamentals
This document provides an overview of investment fundamentals and strategies for managing wealth. It discusses diversifying investments across different asset classes like cash, bonds, property and shares to reduce risk. Regular investing and taking a long-term approach can help maximize returns. Managed funds provide diversification and professional management, while direct shares give more control but require more resources. The document aims to help readers make informed investment decisions to achieve their financial goals and lifestyle aspirations.
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Investment Fundamentals
- 1. Investment Fundamentals Making the most ofyour wealth
- 2. Accountants AdvisorsAuditors Important information Thisdocument has been prepared by Count Financial LimitedABN 19 001 974 625,AFSL 227232, (Count) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of AustraliaABN 48 123 123 124. ‘Count’ and CountWealth Accountants® are trading names of Count.Count advisers are authorised representatives of Count. Information in this document is based on regulatory requirements and laws, as at 1 July 2015 which may be subject to change.While care has been taken in the preparation of this document, no liability is accepted by Count Financial, its related entities, agents and employees for any loss arising from reliance on this document. This document contains general advice. It does not take account of your individual objectives, financial situation or needs.You should consider talking to a financial adviser before making a financial decision. Taxation considerations are general and based on present taxation laws, rulings and their interpretation and may be subject to change.You should seek independent, professional tax advice before making any decision based on this information. Case studies in this presentation are for illustrative purposes only and do not represent actual returns. Individual circumstances may vary and this will alter the outcome. While every effort has been made to ensure the assumptions on which the projections in this presentation are based are reasonable, the results achieved may differ substantially from these projections. Past performance is no guarantee of future performance.
- 3. Accountants AdvisorsAuditors What wewill cover Your money and your life Risk and diversification Investment strategies Managed funds and shares Taking control
- 4. Accountants AdvisorsAuditors Emerging trends... Impactof global uncertainty Need to make active decisions Changing, complex super & tax regulations Greater know-how & expertise required Less time for family, finances & lifestyle goals
- 5. Accountants AdvisorsAuditors A betterlifestyle Whatever your dreams and aspirations, money is sure to play a role We help you manage money effectively, so you can take control and plan your future with confidence Now Future 5,10, 20yrs
- 6. Accountants AdvisorsAuditors Where willthe money come from? Timeframe Product type Institution Security Risk assessment Macro level Economic outlook Major natural events Government policy Loans Investments Savings The factors driving returns are largely outside your control Returns Market sentiment
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- 8. Accountants AdvisorsAuditors Understanding riskand return Cash Govt. bonds Hybrids Property SharesRisk Return Every investment carries some risk Generally, a higher potential return means a greater risk
- 9. Accountants AdvisorsAuditors How muchrisk is right for you? We also assess your expectations to ensure it matches your appetite for risk Goals Defensive or ConservativeTimeframe Knowledge Moderate or Growth Aggressive To see if your risk profile is We assess your financial
- 10. Accountants AdvisorsAuditors Defensive assets Mainasset classes Property Cash Shares Fixed interest Growth assets No single asset class consistently outperforms the others
- 11. Accountants AdvisorsAuditors Each assetclass has had its turn at being the best and worst performer 1
- 12. Accountants AdvisorsAuditors Spread riskby diversifying and within • Company • Sector • Country • Bond type • Industry • Duration • Residential • Commercial • Location • Product type • Institution Across assets Cash Fixed interest Shares Property The more ways you diversify, the more you can effectively reduce risk
- 13. Accountants AdvisorsAuditors The benefitof compounding Source: Colonial First State. This example assumes a rate of return of 8% pa. The effects of tax have not been taken into account. Earn interest on your interest
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- 16. Accountants AdvisorsAuditors The advantageof regular investing Daily price Time Average price paid Additional investment By investing regularly you can ‘average out’ the dollar (unit) cost of your total investment over time
- 17. Accountants AdvisorsAuditors The benefitsof $ cost averaging Investing $1,000 each month 0 100 150 200 250 Jan Feb Mar Apr May Jun Jul Oct Oct Oct Nov Dec $4.00 $6.00 $8.00 $10.00 $12.00 Number of units bought (LHS) Unit price (RHS) Source: Colonial First State. This example has been prepared to illustrate the effects of dollar cost averaging. It is not intended to be a guide as to the future performance of any product or fund, and should not be relied upon for those purposes. Investment amount per month Unit price Total number of units purchased End value Dollar cost averaging over 12 months $1,000 Avg $6.32 1900 $19,000 Investing only at beginning of period $1,000 $10 1200 $12,000
- 18. Accountants AdvisorsAuditors Start assoon as you can Joe Gina Gina invests $2,000 pa for first 20 years Total investment value Joe invests $2,000 pa over 30 years $ Total investment value $ Interest only – no top up Gina invested $20,000 less than Joe but with 10 extra years of growth has a larger total investment Year 40Year 0 $193,453 $148,598 Source: Colonial First State. This example assumes a rate of return of 5% pa. All dividends are reinvested. The effects of tax have not been taken into account.
- 19. Accountants AdvisorsAuditors Annualised return= -10.36% $5,000 Sep 87 Sep 88 Sep 89 Source: IRESS ASX All Ordinaries Accumulation Index. Datafrom 31 September 1987 to 31 December 1990. Past performance is no indication of future performance. Return$10,000invested($AUD) Short-term investing Post-1987 crash $10,000 $9,500 $9,000 $8,500 $8,000 $7,500 $7,000 $6,500 $6,000 $5,500 Sep 90
- 20. Accountants AdvisorsAuditors Consequences ofshort-term focus Told you so Drat! I’ll buy in again. It’s cheaper than last time anyhow You what?? What the??? This is it! I knew this was going to happen all along! More crazies who are going to get taken to the cleaners! Ah, the price is going up, let’s watch the market Damn! I missed the consolidation, but if I wait any longer, I won’t profit from the trend. LET’S BUY! Good thing I didn’t wait! The trend is holding - I’ll buy at the next consolidation OK, let’s wait for it to recover- otherwise this will have to be a really looooong-term investment What is the ASX doing about this?!?!?!?!? I don’t believe it! It’s down to 8.25 It has hit its absolute bottom! It’s going to tank again anyway Enough! I’m selling out! And staying out Good thing I sold everything! I’ll use this correction to increase my position... Brilliant! At this price, let’s double it! Ouch. As soon as it goes back up, I’m selling out! 16
- 21. Accountants AdvisorsAuditors Source: IRESS,Colonial First State . Returns are expressed in per annum terms. Data to 28 February 2017. Past performance is no indication of future performance. Time in, not timing the market 10 year returns Australian shares 10 year return to 28 February 2017 4.27% 1.73% -0.36% -3.97% -6.92% -10.00% -5.00% 0.00% 5.00% S&P ASX All Ordinaries Acc Index S&P ASX All Ordinaries Acc Index less 5 best days S&P ASX All Ordinaries Acc Index less 10 best days S&P ASX All Ordinaries Acc Index less 20 best days S&P ASX All Ordinaries Acc Index less 30 best days
- 22. Accountants AdvisorsAuditors 1987crash -10.36%pa Source: Datato 28 February 2017. IRESS Chart shows the value of $10,000 invested on 31/12/79, S&P/ASX All Ordinaries Accumulation Index Past performance is no indication of future performance. Long-term investing US interest rate rise: US bull run Keating's banana republic statement Sharemarket crash Iraq invades Kuwait Gulf crisis: Anticipation of economic recovery US interest rate rise: world bond markets collapse September '11 terrorist attacks Cyclone Larry Tiananmen Square US sub prime crisis leads to credit crunch QLD floods Greek referendum Global Financial Crisis Conflict in IraqGlobal interest rate cuts Asian crisis Kobe earthquake Mabo resolution/ A$ bottoms Soviet coup land war ends $0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 31/12/1979 31/08/1981 30/04/1983 31/12/1984 31/08/1986 30/04/1988 31/12/1989 31/08/1991 30/04/1993 31/12/1994 31/08/1996 30/04/1998 31/12/1999 31/08/2001 30/04/2003 31/12/2004 31/08/2006 30/04/2008 31/12/2009 31/08/2011 30/04/2013 31/12/2014 31/08/2016
- 23. Accountants AdvisorsAuditors Source: JBWereQuantitative Research, IRESS Over 100 years of positive and negative movement All Ordinaries Index Positive years: 71.00% 29.00%Negative years: Percentage total movement 2008 1974 1990 2011 2015 2016 2013 2004 2009 1986 1983 All Ords Index: Commercial & Industrial Index Monthly Averages (1900 - 1936); All Ordinaries Index (1936 - 2016) Past performance is no indication of future performance. 1930 1973 2002 2010 2014 2012 1991 1993 1980 1970 1994 1992 2001 2007 1963 1985 1975 1987 1984 2000 2006 1950 1979 1982 1976 1998 2005 1933 1968 1981 1971 1997 2003 1965 1962 1996 1999 1960 1951 1969 1995 1952 1948 1966 1989 1941 1940 1964 1988 1929 1938 1961 1978 1937 1956 1977 1955 1972 1967 1959 1953 1958 1949 1957 1946 1954 1945 1947 1944 1942 1943 1936 1939 1934 1935 1932 1927 1931 1926 1928 1924 1925 1920 1923 1918 1922 1917 1921 1919 -100to-90% -90to-80% -80to-70% -70to-60% -60to-50% -50to-40% -40to-30% -30to-20% -20to-10% -10to0% 0to10% 10to20% 20to30% 30to40% 40to50% 50to60% 60to70% 70to80% 80to90% 90to100% M0
- 24. Accountants AdvisorsAuditors Term depositsversus shares 24 Source: RBA, IRESS. Dataas at 28 February 2017. Past performance is no indication of future performance. Capitalvalue(AUD$) Income(AUD$) 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 0 50,000 100,000 150,000 200,000 250,000 300,000 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Term Deposit - Interest income (RHS) All Ordinaries Index - Dividend Income (RHS) Term Deposit - Capital Value (LHS) All Ordinaries Index - Capital Value (LHS)
- 25. Accountants AdvisorsAuditors Investing insideor outside super Source: Colonial First State. Note: this chart is for illustration purposes only and does not represent actual returns for any fund. A change to any of the following tax rate before retirement of 34% (including Medicare levy); salary $50,000; surcharge rate of 0%; annual investment before tax of $5,000; no additional investment at age 65; after retirement, super pension income is tax free; non-super income subject to marginal rates of tax; present value (PV) of Post-Tax Income required in retirement is $30,000. Lower tax on earnings means a bigger lump sum at retirement $355,472 Inside super $199,360 Outside super $0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 Money invested in Super Money invest outside super
- 26. Accountants AdvisorsAuditors Where willthe money come from? Gearing Borrowing to invest Investment loan Additional investment Income Capital growth Increased liability and debt Gearing can be positive, negative or neutral
- 27. Accountants AdvisorsAuditors Why considergearing? A sophisticated strategy that isn’t suitable for everyone We can help you decide if it may be effective for you Benefits • Can achieve a larger investment portfolio • Higher potential returns depending on performance • More chances to diversify – ‘wider investment footprint’ • Potential tax benefits Risks • Larger potential losses if your investment falls in value • Must repay loans regardless of investment performance i.e. you need access to additional funds • May incur a ‘margin call’ depending on funding strategy.
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- 29. Accountants AdvisorsAuditors About managedfunds property shares bonds $ units growth multi-manager diversifiedindex active single sector Managed Fund Different fund types income
- 30. Accountants AdvisorsAuditors Why managedfunds? • Access sophisticated investments • Good potential diversification • Professional investment management • Regular investment plans • Choice of investment styles • Can reinvest distributions (income) • No control over direct investments • No control over buy/sell timing • Some fees are independent of performance Advantages Drawbacks
- 31. Accountants AdvisorsAuditors Managed fundsvs direct share investing Managed funds Direct share investing Control/choice Limited control – asset class Direct control over investments Diversification potential Good – wide range of asset/ investment options Difficult without significant funds Knowledge and resources Full-time investment managers and researchers DIY Buy/sell control None Managers make decisions Direct control You decide what/when to buy Costs Entry and exit fees, annual management charges Brokerage fees, but no management fees
- 32. Accountants AdvisorsAuditors Top 100companies by market capitalisation % returns for the year ended 29 February 2016. Source: IRESS. Past performance is no indication of future performance. Best & worst performing Best stocks % Worst stocks % Fortescue Metals Grp 229.85 Sirtex Medical -50.16 BlueScope Steel Ltd 126.30 Vocus Group Ltd -39.71 Downer EDI Limited 114.33 TPG Telecom Limited -39.18 South32 Limited 105.79 Blackmores Limited -34.79 Aristocrat Leisure 68.53 Flight Centre Travel -30.76 ALS Ltd 67.31 Brambles Limited -24.19 BHP Billiton Limited 60.36 Caltex Australia -22.24 Rio Tinto Limited 54.98 Henderson Group -20.62 Origin Energy 52.20 Westfield Corp -11.74 Computershare Ltd 49.45 AMP Limited -9.12 Average 92.91 Average -28.25
- 33. Accountants AdvisorsAuditors 46.92% ofS&P ASX 300AUD$717.5bn 16.62% of MSCI Americas IndexAUD$4914.6bn Source: IRESS, MSCI. Dataas at 31 December 2016. Why global managed funds? Australia Market cap $AUD bn USA Market cap $AUD bn Commonwealth Bank Of Australia 142.0 Apple Inc 861.9 Westpac BankingCorporation 109.1 Microsoft Corporation 668.7 ANZ BankingGroup Ltd 89.2 Exxon MobilCorporation 516.9 National Australia Bank Ltd 81.8 Amazon.Com 490.9 BHP Billiton Limited 80.4 Johnson & Johnson 435.3 Telstra Corp Ltd 60.9 JP Morgan Chase and Co 430.4 Wesfarmers Ltd 47.7 General Electric Co 391.1 CSL Ltd 45.8 Wells Fargo & Co 384.0 Woolworths Ltd 31.0 Facebook Inc-A 369.1 Macquarie Group Ltd 29.6 Alphabet Inc - ClassC 366.2
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- 35. Accountants AdvisorsAuditors Why usea financial adviser? Managing your own finances can be time consuming Advisers keep up with changes to laws & regulations Financial plan becomes long-term strategy Access valuable advice from qualified professionals
- 36. Accountants AdvisorsAuditors Why usea financial adviser? Understands your particulars, uncover new opportunities & help overcome obstacles Objective point of view: avoid irrational or hasty decisions Regular reviews & ongoing advice
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