Swim Between the Flags this Summer

As the holiday season approaches a lot of you will be heading to your favourite holiday destinations and spending time at the beach. Just as it is wise to always swim between the flags when you go to the beach, it will be wise to be aware of the risks you are taking with your investments in 2014.

Two announcements this week, one in the United States and the other in Australia, have also highlighted the need to be aware of the risks you are taking with your investment strategy. The US Federal Reserve announced the commencement of winding back or a “taper” to the monthly program of asset purchases otherwise known as quantitative easing (QE). Australia’s new federal treasurer announced that we have accumulated debt of $667 billion and that it would be a long time before he could foresee returning to a surplus.

Quantitative Easing (QE)

QE refers to the monetary policy measure followed by the US Federal Reserve since early 2009 whereby it has been purchasing US Treasury Bonds and mortgaged-backed securities each month. The QE policy has contributed to the following positives for the US:

    • Injection of liquidity into the US financial system;
    • Lowering of interest rates which are at zero;
    • Increase in investment;
    • Increase in employment; and
    • Increase in the share market.

The announcement of the tapering of the QE policy was well received by share markets which were fearing an abrupt end to the policy. In addition to the announcement of the QE taper, progress has also been made on the US budget with agreements being reached between the US Senate and House of Representatives for the next two years to avoid the risk of another shut down.

Investment Insight from MLC Investment Management shows that whilst the QE policy has contributed to the recent gains in the share market, valuations are now ahead of long term fundamentals.Investors have been looking to share and property markets for the returns they require with interest rates being at record lows.

The QE taper announcement also initiated a fall in the Australian dollar which is now at it’s lowest level for three years.

Investment Strategy

Your investment strategy needs to be properly diversified to take into consideration the scenarios that may arise from the above announcements.Whilst the returns from share markets and property markets have been very positive in the past 12 months, there are many uncertainties that still exist. Now is the time to take an active approach to your investment strategy to make sure you:

      • Preserve your capital against increases in inflation;
      • Protect your capital against a fall in the Australian dollar;
      • Provide a buffer against increases in interest rates;
      • Invest in assets which provide you with a margin of safety and the returns that you need whilst still minimising your risks.

If you would like to arrange a meeting in the New Year to review your investment strategy and to make sure “you’re swimming between the flags”, please contact me on 0499976058.

This is my last blog/newsletter for 2013. We wish you and your families a very Merry Christmas and a prosperous New Year. It has been a pleasure working with you in 2013 and we look forward to working with you in 2014.


General Advice Warning: Any advice on this site is general advice only and does not take into account the objectives, financial situation or needs of any particular person. It does not represent legal, tax, or personal advice and should not be relied on as such. You should obtain financial advice relevant to your circumstances before making any decisions.


General Advice Warning: Any advice on this site is general advice only and does not take into account the objectives, financial situation or needs of any particular person. It does not represent legal, tax, or personal advice and should not be relied on as such. You should obtain financial advice relevant to your circumstances before making any decisions.
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