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Mice Net : February 2009
wealth management no income, no job and no assets referred to as ‘the ninja loans’. The outcome was inevitable; the bursting of the bubble was simply a matter of timing. We are now experiencing the effects of this burst bubble with what is known as ‘credit contraction’. Borrowers default on loans, the banks have to write off debt, credit in the market dries up slowing business growth, existing lines of credit get cancelled by the banks which jeopardises the viability of many businesses, individuals and investment funds as they struggle to find the necessary liquidity to pay down debt and maintain the smooth management of portfolios. We have seen several examples of companies who have been pushed to the brink of disaster where previously they were leaders in their field. What does this mean to me? Simply it means different things to different people. For example, if you had planned on purchasing a property and had put your deposit into the share market until you were ready to withdraw it, you would not be very happy at the moment as you would need to sell the shares when the market has fallen thereby realising your capital loss. This is a classic example of inappropriate investing and incorrect time horizons. The most important part of any structure, strategy or investment is that you define precisely what the objectives are. In other words, are you dependent upon the income? What level of growth are you targeting? When is the money needed? What is the money needed for? What is your current tax position? Most of these questions in conjunction with an overall understanding of your circumstances will provide the skeleton or framework in matching investment attributes to your objectives. In the absence of professional planning too many people set themselves up for disaster and wait for the full blow of the risk exposure to hit them, not having allowed for contingencies. One of the most critical points to remember is that it is when markets are falling that investment activity should be at its peak in exactly the same way as the annual David Jones clearance sale. When panic sets in in the market, nervous and many times uninformed investors move to cash in order to sleep at night, and the price of good quality investments go for a song. It is your positioning during a bear market that determines the extent of growth you will see when the tables turn. I am not advocating reckless purchasing. There are sectors of the market that are simply too volatile, have too great an exposure to the distressed sectors of the market and little opportunity for blue sky. I am talking about the gems in the market that have been thrown into the pool that are seriously undervalued based on strong fundamentals - viable businesses with increasing market share, healthy profits and liquidity. Some listed property trusts, for example, are trading at a 50 per cent discount to the actual tangible value of the property portfolio despite the fact that the values have grown and produce an eight per cent income stream. This is likened to buying a $500,000 home for $250,000. The reality is that if your funds are in superannuation or invested for the medium to long term and you have good quality investments in your portfolio then leave them there. The alternative is to sell when the price is at an all time low, realise your loss, move to cash and then buy when the price has risen. This is a no win strategy and a very costly exercise, and yet the vast majority of investors fall victim to this impulse as it appears safer and removes the unknown factor. It is the very selling of the investments that drive the prices down for astute investors to score a bargain. For details contact Alison Williamson CFP, at Bespoke Financial Solutions P/L on email firstname.lastname@example.org or visit www.bespokefinancial.com. mice.net 87