SFS Newsletter

A year to forget — The last twelve months have, undoubtedly, been absolutely terrible for investors.

Newsletter Winter 2008 SFS Page 01

INSIDE THIS ISSUEA year to forget 1Our new brand 1Market snapshot 2Performance at a glance 2And the good news? 2Lets not be doomed to repeatthe lessons of the part 3Office goss 4About SFS 4 HIGHLIGHTSWhat are the implications of risinginlation, increased interest rates anduncertain/falling markets on investors?

OUR NEW BRAND We thought it was time to refresh the Strategic Financial Solutions brand. It has been nearly eight years since SFS moved into Albert Road, South Melbourne.So much has changed in that time. The business has grown and what we offer clients today has broadened along with that growth. Perhaps, what has changed the most, however, is how we communicate with you. So much so that we thought it was time to refresh our look. With the help of Valentine Associates, we have developed a new brand. As you all know, one of the key themes of working with our clients is to help you make sense of the financial world around you—to help you turn chaos into order.

We also bring together different elements to create strategies that are meaningful to you and easily understood. Hence, the triangles. We believe we have developed a refreshing new brand in line with 2008 and which reflects what we do for you. I hope you like it as much as we do.

— KAY AARONS SFS Managing Director and Financial Planner

The Australian sharemarket has had its worst year in terms of performance since 1981/82 which goes to illustrate what an unusual event we are currently witnessing. As we have been saying for a long time, however, a correction is long overdue. Returns of 20% pa year after year in the sharemarket, was just not sustainable.The Reserve Bank of Australia has increased interest rates to such an extent that it now has had a significant impact on retail spending as well as residential property prices around the country where the average predicted fall is 10%.

With oil prices surging as well, pressure is being felt by all of us both in terms of our spending capacity and debt management. Oil and food in particular are fueling an increase in inflation, now edging to almost 5% in the last twelve months. And if we needed any more bad news, the global credit crisis is giving rise to fears of recession and worse.

A combination of higher inflation and slowing growth is not good news for the economy or for investors. It hasn’t mattered where investors placed their money, losses have been unavoidable.

Bad news is, of course, what sells papers. It is no wonder that we sometimes think the end of the world has just arrived on our doorsteps.

In this edition of the SFS Newsletter, we will look at some of the reasons why we’re in the position we find ourselves and the lessons we can learn.

I believe it is also worthwhile to remind ourselves about some of the good news that has been so far ignored in the major news forums. It will give you a much more balanced perspective about what is actually going on.

Strategic Financial SolutionsNewsletter Winter 2008

IMAGES This page RIGHT (TOP) SFS helps you plan for the future and make the most use of your resources. RIGHT (MIDDLE) The media is constantly feeding us bad news stories because it’s what sells papers. FAR RIGHT If we take a closer look at the market, there is some good news too.


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MARKET SNAPSHOT Share markets are jumping at shadows

The Australian share market, influenced largely by global events, rose and then fell back during the last quarter. The financial sector again was particularly hard hit as was listed property. The only positive was the resources sector.

In the last twelve months, with the benefit of 20/20 hindsight (see the table above), investors would have been best off staying very conservative and having all their assets in cash.

Looking at three year return figures, investors would have been much better off in growth portfolios dominated by Australian and emerging market shares with a cash buffer. No listed property at all. This is a high growth, high risk portfolio.

Going forward, SFS has come to the view that we recommend lowering the allocation to growth assets in our clients’ portfolios. We are not convinced that central banks have got it right in this environment and so prefer to be a little cautious.

Being a little cautious, means winding back rather than making wholesale changes, which we could regret in the long run. The implications are that your portfolios might generate a little more income, but should be more stable while economic environments remain uncertain.

For advice about how these changes affect your circumstances, speak to your SFS advisor.

AND THE GOOD NEWS?Good news, you say. What good news?

It is natural, in times dominated by fear, that bad news is everywhere and good news barely gets heard, if at all.

Assuming you have had plenty of opportunity to hear and assimilate all that bad news, we thought it might be worth highlighting a few bits of good news.

GOOD NEWS 1: With interest rates edging higher, property values have softened, giving our kids a better opportunity to get into the housing market and buy a house of their own. Lower prices mean improved affordability. GOOD NEWS 2: No matter what you hear from economic forecasters, it is very rare for a bad year to be followed by another bad year. The odds are there will be a rebound in this financial year. Not definite by any means, but distinctly possible.

GOOD NEWS 3: Levels of employment are very high in Australia. Skills are in short supply so our employment prospects continue to be good, meaning we can plan with some certainty.

GOOD NEWS 4: The Australian economy is strong although slowing so there is no prospect of recession. GOOD NEWS 5: The last year has provided some great bargains in the share market if only we can ignore the fear. GOOD NEWS 6: Higher interest rates mean that investors can receive higher returns with much lower risk from term deposits.

INvESTMENT MARkET1 YEAR RETURN TO 30 jUNE 2008

3 YEAR RETURN TO 30 jUNE 2008

Australian Shares ACC -12.12% 12.45%

International Shares [Global] -21.55% 0.5%

International [Emerging Markets] 1.40% 23.52%

Australian Listed Property -36.35% -1.84%

Australian Bonds 4.42% 3.94%

Cash 7.34% 6.51%

MARKET AT A GLANCE

SOURCE Van Eyk Research Ltd


“LET’S NOT BE DOOMED TO REPEAT THE LESSONS OF THE PAST” George Santayana We have spent a lot of time in the last year trying to make sense of what appears to be nonsensical, in order to keep you on track to achieve your financial goals.

Like you may have, we have been reading and listening to the financial media. We have also attended conferences and presentations where highly respected economists have provided detailed analyses of the current situation as well as bravely forecasting the future. We have also had the benefit of questioning portfolio managers in our office. Because we are dealing with such an unusual event, there have been many contradictory and shifting messages. In the process of reading, listening and questioning, there are consistent lessons we believe are worth sharing with you.

LESSON 1: Stock-markets aren’t always rational. Benjamin Graham put it well when he wrote “most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendencyof most people to speculate or gamble … to give way to hope, fear and greed.”

Benjamin was an outstanding financial analyst, author of The Intelligent Investor recognised as the best book on stock-market investing and the father of Value Style investing.

Writing after the Stockmarket Crash of 1929 and the Great Depression that followed, he strongly advocated that successful investing involved detaching yourself from the emotions and concentrating on the numbers.

The extreme volatility he noted is back in evidence today after a period of relative quiet over the previous few years. Using his methodologies, he averaged a return of 17% pa in the U.S. stock-market between 1929 and the Second World War—not a period noted from growth of any kind. The lesson to be learnt is to divorce yourself from what we describe as financial pornography—the fear being peddled by the media. It will only lead you to make irrational decisions and lose your way. Emotional investing is your greatest enemy. At SFS, we are always here to guide you and provide you with the professional advice that will keep you on track.

LESSON 2: The more things change,The more they remain the same. Beware the comment “this time is different.” For those who believe, they could be very expensive words indeed. You would have thought reading the papers the last few weeks that there has never been uncertainty like this before.

Let’s just think about the last decade or so. We have had the Asian Crisis in 1998, September 11th, the Dot-com Crash in 2002, the Iraq Invasion in 2003, the Enron Collapse and the World-Com Collapse. With each crisis the end of the world was foretold and in each case, the world recovered. What’s more there were enormous buying opportunities to be had. Today might be another such opportunity. Often the best investment decisions are contrary to the pack. While it is natural to want to do what everyone else is doing, that is not rational investing. In conclusion, learn the lessons of the past. Make sure your investment decisions are rational. Following the advice of Benjamin Graham, act as an investor, not a speculator. Ensure your decisions are well thought through. Rely on professional advice to help you take the emotion out of your decision making. Let’s not be doomed to repeat the lessons of the past.

IMAGES This page ABOVE (TOP) Fluctuating markets. ABOVE (MIDDLE) Detach yourself from emotions and concentrate on the numbers. ABOVE (BOTTOM) The levels of employment are increasing and the Australian economy is growing.

Newsletter Winter 2008 SFS Page 03

ABOUT US Information about SFS. Strategic Financial Solutions is a boutique financial planning firm based in Melbourne with a strong commitment to working as a team with our clients to achieve your financial goals.

We promise to make financial planning easy for you, tell you the truth, be your trusted advisers and be there when you need us. To find out more about us, please visit our website at www.sfsonline.com.au.

GENERAL ADvICE WARNING As this advice has been prepared without considering your objectives, financial situation or needs, you should, before acting on this advice, consider its appropriateness to your circumstances.

PRIvACY SFS uses your personal information to advise you. It is only used for other purposes with your consent. If your contact details have changed or if you think that the information we hold is inaccurate, please contact us. You can have your name removed from our mailing list by contacting us on (03) 9690 4622 or by email to [email protected].

OFFICE GOSS The SFS team has had a busy time this last three months. Coming up to the end of the financial year, there are always tax planning issues to be discussed and decided upon.

We also recruited a new staff member, Darren Langford. Darren’s role is as a Senior Paraplanner. His duties include helping Paul and I prepare advice for you. In doing so, he needs to have a thorough understanding of both strategies and investment markets. Although he has only been here a short time, he has settled in well as part of the team. His experience and knowledge will add even more depth to the quality of advice we give you.

We saw more new clients than we normally do. As you know, we rely on your referrals for our continued growth so thank you to those who have recommend their friends and colleagues. We really do appreciate it. We have enjoyed reviewing our communications, the evidence of which you can see in this newsletter. The review forced us to pause and think about what are they key elements of what we provide our clients and what you are looking for from us as your trusted advisers.

What you consistently tell us is that you want to bring order into your financial world; make the most use of your resources; have the advice personal to your situation; have trust and confidence in your advisers and stay on track.

We think the new brand encapsulates all that with a dash of fun as well. As to the year ahead, we are in the planning phase at the moment. We don’t expect much change, however. The focus will remain, as always, on providing consistent, timely and personal advice to our clients.

Happy financial year to you all. May the new year bring you health, happiness and prosperity.

Page 04 SFS Newsletter Winter 2008

Strategic Financial Solutions Pty Ltd Level 7, 20-22 Albert Road South Melbourne VIC 3205 Telephone (03) 9690 4622 Facsimile (03) 9690 4922 [email protected] www.sfsonline.com.au AFSL No. 222 828 ABN 42 007 155 099


IMAGES This page ABOVE (TOP) Coming up to the end of the financial year, there are always tax planning issues to be discussed and decided upon. ABOVE (BOTTOM)The Australian sharemarket has had its worst year in terms of performance since 1981/82.

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