John Cameron's personal blog

Traditionally investments such as government bonds have been considered “safe”, whereas shares are considered “risky”.

So pervasive has this been, that, in the jargon of financial markets, when somebody talks about “taking on more risk”, what they are really saying is that they are selling bonds and buying shares (or using cash to buy shares). Conversely, if they are selling shares and moving to bonds or cash, they are “reducing risk”.

Now, it seems, the jargon is moving mainstream. I recently saw a retiree being interviewed on television. In order to make ends meet, he said he was “taking on more risk” with his investments.

The last couple of weeks have seen more skirmishes in the “culture wars”. 

The first shots were fired by a Four Corners Programme that disclosed that the Commonwealth Bank’s insurance subsidiary, Comminsure, had used dodgy methods to avoid paying claims. A poor culture within Comminsure was quickly blamed.

The issues have been smouldering for years, but now that full scale conflict has broken out, it looks like being a protracted campaign. No doubt there will be moments of tension, drama, high farce and even, yes, humour (in fact a sense of humour may be an essential survival mechanism).

Last week was a bad week for the banks so far as publicity goes.

Prime Minister Malcolm Turnbull gave the banks a genteel tongue lashing (they hadn’t always acted in their customers’ best interests, he said) at a lunch called to celebrate Westpac’s 99th birthday. 

A birthday party may not be the usual place for a VIP guest to give his hosts a jolly good talking to, but the PM’s words were soon followed by a chorus of politicians calling for a Royal Commission into the Banks. Motives undoubtedly varied from the purely political to the more principled. However, nobody has yet spelt out what they want any Royal Commission to enquire into and there hardly seems any point in having a Royal Commission just for the sake of it. The Government, for its part has replied that ASIC already has Royal Commission like powers, and presumably could be relied on to use these powers if they thought it was necessary.

Unfortunately, much of what passes for financial advice today, amounts to little more than a box-ticking exercise.

For many of the bigger institutional advisor groups, the process goes something like this:

• Fill out a risk profiling questionnaire, and go into a risk profile box. Tick

Just what does a Financial Planner do?

Coming up with a suitable strategy and recommending suitable investments is an obvious job, and is the one that attracts the most public attention.

However, another job that can be just as important, is helping clients make better financial decisions. Your financial planner should be able to engage with you on a range of issues, help you clarify the different options that are available to you in a given situation, and choose between the alternatives.

Should they stay or should they go?

Oliver Hartwich | The New Zealand Initiative | 17 March 2016

I wrote recently about the political implications of the UK's forthcoming referendum on EU membership. Let's take a closer look at what the British are voting on, and why your columnist is not sure what to wish for.

Over the last few months, important non-banking arms of the venerable CBA have come in for lots of media criticism.

First it was the financial planning arm and now it is the life insurance arm, Comminsure. They stand accused of using outdated definitions of what constitutes a heart attack, to knock back claims, that could have succeeded under more modern, liberal, definitions used by many others in the industry. Insurance is a minefield of definitions and complexities. There is not much doubt whether somebody has died, but has a person had a heart attack? – it all comes down to the definition.

In the bank’s financial planning arm, in-house advisers gave clients poor advice, that cost them dearly. 

It’s that time of the year when forecasters are thick on the ground.  It’s like they’re “breeding like rabbits”. But, however they breed, are they more like foxes or hedgehogs?

Hedgehogs are driven by one big defining idea. Their style is well suited to 10 second grabs.

Foxes, are into the detail. They look at lots of small facts However, they don’t come across well in the media, and their style can quickly bore the pants off just about anybody.

IT IS NOT THE STRONGEST OF THE SPECIES, OR THE MOST INTELLIGENT, THAT SURVIVES, BUT THE MOST ADAPTABLE.      – Charles Darwin

For a long time I have felt frustrated by the lack of suitable research to provide guidance when advising clients, particularly retirees, on how to invest their money. There is lots of complex theory, but little practical guidance and little hard practical evidence. What evidence exists is largely directed towards big institutions, with large amounts of money to invest over a very long term. 

In 2014 I set out to gather hard evidence about investment performance, to provide better evidence for advising clients in the current climate.

A self-managed superannuation fund can be valuable to people who want maximum control of their fund’s investments, especially when they own their own business, if the fund can buy and lease back property.

Should the worst happen a superannuation fund also gives some of your assets a degree of protection from creditors.

Super funds can now borrow to buy assets, though the procedures are complex, opening up even greater opportunities for mutual benefit between a fund and a business.

Words are funny things. Their meanings change over time, as does their usage.

One word that appears to be undergoing a metamorphosis right now is “retirement”. According to the Oxford English dictionary, retirement is:

“the action or fact of leaving one’s job and ceasing to work”

And what’s its role in creating wealth?

In this newsletter, I want to look at costs. Not just any costs, mind you, but a special kind known as ‘opportunity costs’ and its importance in wealth creation.

The concept of opportunity costs is well covered in most university courses in finance and accounting, but often gets overlooked in personal finances.

This quote is from Jonathan Pain’s paper, delivered at a conference I attended in Sydney in February this year.

The conference was a full day affair, with 13 very intelligent people talking about the end of quantitative easing and what effect that might have on investment markets. However, Jonathan Pain’s statement set me thinking about the all too human biases that affect human decision making and often cause markets to move in ways that at times seem irrational.

The fact that we are talking about irrational thinking deserves some explanation. In the years following World War II, there was a fierce debate within economics about how they should treat human decision making. The debate was largely won by the neo-classicals, who assumed that we are all human computers who take in a vast amount of data about prices, products, services and whatever else we are buying, then do a superfast calculation before deciding to act in the way that will maximize our own financial position. No room for doubts or emotions to cloud judgement. These assumptions permeated much of finance and economists built more and more complex models, all highly mathematical, and all ignoring the more human elements.

A subject attracting much media attention recently, is the question of ‘tapering’ and what effect it might have on investment markets, especially the stock market.

Tapering refers to the process by which the US Federal Reserve starts to reduce the level of quantitative easing. Quantitative easing is the process by which the Fed buys bonds and other assets from the private sector to inject cash into the economy. It has been one of the main weapons used to counteract the GFC and get the American and global economies back on track.

Currently the US Fed is buying up bonds at the rate of $85 billion a month. Any reduction in this rate would amount to a reduction in the level of quantitative easing. Any reduction will happen gradually and hence the use of the word ‘taper’.

Everybody has a financial aspect to their lives. For some people, it dominates everything they do, night and day, and nothing else seems to matter. At the other extreme, there are those who rarely give a thought to their finances, are always in a financial mess, and who have to frequently dig themselves out of a hole.

For most people, the reality is somewhere in between. Money is important, but not everything. It is useful for what it empowers us to do (buy the necessities of life, raise children, buy a house, go on holidays, retire, etc.), and not for its own sake. In other words, the better we organise our finances, the further we can make it go. The more we can do with our limited funds.

This is where a good Financial Planner comes in. He or she should be able to help you organise your finances to get the best out of them, in line with your goals, circumstances and risk appetite. I have been giving Financial Planning advice for over 30 years. During that time I have seen many people’s lives improved by good financial advice, and sometimes damaged by poor advice.

In Greek mythology, the Sirens sang such sweet songs to mariners, that nobody could resist them – and they ended up smashed to pieces on the rocks.

In modern Australia, there is a similar group that guides the unsuspecting onto rocks. They are the modern day investment SPRUIKERS. They took a hit following the GFC in 2008, but they are starting to come out of the woodwork again. They sing a beguiling song that many people find hard to resist.

Spruikers have not always been obvious, but they tend to come into prominence when people are looking for investment opportunities. They often (but not always):

In August I attended the annual Portfolio Construction Conference in Sydney. I try to get to this conference every year (I missed last year due to the flu) as it is a high quality event with a strong independent tone to it (no institutions flogging their products).

This year, the highlight to me was a paper from Professor Michael Drew, from Griffith University, who spoke on “sequencing risk”.

Sequencing risk is the name being given to the sequence in which investment returns are received (and not just their size).

The last few years of your pre-retirement investing can make a very big difference to your long term retirement income.  There are three things you can do:

1. Increase your investments including super contributions, especially as your income rises and obligations such as childrens’ education and mortgage repayments fall away.

2. Keep working a little longer; one, two or three extra years earnings will make a big difference.

It’s very possible to live a quite comfortable retirement lifestyle with a mixed private and government pension income. The sliding scale for pension eligibility now allows fairly high private income and assets and some assets (like your home) are excluded.

For many people, it’s not the actual pension payment that is important, but access to the Health Care Card, that can dramatically reduce health care costs including for medications. And there are other concessions, for example on rates. You get full Health Care Card and other benefits regardless of the size of your pension: qualifying for just $1 will do the trick.

In some situations you will be able to arrange expected income and expenditure so that, although you may not be immediately or always eligible for a part pension, you will be at some time in the future.