John Cameron's personal blog

One of the major messages that superfunds direct to young people is not as straight forward as it seems – and may even hurt them financially.

You see, superannuation funds often encourage young people to put extra money into superannuation, so that they can reap the long term benefits of compounding.  The logic is simple – put more money in now and there will be more there to grow and compound over the long term – possibly lots more.

The result of the funds’ projections is pure mathematics – and maths does not lie. 

There’s a common view that as you approach retirement you should tilt your investment portfolio towards more conservative investments. This means favouring things like term deposits, annuities and cash management trusts while reducing exposure to more volatile assets such as shares and property. The thinking is that preservation of capital is key, as without an earned income it is hard to recover from any downturns in the share or property markets. 

In the days of high interest rates this might have been a good strategy, but when interest rates are low and life expectancies long, being too conservative with investment can see the money running out way too soon.

Peter plans to retire on his upcoming 63rd birthday. He has $600,000 in super and wants this to provide him with an income of $50,000 per year. If his net return is 3% pa, Peter’s nest egg will last for just over 15 years . The problem is there’s a good chance Peter will live into his late 80s or even 90s. To give his savings a chance of lasting until he is 90 (27 years), Peter will need to target a net return of 7% pa.

Remember the Brexit crash? Probably not, as it was all over in a flash, and markets are now well above their pre Brexit level.

All of this happened despite predictions of woe by high profile “experts” who looked and sounded good in short grabs on the television and in the press. They had the ability (or more accurately “seemed” to have the ability) to cut through all the complexities and bundle everything into a few well turned phrases.

However, these forecasts of doom have joined the long list of failed forecasts.

One of the issues that repeatedly crops up when dealing with clients is, “How well placed are you to deal with unforeseen expenses?” 

The expenses can range from relatively minor things such as an appliance suddenly failing, a minor car accident or a leaky roof, through to things far more catastrophic – a major illness, death of your partner, loss of job, marriage breakdown or any of a whole host of other things.

I started thinking along these lines, on reading a story in the Financial Review on 1st July. The story reported a survey carried out by the US Federal Reserve, to assess the resilience of American households if some financial shock occurred.

In Australia today, we must all make important investment decisions for our future wellbeing.

We have an age pension system that acts as an important safety net, but our superannuation system is lump sum, with individuals being ultimately responsible for how their money is invested.

When making those decisions, it is essential (but often difficult) to try to separate the “noise” from the “information”. So, what exactly is the difference.

Black swan events are unexpected happenings in financial markets that have a big impact.

During my working life I have been “fortunate” to witness two of the biggest black swan events of the past 50 years – the decision of President Nixon in 1971 to cancel the convertibility of US dollars into gold at a fixed price, and the GFC.

Both had a profound effect on investment markets, with big implications on the best way to invest your savings. 

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.