Times like the ones we are having right now are when Financial Planners really earn their keep! By and large, people are very well aware of what’s happening with their investments but we welcome any questions you still might have. Here are some frequently asked questions, and their answers, from recent times.
Are all parts of my portfolio affected by the current down-turn?
Yes, they are, in some way – either negatively or positively. All investments operate in the general economic environment and very few are immune from changes in value. Fixed interest investments which are not traded, like term deposits and company debentures, have a set rate of return until maturity but most other investments have values that alter in line with market conditions. In recent times, as interest rates have fallen, the value of the traded fixed interest securities like government stock, local authority stock and capital notes, has risen. These investments are often referred to as “bonds” and bonds have out-performed shares in the last 12-18 months. Conversely, mortgage fund returns have fallen as interest rates have dropped as have returns for short term cash accounts. Looking very healthy for the last 12 months are specialty investments. These have performed strongly and are used in portfolios for that reason – they tend to do well when shares are not. Most share markets are still showing losses for the year ending November 6th with the exception of Korea (up 6.8%), Australia’s ASX 300 Accumulation Index (up 3.5%) and the New Zealand SE40 (0.1%).
What are these share fund managers doing to help minimise losses?
They’re worrying a lot! There’s fierce competition out there for market share and many share fund managers are rewarded for performance. They regard their place in the pecking order and their general reputation as assets to be zealously guarded. They have to work hard to achieve results for investors at all times because there are so many players in the field. In times like this, when markets right across the world have experienced considerable difficulties, it may appear that nothing can be done to stem the tide. It’s not as straight forward as that. Right now, it’s a matter of working out the sorts of businesses that are going to benefit from the current and future conditions then ensuring that the fund’s portfolio is positioned to take advantage of that. Huge resources go into the process of information gathering and analysis with minute dissection of where and how value is being added – or not- by the choices a manager has made.
What about income – has that stopped too?!
No, it continues to “roll in”. It’s just that some of the movements in capital values have been sufficient to negate the income that’s been earned.
What about the fees I pay? My return is less. Do you get paid less?
Yes, we do. Fees for Portfolio Management depend on the value of the portfolio. If it goes down we get paid less.
If you have over NZ$350,000 to invest and want truly impartial advice, contact us to find out how we can put your money to work to fund your important goals.
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