5th November 2008

Dear Investor,

In uncertain financial times have a plan

It appears that every day you pick up the paper or turn on the news there is another 'financial crisis'; the share market had a 'rally' then the share market took a 'dive', the property market is holding then you are told auctions and property sales are slowing, major mortgage funds are freezing redemptions and the Reserve Bank of Australia is reducing rates again. It makes it very difficult to know what to do and there is no one that does know. It does help to have a plan, a financial plan. There are many aspects of our lives whereby we have a 'plan' or 'insurance' in case the unexpected happens and yet it is quite often that investors are caught out without a plan, or do not stick to the plan, when the financial markets turn in a way investors did not expect. We do not have to be market experts to have a general understanding that markets; share markets, property markets and economies all take their turns in rising and falling so why are we so surprised when it happens? The exception to this is potentially the 'Generation Y' citizens born from 1980 and later who would not have really experienced financial volatility as previous generations have over the years.

Prudent investors will either already have a financial plan in place or will move to have one. Having a financial plan means you can continue to monitor your investments and resist the temptation to change your investment goals or investment strategy (including your retirement strategy), unless it is part of your plan.

Below is an example of 5 strategies to mitigate panic and stick to your plan:

1. Get back on track

If you have a structured financial plan in place, put together by your financial planner, you should know exactly how much you need to contribute to your superannuation and/or savings between now and the time you plan to retire to meet your retirement savings goal. These plans normally consider an average rate of return, including inflation, over a set period of time; say a 10 year investment horizon. Given that many of the managed funds and shares have had a severe negative return, investors may need to inject more capital into their savings to meet the original projected savings goal.

2. Enquire about Government Entitlements

It is worthwhile reviewing the possibility of access to the Age Pension. With the poor market performance many investments have declined in value and therefore investors who were once considered 'well-off' may now be eligible for all or part of the age pension. It was, in fact, an alternative strategy put forward by Federal Treasurer Mr Wayne Swan to those investors who had their savings 'frozen' by a mortgage fund. For example; a couple who own their own home can have up to $873,500 in other assets and be eligible for a part pension. If a couple who fall into this category experience a drop in assets to say $760,000, they would now be eligible to claim the age pension. Centrelink would pay them approximately $85 a fortnight each as well as an entitlement to the pensioner concession cards.

3. Retire part-time and rebuild super

Investors who have insufficient funds to retire or have suffered a significant investment loss just prior to retiring may consider delaying retirement. An alternative to this may be the option of cutting back full time working hours to part time and supplementing income with a 'Transition to retirement income stream' ("TRIS"). A TRIS allows people aged 55 or over to receive regular payments from their super fund while still working. It is also possible to work full time and have access to a TRIS. This strategy could assist in rebuilding your superannuation faster. It is best to enquire if this strategy is suitable for you by visiting a financial planner.

4. Restructure your super

Many investors don't realise that their superannuation is in a 'default' option, often chosen for them when they first joined a superannuation plan with a new employer. This option is often never reviewed. It may pay to check the investment options your superannuation is invested in. Many default options have well over 50% in a 'growth' option to help employees grow their superannuation over time. It is often suggested that as people near retirement these investment strategies should be moved to more 'conservative' or 'capital protection' options. There is an argument by some market experts that those close to retirement should leave existing balances in the more 'aggressive' options and direct new funds into cash based options. This will give people income to live off for a period without having to sell units in the default option during a market decline. It is also often recommended to retirees to have two years' worth of income in cash.

5. Invest for the future

While the markets are in uncertain times, it is very tempting to 'change' your plan or investment strategies. If you are tempted to do this remember it pays to visit a financial planner and consider different strategies and not just strategies based on investment returns. Many people will still have a mortgage (a non-tax-deductible debt). It may be tempting to pay off your mortgage; however a visit to your planner may find a more tax effective strategy to use those funds to contribute to superannuation and delay paying off your mortgage until you actually retire. There are still many market experts who believe that if invested appropriately, it is better to have your money work for you than to convert to cash as a long-term investment.

Source: Australian Financial Review - Smart Money - September 27-28

Best regards,
Chris Andrews


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Chris Andrews
Head of Funds Management

t  +61 3 8610 2811
e  candrews@latrobefinancial.com.au

Chris Andrews is the Head of Funds Management for the La Trobe Group and has responsibility for the La Trobe Australian Mortgage Fund.
Read full profile here.

La Trobe is one of Australia's leading independent specialist mortgage Financiers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 115 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.

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