Whatever market you’re in... we hope it’s profitable.
La Trobe Financial: ‘Best Investment Management Company’
The year 2014 is ending on a very high note for La Trobe Financial and our investors. In mid November, La Trobe Financial was awarded ‘Best Investment Management Company’ and ‘Best Mortgage Fund – Australasia’ at the International Finance Awards in London. This international recognition, awarded in front of an array of the industry’s best and brightest from 92 countries across the world, confirmed La Trobe Financial’s growing stature on the international stage.
Then, in early December, Money magazine awarded La Trobe Financial’s Pooled Mortgages Option (“PMO”) ‘Best Mortgage Fund in Australia’. This highly coveted prize was awarded to the PMO for a record-breaking sixth consecutive year, confirming the consistency and repeatability of La Trobe Financial’s performance across various market conditions.
At around the same time, the Australian Centre for Financial Studies singled out La Trobe Financial’s Parent to Child, or P2CTM, product for special mention for innovation at the Melbourne Financial Services Symposium. This new and exciting product provides a safe and secure way for parents to assist their children with the purchase of a property, without risking their own home or credit history. It has proven enormously popular against the background of the continuing housing affordability crisis and the difficulty many young people have in saving for a deposit. The newly released website is already generating a staggering 1,000 unique hits per week.
As we frequently say, we are always very pleased to obtain these awards and recognitions from our peers in the financial services industry. After all, when your competitors acknowledge your performance, you must be doing something right. On the other hand, we are always supremely conscious that we are ultimately judged by the value we provide to our investors. We take great pride in this and are again pleased to report that 2014 has been another year of strong outperformance of our peers and benchmarks. For example, our PMO’s continued performance in times of low interest rates continues to attraction attention across the market.
Unfortunately, the same cannot be said for many alternative investments. Have pity, for example, on today’s share market investor. Once again, the market has spent the year moving sideways. After a frightening January and February, the S&P/ASX 200 began a promising build from under 5,100 to over 5,600 in mid September. From there, the old patterns kicked in and things went sour. The market plunged back below 5,200, rebuilt to 5,500 and then dropped yet again. At the time of writing, it looks likely that the market will finish 2014 at about the same point it started.
Of course, as any experienced investor knows, this has been the consistent experience since 15 October 2007, when the market peaked at 6,748.90. Following the GFC-induced plunge, the market rebuilt to around 5,000 and has stayed +/- 1,000 points ever since. After seven years, investors remain down by over 20% even before inflation is taken into account.
Now that, of course, is not the end of the story. Dividends have continued to be paid and some individual stocks have produced excellent performance for their investors. However, this extended period of underperformance emphasises a number of rarely-discussed, but fundamental truths of investment.
- People often talk about share market ‘volatility’ as if losses today will quickly be recovered. The truth is that losses can take years to recover. Our current situation is not unique. It took nine years for the market to recover the losses of the 1987 crash, for example.
- Talk of ‘average’ returns for an asset class are frequently irrelevant. An average investor at or near retirement in 1987 (or, as appears increasingly likely, in 2007) has their share portfolio ‘in the red’ for up to half of their entire retirement. Throughout that time, they were and are likely to be selling shares for living expenses and thereby crystallising losses. These losses will never be recovered, no matter how well the market performs at some unspecified, future date. For these investors, it is the timing (or ‘sequence’) of returns that has the most pronounced impact on their retirement outcomes.
- In fact, a share market crash can be quite literally ruinous for many investors if it occurs at or near retirement. Most investors simply cannot afford to rely on the share market to produce adequate retirement outcomes.
We could extend this analysis across asset classes, as we did in the November edition of Investor Insights. Fundamentally, whatever your investment style, the message remains the same. Be alert to the risks of your chosen investment. Ensure that your investments are suitable for your own needs and objectives. At La Trobe Financial, we live and breathe the three golden rules of investment:
- Keep it simple, silly (“KISS”): As Warren Buffett once pointed out, investment is not like Olympic diving. You don’t get bonus points for degree of difficulty.
- Don’t keep all your eggs in one basket: Diversification is one of the few ‘free kicks’ in investment and reduces the risk of serious portfolio losses.
- Getting rich slowly never goes out of fashion.
Merry Christmas from La Trobe Financial
As this is our last Investor Insight for 2014, we take this opportunity to wish you and your loved ones a very merry Christmas and happy new year. We hope that you have a safe and happy holiday season and look forward to sharing more insights on investment in 2015.