Be patient and stay the course.

Be patient and stay the course.

In our work for you this week we have put together a basic summary of the crisis so far and an update on what we are focused on for you.

Please note this commentary is about investments so we have refrained from writing about the unfortunate human impact.

That impact is hard to quantify just yet. But we would be amiss to say that if shutdowns of countries and states are imposed for too long the humanitarian side of the equation could soon become a much bigger economic, political and social one.

With regards to investments and markets, the following are our observations and thoughts based on our experience as well as open discussions we have had with businesses, colleagues, economists, fund managers and stockbrokers.

We have seen a historical replica of markets crashing. 

  1. Panic selling in stock markets at the start – this has been the quickest fall over 20% in history. Technology and various styles of traders have helped the exuberance.
  2. Cashing out of every other asset, even bonds and gold. Last week’s plight.
  3. Redemptions from (selling out of) hedged funds and other managed funds, forced by client’s panicking or needing cash because they were highly leveraged (in debt). An ongoing issue adding to market turbulence (volatility).

There are three clear actions to help everyone. 

  1. Governments providing cash or other policy measures to support consumers and businesses (called fiscal stimulus) so that there isn’t a deep economic crisis. This is generally reactive and slow to take off. Our own government has acted much quicker than most peers.
  2. Central banks like our Reserve Bank of Australia, providing liquidity (cash) to markets so that there isn’t a financial crisis.
  3. Governments and World health organisations working on containment measures to slow the spread rate and vaccines to help those infected.

 What has been done so far.

  • Governments have slowly released their stimulus packages to help consumers. The evidence of this creates some positivity for consumers and clarity investment markets;
  • Central banks are doing anything they can to keep companies and the economy afloat and liquid;
  • Because of regulation changes banks, especially US banks, have worked to be much healthier (with regards to cash backing) than in the Global Financial Crisis; and
  • Containment measure stages are really ramping up around the world and we probably haven’t seen the worst of that yet.

What we are aware of and watching out for.

We are bracing ourselves for substantial, but likely temporary, downgrades to companies’ earnings (circa 25%) as well as dividend cuts by at least 10%. We have eyes on corporate loan default rates over the next 6 months. However, the market looks to have mostly priced in that bad news.

This week has seen a little bit of joy for markets, stemming from the US Government finally agreeing on their stimulus and Europe taking further measures to add capital.

Looking ahead, we are mindful that stock markets tend to run ahead of time. Looking back on previous recoveries from a sizeable fall, markets start to head north before eventual company earnings upgrades by about 100 days on average.

However, saying all that, we don’t believe this is the clear bottom of the market.

There is too much imbalance in the global economy and no a clear sign yet of the virus spread rate slowing to call a definitive bottom for stock markets.

Therefore, we are not simply studying potential company earnings hits and economic data. We are looking for signs that the virus spread rates are slowing or have indeed peaked.  Indicators of this being watched very closely are in Italy and the US especially.

We believe markets will be bottoming around that time the virus spread rate starts to slow down, even though by then the general global population will likely be feeling pain from the strict containment measures.

This brings us to the factor of time and what we can learn from the past.

We will get over this.

Whilst we might change the way we live in some ways, the extreme measures we are seeing now to stop the virus spread will return to a more normal way of life.

This time next year this crisis will most likely be behind us. Vaccines will hopefully be produced.

Economies will have started to ramp up again, hopefully with much less damage than if governments and central banks had not have taken enough action.

We also know from history, that after big downturns, market returns have tended to be much larger than average. Investing and rebalancing at these times of higher volatility has mostly translated into great returns over the following years.

Therefore, we must continue to think beyond the worst of the virus as our time horizons as investors are much longer. We must look beyond the unknowns as they appear today, in order to position portfolios for far longer than the next few months. 

Our focus on your portfolio. 

1. Take advantage of currency differences.

We believe the Australian Dollar (AUD) has fallen far enough. Last week it fell to 55 cents (versus the USD) at one stage.

We have experienced that these low levels of the AUD are hard to sustain as, already mentioned, global economies need to rebalance.

A simple example of this might be China continuing to add stimulus to their economy and encourage another boom of infrastructure spending.

This of course bodes well for the demand for Australian commodities. That buying pushes our currency higher.

At the same time the United States economy is a big ship to turn around. They could be affected by the crisis for a much longer period. Much like what happened during the recovery phase immediately after the Global Financial Crisis, money searching for a new home with better returns could pour out of the US where their bonds were seen as a safehaven asset. Thus forcing the US Dollar lower and commodity currencies like the AUD higher.

International investments – international holdings have mostly been in unhedged funds. Meaning, that the fall in our AUD has really helped performance over the years as it sank from $1.00, and especially in curbing larger negative returns in this current downturn.

Now, considering our view that the AUD should rise, we regard the tactical advantage of moving unhedged international positions to their hedged versions (to make the most out of our potentially stronger AUD) as a longer term positive.

2. Time and patience. Investing for the long term.

We also expect that by rebalancing and adding more weight to the growth side at some stage soon will hold portfolios in good stead for the eventual rebound in markets.

That is not to say we will jump straight up and make extraordinary changes. Rather, given volatility should remain for a while, we feel that continuing to invest in high quality funds and stocks at stages over the next few months will be beneficial.


No stock market crash is the same but they do have some similar characteristics.

On that basis we aren’t saying that the worst is over, but we are becoming more convinced that markets at least could be close to the bottom.

Whilst we realise this is largely an unprecedented crisis, we are closely watching events unfold to determine the right times to make changes.

We are firmly focused on adding the right value for the future because we have done this before.


Remain calm when the panic sets in.

Remain calm when the panic sets in.

The coronavirus impact on our investment decision making for you.

Prior to the recent coronavirus (COVID-19) outbreak we had expected global markets, led primarily by the US, to enjoy some economic benefits in the second half of this year.

Without going into the detail, we had expected the global investment and political environment to be easier to navigate and help us retain the confidence to continue to invest in growth assets deep into 2020.

This week we sit firmly in the reality that this won’t be the case.

The current pandemic combined with an oil price war has now posed a challenge to economies and markets for the remainder of the year. 

Markets around the world are declining on fear.

Now that have witnessed the different ways COVID-19 has been dealt with, markets are running ahead of the likely economic implications of world-wide containment.

Containment is how China reacted to the situation, by locking down provinces and the movement of people. Hong Kong, Singapore and South Korea also approached it similarly.

The western world has been much slower to react, choosing the path of mitigation by slowly shutting entry into their countries and dealing with cases as they appear. The peak of the crisis in Italy is compounding fears that other European countries and the US will follow in similar suit.

Quite simply, people staying home or being asked to stay home for long periods is the major problem. This effectively shuts down economies (e.g. Italy has now only allowed chemists and supermarkets to stay open whilst the healthcare system is in disarray) and can potentially lead to social unrest if it is carried out for too long. 

Adding to the fear is disappointment over the slower than expected reaction by governments, especially that of the US.

The initial thought was that developed world policy makers would be well in front of the situation, when now they seem caught behind.

In the last 24 hours we have seen a heightened response, especially by governments putting forward specific financial packages. Whether it surprises or not, Australia has been more proactive than many of our counterparts. 

Two notable things have really set the fear in markets these past few days:

1. The compounding rate of those being infected is basically tenfold every 16 or so days. Meaning 1 million people outside of China could be infected by the end of the month. Without complicating it, the end worry is that there will not be enough hospital beds and the health systems around the globe will be stretched past their limits.

2. Mr Trump/the USA – The president of the largest Western economy (USA) has been slow to communicate further fiscal stimulus for the general public and businesses this week. It would seem to us they were also slow to contain inbound travel, especially from Europe, hence raising the roof on the possible compound rate problem.

Therefore when in fear or panic, everything is thrown out of the cot. In an investment sense, all assets are converted to the perceived safety cash.

It is important to remember the world’s financial system is still functioning.

This selloff in markets is not about workers or companies having borrowed too much. As in the financial system being under stress.

It is about the known unknown – the real test – how deep the economic impact will be.

Of course we have seen this crisis’ effect on closely tied industry such as travel, airlines, shipping, and oil. We wait to see how it affects everything else – workers, companies and day to day living.

What we do expect is certainly help from central banks and governments.

We expect that governments and central banks around the world will not run out of ways to overcome the economic problems. They will supply a lot of money in different ways to protect employment status and underpin private enterprise, the backbone of most economies. Interest rates here will definitely drop to 0.25%, maybe even less.

Indeed as I write this our stock market this afternoon has turned from being down 7% to being up nearly 1%. The Australian government is rumoured to have stepped in and bought back $2.5bn of government bonds, which adds cash back into our monetary system.

As the US Fed Chairman described this week, there are many actions that are needed to help in the crisis.

Central banks can cut rates and governments can add liquidity, but it doesn’t solve the health or the global supply chain grinding to a halt because of business shut down.

What rate cuts can do though is to give the economy some time. It can shore up business, household and market confidence, ultimately to avoid any critical economic collapse. That leaves more time to deal with the humanitarian effort.

We also expect help from lower oil prices for a big part of this year. Pumps simply can’t shut down and there will be plenty of supply for a long time. This certainly helps the pockets of us, as consumers, and any rebound in economic health.

We will be looking for the real effect.

We will be watching the behaviour of governments, organisations and industry that is needed to support the health and economic stability in this current crisis, such as –

  • international collaboration,
  • easing central bank policy,
  • government action and economic stimulus,
  • industry leadership,
  • vaccine development,
  • treatment acceleration, and
  • social harmony.

These factors are our immediate focus. With today’s technology we are able to view indicators like traffic volumes and pollution levels for signs of countries returning to work. Unfortunately, today’s technology also allows for real time communication which can also breed hysteria, especially in the media.

Whilst we don’t totally ignore it we try to look through that noise to focus on the medium to longer term economic picture for investments.

Lastly and most importantly – Our focus for you.

We are well aware that the recent market moves provide good buying opportunities. However, while the quantifiable business and economic fallout is more unknown than known, we remain cautious but prepared to act.

Remember –

  1. Your portfolio is Diversified, with cash and liquid investments. We will continue to actively diversify your investments. Defensive assets help to offset short term losses on share markets. Even as we stand today, year on year returns on an average balanced portfolio are positive. Around 3%-4% positive returns!
  1. We stay calm. We’ve gone through this before. Where are we now? Think even way back to where markets were after the 1987 crash. History shows that equities especially bounce back quickly from sudden events like this.
  1. We are staying invested. We are long term investors. Aside from holding cash as liquidity, our growth investment time horizon is well over 10 years.
  1. We will continue to look for quality investments. Our role is to work for you and manoeuvre to take advantage of pricing. Whether that is by direct investment or through similar thinking fund managers.

This note is meant to build confidence to help navigate this uncertain period, and to remember after all why we are working together.


The right way to leave your legacy

The right way to leave your legacy

The right way to leave your legacy


Very few people like to deliberately think about and plan for life after they die. However, failure to do so means their beneficiaries may suffer financial loss because the Estate isn’t structured the right way or there’s emotional turmoil due to the Estate being contested.

Some people mistakenly believe all that is required is to create a Will.

‘Estate Planning’ is in fact a term that covers not only wills, but many other areas that need to be considered; decided (in writing); and regularly reviewed to ensure that your financial wishes will be distributed and protected the way you want.

Estate planning also includes ensuring your wishes are clearly and legally in place so they can be carried out in the case of physical and/or mental incapacity before you die.

Importantly, today’s Baby Boomers as the key generation of strong business and wealth creators have a heightened sensitivity as to the value of how their wealth is to be passed on. The more complex the family situation, the more complex the Estate structure that may be needed.

Following are a few common needs when it comes to one’s Estate.


Wills – it is important to have one to start

It is estimated that nearly half of all Australians die without a will, or, to use the formal legal term, die ‘intestate’. Further, of the roughly 50 per cent of wills that are created, there are varying reports regarding the percentage of these wills that are either highly flawed or completely invalid.

If you die intestate or your will is invalid, an administrator is appointed by the court to –

  • pay your bills and taxes from your assets, and
  • distibute the remainder, which may not be how you intended your assets to be distributed.
  • Further, if you die intestate and don’t have any living relatives, your estate is paid to the state government.

It is highly recommended that your will be drafted by a lawyer who specialises in wills and estates and that, as part of drafting your will, you consult your financial planner regarding how your will fits in as part of overall estate planning.


Superannuation – death benefits not covered by your will

Deciding who gets your super after you die can seem like a simple task. However, many people fail to nominate a recipient for their super. Perhaps because they either overlook it or assume their last will and testament will cover this anyway. This is not the case. Superannuation is not covered by your will.

If you do not nominate a beneficiary, it is the super fund trustee who ultimately decides who your money goes to. This can, and often does, lead to delays. It often leads to emotionally and financially draining disagreements among family members and others.

Superannuation death benefits also carry with them other complications, each with their own implications. For example, whether or not to opt for a binding or non-binding beneficiary nomination.

The legal case-law around superannuation in estates is complicated, ever-changing and at times surprising in its outcomes and implications – especially when it comes to tax implications after your death and in relation to marriage breakdowns.

Super is often a significant financial legacy for distribution after you die therefore it makes good sense to ensure your overall estate planning includes something about your super. 


Testamentary trusts – protecting how assets are passed on

Testamentary trusts are a highly effective tool in estate planning.

A testamentary trust forms part of your will. It is usually used to protect assets, comes into effect when you die, and is administered by your nominated trustee.

Reasons for creating a testamentary trust or trusts include  –

  • when the beneficiaries are minors;
  • when the beneficiaries have diminished mental capacity;
  • to provide guidance and oversight to a beneficiary who may not yet be mature enough to use their inheritance wisely;
  • when you do not want family assets split as part of a divorce settlement; and
  • when you do not want family assets to become part of bankruptcy proceedings.


Powers of attorney

Powers of attorney give a nominated person/s various levels of control over decision-making aspects of your personal, legal and financial life. They are usually created for times of diminished ability to manage one’s own affairs and can be temporary or ongoing.

There are different types of powers of attorney including –

  • general powers of attorney – usually for only a set period of time;
  • enduring powers of attorney – which are ongoing;
  • medical powers of attorney – relate to health and medical decisions; and
  • people can also create enduring powers of guardianship, anticipatory directions and advance healthcare directives (or living wills).

All these legal documents directly impact the way your affairs are managed while you are alive and therefore impact what is left after you die. They should form part of your estate planning process and be drafted in consultation with qualified legal and financial planning practitioners. 



We are experts in all aspects of financial planning including estate, legacy and family constitutional planning.