Greetings from London, England.
We were in Worcestor on the weekend, a posh part of the English countryside “depending on what side of the river you live on” (according to the locals). We were sitting around a fire in a large Victorian lounge room which looked like nothing I’d ever seen in Australia. A friend who is a banker from a European tax haven had flown over to join us. We were drinking champagne to celebrate the arrival of our son and a 70th birthday – awesome! The headline news was on: 9 European countries were teetering on the brink (read: up to their eye balls in debt). France had just been downgraded by S&P’s to AA+. Having recently chatted to Aussie bankers, I was feeling quite optimistic. I asked the banker, “Do you think this (global doom) will all go away and start to pick up towards the end of 2012?” He looked startled, as though I was mad. Then he laughed, “No, no, no, Europe is completely sc~$*£d!”
banker: “Oh yes, for about 5 years he added.”
me: “OK, that’s a little eye watering.”
From my limited experience on the stock market I knew how this would play out in Oz. Every time a European politician breaks wind, the Australian stock market will receive the fall out.
The index of Australia’s leading 200 companies (ASX200), peaked at 6800, and is currently hovering around 4000. It’s impossible to tell how low it will go.
Warren Buffet (third richest man in the world) warns average investors not to jump in and out of the market. Warren encourages investors to regularly pile into the market when others are running in fear.
Time to turbo charge super funds
From 2013, compulsory super contributions will increase from 9% to 9.25%. Super contributions will continue to increase to 12% by 2019 – 2020. That is a significant, extra chunk of our wages that are being invested as super! According to Wayne Swan, an additional $85 billion will be added to super accounts over the next 10 years. Where will all that money go? Mostly into the stock market. Time to turbo charge your super before the next boom? As the Pom’s say “Get in!” (football reference).
The generational gap
Chatting to young people in Sydney and London, there is a lack of awareness of the benefits of super funds. Many are struggling with student / personal loans. Any excess cash is used for holidays, transport, partying (purpose of life in 20′s). Most have a long term view towards building a deposit for a house. Contributing to super is a low priority. One idea that could be good during a market trough is to electronically transfer funds as small as $5 – $10 per week into a super fund, and build from there. With pay increases, allocate more money to saving and super rather than spending. Small automatic direct debits, won’t be noticed and you will (hopefully) be picking up cheap stock during a time of prolonged global crisis. A good super fund will allow you to select and change your investment types from classes such as: Australian stocks, International stocks and cash. If you have decades of working life left, then let compound interest, inflation and market cycles do the rest.
It is often said that $1,000,000 is required at retirement to live comfortably. Take into account high life expectancy and the costs associated with retirement such as travel, restaurants and health care.
In 30 years time it is likely that 10 million will be the new million!
What would Warren do?
Disclaimer: The information contained in this article is general in nature and is not intended to be investing advice, nor can it be construed as such. Please see a financial advisor or accountant to consider whether general information is suitable for your circumstances.