2010-2011 the way ahead

Published in Herald Sun, June 2010 by Katrina Barrymore

“If you’ve been feeling like you are on a massive roller-coaster ride with your portfolio in the past year, you’re not alone.”

“The All Ordinaries is currently trading at around August 2009 levels, but in-between then and now the market has fluctuated by more than 10 per cent on several occasions.”

“The question I am now being asked is where will the market be 12 months from now?”

More of the same

“Although there is argument for the market being bullish during the next year, I believe we are still in the last stages of the current bear market and that we will likely see more of what we have just experienced.

“We need to be prepared for anything to happen as the market will be volatile and there is at least an equal chance that the market will fall over in the next 12 months to below the March 2009 low point.”

“That said, given the volatility and uncertainty, the market could do exactly the opposite and rise up to 6000 points and beyond. Plan for the worst and hope for the best.”

Discount buying

“If you are a buy-and-hold person then the events of the year ahead will not be an issue, other than a good time to buy more shares while prices are good.”

“You could accumulate in the knowledge that your portfolio may not perform in the next year but over five years, I am confident, it will do well.”

“If you need capital in 2011 then I suggest being conservative and think about diversifying between shares and cash, or other low-risk investments in case the market falls.”

“Opportunities will likely come from materials, media and energy sectors.”

Protect your gains

“Global uncertainty will continue for all share markets into 2011, therefore it will pay to protect your capital by having an exit strategy such as a stop-loss on all the shares you own.”

“I suggest 15 per cent below your buy price for new purchases or 15 per cent below the last high if you are already in profit.”

SUPERANNUATION - JO-ANNE BLOCH, MERCER

“Despite average super funds looking at a welcome 10 per cent return this financial year, there are still more losses to recoup to make up for the past two negative annual returns.”

Investment option

“Review the investment option of your superannuation fund to ensure it matches your age and life circumstances. The ‘default’ investment option is not always the best one for individuals.

“Check your insurance. While many superannuation funds provide life and total and permanent disability insurance, you need to ensure it is sufficient for your needs – or that you are not paying more than you need to. Also consider if income protection and trauma insurance would be of value to you.”

Salary sacrifice

“Check whether you will be receiving a tax cut that comes into effect from July 1. You might want to consider salary sacrificing the benefit in to your superannuation to bolster your savings.”

“At the very least, review your budget for this financial year and update it for the new financial year.”

FINANCIAL ADVISER - MARK O’LEARY, AMP

“If the global financial crisis has taught us anything, it’s the importance of having a realistic financial plan.”

“The beginning of a new financial year is the time for families to take stock of their personal finances and establish a plan of their own.”

“Creating a budget is one of the best places to start. Without one there is no real way of knowing how much is left at the end of the week to save, invest or go towards reducing debt.”

Risk alert

“Families also need to make sure their risk profile matches their investments.”

“All investments involve some degree of risk, so it’s important for people to strike a balance between the level of risk they’re prepared to accept and return they’re aiming for.”

Future shock

“The global financial crisis showed us that many people are not prepared for the financial consequences that can follow unexpected events. Families are rightly focused on building their wealth but often don’t protect it.”

“It’s important to future-proof our finances. One way to do this is to have an up-to-date estate plan.”

PRIVATE INVESTOR - KERRIE TAYLOR, BERWICK

“I guess my expectations for the past year were positive given we had reached a share market low in March 2009 and as they say, what goes up must come down and the opposite – what goes down must go up.”

“I managed to offload one major investment during the year and recoup that loss sustained from the global meltdown.”

Stop-losses

“As for my risk profile, I definitely reassessed it. I was in the middle of a Diploma of Share Trading Course and began to learn very quickly that protecting my capital was my No. 1 priority. Thankfully so because, with such volatility in the markets during the second half of the financial year, I have been able to profit as well as protect my capital by strictly adhering to my trading plan and applying stop-losses.”

Be prepared

“I’m looking forward to the next 12 months as I think the market will remain quite volatile given all the uncertainty and bad memories still lingering. I hope to plan for the worst and hope for the best because nothing really is 100 per cent certain.”

STOCK BROKER - STAN SHAMU, AUSTRALIAN STOCK REPORT

“We expect to see volatility continue in 2010-11, so short-term traders should be vigilant with stops to protect against losses.”

“Traders sitting on paper profits should be proactive in managing their trades – through the use of trailing stop-losses – to ensure winning positions don’t turn into losers.”

“Longer-term investors should still use stop-losses but should withstand larger swings to ensure they don’t get whip-sawed out of investments and miss out on what should be a continuation of the global economic recovery.”

“Some sectors of interest for the new financial year include:

Mining

“The mining sector has taken a beating over the past two months. We feel the selling of mining stocks has been overdone, with the impact of the resource super profits tax more than factored in to the large diversified miners as well as the smaller explorers and the mining services companies.”

“Discerning buyers should be able to find good value in this sector in 2010-11, though some uncertainty remains over the implementation of the tax.”

Banking

“The big four banks have expanded their market share through acquisitions and the collapse of some smaller alternative lenders, and should be able to leverage off this from 2010-11 onwards to maintain profitability.”

“The local economy remains resilient, and bank write-downs are falling. We expect to see the major banks register record profits in 2010-11.”

Health care

“Traders scared off by the market volatility can take shelter in the health care industry, a traditional safe haven.”

“Most health care stocks have weathered the storm of changes to the Medicare Services levy, and the sector isn’t all defensive.”