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  • All Ords Report 26 May 2015

All Ords Report 26 May 2015

Do we want an Australia where people are taught to be financially independent, or rather a nation reliant on government handouts?

While I am all for the government’s decision to reduce the threshold for the aged pension to rein in government spending, as I believe that people with the means ought to fund their own retirement, these latest measures appear to be encouraging some retirees to consider spending their savings, so as to continue to be eligible for pension payments.

Getting you to spend may, in the short term, be good for the economy, and is perhaps part of a broader government plan, however is this really good in the long run? In my opinion, I don’t believe that creating a structure that leads you to give up your potential to fund your own wealth is the right message to send, and it annoys me that we create systems like this where people may actually believe that they are better off getting the pension.

Einstein once said that “knowledge is the progressive realisation of ignorance”, which simply means that you don’t know what you don’t know.

If you have the means to fund your own retirement but are concerned that without the pension you will be eating into your capital, and you want to have greater financial security, then you need to look for a better way. What might seem at the time to be the easiest way forward is not necessarily going to be the best for you in the long run and settling for receiving a government pension does not have to be your reality.

On the other side are people who currently don’t have the means to be self-funded in retirement, and the reality may be that you simply lacked access to the right knowledge to create an income stream. There is rarely a person I speak to who tells me that they don’t need another income stream, however, what also stops them from getting it is usually a lack of confidence.

The bridge that stands between you and having the confidence to generate an income from the share market is simply getting the right knowledge, and having someone to guide you. The good thing for many is that it doesn’t take a lot of capital to get started.

I just spent the weekend with around 100 people, and most said they want to do just that, to create an income from the market so as to have choices. Imagine how different your life would be if you had extra cash flow. Right now, with rates on term deposits so low there isn’t much point in having a lot of cash in the bank, which means you need an alternative. If you would like to hear my thoughts on trading for cash flow click here.

Some of my workshop attendees are already actively trading and generating an income, while others are still learning the ropes. If you would like to hear my thoughts post workshop you are welcome to listen in to my latest Talking Wealth podcast.

Now, you might be thinking that these people are probably in their twenties or thirties, however, the reality is that most people who make the decision to learn to trade the share market are aged between forty and seventy.

Reasons for wanting to create an income stream from the market vary from wanting more time with family, a better lifestyle, freedom from a full time job, financial security, wanting to leave their capital alone to grow, or they simply need a challenge. One gentleman told me he is convinced that keeping his brain active by learning how to trade the share market is going to keep him from getting Alzheimer’s.

Whilst I cannot claim that trading the share market is a preventative treatment for Alzheimer’s, I can say that it will give your brain a workout, the opportunity to achieve your financial and lifestyle goals, as well as the opportunity to meet some great people. What could be better?

Learn how to trade the share market click here.

So what do we expect in the market?

The Australian share market has experienced significant indecision over the past few weeks, which isn’t surprising given we are in the month of May – when the market is often volatile. However, after having fallen to a low of 5580 points last week, the All Ordinaries Index (XAO) rebounded to close at 5668 points on Friday, well above the lower level of my target for the downside at 5600 points, which is a good first sign of support for the market to trade higher.

While currently this move appears to fit with my view that the market will find support before trading higher, it is too early to hang my hat on it. I am looking for a strong weekly close back above 5850 points, as this would significantly increase the probability that the next rise may already be underway.

Given the Federal budget announcement this month, which continues to be hotly debated on a number of fronts; add to this concerns raised over Australian bank profits following the implementation of greater capital requirements; then we have the US FED who can at times cause a ripple effect from the US to our market, in relation to a rate rise this year; and let’s not forget the typical sell-off in May before the end of the financial year, it is therefore easy to understand the current volatility on the Australian market.

One thing to remember, is to always consider the bigger picture on the market, rather than getting too caught up in the day to day moves, otherwise you will become part of the herd mentality of the market, which will eventually cost you dearly. Right now the big picture is still bullish. Also, consider that with the cash rate so low, currently at 2 per cent, where else is term deposit money going to flow but the share market?

Further, add talk of a levy on bank deposits, and whether or not the RBA is going to make another cut to the cash rate here, and this means there is enormous pressure on savers and pensioners to move more money into big blue chip stocks. Blue chips pay good dividends that are fully franked, meaning the tax has already been paid on company profits, and there is the opportunity to generate capital growth over the medium to longer term. Currently, the market average for dividends is around 4.3 per cent.

My concern is that there will be a lot of people making the move who don’t have the knowledge to select the right shares, nor what to do to manage risk if the shares were to fall.

Remember that you have a choice, in that you can go into the share market with no knowledge and just cross your fingers and hope it all turns out ok, or you can do it properly and learn not only about the risks and how to manage them, but also how to select the right shares and when to buy and sell.

The cheapest way for you to do this is to read my book “How to beat the managed funds by 20%". This will give you the basics on the share market and help you to create and manage your own portfolio.

The more serious investors will choose to study my Diploma of Share Trading and Investment - learn how, or the Short Course in Share Trading click here.

Dale Gillham is Chief Analyst at Wealth Within

All Ords Chart 26 May 2015

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