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Title: March Newsletter 2019
Created: 2019-03-07

Good morning all

I do hope you are all in good spirits and going well, or at least keeping the body in reasonable shape. I have been doing good old pushups every morning trying to keep fit and have just started to feel like I’m not going to pass out or the lungs are going to burst. Goodness, it is so easy to lose condition especially around the upper arms. The first time I did a pushup I nearly face planted the pavement and that was after just one. Besides the fitness, all is well with me and with the family. My grandson seems to have a few issues with me though as every time I look at him, when he is tired, his bottom lip seems to start to quiver. Every now and then he is happy to see me but most times I must look like a grumpy old man, or scary, or both, though my wife thinks is the gruff male voice that I have that makes him cry. Mind you I can’t complain, it means I don’t have to do anything with him until he gets older J The rest of my children are just growing and eating and costing money but just like the rest of you that’s what the little, or not even close to little, non-tax deductible munchkins do to your hard earned money. Love them really on most occasions.

Today I just wanted to reach out to explain a few things that have been happening in the financial planning universe, as well as to let you know what has been happening in the market since September 2018 and where things are currently at. You may remember from my October email that I was expecting the market to go down but return to normal in only a couple of months. As we now know the recovery did not happen as quickly as expected and it has taken until now for the market to return.

So, firstly onto the market and what has happened. In August, due to the trade war between the USA and China plus Brexit, rising interest rates and a few smaller economic pieces of news, the market became volatile and hence the downward trend started in September. Due to the release of bad news in the various news outlets and market speculation that a recession was starting there was a large sell-off in equities around the globe. Once the sell-off occurred, which was exacerbated by computer generated algorithms which also started to sell, the downward cycle began which further sparked a sell-off in the options market which just added to the volatility. See the attached AllOrdinaries chart for the Australian example of the drop. It went from 6480 down to 5480 from September to the end of December 2018.

Over the September to the end of December period the market bottomed about 10-20% lower depending on what equities you owned and what country you had your portfolio in. Different portfolios reacted to which equity investments they held and also to the amount of gearing the portfolio was using at the time, so there were a number of factors to how the market reacted to various investments. The Australian shares were reacting to the Chinese news as well as the economic news that was showing we were in a downtrend and contracting for the first time in many years. America did have the trade war, but all things being equal there was no real reason for the fall in markets, however as the bad news was consistent regarding higher interest rates and the trade war so there was a reasonable size sell-off. The emerging markets were at the whim of the US interest rates and so they dropped significantly and caused a slowdown in money supply for the smaller markets.

All in all the market dropped and so your portfolios dropped in unison over this period as most of you are aware. This lowering of portfolio values happened across all investment portfolios in the world and was not isolated to any company or fund manager. Where the money was invested did contribute to how far the funds dropped. As we all know there are good fund managers and average fund managers and they do vary depending on investment philosophy, market timing and experience in the various financial sectors. It is also noteworthy to know it also depends on how frequent funds are valued as many superannuation funds value portfolios on a yearly basis so the day to day market fluctuations will not been seen. As you are aware your portfolio changes from day to day to reflect the daily values as the market ebbs and flows.

The important thing you need to know is funds are now back to the pre October value. In the last four (4) weeks all portfolios have increased to their September value because markets have taken off since early February and gained back all the losses. Some individual selections are still catching up but the majority has come back especially the geared shares and international shares funds. At the moment many of you are getting correspondence from Colonial First State telling you that your December report is ready for viewing. The problem with the December report is that it is showing you what your balances were at 31st December 2018 and as we know your funds were roughly 15% lower than September 2018. We have taken many phone call, which is great, concerned about your funds being at a lower balance and at that time this was correct. However the reports are 12 weeks in arrears and the market has recovered from that date so the report is now obsolete. If you are concerned, please call us as we are happy to explain what is going on and where your funds are invested and the current value, which is better than December 2018. Over the October to January period I too had many stressful days and was concerned why the market was going badly when all the economic fundamentals were sound.

Secondly, another topic we need to talk about is the Banking Royal Commission and the massive changes that are going to occur to the financial planning industry over the next five (5) years to 2024. Most of you have heard that due to misrepresentation and bad advice the commissioner has recommended that all financial advisers meet a higher education standard, pass an exam in 2020 and adhere to new rules and regulations regarding the way they do business.

So what does this mean for Wealth Merchants Australia Pty Ltd and myself? As far as my education standard, as some of you may already know, not only am I a qualified accountant with a post graduate Master in Professional Accounting, I am also a Chartered Tax Adviser, Specialist SMSF Adviser, a Registered Tax agent and Public Accountant. I will have to do some study to meet the proposed new requirements but this will be minor due to the studies I have already undertaken. The financial planning industry will lose about 40% of advisers due to the new requirements but I will not be one of them so you are stuck with me J. As far as code of conduct and professionalism goes, Wealth Merchants Australia Pty Ltd has its own AFSL meaning we are our own dealer group and are not aligned to any bank or product provider. We can deal with any financial product or platform we think is the best for our client. Wealth Merchants Australia Pty Ltd gets no kickbacks from any product distributer and we are not compromised in anyway, meaning we always act in the best interests of our clients.

To summarize what the changes will mean to our practice; is simply nothing. We have been ensuring that we undertake strict compliance with all rules and regulation for many years now. We are compliant with the many government regulators that we deal with on a yearly basis. We let all our clients know what we charge on a yearly basis though our Fee Disclosure Statement (FDS) and are upfront in what we do and how we do it. So if you are not sure please ring and ask!

On a final note happy investing, take care and remember we are always only a phone call away J


Allan Butson

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