Why Eureka readers opted out of the rally

Not trading on trend

I appreciate the range of opinion and topics in Eureka Report, but as to Bruce Brammall’s point on why did I/we miss the latest lift in the ASX by holding on to our cash, I suggest what a lot of you who write and opine on investment matters misunderstand is most of us are not active participants in the markets. I am focused on capital protection and at this stage in my life even though I am about to turn 69, I do not require income. Yes I am fortunate. As such, I am fairly risk averse with investments that cover 50% property, 10% equities and 40% cash. I have zero debt as befits someone of my vintage. And yes, you might say my cash holdings are too high in the current environment!

As I read the range of opinions and advice, I observe a great deal of what is offered seems to assume we are all traders who will be ready to switch as markets change. I readily accept many people do manage their own funds and like to trade. I manage my own funds as I have a financial background and a rather low opinion of a number of the so called professional financial advisors. I appreciate and applaud Alan Kohler et al who have been championing the need for better protection and advice for a number of years.

However, we continue to have the Banksias of the market – with the result that many less well informed investors continue to suffer.

I guess my point is many financial advisors pick on a trend and support an investment view that might encourage investors to make radical portfolio changes that might make sense in the short term, but could have longer term implications. Yes I am conservative, but I continue to be appalled by the losses suffered by people who place their trust in the Banksias of the world. Probably a bit of a ramble from why did I hold on to my cash, but hopefully gives you a sense of the world according to an experienced and ‘sophisticated’ investor who is not about to trade on every trend.

P Tulloch

A rough storm

We have a number of SMSFs as clients, and the bulk have members 60-plus. We don’t provide investment advice, our services are administration and tax.

I can’t see many of these investors moving back to equities for some time, the majority have dealt with the crisis in one of two ways: Reweighted their portfolios to what they are now comfortable with, usually scaling equities back from a 2007 80% to less than 50%. Out of equities entirely.

I would say that they don’t believe the rally is sustainable and worth the risk.

Lifestyles have been adjusted and these self-funded retirees are battening down the hatches, they’ve been through one storm and didn’t like the feel of it, it’s going to be a while till they stick their heads out again.

G McCabe

Sleeping soundly

We stayed and probably will continue to stay in term deposits and a couple of residential property investments because I don’t have to lose sleep worrying about volatile returns and more importantly we can live comfortably on the returns we get. We locked into longer term deposits some time ago so it’s set and almost forget – although obviously at some point we will have to accept the lower returns available in the cycle of lower interest rates. Frankly though, equities are just too high maintenance for many people like us who are in our early 60s. We retired (sold our business) ten years ago and only with a sixth sense did we emerge from the GFC relatively unscathed as we sold almost all our shares in late 2007 and converted to TDs.

I have friends who are constantly chopping from one asset class to another in the search for good returns – hell, in your sixties you’re lucky if you’ve got 15 to 20 years left anyway.

We have no debts nor are we interested in borrowing. We don’t need the grief just to acquire more assets to pass on to our adult children.

J

Fear and distrust

I read Bruce Brammall’s article regards SMSFs staying out of the share market, and we are one of those doing exactly that. I guess the main reasons are fear and lack of trust.

The fear I think is understandable, given my husband is already retired. 

The mistrust is of the system. I don't feel I can trust market or financial information as it is so conflicting, coming from various sources. I don't trust the market system, for example manipulation from things like automated trading, and I don't trust or believe that the governments of any country are able to successfully pull us out of the financial crises we are in, in the near future, as they are simply playing politics. Finally, most market prediction seems to be guesswork – professionals, both private and corporate investors aren't getting it right. It makes it difficult to move forward while wading through the volumes of conflicting and mostly negative information bombarding us.

I know that all sounds very pessimistic (and depressing) but I don't think I am alone with these thoughts. It is probably hard to believe, after what I have just written, that I am an optimistic person!

S Richards

Hybrid classification

A lot of data is misleading in that hybrids are bought as fixed interest investments, but are classified as equities in a lot of data. I think the FI component is much higher than shown if you take this into account and reduces equities. People have been burned badly and are not willing to take risks with their capital … seen as losses not missed gains. It will take a long time to change this.

A Wilson

Exit strategies

For me the biggest problem is being able to get out of the market fast enough if things go awry. While a European blow-up and the fiscal cliff are obvious triggers for massive sell-offs, for me the biggest worry is Israel attacking Iran and spiking oil prices. Another big negative is the Elliott Wave brigade (Robert Prechter, etc) who are forecasting a return to the secular bear market very shortly with a massive collapse in global share markets. Retail investors will not be able to get out of the market quickly enough to avoid catastrophic losses. Preservation of capital is key until the secular bear market ends, which according to Prechter won’t happen until at least 2016.

M Hausknecht

Ample fixed returns

Fixed interest, mine anyway, made 11.4% in the first four months of the 2012-13 financial yeart, on an asset allocation 95% unlisted fixed interest. Of course I'm happy with that. Indeed since January 2009 I have turned increasingly to these fixed interest products for their better yields at much lower volatility than either shares or property. Listed fixed interest has proved more volatile than unlisted with no better returns so I have reduced these also to negligible. Diversification is necessarily limited outside the finance/insurance sector (essentially reduced call risk), but 16-17% US, EU and pound holdings provides some protection against an Australian downturn and weaker dollar.

Quite unexpected good fortune looking forward from the dark days of early 2009. There is now a problem. The spreads of tier 1 debt over senior debt have narrowed so much that I feel forced into lower yielding higher rated short term senior debt (virtually cash) to protect recent gains from the next of the world's periodic crises. 

What next is a very real question. I avoid managed funds totally having learned to distrust their managers. Not enthused with equities volatility. Don't like property lack of liquidity.

S Begg