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With the news last week of the collapse of one of the world’s largest investment banks, Lehman Bros, the rescue of Merrill Lynch and AIG, and with more fallout expected from the US and around the world, it is a good time to consider what this may mean for Australia and at a more personal level, for your own financial circumstances. After ‘Meltdown Monday’, Australia’s stock markets responded with further falls and we were told to expect more uncertainty particularly while global markets watch nervously to see whether the world’s largest insurer, AIG, would survive the week. With assets estimated at $1 trillion dollars the impact of its collapse would have been significant, but was prevented by the intervention of the US Federal Reserve. Subsequent news was that the US Government were also planning to take a more comprehensive approach to resolving the financial crisis and the world’s leading banks added $228 billion to money markets in an attempt to free up credit markets and bank lending. The result was that stock markets generally recovered the previous day’s losses and investors re-entered the market after the panic of the previous days. In Australia, during the period from 2003 to mid-2007 we enjoyed investment returns which were higher than we could normally expect over the long-term. There was strong earnings growth, relatively cheap and abundant finance and inflation was under control. Since then, the global credit crunch has helped to reverse those conditions resulting in sharp falls in the share markets and high levels of defaults on loans. There is a wide range of outcomes expected from these market conditions, including commentary that our Reserve Bank may respond with more reductions in mortgage interest rates – good news for most of us with home loans. As for most superannuation funds, Prime Super holds investments in international markets, including the United States, so we will continue to expect volatility in this sector. Prime Super is not insured by AIG and so the unfolding of events, including its change of ownership, will not impact the Fund or members’ benefits. While there may be temptation for some of us to re-think our investment strategies, your Prime Super Trustee believes that given the unpredictability of future investment conditions, focus should remain on the medium term and maintain the portfolio as it is, as the portfolio is designed to perform well in most investment environments. Shortly you will be receiving your 2008 Annual Report which will give you more details about the Trustee’s investment strategy, investment performance, the allocation of assets to market sectors as well details of actual investments held by the Fund. One of our strong messages this year is that in all aspects of managing your Fund, Prime Super is focused on getting the basics right, employing the right resources to achieve the standards you expect and to focus on our mutual long-terms goals. Saving for your retirement is a long-term strategy and we remind you that reacting to short-term conditions can be problematic. Remember, the ‘rule of thumb’ that over a 10 year period your investments in shares will out-perform other market segments, but this will mean riding the short-term ‘waves’. We will keep you up-to-date with news from financial markets and what it means for you, our Prime Super members. Disclaimer |
