7 May 2012

The volatility in Australian financial markets continues with our dollar reaching a four month low against the US$ and our share market bouncing from day to day on conflicting sentiment about the scope for a sustained recovery versus the likelihood of the US and Europe slumping back into recession. It is a sign of the times that contradictory stories appear on the same day in the financial press  – see today’s Sydney Morning Herald’s business section with one article exclaiming “Signs of life in retail” and another alongside professing “Business conditions worsen“.

We expect this stop/start, on again/off/again approach to continue for some time yet. Tomorrow’s budget is unlikely to add much to business confidence as the federal government attempts to deliver an apparent surplus for political rather than economic reasons. It will be 15 months before we know whether the numbers forecast tomorrow are actually delivered and there will be more scrutiny than usual from both the opposition and the press. Continued doubts about the veracity of the budget finances will not help to restore confidence. Expect volatility to continue to be the order of the day.

So what are the implications of this continued volatility for investors – especially self funded retirees and those managing their own superannuation funds? Our focus, and the one we return to regularly, is to judge prospective investments on their capacity to produce income rather than their potential for capital gains. This is why we construct SMSF portfolios with a mix of cash, income securities and Australian shares that meet our value investing guidelines. For more information on the Whites IFM approach to portfolio construction, please contact us via our “Enquiries” section on the Home page.