20 August 2012

It is always advisable when reading the financial press to understand where the author’s interest may lie, as many commentators have a tendency to talk up their side of the story. It depends what agenda they are pursuing when expressing a point of view. This article in the Weekend Australian entitled “Equities debate flares up” is a case in point.

Bill Gross, a highly respected bond fund manager based in California, has been of the view for some time that equities are losing their appeal as an investment option  – due in part to an aging population preferring the greater certainty of bonds to the more volatile asset class of shares.  Gross (one of the biggest bond fund managers in the world) believes this is a structural shift that will be with us for many years to come. Charlie Aitken, the well known local share broker has a totally opposite view, believing that equities are at the beginning of a five year bull run. But hen again he would say that – brokers love bull markets.

The reality is that no-one knows where our share market will be in one year’s time – let alone five years. As the world’s financial system has become increasing interconnected over years, so to has the ability for a problem on the other side of the world to spread to our market literally over night. We continue to urge investors to concentrate on the quality of underlying investments and the income they produce. Short term fluctuations in capital prices are a distraction from the main game of long term investment.