James Thomson Editor

James Thomson is the editor of BRW. Previously he was editor and publisher of SmartCompany and a senior editor at Business Spectator. He writes regularly on Australia's wealthiest entrepreneurs and has deep expertise in small business and the mid market.

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Returns for the long run

Published 28 March 2013 07:03, Updated 28 March 2013 07:49

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If ever there was a week to spark a market correction then surely this was it.

First, a proposed bailout in Cyprus sent shock waves around the world when citizens understandably reacted angrily to a plan to tax bank deposits by 10 per cent. Fears of a run on Europe’s fragile banks swept global markets.

Then closer to home, Labor’s leadership tensions exploded into open warfare, with Prime Minister Julia Gillard challenging Kevin Rudd to a leadership ballot. Market commentators immediately predicted the minority government wouldn’t make it to the September 14 poll.

But while there were nervous moments for investors during the week, little real harm was done to the rally. The ASX 200 lost less than 1 per cent for the week.

Clearly, it helped that both events were fizzers in terms of their wider implications.

While the Cyprus crisis showed Europe’s problems are far from resolved, the feared bank run didn’t emerge and Cyprus’s problems appear to be quarantined.

Meanwhile, back on Planet Canberra, Kevin Rudd’s withdrawal from the leadership race left Julia Gillard as the captain of the ship – even if Labor looks awfully like the Titanic.

Labor’s next test will be the budget in May; the Coalition plans to launch a no confidence motion against the government in the same week treasurer Wayne Swan has what could be his last big moment.

Whether either event moves the market remains to be seen and of course in BRW’s Investor Guide for 2013 we’re looking well beyond the short term.

As our deputy editor and investment expert Michael Bailey writes in his excellent piece which opens the guide, experts who are looking out 30 years remain extremely bearish on the prospect of anything like the sort of returns before the onset of GFC.

The challenge then is to hunt for solid returns – not spectacular ones, mind you – in what is a low return world.

We’ve tried to look across all the traditional asset classes – including equities (both blue chip and small cap stocks), property, self-managed superannuation and passive investments – through to socially responsible investing and pink diamonds.

The over-arching message is that this is time to proceed with cautious optimism.

In residential property for example, prices are improving and there are still bargains to be had, particularly if you’re prepared to look adjacent to blue-chip suburbs.

In equities, good yields remain obtainable and more adventurous investors can latch onto companies that are well placed to leverage improving economic conditions.

But while investors look outwards for new opportunities, this low return world is also cause for introspection. Rarely before has it been more important to know yourself – to understand your risk tolerance, your level of knowledge of a particular asset, what you need help with and the structure of your portfolio.

In a low return environment, getting your tax structures correct and your investment fees as low as possible could be as important as putting your money into the right asset.

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