Provision Newsletter

The proliferation of online shopping has heralded a structural shift in the marketplace. With it comes challenges for investors, particularly passive investors whose portfolio returns depend, in part, on history repeating itself.

This new environment raises a number of questions for investors including:

• What are the prospects for other property options, particularly industrial real estate?

• How should investors think about property investing as this structural shift occurs?

• What are the consequences for remaining a passive investor and the billions of dollars allocated that way?

• How much of an investor’s portfolio should be in retail property? Should it be the 48 per cent that it is today when passively invested? (62 per cent when leverage is removed)

• What role does active investing have?

 If you would like to discuss any of the issues raised in this white paper, please call on |PHONE| or email |STAFFEMAIL|

Author: James Maydew BSc (Hons), MRICS Head of Global Listed Real Estate Sydney, Australia

Source: AMP Capital 17 June 2019

Important notes: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

Infrastructure is vital to economic growth. It creates a virtuous, never-ending cycle: investment in infrastructure helps stimulate sustainable long-term economic growth which then creates a further need for infrastructure. One of the current developments that is driving further infrastructure investment is the global trend towards decarbonisation to reduce CO2 emissions, and the role of energy infrastructure in fulfilling future global energy needs.

The world is moving towards a low-carbon economy. Countries around the world such as Canada, France, Germany and the UK, have announced coal phase-out plans, and the pipeline of new build coal plants has been shrinking worldwide. However, as the world economy continues to grow, with billions of people shifting into the growing middle class in the developing world, naturally global energy demand is expected to rise as well.

Meeting China’s natural gas demand

China represents a great case study, as their focus on reducing carbon emissions has seen them become the world’s largest gas importer according to Shell¹.

Coal-to-gas switching has resulted in

• 78% improvement in Beijing winter air quality in the last five years

• 176 million tonne reduction in CO2 emitted by Beijing and surrounding areas (to put this into context, this is equivalent to 37 million cars off the road!)

However, growth in domestic production and pipeline gas appears to be insufficient to keep pace with demand, and LNG imports are expected to increase by more than 11% per annum to 2025 according to a J.P Morgan report². We believe this growth to be a key driver of natural gas infrastructure development in North America as LNG exports are forecasted triple over the next two decades.

Additionally, given the intermittency of renewable energy sources and the relative clean attributes of natural gas among fast-start fuel sources, the two are viewed as important and complementary components of the energy mix going forward. As the chart below depicts, in California natural gas electric generation quickly responds to the rapid changes in renewable energy generation in order to meet demand.

Source: Sempra Energy, California Independent System Operator (CAISO) as at Feb 2019

In fact, California has recently announced an ambitious goal to only rely on zero-emission energy sources for its electricity by 2045. In order to reach this target critical infrastructure upgrades for electric utilities are required, such as increasing deployment of energy storage to enable a carbon-free future and modernising the grid to manage increasingly complex power flows.

Other states in the US and countries around the world also have ambitious carbon reduction targets and as a result we expect renewables to play an increasingly significant role in the global energy system. According to BP⁵  it is set to grow faster than any fuel in history. Further investment in electric utility infrastructure will be required, but also further gas infrastructure to meet the challenge of providing low carbon energy that is reliable.

If you would like to discuss any of the issues raised in this article, please call on |PHONE| or email |STAFFEMAIL|.

¹ Shell LNG Outlook 2019 https://www.shell.com/energy-and-innovation/natural-gas/liquefied-natural-gas-lng/lng-outlook-2019.html

² J.P. Morgan 2018 Global LNG Analyzer report

³ Source: BP Energy Outlook 2019

⁴ Source: FERC as at 23 October 2018. PROPOSED TO FERC Pending Applications: 1. Pascagoula, MS: 1.5 Bcfd (Gulf LNG Liquefaction) (CP15-521) 2. Cameron Parish, LA: 1.41 Bcfd (Venture Global Calcasieu Pass) (CP15-550) 3. Brownsville, TX: 0.55 Bcfd (Texas LNG Brownsville) (CP16-116) 4. Brownsville, TX: 3.6 Bcfd (Rio Grande LNG – NextDecade) (CP16-454) 5. Brownsville, TX: 0.9 Bcfd (Annova LNG Brownsville) (CP16-480) 6. Port Arthur, TX: 1.86 Bcfd (Port Arthur LNG) (CP17-20) 7. Jacksonville, FL: 0.132 Bcf/d (Eagle LNG Partners) (CP17-41) 8. Plaquemines Parish, LA: 3.40 Bcfd (Venture Global LNG) (CP17-66) 9. Calcasieu Parish, LA: 4.0 Bcfd (Driftwood LNG) (CP17-117) 10. Nikiski, AK: 2.63 Bcfd (Alaska Gasline) (CP17-178) 11. Freeport, TX: 0.72 Bcfd (Freeport LNG Dev) (CP17-470) 12. Coos Bay, OR: 1.08 Bcfd (Jordan Cove) (CP17-494) 13. Corpus Christi, TX: 1.86 Bcfd (Cheniere – Corpus Christi LNG) (CP18-512). Projects in Pre-filing: PF1. Cameron Parish, LA: 1.18 Bcfd (Commonwealth, LNG) (PF17-8) PF2. LaFourche Parish, LA: 0.65 Bcfd (Port Fourchon LNG) (PF17-9). PF3. Sabine Pass, LA: NA Bcfd (Sabine Pass Liquefaction) (PF18-3). PF4. Galveston Bay, TX: 1.2 Bcfd (Galveston Bay LNG) (PF18-7). PF5. Plaquemines Parish, LA: 0.9 Bcfd (Pointe LNG) (PF18-8)

⁵ BP Energy Outlook https://www.bp.com/en/global/corporate/energy-economics/energy-outlook/demand-by-fuel/renewables.html

Author: Joseph Titmus, Portfolio Manager/Analyst, Global Listed Infrastructure, Sydney, Australia

Source: AMP Capital 17 June 2019

Important notes: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) (AMP Capital) makes no representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs.
This document is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

If you look around the world, we face unprecedented risks. The US-China trade war, Brexit, and slowing global growth are among the spot fires that could flare up and engulf portfolios.

The risks were obviously highlighted by the strong sell-off in markets at the end of 2018. Investors and advisers are no doubt looking to insure against those portfolio risks by using natural hedges like diversification and defensive assets.

But as you can see in the chart below, two big market events in recent memory – the 2000 tech wreck and the 2008 global financial crisis (GFC) – highlighted the limitations of diversification.

Source: Bloomberg, AMP Capital 2017

Bonds were meant to provide a ballast against falling equities. But just when we needed protection the most, both bonds and equities fell at the same time (positive correlation). It was as if we’d bought insurance for our house and the insurer didn’t pay up.

In this risky market environment, therefore, in our view, investors and advisers need to look beyond diversification and defensive assets, and consider other forms of portfolio insurance and protection, such as options. But it is also our view that they need to learn how to use those options properly, so they protect portfolios but don’t drag down performance.

A simple contract

Options may seem complex, but essentially, they’re a contract that is sold by an option ‘writer’ to an option ‘holder’. That contract gives the holder the right (but not the obligation) to buy or sell a security, such as shares, at an agreed price on or before a specified date.

A ‘call’ option gives the holder the right to buy the underlying security; a ‘put’ option gives the holder the right to sell the underlying security. 

You can limit your trading to options themselves; you don’t have to trade the underlying security. If the underlying shares fall, for example, your put options become more valuable. 

But like any insurance, there is a cost involved. The holder must pay the option seller a ‘premium’.

Protection from puts

In our view, put options are a great way to provide protection against market falls.

Buying protective put options in our view hold similar traits to buying classic insurance – you pay a premium upfront and it pays a positive return when the market declines.

Source: Bloomberg, AMP Capital 2017

The put contract illustrated in the chart above has a strike price that is 5% below the market level. If the market falls by 10%, on the basis of the graph above, you will get a 6%return. The premium is 1.5%. If the market goes up or falls less than 5%, the option will expire worthless and you lose the premium.

The cost of options

Consumers buy insurance on their houses all the time. Similarly, consumers could also hold protective puts to protect portfolios.

However, because options cost money (the premium you pay to the option seller) they can drag on performance.  

Source: Bloomberg, AMP Capital 2017

In the chart above, you can see the impact on a notional $10,000 of rolling put options at 5% below the money on the S&P500 in the US. There were positive payoffs to the left towards the GFC. But, generally, they are a drag on performance.

In our view, most investors and clients are in accumulation phase. They can handle short-term volatility, but we would say that most don’t want this drag on performance.

Prudent protection

The good news is that by using options selectively and dynamically, in our view, you can get portfolio protection without major performance drag. 

There are three cost-effective ways to use options according to our analysis.

1. When it’s time

The first method is to only use options when your process or methodology says to reduce risk. For example, AMP Capital uses a Sentiment Score for its dynamic asset allocation (DAA) process, which informs us when to use options.

2. When they’re cheap

Another is to buy options when they are cheap. Premiums you pay for options change depending on what the market expects volatility will be. If the market expects higher volatility in the future, people buy more options which pushes their price up. The VIX index measures the implied level of volatility. If the VIX is low, options are cheap.

3. Other markets

Another way to keep costs low is to buy options in countries outside the US. Put options are expensive in the US. Regulations give insurance companies a big incentive to buy put options on market exposures, mostly the S&P500. That pushes up the price of put options. So, it may be beneficial to look at other markets, such as Europe and China, to buy protective puts.

Successful protection again presidential uncertainty

At AMP Capital we have successfully used options to protect against worrying market events. 

In September 2016, for example, we were particularly concerned about the US Presidential election triggering a market correction. Our DAA process also showed added risks from record low yields and high valuations in the S&P500.

So, for relevant portfolios we entered into a more complex options strategy, called a ‘reverse collar’ to protect against a possible correction.*

Source: Bloomberg, AMP Capital 2017

As shown in the chart above, we entered the position in early September, a good time. The market continued to be volatile along with the polling of the candidates. The market fell almost 5 per cent (close to the maximum payoff) and we exited the position when most of the potential gain from the strategy had been captured.

This example also highlights one of our key rules: each option must have pre-defined exit triggers, so we crystallise the benefit (or loss) in a disciplined manner.

Incorporating options into strategies and decisions

Portfolios that hold different types of assets, such as multi-asset funds, obviously have an inherent level of risk protection because they have a diversified range of assets.

But as we’ve seen, diversification doesn’t always deliver portfolio protection, particularly during extreme market events. Sometimes we need to turn to other forms of insurance and protection, such as options.

With the world facing significant geopolitical, economic and market risks, in our view advisers and investors should be considering incorporating options as an insurance strategy.

It is also our view that advisers and investors should also be seeking out investment managers who have the skills to use options in a cost-effective and disciplined manner so they can maximise protection and minimise performance drag.

If you would like to discuss any of the issues raised in this article, please call on |PHONE| or email |STAFFEMAIL|.

*A reverse collar is selling (short/writing) a put option and buying (long) the call option on the same index. At the same time, to cover any negative market movement and therefore the short put, we sell the same face value of the contracts short, with futures contracts in the S&P500 market.

A reverse collar takes advantage of skew in the US options market. Because of the previously mentioned insurance regulations, puts are more expensive than calls. The skew means we get protection (positive payoff) for the first 5 per cent of the market decline. And we only give up around 2.3 per cent of the upside if the market rallies.

Author: Heath Palos, Portfolio Manager, Multi-Asset Group

Source: AMP Capital 17 June 2019

Important notes: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) (AMP Capital) makes no representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs.
This document is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

While some have expressed surprise at the recent resilience in the value of the Australian dollar around the $US0.69-0.70 level despite weak Australian growth and Reserve Bank rate cuts, from a big picture sense it has already fallen a long way. It’s down 37% from a multi-decade high of $US1.10 in 2011 and it’s down 15% from a high in January last year of $US0.81. So, having met our long-held expectation for a fall to around or just below $US0.70 and given its recent resilience now is an appropriate time to take a look at its outlook.

The $A is slightly undervalued long term

The first thing to note is that from a very long-term perspective the Australian dollar is around or just below fair value. This contrasts to the situation back in 2011 when it was well above long-term fair value. The best guide to this is what is called purchasing power parity (PPP) according to which exchange rates should equilibrate the price of a basket of goods and services across countries – see the next chart.

Source: RBA, ABS, AMP Capital

If over time Australian inflation and costs rise relative to the US, then the value of the $A should fall to maintain its real purchasing power and competitiveness. And vice versa if Australian inflation falls relative to the US. Consistent with this the Australian dollar tends to move in line with relative price differentials – or its purchasing power parity implied level – over the long term. And right now, it’s around or just below fair value.

But as can be seen in the last chart, it rarely spends much time at the purchasing power parity level. Cyclical swings in the $A are largely driven by swings in the prices of Australia’s key commodity exports and relative interest rates, such that a fall in Australian rates relative to US rates makes it more attractive to park money in the US and hence pushes the $A down. “Investor” sentiment and positioning also impacts – such that if the $A is over-loved with a lot of long positions then it becomes vulnerable to a fall and vice versa if it’s under-loved.

The negatives for the $A…

For some time, our view has been that the $A would fall into the high $US0.60s and this has happened. But notwithstanding this and that the $A has already fallen a long way from its 2011 high, it could still face a bit more downside over the next six to 12 months. The main reason is that Australian growth is weaker than US growth and spare capacity is much higher in Australia. For example, labour market underutilisation is 13.7% in Australia versus just 7.1% in the US, growth in Australia is running at 1.8% year on year compared to 3.2% in the US and the drag on growth from the housing downturn is likely to keep growth relatively weak in Australia for the next year or so.

Source: Bloomberg, AMP Capital

This will keep inflation lower in Australia than in the US and so we see the RBA cutting rates more than the Fed. And the RBA is much closer to having to do quantitative easing or some variant of it (ie using printed money to boost growth) than the Fed. This will continue to make it relatively less attractive to park money in Australia. As can be seen in the next chart, periods of a low and falling interest rate differential between Australia and the US usually see a low and falling $A.

Source: Bloomberg, AMP Capital

So this all points to more downside for the Australian dollar.

…and the positives

Against this there are a bunch of forces acting to support the $A, and this has been evident in its relative resilience despite bad news in recent weeks. Firstly, global sentiment towards the Australian dollar has been negative for some time and this has been reflected in short or underweight positions in the $A being at extreme levels – see the next chart. In other words, many of those who want to sell the $A have already done so and this leaves it vulnerable to a rally if there is any good news.

Source: Bloomberg, AMP Capital

Secondly, there has been good news with the iron ore price pushing above $US100 a tonne and this combined with solid growth in export volumes has pushed the trade balance into a record surplus which has shrunk the current account deficit as a share of GDP to its lowest since the 1970s. Of course, the iron ore price will likely fall back somewhat when Vale gets production back to normal after its dam disaster, but Chinese economic stimulus may help keep it and other commodity prices supported. The smaller current account surplus means Australia has become less dependent on foreign capital inflows.

Source: ABS, AMP Capital

Finally, in response to the threat to growth from President Trump’s trade wars, mixed economic data and weak inflation, investors have moved to price in rate cuts from the Fed over the next year. And this is negative for the $US generally after a multi-year bull market since 2008.

So where to from here?

Overall, we expect that the weaker growth outlook in Australia relative to the US and the likely continuing decline in the interest rate differential versus the US will dominate and push the $A still lower. But with the $A having already had a big fall, short $A positions running high, the current account deficit having shrunk and the US dollar looking toppy we see the $A falling to around $US0.65 on a six to 12 month horizon as opposed to crashing down to say the 2001 low of $US0.48. Of course, if the global economy falls apart, causing a surge in unemployment in Australia as export demand and confidence collapses and another big leg down in house prices then all bets are off and the Aussie will fall a lot more…but that’s not our base case.

What does it mean for investors?

With the risks skewed towards more downside in the value of the $A, albeit less so than say a year ago, there are several implications for investors.

First, there remains a case – albeit not as strong as it was when the Australia dollar was much higher – to maintain a decent exposure to offshore assets that are not hedged back to Australian dollars. A decline in the value of the $A will boost the value of an investment in offshore assets denominated in foreign currency one for one. Meanwhile, the fall in Australian interest rates relative to global interest rates has reduced the incentive to hedge because when Australian rates are above global rates investors are “paid” to hedge.

Second, if the global outlook turns sour due to say Trump’s trade wars, having an exposure to foreign currency provides protection for Australian investors as the $A usually falls in response to threats to global growth. As can be seen in the next chart there is a rough positive correlation between changes in global shares in their local currency terms and the $A. Major falls in global shares associated with the emerging market/LTCM crisis in 1998, the tech wreck into 2001, the GFC, the Eurozone crises and the 2015-16 global growth scare saw sharp falls in the $A. So being short the $A and long foreign exchange provides good protection against threats to the global outlook.

Source: Bloomberg, AMP Capital

Finally, continuing softness in the $A will be positive for Australian industry sectors that compete internationally like tourism, higher education, manufacturing, agriculture and mining and this will benefit shares exposed to these areas.

If you would like to discuss any of the issues raised by Dr Oliver, please call on |PHONE| or email |STAFFEMAIL|.

Source: AMP Capital 14 June 2019

Important notes: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

I have been working in and around investment markets for 35 years now. A lot has happened over that time. The 1987 crash, the recession Australia had to have, the Asian crisis, the tech boom/tech wreck, the mining boom, the Global Financial Crisis, the Eurozone crisis. Financial deregulation, financial reregulation. The end of the cold war, US domination, the rise of Asia and then China. And so on. But as someone once observed the more things change the more they stay the same. And this is particularly true in relation to investing. So, what I have done here is put some thought into the nine most important things I have learned over the past 35 years.

# 1 There is always a cycle

Droll as it sounds, the one big thing I have seen over and over in the past 35 years is that investment markets constantly go through cyclical phases of good times and bad. Some are short term, such as those that relate to the 3 to 5 year business cycle. Some are longer, such as the secular swings seen over 10 to 20 year periods in shares. Some get stuck in certain phases for long periods. Debate is endless about what drives cycles, but they continue. But all eventually contain the seeds of their own reversal. Ultimately there is no such thing as new eras, new paradigms and new normal as all things must pass. What’s more share markets often lead economic cycles, so economic data is often of no use in timing turning points in shares.

# 2 The crowd gets it wrong at extremes

What’s more is that these cycles in markets get magnified by bouts of investor irrationality that take them well away from fundamentally justified levels. This is rooted in investor psychology and flows from a range of behavioural biases investors suffer from. These include the tendency to project the current state of the world into the future, the tendency to look for evidence that confirms your views, overconfidence and a lower tolerance for losses than gains. So, while fundamentals may be at the core of cyclical swings in markets, they are often magnified by investor psychology if enough people suffer from the same irrational biases at the same time. From this it follows that what the investor crowd is doing is often not good for you to do too. We often feel safest when investing in an asset when neighbours and friends are doing the same and media commentary is reinforcing the message that it’s the right thing to do. This “safety in numbers” approach is often doomed to failure. Whether its investors piling into Japanese shares at the end of the 1980s, Asian shares into the mid 1990s, IT stocks in the late 1990s, US housing and dodgy credit in the mid 2000s or Bitcoin in 2017. The problem is that when everyone is bullish and has bought into an asset in euphoria there is no one left to buy but lots of people who can sell on bad news. So, the point of maximum opportunity is when the crowd is pessimistic, and the point of maximum risk is when the crowd is euphoric.

# 3 What you pay for an investment matters a lot

The cheaper you buy an asset the higher its prospective return. Guides to this are price to earnings ratios for share markets (the lower the better – see the next chart) and yields, ie the ratio of dividends, rents or interest payments to the value of the asset (the higher the better). Flowing from this it follows that yesterdays winners are often tomorrows losers – because they became overvalued and over loved and vice versa. But while this seems obvious, the reality is that many find it easier to buy after shares have had a strong run because confidence is high and sell when they have had a big fall because confidence is low. But the key point is that the more you pay for an asset the lower its potential return and vice versa.

Source: Global Financial Data, AMP Capital

# 4 Getting markets right is not as easy as you think

In hindsight it all looks easy. Looking back, it always looks obvious that a particular boom would go bust when it did. But that’s just Harry hindsight talking! Looking forward no-one has a perfect crystal ball. As JK Galbraith observed “there are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.” Usually the grander the forecast – calls for “great booms” or “great crashes ahead” – the greater the need for scepticism as such calls invariably get the timing wrong (in which case you lose before it comes right) or are dead wrong. Market prognosticators suffer from the same psychological biases as everyone else. If getting markets right were easy, then the prognosticators would be mega rich and would have stopped doing it long ago. Related to this many get it wrong by letting blind faith – “there is too much debt”, “house prices are too high and are guaranteed to crash”, “the Eurozone will break up” – get in the way of good investment decisions. They may be right one day, but an investor can lose a lot of money in the interim. The problem for ordinary investors is that it’s not getting easier as the world is getting noisier as the flow of information and opinion has turned from a trickle to a flood and the prognosticators have had to get shriller to get heard.

# 5 Investment markets don’t learn

A key lesson from the history of investment markets is that they don’t seem to learn. The same mistakes are repeated over and over as markets lurch from one extreme to another. This is even though after each bust many say it will never happen again and the regulators move in to try and make sure it doesn’t. But it does! Often just somewhere else. Sure, the details change but the pattern doesn’t. As Mark Twain is said to have said: “history doesn’t repeat, but it rhymes.” Sure, individuals learn and the bigger the blow up the longer the learning lasts. But there’s always a fresh stream of newcomers to markets and in time collective memory dims.

# 6 Compound interest is like magic

This one goes way back to my good friend Dr Don Stammer. One dollar invested in Australian cash in 1900 would today be worth $240 and if it had been invested in bonds it would be worth $950, but if it was allocated to Australian shares it would be worth $593,169. Although the average annual return on Australian shares (11.8% pa) is just double that on Australian bonds (5.9% pa) over the last 119 years, the magic of compounding higher returns leads to a substantially higher balance over long periods. Yes, there were lots of rough periods along the way for shares as highlighted by arrows on the chart, but the impact of compounding at a higher long-term return is huge over long periods of time. The same applies to other growth-related assets such as property.

Source: Global Financial Data, AMP Capital

# 7 It pays to be optimistic

The well-known advocate of value investing Benjamin Graham observed that “To be an investor you must be a believer in a better tomorrow.” If you don’t believe the bank will look after your deposits, that most borrowers will pay their debts, that most companies will grow their profits, that properties will earn rents, etc then you should not invest. Since 1900 the Australian share market has had a positive return in roughly eight years out of ten and for the US share market it’s roughly seven years out of 10. So getting too hung up worrying about the next two or three years in 10 that the market will fall risks missing out on the seven or eight years out of 10 when it rises.

# 8 Keep it simple stupid

Investing should be simple, but we have a knack for overcomplicating it. And it’s getting worse with more options, more information, more apps and platforms, more opportunities for gearing and more rules & regulations around investing. But when we overcomplicate investments we can’t see the wood for the trees. You spend too much time on second order issues like this share versus that share or this fund manager versus that fund manager, so you end up ignoring the key driver of your portfolio’s performance – which is its high-level asset allocation across shares, bonds, property, etc. Or you have investments you don’t understand or get too highly geared. So, it’s best to keep it simple, don’t fret the small stuff, keep the gearing manageable and don’t invest in products you don’t understand.

# 9 You need to know yourself to succeed at investing

We all suffer from the psychological weaknesses referred to earlier. But smart investors are aware of them and seek to manage them. One way to do this is to take a long-term approach to investing. But this is also about knowing what you want to do. If you want to take a day to day role in managing your investments then regular trading and/or a self managed super fund (SMSF) may work, but you need to recognise that will require a lot of effort to get right and will need a rigorous process. If you don’t have the time and would rather do other things like sailing, working at your day job, or having fun with the kids then it may be best to use managed funds. It’s also about knowing how you would react if your investment suddenly dropped 20% in value. If your reaction were to be to want to get out then you will either have to find a way to avoid that as you would just be selling low and locking in a loss or if you can’t then you may have to consider an investment strategy offering greater stability over time (which would probably mean accepting lower returns).

So what does all this mean for investors?

All of this underpins what I call the Nine Keys to Successful Investing which are:

1. Make the most of the power of compound interest. This is one of the best ways to build wealth and this means making sure you have the right asset mix. 

2. Don’t get thrown off by the cycle. The trouble is that cycles can throw investors out of a well thought out investment strategy. But they also create opportunities. 

3. Invest for the long term. Given the difficulty in getting market and stock moves right in the short-term, for most it’s best to get a long-term plan that suits your level of wealth, age, tolerance of volatility, etc, and stick to it. 

4. Diversify. Don’t put all your eggs in one basket. But also, don’t over diversify as this will just complicate for no benefit.

5. Turn down the noise. After having worked out a strategy thats right for you, it’s important to turn down the noise on the information flow and prognosticating babble now surrounding investment markets and stay focussed. In the digital world we now live in this is getting harder.

6. Buy low, sell high. The cheaper you buy an asset, the higher its prospective return will likely be and vice versa. 

7. Beware the crowd at extremes. Don’t get sucked into the euphoria or doom and gloom around an asset.

8. Focus on investments that you understand and that offer sustainable cash flow. If it looks dodgy, hard to understand or has to be based on odd valuation measures or lots of debt to stack up then it’s best to stay away. 

9. Seek advice. Given the psychological traps we are all susceptible too and the fact that investing is not easy, a good approach is to seek advice.

Source: AMP Capital 6 June 2019

Important notes: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

Being a new parent inevitably comes with a variety of challenges. One challenge that new parents shouldn’t have to face is an unfair work culture. Is your business is taking the right approach?

The millennial workplace has taken positive steps over the last decade in order to accommodate the evolving environment that we work in.

Whether it’s larger scale issues like encouraging flexible working, or smaller nuances like the aesthetics of the workplace, we have certainly come a long way.

READ: 3 major benefits to a positive company culture

More specifically, there has been a huge improvement in company policies that relate to new parents (both pre- and post-natal).

Creating a culture within your workplace that’s genuinely ‘new-parent friendly’ is becoming an essential foundation of healthy business environments.

Thanks to the many activists and advocates who have devoted their lives to this cause, workplace policies in this area have evolved drastically.

Today, employers are becoming increasingly accommodating to people who are starting or growing their family.

An example of an Australian organisation that has been advocating for fairer ‘new-parent’ policies in the global workforce is WORK180, a female-led business that pre-screens companies to see how female-friendly their workplace policies are.

Because of the tireless work of companies like WORK180, both larger scale corporates and SMEs are adopting practices that not only tolerate those wanting to start a family but are encouraging and supporting of them throughout the process.

The poor practices of an Australian unicorn

But, every now and again, there are stories that surface about companies whose approach to those looking to start a family is dated and unfair – making the already emotional and vulnerable time of pre- and post-pregnancy unbearable.

In fact, SmartCompanyrecently reported that Australian prodigy and so-called ‘unicorn’ startup, Envato had been “drastically changing” the roles of mothers returning to work, and “denied them career development opportunities”, causing a pregnant employee to feel “unsafe” in her work environment.

Hearing such stories is a sobering reminder of how much more needs to be done to ensure that fair policies become mainstream and that no employee falls between the cracks of such poor practices.

Starting the conversation by educating managers

So now that we’ve identified how important it is that a company looks after employees who are starting or building their families, what’s next?

What kinds of things does a company, small or large, need to do to improve their practices and ensure that these employees feel safe, encouraged and supported?

To gain some insight into this subject, I reached out to Valeria Ignatieva, trailblazing co-founder of WORK180, who was happy to share some guidance for companies who are unsure whether their practices were up to scratch.

“A huge part of dealing with this issue is by educating businesses about what starting a family is all about,” Ignatieva told The Pulse.

“Many of these companies have managers or supervisors who don’t know the first thing about pregnancy.

If we continuously strive to educate ourselves and others on the topic, we will eventually get to where we need to be.”

Keep the rules gender-neutral

When talking about the idea of childbirth and family building, the spotlight tends to fall on women.

But Ignatieva outlined the importance of remaining gender neutral, keeping in mind that “primary caregiving is not gender specific” and therefore anybody involved in the care- giving process requires the understanding of their employers.

Running a HR policy ‘health-check’

One of the tools that WORK180 has developed is an HR ‘health-check’ tool, a questionnaire that’s designed to learn about a company’s policies and procedures and give a score on the standard of the company’s HR policies.

According to Ignatieva, there are three policies in particular that are indicative of a company’s standards:

1. Superannuation

Unlike regular annual leave, Ignatieva said that there is no legal requirement for super to be paid to employees on parental leave. But, if an employer includes super in their parental leave packages, it’s normally a good indication that their policies are up to scratch in this area.

2. Pre-parental leave tenure

Another important policy to look at is the amount of time an employee is required to have worked at an organisation before they are ‘eligible’ for parental leave.

According to Ignatieva, organisations that don’t require their employees to spend a certain amount of time in the job to access paid parental leave to have “exemplary standards” in this regard.

“By keeping this standard, it shows that the employer understands that having or building a family isn’t an inconvenience, but an asset to society and something to be encouraged,” Ignatieva said.

Global software giant Microsoft leads by example in this area, making parental leave an entitlement upon employment.

3. Flexible working policies (pre- and post-natal)

Finally, the flexible working policies are another key indication of high standards.

Aside from being very helpful for those involved in the emotional and physical process of both the lead up to and time after birth, Ignatieva insisted that flexible working arrangements are beneficial for the employers as well.

“If you let them work the way they work best, you’ll get better results,” said Ignatieva.

“By forcing people in the perinatal period into restrictive working environments, they are almost guaranteed to underperform.”

READ: How flexible working arrangements can improve your business

Ultimately, it all comes down to attitude.

Nurturing employees who require support throughout the childbirth process doesn’t only improve your business standards, but it also makes you an enabler of the next generation’s ability to catapult into a safe and successful future.

Source: MYOB

Reproduced with the permission of MYOB. This article by Benjamin Kluwgant was originally published at www.myob.com/au/blog/

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