Generation Y and the issues confronting us

Who is Generation Y?

YouTube. Myspace. Facebook. Apple products. Laptops and Smart Phones. The Internet Generation. Echo Boomers. iGeneration. MyPod Generation. The Millenials.

They're just some of the official names out there, referring to those born between 1978 - 1994. Some fussy demographers believe it's between 1980-1990. Who cares? If you grew up with the internet and had access to it at school, then you belong in this category.

You can normally distinguish Gen Y from the other generations. They're either carrying a laptop, a smart phone, an ipod or all three. In their homes, you will find PlayStations, Xboxes and Nintendo Wii. They're the 'me, me, me' generation.

Having grown up with the internet and Google at our disposal, we even self diagnose ourselves with medical advice on the internet whenever we experience the slightest symptoms of anything. We don't have to trek out to the local library or go burrowing into encyclopaedias whenever there's a question or a desire to learn more.

What are Gen Y Challenges?

On the other hand, we grew up in a world where AID is prevalent, terrorism is never far from our minds whenever we travel by plane or celebrate New Years Eve at a crowded public venue. In a world where there's global warming, our environment is increasingly being destroyed and now our governments have handed their massive public debts for us, as taxpayers, to pay off in the future.

The biggest concern facing Gen Y - is the increasing rate of workforce casualisation. In the old days, people would work for a single company for 20-40 years. Nowadays, it's typical for employees to work for only 2-4 years with any particular employer before they jump ship. With casualisation, more employers are hiring only on a casual or permanent part time basis. Contracting is also a current faze. This makes it increasingly difficult for Gen Y'ers (and other casual employees) to get approval for home loans and to invest for retirement.

Even if Gen Y can get home loans, the biggest problem our peers face is being able to afford a home. Housing affordability for a lot of Gen Y these days is like a pie in the sky dream with interest rates and house prices rising. An Australian School of Business article writes that:

"The Reserve Bank of Australia has estimated a 40,000 annual shortage. The ANZ Banking Group estimates there was a shortage of more than 200,000 homes in 2009 and 250,000 properties in 2010, with a shortfall per annum of 30,000 dwellings. Another of Australia's big four banks, Westpac, estimated there was a shortage of 190,000 dwellings during 2009. Research house BIS Shrapnel estimates there are 160,000 too few dwellings."

Unlike the situation in America, in Australia we have insufficient housing being built to sustain our growing population.

What type of world are Gen Y growing up in?

In America, it's pretty tough from the sound of things. Some of the Gen Y over there have graduated college (the equivalent of uni over here) and there aren't any graduate jobs or work in their industry. They've resorted to casual work and job hunting without hope. With unemployment bordering 10% for some time now, it's getting rather desperate.

It will take several billions, even trillions to try to ramp the American economy up so that individuals and households feel comfortable enough to go spending again. Until they start spending, there will be no economic growth and without growth, no increasing employment. It's a vicious circle.

In Australia, it's almost mandatory to have a University education. To have not just a single degree, but double degrees and masters. As the majority of our new generation becomes increasingly educated, it gets very competitive. Although if you make an effort in this country, you can get ahead or you can get somewhere. Most Gen Y who are stuck in casual work have it very tough. It will be hard for them if they can't find full time employment.

For those with full time work or their own business, most of us travel the world and buy a lot of gadgets and toys that are forgotten, just as quickly. We are still the luckiest country in the world. There are opportunities and work everywhere if you look around.

Even with reports about the lack of housing affordability, if you try hard enough, you can save up and buy some sort of housing. There will always be someone whinging that they can't afford to buy a place. But if they cast their net wide enough, they may find an apartment or house on the fringe of the CBD, it may not have a backyard or whatever creature comforts that is deemed desirable, but it's still a place you can call home without having to answer to your landlord.

Gen Y at work

The important factors that Gen Y look for in the workforce is flexibility with working hours, telecommuting, working from home, social involvement and team work. Promotions, further education, bigger pay packets are other factors that Gen Y's are chasing. Considering our roads are so congested and peak hour travel means each trip takes four times as long as it does in off-peak travel, employers should look at ways to engage staff to work from home. It really is the way of the future.

If people can employ people from around the world to perform work for $5 per job or get people to bid for jobs, why can't employers start assessing options in order for their staff can work from home.

Generation Y is facing an increasingly diverse landscape that is at the same time, increasingly being integrated around the world due to the advancement of technology. In order to be relevant, we need to embrace the changes and the technology or else, we'll be left behind.

From a financial viewpoint, it really is sad the the baby boomers and Generation X have left the current economic environment in such a sad and sorry state. Not only are there massive national deficits to contend with, but public infrastruture, roads and buildings are falling into disrepairs. Our retirement is also something that we have to save up for because there will be no more money left in government budgets for pensions when Generation Y retires.

But, Generation Y is an adaptable lot, no matter what this world throws at us.

Mortgage rate rises causing mortgage arrears

Loan defaults have been increasing
The last six rate rate rises in Australia has resulted in increasing loan defaults. Unlike our overseas counterparts, our average home loans are around the $300,000 amount. Here's an extract from the news.com.au:

Real Estate Institute of Queensland managing director Dan Molloy said the August spike showed the typical lag between rate rises and the impact on homeowners.

"The series of six interest rate increases in the period from October last year to May this year has had a dramatic and tragic impact on some people," he said. "The cumulative effect of those adding up to $300 a month on the average $300,000 mortgage obviously was too much for some people and the financial institutions moved."

Read more: http://www.news.com.au/money/money-matters/houses-seized-as-loan-defaults-hit-record/story-e6frfmd9-1225948145480#ixzz14NsZStYJ

Imagine trying to find an extra $300 each month when you've been living a pretty bare existence already. When you've been living paycheck to paycheck just barely meeting mortgage payments.

A multitude of circumstances and unfortunate events may have resulted in people's inability to meet their mortgage payments: poor health, injury, sickness, loss of job/jobs, cut in hours, unexpected bills and expenses and a gazillion other reasons that I have not listed.

There are a few steps that you could take to ensure that you minimise the risk of mortgage defaults and being in arrear on your mortgage.

If you have a mortgage already:

* Ensure you build up an emergency fund(EF) to cover mortgages, bills and expenses (with extra to cover for unexpected expenses like your car breaking down suddenly) for the duration that it may take you to find a new job if you are unexpectedly unemployed. If you're in a tough industry and it may take 1 year to find work, then your EF should cover 1 years worth of expenses

* Have funds in a separate saving account or in liquid (easy to convert to cash) investments that can meet your mortgage payments for the duration that you are job hunting and not earning an income. This ensures that you will not fall into arrear and will not be paying extra costs for defaults and cheques bouncing and incurring overdrafts.

* If your account doesn't allow you to withdraw your extra repayments, it is really important to ensure that you have separate savings instead of ploughing extra money directly into paying off your mortgage. If you're in Australia, it's preferable to setup a separate offset account so that you can deposit any extra funds you've got into it rather than directly into your mortgage. With an offset account, it doesn't matter whether you're employed or unemployed, you can always make withdrawals. The terms of some mortgages specify that if someone is unemployed, they cannot withdraw their extra repayments. This is an important restrictive condition to watch out for.

* Make sure you have backup plans in the event that you lose your income

* If you're serious about building your wealth and obtaining financial freedom, you should avoid refinancing your mortgage to buy trivial depreciating goods such as boats, cars and holidays.

If you haven't got a mortgage but are planning to buy:

* Form a budget so you know what all your expense are and how much you can afford each month. If after you know what your income and expenses are and you can allocate $1500/month towards a mortgage for example, then pretend you have a mortgage to pay and ensure that you can easily save that $1500/month. Maintain this for a few months to see whether you can cope with that level of repayment.

* Don't borrow the maximum the bank approves you to borrow. I can't stress that point enough. The bank will always be keen to loan you more than you're comfortable with repaying and in many recent mortgage defaults, more than they can afford to repay after a few interest rate rises. Just because the bank approves a $500,000 loan, doesn't mean you should go out and buy a $500,000 house if all you need for you (and your family) is a $350,000 house for example.

* Always buy your first house with a 20% deposit at least. That way you don't have to pay LMI (Lender Mortgage Insurance) and it demonstrates to yourself (and the bank of course) that you can save something. If you're a risk taker, you can always buy with no deposit but if you can't even save some amount for a deposit, what makes you think that you can pay your mortgage regularly without falling into arrears?

* The exception to the rule: If you pay rent without any problems every week or month, as long as your mortgage payments are roughly equivalent to your rental payments, then you're more likely to beable to buy even without a deposit. Although, being a home owner does come with additional expenses such as repairs and maintenance - expenses which you previously didn't have to pay for, when you were renting.

Buying a property means having to do some serious number crunching and risk analysis. Always factor in the risk that interest rates will increase. The risk that you will have to do repairs and maintenance on your place. The risk that something will break down or leak. The risk that if you are buying an investment property, you may have difficulty finding renters and tenants. The risk that your expected cash flows may not materialise. The risk that you may become unemployed or experience a drop in income.

As they say, the plans could go awry, but having a plan is always better than no plan.

Another famous couple facing bankruptcy

Heidi Montag and Spencer Pratt

Famous for...er...famous for being famous. Famous for all her cosmetic surgeries. Formerly Hills (some type of reality tv show) cast members but I never watched that show so don't know what it's about. They are almost bankrupt.

Supposedly $2 million of taxes is outstanding and their estimated $10 million fortune has been squandered due to their extragant lifestyle and consumption. Not your normal typical consumption for ordinary folks which consist of grocery, utility and $2000 housing bills. We're talking blowing millions on failed music careers (nothing wrong with this expenditure - unless her musical talents were nil to commence with), numerous plastic surgeries despite being so beautiful originally, six luxury cars, private jets and $35,000 per month on renting their Californian home.

If you had $10 million, what would you do with it?

It's one thing being rich and famous ala Angelina Jolie, Brad Pitt and Madonna and it's another thing to be famous and broke - Heidi Montag/Spencer Pratt, Danni Minogue, Tara Reid.

Despite their lifestyle and consumption involving numbers in the thousands and millions, this is simply a reflection of our society as a whole. The desire to fit in and keep up with the Joneses. Amongst us ordinary folks and our expenditures, we're talking more about the hundreds to thousands of dollars rather than the thousands to millions of dollars. Just a few more zeroes than usual ^_^

I've never been one to wish any bad luck on anyone, so hopefully they'll find their way out their financial mess. Maybe someone should point them to the financial blogs and advices available on the web. I'd be wary of the sharks and hanger-ons that they probably have surrrounding them under the guise of friendship and management. Or get a recommendation from Madonna regarding a financial advisor. Madonna comes across as very wise and shrewd in regards to business and running her empire.

Australian homeless spend an average 11 years sleeping on the streets

It's rather sad that we're considered a wealthy nation, yet we have our fair share of homelessness on our city streets. You only have to take a walk through the streets of Sydney and a stroll through the park to see the homeless with their meagre possessions and scruffy belongings.

Why are they homeless? This may be a case of 'you can't understand unless you've been there before'.

It's hard to understand why homelessness exist when there are charities and homeless shelters. There are social groups and support services to assist those in financial trouble. I don't know if America or other Asian nations have the same support but over here, we have the equivalent of soup kitchens and a lot of social welfare payments- unemployment welfare (that doesn't run out in 99 weeks like in the U.S), single parents, pension, disability, carers welfare and pension payments. Electricity and housing assistance from the government. The list is almost endless. That's why it's hard for me to understand why we still have people homeless on the streets.

One of the bloggers - Boston Gal, her greatest fear is becoming a bag lady. I can understand her fear. Who doesn't dread the thought of becoming homeless. A lot of the stories that she's been outlining in her blog illustrates ordinary people who are on the verge of being homeless.

Yet an article from news.com.au state that the average Australian homeless person spends up to 11 years on average homeless. It's a very sad statistic.

Volunteers who tried to interview every homeless person in Sydney, Melbourne and Brisbane found many were worse off than those living on the streets in New York, LA and Chicago.

More than 50 per cent of those questioned were vulnerable, those most at risk of death due to age or ill health, compared with 44 per cent in America.

The at-risk group was also spending an average of 11 years on the streets in Australia - five years longer than the US.

The surveys took place as part of a fresh drive to find housing for rough sleepers.

The research led by Australia's Mercy Foundation involved local welfare groups and US charity Common Ground, which helped drive the surveys and crunch the numbers.

Common Ground organiser Kara Mergl said people were finding themselves homeless at a younger age than in America.

"It is striking that the vulnerability rates are higher," she said.

"Some people who are finding themselves on the streets at 15 or 16 are still sleeping rough for decades.

"We believe the early age people are finding themselves homeless is because of the higher rates of foster care in this country.

"Those accessing services in their youth are then most likely to end up homeless."

This week, more than 200 of 262 known homeless people in Sydney were questioned by volunteers.

Their surveys found 13 per cent of the homeless in Sydney were Aboriginal.

Contrary to public perception, most respondents said they were not living homeless out of choice.

"The majority of people living homeless are doing so because of a crisis," Ms Mergl said.

"What the work here is doing is taking the barrier down - we are simply saying we have a unit and we want to minimise the effort it takes to get back into housing."

More than 80 volunteers surrendered their sleep to hit the streets of Sydney at 4.30am on Monday, Tuesday and Wednesday to question rough sleepers on their housing and healthcare needs.

The research in Sydney was led by the Mercy Foundation, which partnered Way2Home outreach service, the Salvation Army and Missionbeat to conduct the research.

Similar work in Brisbane led to the housing of 30 vulnerable people, a spokeswoman for the Mercy Foundation said.

Read more: http://www.news.com.au/national/homeless-sleep-rough-for-longer-in-australia-than-us-survey/story-e6frfkvr-1225947818736#ixzz14HkZ8Ql7

If that isn't something that inspires you to get your financial house in order, just imagine in the future, it's highly likely that social welfare payment won't exist. So chances are, you'll be on your own and there's no backup plan from the government. Do yourself a favour, and start looking out for your future self by taking action now if you haven't already done so.

Interest rate rises and struggling home owners

Yesterday was Melbourne Cup Day. The horse race that stops our nation. Meaning, the horse race that has our nation betting in some form or other. I bet a massive $2 and won back a massive $6!! Ho Ho Ho!

As for my work colleagues, two of them bet about $300 each and won $4.50 each for their efforts.

Whilst almost everyone in the country was busy gulping down Champagne, platters, lunches and buffets, the Reserve Bank of Australia (let's call them Party Poopers), decided to raise our interest rates by 25 basis points. A 0.25% interest rate hike to 4.75%. The standard variable mortgage rates across Australia are now approximately 7.81% (CBA's rate effective 05/11/10).

Japan and America's rates are ridiculous compared to our rates. Our rates are insanely high compared to the rest of the world. No wonder our dollar is at parity with the US dollar. Foreigners have been exchanging their currencies for Australian Dollars (AUD) so that they can invest their funds in our banks to receive high deposit interest rates of 6% plus.

It would be stupid to not have factored in this rate rise and the next few rate increases. There have been some devasted people posting on the news forum. Electricity, water and gas bills have increased up to 200% over the past two years and wages haven't followed. People are angry and the only ones celebrating are those who are renters and those with funds in savings and term deposit accounts earning paltry interest returns.

The Party Poopers really need to walk into our shopping centres and retail stores to realise how empty some shops are. Sure, our restaurants aren't as empty as those in Japan but a lot of them aren't full either.

Buying lunches and dining out

I bring my own lunch on most days.

I'd like to say it's because I'm financially smart but that's not entirely true. Doh... I bring my own lunch to work most days simply because despite weighing only 46kg, I had high cholesterol about 2-3 years ago!

What the....?!!!! After having analysed my diet, I realised the real culprit was my sweet tooth and tendency to eat out. Desserts are high not only in sugar, but saturated fat and trans fat - and the end result -cholesterol. Same with eating out frequently. I was buying my lunch almost every day. My lunch had consisted of gloriously rich, fatty food and on the odd occasion, salad sandwiches. We also ate out frequently instead of eating nutriciously cooked home dinners.

Ever since I found out I had high cholesterol, I cut back on buying lunch, eating out and buying snacks to munch on. Also, had to sadly cut back on luxury, gourmet chocolates. Simply because they were high in saturated fat.

The silver lining? Not only did my cholesterol drop back into the normal range, I realised that I was saving so much more when I didn't buy my lunch everyday and didn't dine out for dinner as frequently as I use to.

Now that there's a Japanese restaurant that opened up nearby, I could buy healthier food and I can see that I'm trending towards buying my food frequently again. Today, lunch cost $17. It was scrumptious and totally worth it, but not as healthy as a simple sandwich.

When I was bringing my own lunch, it saved about $160-$250 monthly. Life is about enjoying oneself in moderation. So since my cholesterol is back to normal, I find myself treating myself out more frequently...in moderation of course :)

At our age, having worked for a few years now, we've all had an income for several years now and because of that, I have noticed that we have had lifestyle inflation. Our dinners in uni used to consist of yummy, decent priced restaurants which averaged out to $20-$35/person. Nowadays, our average dinners range from $30-$200/person. Most commonly we end up paying about $50/person.

Definitely the eateries are more upmarket and trendy. On reflection, buying lunch can cost between $7-$30/day whereas the cost of making lunch is $1 to $2.50/day. If I was really smart, I'd bring my lunch everyday but ....I have a weakness for Japanese food. Their food is so beautifully presented, is healthy and taste great.

Have you or anyone you known experienced lifestyle inflation?

Quiz to Determine Your Risk Profile

It is essential to determine your risk profile prior to investing so that your asset allocation is suitable to your needs. I came across an Ord Minnett questionnaire that I thought was quite useful. As you complete each question, add the points up and check your results out below.

1)Which of the following best describes your purpose for investing?

a) An investment horizon longer than 5 years. You understand investment markets and mainly invest for growth, to accumulate long term wealth(50pts)
b) You have surplus funds to invest and aim to accumulate long term wealth from a balanced portfolio(40pts)
c) You have a lump sum (eg an inheritance) and are uncertain about the secure investment alternatives available(30pts)
d) You are nearing retirement and want sufficient funds to enjoy your retirement(20pts)
e) Some specific objectives within the next five years, for which you want to accumulate sufficient funds(10pts)

2)Which of the following best describes your current stage of life?

a) Single, with few financial burdens. You are keen to accumulate wealth for the future(50pts)
b) A couple without children. Preparing for the future by establishing a home. A high purchase rate of consumer items(40pts)
c) Young family, with a home. You have a mortgage and maintain only small cash balances(30pts)
d) Mature family. You're in your peak earning years and have the mortgage under control. You partner works and children are growing up and require less supervision/have left home. You're thinking about retirement(50pts)
e) Preparing for retirement. You probably own your home and have few financial burdens; you want to ensure you can afford a comfortable retirement. Interested in travel, recreation and self education(20pts)
f) Retired. You rely on existing funds and investments to maintain your lifestyle. You may be receiving a pension. Keen to enjoy life and maintain your health(10pts)

3) In the light of current interest rates, what return do you reasonably expect to achieve from your investments?

a) A reasonable return, without losing any capital(10pts)
b) Current inflation rate plus 2-4% per annum(20pts)
c) Current inflation rate plus 5-7% per annum(30pts)
d) Current inflation rate plus 8-12% per annum(40pts)
e) Greater than d). (50pts)

4) How familiar are you with investment markets?

a) Experienced with all investment sectors and understand the various factors which influence performance(50pts)
b) Understand that markets fluctuate and that different market sectors offer different income, growth and taxation opportunities(40pts)
c) Have enough experience to understand the importance of diversification(30pts)
d) Not very familiar with investment markets(20pts)
e) Very little understanding or interest(10pts)

5) Would you ever consider using derivative products such as Options and Warrants as part of your investment strategy?

a) I would consider using derivatives as a defensive strategy and as a means of generating additional income for my portfolio(30pts)
b) I would consider using derivatives as part of a defensive strategy only(20pts)
c) I have a good understanding of derivative products and I am interested in trading these for profits(50pts)
d) Not very familiar with derivatives(10pts)
e) Never- I consider derivatives to be too risky(0pts)

6) How long would you expect most of your money to be invested before you would need to access it (assuming you have made plans to meet short term financial objectives and to handle emergencies)?

a) Less than 2 years(10pts)
b) Between 2 and 3 years(20pts)
c) Between 3 and 5 years(30pts)
d) Between 5 and 7 years(40pts)
e) Longer than 7 years(50pts)

7) What would your reaction be if six months after placing your investment, you discover that, in line with what is happening in the financial markets generally, your portfolio has decreased in value by 20%?

a) Horror. Security of your capital is critical and you did not intend to take such risks(10pts)
b) You would cut your losses and transfer your funds into more secure investment sectors(20pts)
c) You would be concerned, but would wait to see if the investments improve(30pts)
d) This was a calculated risk and you would leave the investments in place, expecting performance to improve(40pts)
e) You would invest more funds to lower your average investment price, expecting future growth(50pts)

8) If you didn't need your capital for more than 10 years, how long would you be prepared to see your investment performing poorly before you cashed it in?

a) You would cash it in immediately if there were any loss in value(0pts)
b) Up to 3 months(20pts)
c) Up to 6 months(30pts)
d) Up to 1 year(40pts)
e) Up to 2 years(50pts)

9) How stable is your current and future income from sources such as salary, superannuation, allocated pensions or other investments?

a) Very stable(50pts)
b) Stable(40pts)
c) Somewhat stable(30pts)
d) Unstable(20pts)
e) Very unstable(10pts)

10) Do you have any separate savings set aside for major expenses? This may include things like education, home mortgage payments, home repairs and retirement?

a) I have no upcoming expenses other than my retirement living expenses(10pts)
b) Yes, I do have separate savings to meet my expenses(20pts)
c) I have a small amount of savings and a large credit card limit on my credit card for emergencies(40pts)
d) I have no savings, but can use my credit card for emergences(40pts)
e) No, I do not have separate savings to meet major expenses(50pts)

Total Investor Profile Score - add up your points and match the profile scores to the Investor Profile summaries below:

Investor Profile Score Card

Defensive (0-120 points)
You are a defensive investor. Risk must be very low and you are prepared to accept lower returns to protect capital. The negative effects of tax and inflation will not concern you, provided your initial investment is protected.

Moderate (121-230 points)
You are a moderate investor seeking better than basic returns, but risk must be low. Typically, you are an older investor seeking to protect the wealth which you have accumulated, and you prefer to consider less aggressive growth investments.

Balanced (231-340 points)
You are a balanced investor who wants a balanced portfolio to work towards medium to long term financial goals. You require an investment strategy, which will cope with the effects of tax and inflation. Calculated risks will be acceptable to you to achieve good returns.

Growth (341-460 points)
You are a growth investor, probably earning sufficient income to invset most funds for capital growth. Prepared to accept higher volatility and moderate risks, your primary concern is to accumulate assets over the medium to long term. You require a balanced portfolio, but more aggressive investments may be included.

High Growth (461-500)
You are a high growth investor prepared to compromise portfolio balance to pursue potentially greater long term returns. You investment choices are diverse, but carry with them a higher level of risk. Security of capital is secondary to the potential of wealth accumulation.

So which category did you fall into? If you think this quiz was an accurate(or inaccurate) profiling, your comments will be welcome. I got 420 points and fall directly into the Growth category. Which is just about right for my risk profile :)

Break down of my retirement asset allocation

Finally received my member statement which summarises my retirement fund breakdown.

Unfortunately it's all preserved - meaning, I won't beable to access it until I'm 65 or so. Decades and decades away. Because of this 'you can't reach into the cookie jar' type of control, many of my peers and younger compatriots aren't that interested in contributing extra or trying to maximise contributions. And if we are, it's not up to the $25k limit usually.

Even though it has great tax advantages, locking funds away into super funds can really limit your options in the near future. So when you're undecided about whether to contribute extra into your super funds or not, always consider the short and medium term and whether you will need funds for buying a house, getting married or for a new car. I prefer the way the Americans have structured their retirement funds and the flexibility it has over the OZ structure.

If anyone encountered financial difficulties in America, they can withdraw their retirement funds (at the cost of paying extra taxes), however, at least it can be withdrawn in the first place. Unfortunately for the Aussies, if we encounter any financial difficulties, the most we can access is around $10k and that's after going through rigorous paperwork and having to prove that you're seriously going through hard times and pretty much in arrears on your bills- but you're more likely to be homeless and begging on the street before you can access that $10k.

Here's the asset allocation breakdown of my super/retirement funds:

30% Australian Shares (Risky)
23% Overseas Shares (Risky)
12% Bonds (Semi-risky)
10% Property (Semi-risky)
9% Growth Alternatives (Semi-risky)
6% Cash Securities (Almost risk-free)
5% Defensive Alternatives (Almost risk-free)
5% Infrastructure (Almost risk-free)

Where 'risky' assets are considered to have a higher possibility of 'actual' asset returns failing to meet and exceed 'expected' returns. With increased risk of course, is the chance of increased returns.

The fund that I have it invested in, is considered to be a 'balanced' type of fund. Pretty much a middle-of-the-road type of fund where it's not too risky that I have massive fluctuations and not so risk-free that I have no gains and no investment growth. Which is perfectly fine for my risk profile. You need to work out your own risk profile before you can decide on which structure is the right one for you.

I don't want to find out next year that it has plummeted 50% and on the other hand, I don't want to discover that it hasn't kept pace with inflation since it was invested in such low yield assets.

With a 5 year average return of 5.52%, it's rather dismal and pathetic.

If you're trying to find a good allocation percentage, the rule of thumb is- the younger you are, the more you can afford to risk, so you can afford to be more heavily invested across stocks(domestic & overseas) and property. If you're older and close to retirement (eg: 50yo and older) then you should probably be rebalancing to something more defensive and less risky, such as more cash securities and cash accounts.

If you're expecting to live until you're 90 and older, you need to bear this in mind and evaluate how much risk you're capable of tolerating before you need your funds. There's nothing scarier than the idea of running out of funds while you're retired and having to rely on social government benefits...and particularly in the future... it's ghastly to contemplate the idea of running out of funds when you're 85yo or something and that there is no social government benefits because the government simply doesn't have any.

The retirement conundrum

Amercians should be worried (and the rest of the world too). Especially as the population is aging and the speculation is that by 2016, the US Government will be paying out more in Social Security than what it collects in taxation revenue.

Congressional Budget Office (CBO)'s has reported the US debt to be $US13.4 trillion, approximately 92 per cent of GDP. This figure does not include obligations for Social Security and Medicare.

The situation is unsustainable. Let's hope the Americans are saving hard for their retirement and their future. Just like us here in OZ, neither of us can rely on our respective governments to fund our retirement.

Our own Current Account Deficit (CAD) as of the June quarter was $5.6 billion, which is 1.7% of our GDP. Looks benign compared to the Americans. However, we're pretty much in the same leaking boat since our population is also aging and the pension payments aren't sustainable.

Finding the courage to be brave and contrarian

A conversation I had today reminds me to remind myself that it takes courage to be brave and contrarian. Particularly in the field of investing. You can't follow the crowd and if you do, don't expect anything more than the average.

Warren Buffet, the wise dude from Omaha is often quoted:

We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.

The market has really tanked since 2007. Even for myself, a self confessed finance junkie, I find it hard to work up enthusiasm to contribute extra to my superannuation for my eventual retirement that's over 30 years away. And it's also hard to work up enthusiasm to buy stocks in a market that's volatile and swinging around with no clear trend.

No sane person likes to invest $10,000 only to see it drop to $9,000 the next week, for example. Because when that happens, your mind(and my mind) is plagued with slight regret that the $1000 could have been spent on fancy dinners, a new dress or some new toy. That if you hadn't bought that week, you could have bought the same number of stock for a cheaper price.

So in this imperfect world - I do realise that I have to boost either my retirement fund or my portfolio that's invested directly in stocks. Firstly, I'm overweight in property and cash, and underweight in stocks. At my age, I can afford to have a riskier asset allocation. Most of my parents friends are millionaires and they are invested roughly: 70-80% property, 20-30% shares, 0-10% cash.

Personally, I like the way they've invested and also prefer to have similar weightings on my asset allocation. If you are more risk averse and prefer to increase your returns (risk and volatility), you would change the weightings to a higher percentage in property or stocks. I have met so many people in the past who are either 90% property or 90% stock. It takes effort to learn, understand and invest in both markets. Most investors fear what they don't really understand. Complacency and reluctance to learn means they usually prefer to invest mainly in one or the other.

Sooooo....off to the stockmarket I go again to buy some more stocks... despite my risk-averse side telling me to invest the majority in property or cash. Property just had a huge boom this past year so the rental yields have dropped significantly in most suburbs. The only thing that worries me about the global market these days, are the huge deficits in the US and most European Nations. In the long run, how can nations grow and afford to spend on infrastructures and social services when their cash flow is leaking out in terms of interest and debt payments? That is one of the biggest reason behind my hesitation to direct more funds towards increasing my stock portfolio.

Mind you, Warrent Buffet's advice is quite handy in times like these. And I couldn't agree more with this quote of his when it comes to buying fundamentally strong companies for the long term:

Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.

We had a wedding to attend today. I stitched two images together from the DSLR to form a panorama since I don't have a camera that can shoot panoramic images(and I'm too lazy to crop the image in Photoshop since it's past 1am now). It was dusk and anyone who had a camera could not resist the beckoning lure of our iconic Opera House, Sydney Harbour Bridge and Centrepoint Tower.

It was such a glorious Spring day with warm weather and I couldn't resist taking a shot of the lilac Wisteria's that were trailing off the trellis :

At the wedding, I met a guy named Dennis and he was chatting to another friend about trading stocks. Dennis mentioned that Peter Lynch's book had a momentous influence on his trading techniques.

So...me being me... when I got home, I just had to hop on the net to google Peter Lynch. His name was familiar but I had never heard much about him. Everyone who's into finance has heard of Warren Buffet and George Soros but Peter Lynch?

"Peter Lynch managed the Fidelity Magellan Fund from 1977 to 1990, during which time the fund's assets grew from $20 million to $14 billion... achieving an annual average return of 29%."

It's hard not to be sceptical with any fund returning a very high average return exceeding 15% over several years or decades. Figures like that should always ignite little warning lights - particularly after the Bernard Madoff ponzi. Even for a fund that can return yields like that, it would be foolish to invest 100% of your funds in them. Everyone should be diversified across the asset classes (Property, Stocks, Fixed Interest & Cash), regardless of how tempting it is to invest in a singular asset class because of its attractive returns. Investing 100% in any singular asset class is one of the biggest risk you could ever subject yourself to.

Some people will say..."but I'm diversified...I have all my funds invested across 20 or 30 stocks. " however, you should be diversified across the asset classes and within the asset class. If that doesn't make sense to you, you better keep learning if you want to learn how to minimise your investment risks.

Warren Buffet is probably the most overquoted financial guru. He is however, a very successful investor and the second richest man in the world as a result of business aptitude.

One last photo before calling it a night. The wedding cake was cute. The bride and groom are both fanatical about aquariums, underwater diving and marine animals. This is their beautiful wedding cake, decorated with bride & groom turtles :)