Lock in the gains from 2003

How?
In 2003 world markets fought to win back some of the losses from previous years. But the last thing we all want to see now, is those gains being eroded. Talk of a secular bear market (one which goes down, but has upward cycles) is a risk which needs to be insulated against.

By using Capital Protected Investments, we can actually ensure the gains of 2003 are not wasted. By switching clients into funds with capital protection a new base is formed. If the market declines over the short term, you can be satisfied that those gains can't be reversed. In addition, once you have a capital protected investment, each time it is rolled over (at the end of the fixed term), another new base is cemented. This is an excellent method of alleviating much of the risk of market timing.

A good way of describing this benefit to clients is to call it "the staircase effect". By moving savings from an ordinary sharemarket fund to one with capital protection, you are moving onto the first step, where a solid base is formed. From here, as each protected investment matures, gains will be paid out. The larger the gains the more stairs you climb and a new higher base is locked in.

Why?
There are still many risks which lie ahead and while the markets may be going up, the fundamentals behind them don't seem to be on such solid ground. In the past week, two major market commentators have issued warnings (Federal Reserve Governor Donald Kohn and the International Monetary Fund (IMF). Both comments concerned the size of the ballooning US budget deficit.

Following, is a quote from each, as well as links to the articles:

• Reported on CNN (7 January 2004) Donald Kohn, Federal Reserve Governor: "The prospect of large federal government deficits stretching out into the future looks worrisome" "unless private savings rise considerably to compensate, interest rates will be higher than they otherwise would be to ration scarcer savings, and we will have slower growth in the capital stock and the number of houses and autos"
• Reported in the Sydney Morning Herald (9 January 04): The fund (IMF) said the US would soon have a foreign debt totalling 40% of its gross domestic product - an "unprecedented level of debt for a large industrialised country". This could trigger a "disorderly" plunge in the US dollar and a corresponding jump in other currencies, including the Australian dollar - rocking the global financial system.

Direct link to CNN Article: http://money.cnn.com/2004/01/07/news/economy/fed_kohn.reut/index.htm

Direct link to Sydney Morning Herald Article: http://www.smh.com.au/articles/2004/01/08/1073437412930.html


ck in the gains from 2003