Successful investing is about making a considered risk versus reward assessment.
When markets are in the ‘stealth’ phase they represent a low risk/high reward proposition. In the ‘mania’ phase there is a distinct and fundamentally important reversal in market characteristics — high risk/low reward. As the ‘mania’ phase continues, the market dynamics become extremely high risk/negative reward.
Yet, the majority read the signs differently. In their mind the market is signalling ‘no risk/really high reward’ in the mania phase and ‘high risk/no return’ in the stealth phase.
Identifying trends and making judgement calls is how I manage my money.
The following graphic on who’s who in the global economic zoo, shows you why we have to take notice of the 600lb gorilla on the other side of the Pacific Ocean.
If you look closely, on the bottom right (around 4 o’clock on the chart) you’ll see Australia…at 1.8% of the global economy.
Vern has been involved in financial planning for almost 30 years and has been recognized as one of Australia’s Top 50 financial planners. He currently publishes Gowdie Family Wealth, The Gowdie Letter, and contributes to many others.
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Agora Economics provides a long-term forecast of real total returns over the coming 10 years. The model forecasts annualized real returns and includes 8 factors, including valuation, demographics, interest rates, consumer economics and investment cycles.
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