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Finding a cure for bubble brain; What are you willing to risk and why?'; An appropriate allocation of bonds; Aussie budget and Kiwi businesses; Aussie dollar ATMs in NZ

Finding a cure for bubble brain; What are you willing to risk and why?'; An appropriate allocation of bonds; Aussie budget and Kiwi businesses; Aussie dollar ATMs in NZ

By Amanda Morrall

1) Bubble brain

There appears to be no end of bubbles and no shortage of investors prepared to inflate their size despite the flashing lights and warning signs. Why? 

The Globe and Mail takes a closer look here at the bubble brain phenomenon that keeps short-term minded investors willingly putting themselves in financial jeopardy and behavioural finance experts in research grants.

When researchers find a cure for bubble brain, we might just find a fix to market distortions. Awareness is the first step.

2) Understanding risk

Investors are taught at the early stages to understand the correlation between risk and return and their risk profile is used as a guide for portfolio construction. But how accurate are these risk profile questionnaires and what end to they serve?

Robert Powell writing for MarketWatch argues that their real value lies in protecting financial advisors from expensive law suits. Powell suggests a more effective risk profile would focus on the investor's ability to absorb losses, not their hypothetical response to them. He makes some very good points.

3) Stocks and bonds

A "diversified" portfolio is considered to be one of the best ways to guard against losses however the accepted norms are being challenged these days. Take Allianz Investment Management, one of the world's largest insurance funds. Its chief investment officer is so weary of the "cult of equity" and it's inability to deliver those promised long-term historically proven higher returns, that Allianz's fund is comprised of 90% bonds.

Here's the article.

Vanguard (the passive index tracker) founder Jack Bogle is keen on bonds but not that keen. This piece published on Vanguard's website mentions Bogle's formula for asset allocation. He suggests, "as a rule of thumb" that investors use their age as a measure for bond allocation.

Under this approach, 40-year-old investors would have 40 per cent of their overall investment portfolios in bonds whereas 60-year-olds would have 60 per cent of their portfolios in bonds. This asset allocation may appeal to, say, conservative investors who have the remainder of their portfolios diversified into the other main asset classes including shares and property.

Food for thought.

4) Australian budget impacts for Kiwis

Grant Thornton, in its latest newsletter summarises the key tax tweaks in the 2012 Budget. It also notes some changes out of the Australian Budget which could impact on Kiwi businesses. They are as follows:

  • higher Australian tax rates for non-residents
  • non-residents will be denied the 50% capital gains tax reduction for assets held more than one year and will need to think about getting a valuation on any assets subject to Australian CGT as at May 8 (e.g. Australian land)
  • further reduction/removal of living away from home concessions.

This newsletter from Grant Thornton's Paul Banister further explains the personal tax implications from the Australian 2012 budget.

5) ATM and Aussie dollars

BNZ last week expanded its base of ATMs that issue Australian dollars in response to growing demand for the currency. The bank rolled out four new machines in Auckland that give customers the option of withdrawing Australian dollars, bringing to seven the total number double currency issuing machines.

BNZ says customers using these machines will get the same rate of exchange as what they would pay at the teller. (See this release from Scoop for locations).

It still pays to shop around.

Check out our foreign currency calculator which points you to the bank with the best rate on any particular day.

To read other Take Fives by Amanda Morrall click here. You can also follow Amanda on Twitter@amandamorrall


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#3.... What happens if you live to 110?

...... you get inducted into the Guinness Book of World Records for having consumed more Whiskas , Tux biscuits & Dog roll than any cat or dog on the planet ?

Short stocks and put 110% of your net worth in bonds.