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Edition 32

  •   20 September 2013
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Welcome from Chris Cuffe

Some media commentators celebrated last week as the All Ordinaries Accumulation Index (the total return index which includes reinvested dividends) clawed its way past its previous November 2007 peak. But since its inception, Cuffelinks has encouraged investors to think of returns in real terms, with adjustments for inflation. At the risk of bursting the party balloon, Ashley Owen points out we are still 14% below the real maximum.

The more-often quoted number, the All Ords Price Index, peaked at 6,853, which adjusted for inflation, would now be 7,900. The market is at 5,200, requiring a 50% rise to recover the real 2007 level. Two lessons here: inflation can destroy wealth, and it takes a long time to recover when you buy at the top.

Roger Montgomery tests Ben Graham's major investment principles using the price history of four Australian companies, and concludes the economic performance of a company will eventually drive its share price. You need patience and confidence to be a good investor.

Lifetime annuities are growing in Australia but the take-up is still modest, probably because the banks have been so competitive on term deposits and the industry has focused more on pre retirement accumulation. David Bell explains why academics like lifetime annuities to help solve the longevity risk facing many retirees.

Smart beta strategies are also gaining popularity, often as an alternative to cap weighted index funds, and Adam Randall explores the landscape including when they work and when they don't.

Finally, Stuart Turner and Maree Pallisco warn that life insurance included within major super funds has been sold too cheaply, and industry losses combined with new regulations will drive prices higher. They include guidelines for fund trustees, but the message for all is to expect this essential protection mechanism to become more expensive.

Chris

Latest posts from Cuffelinks, 20 Sep 2013, Edition 32

  • Why academics like life annuities David Bell
  • Testing Ben Graham’s voting and weighing machines Roger Montgomery
  • Hold the champagne, that’s not a recovery yet Ashley Owen
  • What’s so smart about smart beta? Adam Randall
  • Cost of life insurance will rise significantly Stuart Turner & Maree Pallisco

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  •   20 September 2013
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