Financial Growth
Remember when petrol was $0.32 per litre , then $0.70 per litre, then $1.00 per litre and is now $1.50 per litre? It's not just petrol that has increased, most things we buy increase over time with inflation - bread, milk, paddle pops.
Given the recent "correction" in the share market and the inevitable media "scare tactics" that follow, we felt that the graphic illustration below provided an apt reminder of what we are trying to achieve as your financial planners; creating and protecting your wealth for life.
The graph below shows two options for investing $100,000 in 1980 for 27 years. One option was investing the funds in term deposits and the other investing in the share market.
Initially you would have been receiving approximately $9,000 interest from the term deposits, and slightly less from the shares.
The income generated by each investment diverges with the share income climbing dramatically, as company profits increase, compared to the term deposit whose income remains relatively stable. Over time the capital value of the shares will fluctuate (such as is happening now) while the term deposit remains static.
At the end of 27 years, the value of the share investment is now $1,800,000 whereas the term deposit has remained static. But more importantly the income generated from the share investments is now approximately $78,000 per annum whereas the income from the term deposit is only $8,000 per annum, which would not offset the effect of inflation (rising prices) over the 27 years.
Which income stream would YOU prefer? In fact, which income stream do you need?
Over the long term, it is access to this income stream that will provide you with financial security.
If you purchased that income stream in 1980 for $80,000 or $120,000, the income stream would still be the same and would have provided you with an adequate return. The moral of the story is that when assets are attractively priced we don't need to get too cute in trying to pick highs and lows (which is impossible), as over time the difference becomes negligible.
Presently we can take advantage of the market volatility by purchasing the same income stream for the next 30-50 years for 30% less than we could 18 months ago.
