News Archive

Over the past week or so we’ve seen share markets around the world cop an absolute battering and Australia was not immune to the onslaught.

The main concern is the worsening sub-prime mortgage sector in the U.S. – these are mortgages given to people who don’t qualify for standard loans because of their credit history or financial circumstances, and, as official interest rates started to rise those borrowers are finding they simply can’t make their repayments.

Why is this impacting the market? Well, the sub-prime mortgage companies package up these loans and sell them as bonds to investors like fund managers and banks, who like them because the returns are higher than other bonds backed by standard mortgages. So when defaults start to occur, the ripple effect is huge.

Given this latest credit market meltdown, its little wonder investors are asking themselves whether they should sell up now and ask questions later, or hang on and hope the worst is over.

Central bankers and economic policy makers who gathered in Queensland at the APEC Finance Ministers Meeting were pretty much in agreement that the world economy is still strong and investors shouldn’t be too concerned by this latest shake-out.

“So should I sell up or hang in there?” That’s the million dollar question, but it is always best to be cautious about switching money into some other asset just because it may me performing better right now.

This also applies to switching between investment choices, if you pull out of an equity option and move to a cash option, you realise the stock market losses. It is also worth remembering that despite the recent falls, the Australian stock market and the world economy in general are still in pretty good shape. When you look at the broader picture, we’re only back where we were in February this year, which is not too bad at all.

So don’t panic – The worst may not be over but all the signs point to an eventual recovery. Remember, superannuation is a long-term investment!