The Hudson Forum :: 30th October 2008::

Ivan Fletcher Phillip McGann Hamish McDouall Michal Park Stephen Rake Andrew McDonald

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Phil:	Welcome everyone to the October Hudson Forum. We’re here to look at the Hudson view on the unravelling credit crisis that's been going on for about 12 months now, and definitely has heightened over the last two to three months.
	We thought we'd look from a perspective of where things are at present, how we got to today, and economic responses around the world including Australia. We will then follow this with the impact on the asset markets that all Hudson members are invested in, and then a general comment on retirement implications from Stephen Rake.
	I might throw it over to Ivan to say why and how the credit crisis happened, and responses thus far from central banks and governments around the world.
Ivan:	My comments could probably last several hours, but in the best interests of readers, I might keep it to a laymen's version. Different levels of knowledge exist in the marketplace and amongst our clients, so I'll try to do a ‘one size fits all,’ summary which is difficult - but most people are aware that things stem back as far as the American lending system. What everyone now knows full well, is what sub-prime lending is. This was the American banks lending money when their interest rates were extremely low, down around the sort of 1% or 2% levels. They were lending money to people that didn't have either income, or sustainable income, and lending these people as much as 100%. These were the types of loans that did go up 3% - 4% after the honeymoon period.	"...naturally people without cash flow and income started to find they were defaulting on their mortgages. So thats where the crisis all started."
	In that time interest rates started to rise again in America, and naturally people without cash flow and income started to find that they were defaulting on their mortgages. So that's where the crisis all started. That part is about 12, if not 18 months old. How it’s flowed through to the rest of the world and the panic we are at today is this: for everybody who borrows money, somebody had to lend that money, and the buck doesn't stop with the bank that lent the money to the American individual who buys a home. The bank can turn around and borrow the money from another bank, and that bank will turn around and borrow money from another bank, in another country.
	You’ve got money passing around the world, and when the negativity started with defaulted loans in America, it flows back through into ultimate investments that might have been tied up one way or another. The investment was packaged or carved up so many times over, resulting in an investment to somebody (whether they be in Switzerland or Australia or Europe) which was an investment into some type of bond that related to American loans that were defaulting.
	What it’s really caused, is the banking system has finally gotten the picture that they could no longer see where the buck was stopping. They couldn’t see who was actually holding on to the asset. As a consequence the financial meltdown, or the liquidity crisis (as it's known) is the banks of the world have stopped lending to each other. Nobody was prepared to lend because they couldn't gauge the risk, or weren't prepared to take the risk. This meant that a lot of people on the street - particularly in American institutions and now the European climate - is that the man or the business not being able to borrow money to keep their small business afloat, where normally that's never been a problem.
	The actual stopping of liquidity is starting to cause what people are now seeing as news items. Banks aren't lending to other banks, countries aren't lending, so there's a liquidity meltdown. A bit like the circulation of the blood in our bodies, if there's no circulation, everything comes to a grinding halt – and that's what's happened in the liquidity market.	"...our interest rates were a lot higher than overseas, so Australia had a lot more to room to come down."
	Going back three plus weeks now, the Reserve Banks of the world, including Australia, have got together to try and make decisions. They've also made decisions in their own right. The first one, was the Australian Reserve Bank to actually cut our interest rates by 1% to try and make financing a bit cheaper, so that banks could still lend money out. The rest of the world followed within a few days and cut rates by about 0.5% in most European countries and in America.
Phil:	Which is interesting given that obviously our interest rates were a lot higher than overseas, so Australia had a lot more room to come down.
Ivan:	Yes, so that probably answers the question of why Australia cut 1% and everyone else 0.5%. They're a bit closer to zero than we are, so there were probably similar impacts for their rate cuts as what we had for a full per cent; without buying into the debate of whether the Reserve Bank did go too far with its rate rises.
	The other thing that's happened on a global front is the decision by world governments - and we hear of the G20 and the G7, which is basically, the bigger the number, the more countries involved in the tabled discussions – to try and inject some liquidity into the environment but with bail-out packages.
	So it might be like the numbers don't show we're in recession, but it feels to some people that we are.
	The bail-out packages are taking different forms. The most common is for them to actually be taking on the loan, so where Bank A won't lend to Bank B, the government's lending the money, again trying to put the liquidity back onto the street so that the man or business can get a regular loan to keep a business or home loan ticking along. The impact is more imminent on the American front. We haven't noticed it as much in Australia as yet.
	So they were all decisions that were made in the last few weeks. In terms of actual money hitting the street – that is only starting to happen now and we're literally expecting the first check from the government to a bank in America to be written in the next couple of days.
Phil:	I saw that. Overnight the US Treasury started to announce which banks they were going assist to shore up their capital positions.
Ivan:	There have been a lot of announcements about trying to solve the liquidity crisis, and we're at the edge of starting to see the first bit of money start to trickle through into the economy. So those were the actions taken by Federal Reserves and governments around the world.
	The most recent action is the Australian government decided to guarantee bank deposits in the belief that that was going to stop a raid on investment accounts - because people are starting to worry about their money in banks. It had a bit of a kamikaze effect on non-bank deposits, which has resulted in announcements where certain funds which are not covered by the bank guarantees suddenly having a run on withdrawals, because people want to switch their money to bank guaranteed deposits, and why would you not?	"as rates come down over the next few months, the grant should assist first home buyers into the property market."
	So in the most recent week, we've seen a lot of institutions putting a freeze on funds, simply because the redemption process was just becoming too large. Therefore it would be damaging to all investors to have to liquidate a whole lot of investments within a short period of time. They put a freeze on things so that investment returns aren't damaged. This is, in essence, the major activities or actions which have been taken.
Phil:	That flows through on to Andrew and responses in relation to what our Federal Government and Reserve Bank have done over the last month or so.
Andrew:	Well, Ivan already touched on one response. The two major things they've done is the $10.5b economic stimulus and the guarantee of all bank deposits.
	The economic stimulus: the big winners were pensioners, low income families and first home buyers. Probably the reason they targeted those people is because they're going to spend the money, they're not going to save it or use it to pay off debt, they're going to spend it, which will create some sort of economic impact, that's what they're hoping. Single pensioners get a $1400 payment in December, and the couples will get $2100.
	The First Homeowners' Grant, was doubled from $7,000 to $14,000 for existing properties, and tripled to $21,000 for new properties. There's been a bit of mixed reaction as to whether that's a good or bad thing. Those in the real estate and building industries welcomed it as a much needed stimulus. A few economists said it is counter-productive because it gets capitalised straight into an asking price so doesn't really assist first home buyers; but I don't think that's what it was put there for. They are trying to stimulate activity in a market that's a bit slow at the moment. As the rates come down over the next few months, the grant should assist first home buyers into the property market.	"Growth looks likely to slow and the forecast from the IMF is certainly expecting ... ... pretty much a 1% reduction in world growth across the board."
	Ivan already mentioned the guaranteeing of bank deposits. Kevin Rudd said the government would guarantee the first $20,000. Then Malcolm Turnbull, the opposition leader, called for $100,000 - so Rudd didn't want to be outdone, and put up an unlimited guarantee, which created a bit of a problem, because it lead to a massive flow out of banks and institutions that weren't guaranteed and into ones that were. This resulted in a lot of funds having to be frozen. It's unclear whether this move will fix the problem in the current climate. The government guarantee is very attractive so it's led to freezing of funds including some Colonial First State income funds.
Phil:	It will be interesting to see how things unravel in the future as well. They're talking about a three-year guarantee now. How do you reverse a government guarantee? That will be interesting for the government to wrangle with, but the idea about stimulating the economy is good. If you're going to stimulate the Australian economy, you give money to people who are going to spend it.
Andrew:	Yes.
Phil:	The housing sector is a great way to use a multiplier effect on the economy - I think about 25% of activity in the Australian economy is indirectly tied up in the housing sector. There are so many tangents of it. If you can pump more money into property, builders and retailers and everyone benefits, so it’s a very good thing to do. The Reserve Bank cut rates by 1.25% in the last six weeks, and that will take about 9 months to come through into the real economy, through till about June next year. Then the government housing stimulus cuts out in June next year.
Andrew:	I also saw within the next 12 months they reckon the cash rate is going to be at 4.5 which is another 1.5% cut over the next six to nine months.	"Even though [the emerging markets] growth has slowed, China is still expected to grow at around 9%,"
Phil:	That'll be interesting. That flows on to the economic side then, Hamish, and how does that impact on the real economy, and how have we, and people overseas been impacted by that?
Hamish:	Growth looks likely to slow and the forecast from the International Money Fund (IMF) is certainly expecting that. The reason for slowing growth is a combination of the reduced liquidity and reduced access to borrowings for business and individuals, in combination with a slowing in consumer confidence and consumer spending. The IMF is expecting pretty much a 1% reduction in world growth right across the board, both for developed and emerging economies. The likes of the US, the UK and Japan are already in a recession and how long that will last is a bit of an unknown, but the stimulus packages and rescue packages should start to begin having an effect.
	The emerging markets are really the shining light in terms of world growth. Even though their growth has slowed, China is still expected to grow at around 9%. The recession in the US is really the result of consumers and households tightening their belts. In the US a lot of the economy is reliant on consumer spending, and as consumers are having increasing difficulties with their home loans, they're very much tightening up what they're spending money on.
	The US doesn't have quite as much room as the likes of Australia in terms of providing a stimulus to consumers. Their interest rates are already much lower than ours. The US Reserve rate is currently at about 2% and in addition the US government has a half a trillion dollar budget deficit.
	In comparison, Australia has a higher level of interest rates and a budget surplus, so we have more room to give consumers and households some stimulus to get spending again. Australia is still expected to grow at a reasonable pace and isn't expected to head into a recession at this stage. A lot of that has to do with our reliance on the likes of emerging economies and the benefits that those economies have on our resource-type companies. Australia is different to a lot of developed economies in that we are a large exporter of resources and an importer of manufactured goods, both of which benefit us in terms of the emerging economies - for their demand on our resources and also by keeping prices down on imported manufactured goods.
	I think on the Australian scene we'll see things slow and we might get a slight rise in unemployment. The unemployment side is coming from a very low base, and arguably we probably needed some rise in unemployment to take the pressure off many businesses who are struggling to find employees. But as I said, it will be interesting to see how it pans out in terms of when these various stimulus packages hit the market and how quickly that flows through.
Phil:	The unemployment level will be interesting for everyone - how jobs go but also from retailers to see what turnovers will be like in the future. That's a real big unknown. There are a lot of economists saying the unemployment rate could jump up a lot. You don't subscribe to that? Over 6%, I've seen some people predicting, by June next year. That seems a little bit over done, or not?	"...as the dollar has tumbled away it will be interesting to see the terms of trade in the next couple of quarters and see where we head."
Hamish:	I haven't done a lot of research into that Phil, but certainly I think it could increase. 6% is a big jump and there would have to be some serious lay-offs.
Andrew:	What about currency and the slide in the dollar? It's 40% lower from only a few months ago. Will that affect our economic activity anyway?
Hamish:	I suppose it will. I guess it does two things: it provides support to the resource-type companies because it makes our exports cheaper, but it also makes our imports more expensive which isn't going to help consumer spending.
Andrew:	I think we're still a net importer as a country, aren't we?
Hamish:	Yes.
Phil:	We turned around in the last couple of months, export levels are a bit higher two months in a row with coal prices and coal volume, and iron ore being a lot higher. But as the dollar's tumbled away it will be interesting to the see terms of trade over the next couple of quarters and see where we head. Things are definitely softer on the economic side.
	As for impacts on asset classes, I was having a look at residential properties, which a lot of Hudson members have exposure to, and we've long advocated as a good growth asset to be in.
	The interesting thing at the moment is - forgetting about – suspending the credit crisis – all the things that have happened with relation to Australian residential property point to a very strong future.	"You've also got a poor share market and a lot of people toggle betwen the two, from shares into property."
	You'd be very comfortable at the moment if you were looking at property as an investment, given that interest rates have fallen and are likely to fall over the next couple of quarters. We've got a lack of supply in residential property. We've got strong rentals. So the government has given a stimulus package for residential property purchases at the lower rung via the FHOG increase. You’ve also got a poor share market, and a lot of people toggle between the two, from shares into property. All those things are a positive for property, but at the moment the property market is suffering a bout of uncertainty. The big thing hanging over it is obviously the credit crisis and people are wary about where Australia will be economically in the future.
	Unemployment is a big problem potentially particularly for property prices. I feel the only reason that you would see a substantial drop in the price of residential property is if unemployment jumped really very high, from the present 4.5% to more like about 7.5% to 8%. You may see a real drop-off in demand and obviously prices could tumble on the back of that. That's why I was asking Hamish where unemployment is likely to be in the next 6 - 12 months, because we'll see lower interest rates, the stimulus package coming through. If unemployment holds and doesn't jump too much, we feel that the demand should be there.
	The big problem at the moment in the property market it seems to me there's a lot of uncertainty and people are waiting and we're seeing that in auction clearance rates, in the Melbourne market over the last weekend; and Sydney and Brisbane likewise. There has been talk of an overpriced asset market in residential property but, once again I feel the only way that you'll see a big drop in house prices (of the level some people have been commenting) would be if unemployment jumped, and that comes back to the economy. What does everyone else think of that as a general comment?
Michal:	I agree with the unemployment comment. If it rises significantly it's going to have an impact on property prices. I think there are also fears that the stimulus packages the government has announced are too short-term. If they were extended, maybe that would instil a bit more confidence.
Phil:	It will be interesting. If the stimulus doesn’t have an impact in the next nine months I can't see why the government wouldn't extend it and spend the rest of the surplus on that, or something else. They're not going to let the economy go into a deep recession for want of doing something. Likewise, interest rates should be cut further over the next few months if we don't start to see a more positive economic outlook.	"They're not going to let the economy go into a deep recession for want of doing something."
Andrew:	Some pundits have been saying property in the $300,000, $400,000, $500,000 mark will be helped by interest rates and the First Homeowners Grant. Some of the top-end properties could really fall off, which might make median prices lower, especially in areas like Sydney. A lot of executive bonuses aren't going to be paid; a lot have been hammered by margin calls. You might see falls in, the real top-end but around the low-middle area is going to be helped by the grants and interest rates. As you said, unemployment is the thing that would have to rise significantly for property to fall by a significant amount.
Phil:	Traditionally first home buyers make up about 20% - 25% of the housing market, and at the moment they're down to about 10% to 15%. This will definitely bring a lot more people at the lower end buying those properties at $300,000, $400,000 or 500,000. Then people who are selling, looking for a second, third or fourth home as they move up the price brackets. So you've got to have people at the bottom, otherwise we get what we've got at the moment. It's a pretty sluggish property market at the moment.
	All of this is intertwined obviously, in the financial crisis and how it impacts on real asset prices for members. Looking further afield, obviously the big topic at the moment is the share market and how that's going, Michal. What facts and figures have you got for us?
Michal:	I think the biggest fear is of a global recession. I think that's having an impact everywhere. With shares, because it's in our faces everyday - it's the most visible of the asset classes. I think that is what makes it more topical.
	Going back to where Ivan was and how this all started. The impact of the credit crisis on shares, initially it seeped into finance stocks as finance between banks dried up. Highly leveraged investments were hit next which was mainly property trusts when they couldn't refinance and had to sell assets. Then it's filtered into all other stocks. No share market around the globe has been spared. European, Asian and emerging markets have all been negatively affected. Even though emerging markets less so, they've still been affected. And the Dow Jones Index is trading at five and a half-year lows.
	Our Australian share market is trading at four-year lows. We've now breached that 4000 magic point level. It's trading at below 3800 points as at today. And just a statistic, the ASX200 has dropped about 43% since its highs in November last year. .
	The three notable measures to try and improve stability and reduce volatility in share markets have been the bail out packages, both globally and here in Australia. Number two has been the ban on short selling. That was initially only for 30 days here in Australia across all shares. That's now been extended for another 30 days and will go on for finance stocks to at least the 27th of January. Again, that was designed to stabilise share markets. The third measure has been a reduction in cash rates. All those measures were initially responded to positively, but again, I think the fear of global recession has overridden all of that. .
	Factors affecting the share market now are the falling Australian dollar - and that's based on investors pulling out of our dollar because of our reliance on resources. There is evidence of a slowdown in China, and although there's a slowdown China is still growing. As Hamish said, growth is anticipated to continue in future years and the RBA backs that as well. Other factors affecting markets are, forced sales by fund managers to meet redemptions; so mini-margin calls that have happened, people just can't support them. Again, market sentiment is one of the major factors and one of the economists suggests that if fear is the only factor driving a market, then it could be the bottom or near the bottom but I've heard the bottom of the market being bandied around for a few weeks every month now and it's just one of those things we'd all love to know.	"one economist suggests that if fear is the only factor driving a market then it could be the bottom... but it's just one of those things we'd all love to know. "
	Positives going forward are: China is still growing, albeit slower; Some of our banks are in the top 20 in the world in terms of stability and liquidity; stocks are cheap - most have been oversold purely due to panic. I think there is a lot of opportunity for long-term investors out there. The two questions that everyone wants to know are what is the bottom and how long will the recovery be. It's just an unknown. The average bear market lasts 18 to 24 months and we're 12 months in. China (indistinct) we've say it constantly, you're better off, rather than trying to wait and time the market, you're better off averaging in so you don't miss the bottom but you don't get in too early either. So I think there are opportunities for long-term investment. .
Phil:	That's a positive. Hamish?
Hamish:	I certainly support all of that, Michal. I think the share market looks to be very good value where it is. Who knows where the bottom is and who knows if we've seen it, or if it'll be in the next month or six months. At end of the day it is extremely discounted where it is. As mentioned in my Hudson Report a few weeks ago, dividend yields of around about 6% and then you get Franking credits on top of that which would tend to put your yield up to about an 8% return and historically very low price to earnings ratio. As mentioned in that report, it means that for the stock market to get back to fair value, profitability needs to fall by 44% and dividends need to be cut by a third. And with economic growth still expected to be positive in Australia, it's very difficult to see those sorts of figures actually coming around. Certainly there might be some sectors that do lose profitability by 40%, but it's hard to see that being right across the board.	"Certainly there might be some sectors that do lose profitablity by 40% but it's hard to see that being right across the board. "
	As for when the market will turn around, I think it will be when we see what the impact is on business and how much profitability is being cut by. Even beyond that, the market may not start to rise substantially until it's actually expected that profitability will start to increase again. I think shares for a long-term investment, they might be volatile for another year or two but if you're getting in at these sort of levels, there's plenty of upside.
Phil:	I tend to agree with that. It's interesting times. And there's a lot of pessimism out there and you wouldn't try and pick the bottom on a day-by-day basis, but some averaging in would be a great idea. But, yes, you're getting prices we haven't seen for four years you were saying, Michal. So shares are on sale. That's a great thing to be looking at. If you have cash, it's a good time to be looking to do something with it on the shares side. If you're in the market already, if you've been in there a long time you've enjoyed a good, strong run up as well. From that point of view you've taken a big haircut on the top but we'll just have to see how it plays from here. It's no time to be selling shares.	"you're getting prices we haven't seen for four years ... So shares are on sale."
Ivan:	No such thing as a rational market, is there?.
Phil:	Looking at it from our member base on the retirement side, I might throw it to Stephen Rake to give us an idea of the retirement impact.
Steven:	I guess one way to look at it with retirement in mind is – one of the most common questions I get from retirees is do I have enough money to last me the rest of my life and pay me the income that I want? All of a sudden we've seen superannuation valuations drop significantly so people have thought, well – they're panicking. They now think they don't have enough money and because they're retired, they're not going to be building up their wealth any longer. I think the most important thing to come back to is you've got to go back to your original goals and objectives. Obviously the current economic times are a concern, but you've got to go back and look at your long-term goals and objectives and take this into account.
	I was having a look this morning at some balanced fund returns. A balanced fund has exposure to all the major asset sectors which we're strong advocates of here at Hudson, especially if you're a retiree. So you've got exposure to cash, fixed interest shares and property. Over the last year on average they've fallen between 10 and (some of them) 14%. That’s a fair hit. To that into perspective, if you're portfolio was worth $500,000 last year, it could be down to $425,000, $440,000 now. What impact does that have on you going forwards now given that you're not going to be – if you're retired – you're not going to be adding any money to it? .	"I think the important thing to come back to is you've got to go back to your original goals and objectives. "
	There are a couple of things working against retirees at the moment, obviously big declines in share market evaluations impacting portfolio sizes, and I get a lot of comments here. First - I don't know how many advisors are getting this – the first reaction of many retirees is “I should go to cash,” “I can't afford to take any more losses.” I'm taking a totally opposite stance to that because, what's happening to cash rates? They're going down, they're falling. What that indicates to me is if you go into cash, sure there's not the capital volatility but you're going to be forced to make that capital volatility because the interest rate won't cover the income you need. You're going to have to make withdrawals to cover your income, and because you're in cash you're not going to have the potential to recover that loss.
	In essence, what you've got to do is think, is this the end of the world economic system? Is this the end of world share markets? What does everyone think?
Hamish:	No.
Phil:	No.
Michal:	No.	"[If] I'm looking to retire in the next five years and I'm going to live 25-30 years, I should be planning for a downturn like this... this wont be the last time this happens ."
Steven:	Definitely not. You've got to stay invested. I think that's the most important thing. You've got to stay invested. The markets will recover. They'll take a bit of time.
	The other thing to learn is you've got to plan for things like this. If we have a quick look over the last 25 years, what's happened in the share markets? 1987 we had the big share market crash; in 2001 we had terrorist attacks; 2002-2003, the Iraq war, when share markets did not perform. If I looked at in perspective, a retiree is expected to live 25 to 30 years on average. What that tells me is if I'm going to retire or I'm looking to retire in the next five years and I'm going to live for 25 - 30 years, I should be planning for a downturn like this. Hopefully they don't happen but I can nearly guarantee you they will. This won't be the last time this happens.
	You’ve got to have assets that aren't impacted as much by something like this; so you've got to have cash and fixed interest, in your portfolio and that's basically for you to draw on in times like this. Your shares, your property-type investments - you've still got to have them because history shows us they'll end up giving us a better return in the long-term, but in the short-term they can be absolutely terrible. We’ve got to have our portfolio set up in a way that we can ride through this system and not have to touch our share and property investments in times of volatility.
	What I'd suggest for people who are looking to or who are retired, you've got to review your asset exposure. Unfortunately there's going to be people who are looking to retire shortly or who are retired and may have been overly exposed to share markets and property trust-type funds. It may mean having to take losses or having to work a bit longer or even going back to work for some people unfortunately. But if we plan for it five years plus out, this shouldn't be the case for people who are looking towards retirement. If people who are retired have planned for this sort of scenario, it shouldn't be a mechanism that has to send them back to work. Any comments on that?
Phil:	I agree with you on the cash side of things. I've spoken to a member over recent weeks – in relation to “I want to go to cash because I'm fearful about the share market and where it's going” or “I'll go to cash and I'll come back to the market when it looks a bit better”. Well, that's crazy. That's crazy talk. That's not going to happen because they're making a conscious decision to time the market now, saying as well as "I can pick the market when it's about to rise again." Well, they didn't pick it when it fell, so how can they think they can pick it when it's going to go the other way. They've got to be careful what they do there. Likewise, the cash rate is coming down and so your return in cash is going to be a lot lower.	"Likewise, the cash rate is coming down so your return in cash is going to be a lot lower. "
Michal:	As higher inflation erodes real returns anyway.
Phil:	At the moment you can get cash rates in the bank at about 6.5 to 7% -ish, inflation's running at 5% less tax, so you're getting basically no return at all. If cash rates keep coming down as they've forecasted to over the next two to three months, you may well see a cash-at-call account returning 5.5%. So you're getting a negative real return. You can't go to cash. That's just not a good idea. And if you're contemplating that, talk to your advisor to work through the ramifications of it.
Steven:	The other thing I'd probably note for retirees, is that it is quite possible that your asset portfolio has taken quite a hit in valuation. Look at your scenario now and see if you can get the Centrelink Aged Pension. It's a great time to be reviewing that, because if you've got a portfolio that's fallen from $500,000 down to, say, $440,000, that could be an extra $3000 roughly, that you can now get in Centrelink pension. That could make up the difference of the shortfall in income so it can see you through this time.
Phil:	Good advice. Any other comments about that?
Ivan:	Only one general one and it's something that Stephen's been promoting for a long time in Hudson in the retirement plan. That anyone who's been using Hudson, or Stephen's resources in planning towards retirement, we talk about the short-term, medium-term, long-term. And if you break that into lots of three years, the short-term being the first three, the reason you do set aside funds to cater for your income in three years is so you can substantiate fallen share markets, so you don't have to sell your shares to fund your retirement. You've already bought three years worth of, income needs to allow the share market to recover. The same with the medium term before we get to the long-term, which is seven years away.	"the whole point of a retirement plan is to structure assets to meet those needs ... adequatly done, there is not need to abandon a plan that was set exactly for this type of situation. "
	Most people are pretty confident that in seven years time the share market will look a hell of a lot healthier than it does today and that's the whole point. Correct me if I've misrepresented you Steve, the whole point of the retirement plan is to structure assets to meet those needs. If that's been adequately done, there's no need to abandon a plan that was set exactly for this type of situation.
Steven:	Yeah, that's exactly right. Even if you are not yet retired but contemplating retirement and you'd started planning three, five years ago, this market downfall should not be a trigger for you having to work past when you're wanting to retire if you're planning for it, because the markets will turn around. They'll bounce back, they'll get back in front of where they were but it's a matter of not having to realise losses during the current times.
Phil:	Looking at what Steve's saying, the idea being that if you've planned well, and you've looked at your time-frame and risk profile, then whatever goes on in asset markets really shouldn't impact you that much. That’s because whilst we've had a terrible share market in the last two to six months, ask yourself whether your risk profile or your timeframe has changed. If it hasn't, you really shouldn't be changing your asset allocation reacting to markets. It's the worst time to be doing it and that is something everyone should keep in mind.

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