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The global financial crisis: Behind us but far from over

Ten years ago this month, Lehman Brothers, the fourth-largest US investment bank, filed for bankruptcy protection.

         

 

It was a seminal event in what has come to be known as the global financial crisis (GFC). Even a decade on, the massive damage it inflicted across the world continues to shape both the global economy and investor behaviour.

Just how bad was it?

The epicenter of the crisis was a wave of US subprime mortgage failures that hit the housing and financial sectors and then spilled over into the broader economy and far beyond the United States. It created a synchronised global recession. For a number of countries, including Greece, Italy, and Spain, recovery from this recession to pre-crisis GDP levels has taken even longer than it had from the Great Depression. Other countries still aren't there yet.

Although numbers alone can't capture the full impact of what happened, below are some indicators for the United States that at least give a sense of the scale of the crisis.

Sources: Vanguard, Financial Crisis Inquiry Report: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States, and “The 2007–2009 Financial Crisis: An Erosion of Ethics: A Case Study” in Journal of Business Ethics, December 2017, Volume 146, Issue 4, pp. 805–830.

Some healing from the GFC and some enduring scars

“Obviously, we're in a much better place right now than we were a decade ago,” said Roger Aliaga-Díaz, Vanguard chief economist for the Americas. “The global economy has been expanding—the US is in its ninth year of expansion, which is the second-longest on record, and most developed economies are at or near full employment. And inflation remains modest despite unprecedented monetary stimulus.

“But on the other hand,” he noted, “the GFC set in motion or accelerated some deep shifts in the global economy that leave us still short of 'pre-crisis normal,' according to some key metrics. I'd point specifically to wages, global growth, international trade, and interest rates as prime examples of that.”

  • Slower global growth, less international trade. The financial meltdown put a brake on the debt-fueled consumption boom in the developed world and, with it, the main growth driver for export-oriented emerging markets. The US, for example, began buying less abroad, causing its trade deficit to drop from close to 6% of GDP in 2006 to about 2.5% post-crisis, while China's trade surplus shrank from 10% of GDP to around 2%. (They are still at roughly those levels today.) The abrupt drop-off in international trade accelerated the drive of some emerging markets like China to rebalance their economies from export-oriented manufacturing production toward domestic-oriented services. Other emerging markets, especially commodity exporters, have struggled to reorient their economies. As a result, emerging markets are not the engines of global growth they once were. Growth in China has slowed from an annual average of about 10% for the two decades prior to the GFC to about 6.5% since then. Overall emerging-market growth has fallen from about 7% to about 4% over the same time frame.
     
  • Persistently low interest rates. Global demand for “safe assets,” such as high-quality government bonds, had been increasing well before the GFC. One reason was the burgeoning retirement savings of aging populations transitioning toward more conservative portfolios. A second reason was a buildup of reserves by emerging-market central banks in response to their traumatic currency crises of the 1980s and 1990s, and more recently by their attempts to offset the effect of quantitative-easing policies of the last decade on their currencies.  The GFC caused a collapse in the availability of those assets, effectively shrinking the pool of what constituted “safe.” Before the crisis, many investors felt that financial assets, such as synthetically engineered AAA-rated securities, securitised mortgages, and related derivatives in the US, as well as euro-backed peripheral government bonds in Europe, were all valid alternatives to Treasuries. After the US housing and European debt crises, investors learned that that was not the case. 

    The deteriorating global supply/demand imbalance resulted in a massive shortage of high-quality, risk-free assets around the world. This had the effect of pushing the prices of the few safe assets left—mainly US Treasuries, British gilts, and German bunds—to extreme highs. Since bond prices and yields move in opposite directions, bond yields and interest rates have reached historical lows. 

    This global shortage of safe assets is likely to persist and long-term interest rates could well remain at current levels for some time.
     

  • Stagnating wages. In a typical economic recovery, companies have to raise wages in order to attract and retain increasingly scarce workers. However, there hasn't been as strong a demand for more workers in this recovery because global growth has been slower. 

    Demographic trends across developed markets are an important part of the explanation. In the US, the main reason for the fall in the unemployment rate has been the retirement of baby boomers, a trend that the recession probably accelerated and that is likely to continue for decades. The US labour force participation rate has shrunk by almost 4%, or more than 9 million workers, since the GFC. And because the retiring boomers have been replaced by younger and cheaper workers, the usual post-recession surge in wages, after adjusting for inflation, hasn't materialised.

And yet the financial markets have been surprisingly robust

“The contrast between the economy and the markets couldn't be starker,” observed Vanguard Chief Investment Officer Greg Davis. “While most economic variables showed subpar performance, stocks have delivered solid returns.”

The US market has delivered an outstanding annualised average return of 19% since March 2009 (the crisis-era low) following a meltdown of –47% in the six months prior to that. Those returns put the average annual return for the full ten-year period at 11%, or slightly better than the comparable return of 9% for two decades prior to the crisis.

The performance of bonds was also decent given the low-interest-rate environment—the average annual return for US bonds was 3.5% for the decade. Given the demand for safe assets, neither the extended period of economic expansion nor the unprecedented quantitative easing across much of the developed world has lifted rates very high.

*Data for Hong Kong bond returns were not available.

Note: The periods cover the global financial crisis (September 2008 through February 2009) and the post-crisis period (March 2009 through August 2018).

Sources: Vanguard calculations of stock returns, using data for MSCI Total Return Indices, and Vanguard calculations of bond returns, using Bloomberg Barclays indices.

Lessons for investors

There's no better illustration of the importance of staying the course through good markets and bad than the US equity market's impressive turnaround since the GFC. Investors with a broadly diversified portfolio of 50% stocks and 50% bonds who didn't hit the panic button saw an average annual return of 7% from the pre-crisis market peak in 2007 through June of this year.

Notes: Stocks are represented by the Standard & Poor's 500 Index. Bonds are represented by the Bloomberg Barclays US Aggregate Bond Index. The 50% stock/50% bond portfolio was rebalanced monthly. Data are provided by FactSet and cover the period from 9 October 2007, through 29 June 2018. Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.

Source: Vanguard calculations using data provided by FactSet, as at 29 June 2018.

As would be expected, more risk-tolerant investors with larger portions of their portfolios in stocks would have done better. It's worth noting, however, that a 100% stock portfolio would have been under water for the first four years after the market peaked in 2007.

Maybe the GFC's most enduring effect on investor behaviour is greater fear of loss. Millennials who started investing with Vanguard after the GFC were twice as likely to hold zero-stock portfolios as those who started investing before it occurred. For them, market risk seems to be more salient than potential return.

“Bond returns are likely to remain modest and US equities also face some headwinds due to high valuation levels,” said Mr. Davis, “which translate into subdued return expectations for the next decade. For all the contrast between the performance of the economy and market returns over the past ten years, we may be heading into a period of lower portfolio returns over the next ten years. A global balanced portfolio may return between 3% and 5% after accounting for inflation, compared with a historical return of around 7%.”

One of Vanguard's main goals in providing forecasts about capital markets is to arm investors with realistic expectations about portfolio returns so they can calibrate an appropriate level of savings in order to ensure they reach their investment goals.

Timeless advice

The global economy is in a very different place a decade after the GFC and some investors remain risk-shy (especially those who didn't participate in the great stock bull market that ran from 1982 through 2000). But Mr. Davis said Vanguard's investment approach hasn't changed: “Think about how much risk you can take on and still sleep at night, diversify your portfolio across the globe among stock and bonds, and make sure to rebalance from time to time—those steps should still offer you the best chance for investment success.”

 

Roger Aliaga-Diaz
Chief Economist for the Americas
vanguardinvestments.com.au

 

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Retirement Planning

Retiring on your own terms is not always easy to achieve, however it is evident that those who plan for retirement are more likely to do so. Results also show that obtaining professional help during the pre-retirement years further improves the probability of attaining your retirement objectives.

The earlier you start implementing a plan the better the outcomes.

During one’s working life there is always an income to make ends meet when raising children, paying off a mortgage, etc.

Retirement planning is about the lifestyle you will have after you stop work and receiving employment income.  Planning focuses on issues such as how much superannuation is enough, taking a super pension, claiming the Age Pension, making superannuation contributions while receiving a pension from a super fund, estate planning and looking after your family.

Planning properly is becoming even more important now we are expected to live longer.  This greater need means that professional help has never been more important.

At Wybenga Financial we will provide the time and expertise needed to help you implement the best pre-retirement plan possible.  Contact us today to discuss how we can work together on: (02) 9300 3000 or .

Building Wealth

Investing your hard earned savings can be a complex task.  There are many issues such as levels of risk, market timing, asset classes, and your own goals, objectives and preferences that need to be considered. It can often seem a daunting task. At Wybenga Financial we have the expertise to assist you in taking control of your finances and making sure you are generating the wealth you need both now and in the future.

The first step is to create a plan. At Wybenga Financial we take great care in getting to know our clients and their future goals and objectives. We combine our knowledge of your personal goals together with an analysis of your current situation, to create a detailed, personalised plan that will help you meet your objectives. This plan will become your road map which outlines how we are going to meet your goals, whilst aligning all investment decisions to your specific risk tolerance.

After we have created your personal plan, we move to implementation. This is where we action the immediate changes set out in your plan, and put in place reminders for anything that is to occur in the future. As your professional advisers, we can action many steps on your behalf making the implementation of changes as painless for our clients as possible. We aim to make the process smooth and seamless, providing a holistic service that can be executed with ease.

The final and most important phase of the relationship with Wybenga Financial is the ongoing management and monitoring of your wealth. This ensures you are sticking to your plan and that your portfolio is aligned to your needs and attitude toward risk. An ongoing relationship ensures that we know when your circumstances change and that these can be recognised and reflected in changes to your investment approach.

While we are monitoring your portfolio from the perspective of your personal goals and situation, we also take into account the wider economic landscape and changes to legislation. We continually review and analyse our preferred investments in a structured and objective way. The benefit to our clients is that we are unemotional. This can be significantly beneficial over the long term.

At Wybenga Financial we can provide the time and expertise that will help you invest intelligently and prudently.  Contact us today to discuss how we can work together: (02) 9300 3000 or .

Personal Insurance

Life insurance isn’t just a cost, though it often feels like it.  You buy peace-of-mind that should a serious issue effect you then the consequences won’t unduly affect your family.  Insurance provides you with the ability to manage the financial and emotional impact of some of the more drastic events, whether personally or in your small business.

Insurance can’t replace a loved one but it can help reduce the financial burden by providing the capital to ensure your family has choices.

Many Australians are underinsured and the consequences can be very serious for families should there be a death or serious injury. A yes to any of the following questions means you may have a need for insurance coverage:

  1. Do you have a mortgage?
  2. Do you have school fees?
  3. Do you have any personal loans?
  4. Do you have any credit card debt?
  5. Do you have dependents?
  6. Would your financial position be affected if you were to suffer from an illness or injury?
  7. Do you want to have enough capital to look after your dependents if you were unable to care for them for an extended period of time or perhaps indefinitely?

We understand that it can be difficult determining the type and level of cover you might need, let alone choosing an insurer. We can assist by helping you determine your needs and recommend an insurer that is right for you.

At Wybenga Financial we know how to protect your wealth and will recommend solutions that best suit your needs. Contact us today to discuss how we can work together: (02) 9300 3000 or .

Superannuation

Superannuation is mandatory but taking an early and active interest in your retirement planning is critical to ensuring your benefits are maximised by the time you retire.  Many will have a superannuation scheme through employment but increasing numbers are starting their own Self-Managed Super Fund (SMSF).

For many, simply relying on employer contributions may not be enough to provide the lifestyle you desire at retirement. We can assist in building strategies to ensure your retirement goals are met and your required lifestyle is maintained throughout retirement.

It is always best to start saving and planning for your retirement as early as you can. 

At Wybenga Financial we know our job is to help you meet your retirement needs and we have the skills and experience to do this for you.  Contact us today to discuss how we can work together: (02) 9300 3000 or .

Self Managed Super Funds

Self-Managed Superannuation Funds (SMSFs) offer a good strategy option for many individuals, families and small business owners to build tax effective wealth and to protect assets over time. SMSFs are becoming popular for those who are ready to take control of their own super investments as they give you ultimate control and flexibility to manage your retirement benefits.

It must be noted though, that you will have increased responsibilities as a trustee of the fund. As a SMSF Trustee you need to keep up to date with all required regulations and keep up with the fast paced financial markets.

Wybenga Financial can work with you to understand your personal financial situation and decide whether a SMSF structure is appropriate for you. We will also make sure your assets are invested in the most effective way to maximise your retirement benefits.

Should you wish to consider establishing a SMSF then we can help with all aspects of the process from establishment to managing your compliance obligations.

Wybenga Financial would welcome the opportunity to discuss how we can help maximise your opportunities to grow your wealth through a Self Managed Superannuation Fund (SMSF).  Contact us today to discuss how we can work together: (02) 9300 3000 or .

Estate Planning

Your estate is made up of everything you own. This includes your home, property, furniture, car, personal possessions, business, investments, superannuation and bank accounts.

Having an estate plan is extremely important.  Having a will is just the first step in your estate plan. It is critical to consider what outcomes you would like for your estate and to ensure a plan is in place to achieve those outcomes, both including and beyond the terms of your will.

Wybenga Financial would welcome the opportunity to discuss how we can help ensure your estate is organised to ensure your plans are implemented as you wish.  Contact us today to discuss how we can work together: (02) 9300 3000 or .

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Loans and loan management are central to overall financial management.  Obtaining the best loans for your needs is crucial and Wybenga Financial can help you with solutions that meet your short and long term needs.

At Wybenga Financial we work with experienced mortgage brokers that can assist you in obtaining the best loan for your needs and objectives. Whilst this is an external service, we work closely with the brokers to ensure the process is as easy and smooth as possible.

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We have partnerships with many respected property agents and research firms. This enables us to source suitable properties for individuals, couples and families looking to make an investment into property.

At Wybenga Financial we will provide the time and expertise needed to help you implement the best property investment plan possible.  Contact us today to discuss how we can work together: (02) 9300 3000 or .

Strategic Planning

Strategic planning is determining how an investor is going to meet their goals and objectives. It is about helping clients define their goals, gathering information and analysing data to make a plan, then implementing the plan and monitoring the results. It is also monitoring and updating goals and objectives as clients move through different phases of life.

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Tess Uncle

B.Sc, M.Com, CA, DipFP

Tess has over 22-years experience in Chartered Accounting Firms and in this time has had a broad range of experience in superannuation, taxation, business services, and financial strategy.

Over the last seven-years, Tess has turned her attention to Financial Planning, earning a Diploma of Financial Planning in 2015 and leading the newly established financial division of the Wybenga Group as a director of Wybenga Financial.

Tess’s mission is to bring the ethics and integrity of her Chartered Accounting background to the area of wealth management.

As a woman in a male dominated field, Tess is active in promoting gender equality in the industry through various programs and mentoring opportunities.

Using her depth of knowledge and experience in tax and accounting Tess is able to demonstrate a level of competence that is unique in the Financial Planning sector.

  • 2001 – Commenced employment with Wybenga & Partners and part-time accountancy studies
  • 2004 – Graduated Masters of Commerce from the University of New South Wales
  • 2005 – Admitted as an Associate Member of the Institute of Chartered Accountants Australia
  • 2007 – Promoted to Manager at Wybenga & Partners
  • 2012 – Appointed as Associate Director
  • 2015 – Awarded a Diploma of Financial Planning
  • 2016 – Appointed as Partner of Wybenga Group and Director of Wybenga Financial

Schedule a Meeting with Tess


Adam Roberts

B.Bus, B.Sc, CA, DipFP

Adam has over 18-years experience in Chartered Accounting Firms and in this time has had a broad range of experience in superannuation, taxation, business services, and financial strategy.

Over the last seven-years, Adam has turned his attention to Financial Planning, earning a Diploma of Financial Planning in 2015 and leading the newly established financial division of the Wybenga Group as a director of Wybenga Financial.

Adam’s mission is to bring the ethics and integrity of his Chartered Accounting background to the area of wealth management.

Combining traditional accounting and financial services has been a welcome move for Adam, allowing him to operate and advise in the financial sector that has been a long time personal passion.

Using his depth of knowledge and experience in tax and accounting Adam is able to demonstrate a level of competence that is unique in the Financial Planning sector.

  • 2005 – Graduated Bachelor of Science from the University of Western Sydney
  • 2005 – Commenced employment with Wybenga & Partners and part-time accountancy studies
  • 2007 – Graduated Bachelor of Business from the University of Western Sydney
  • 2010 – Admitted as an Associate Member of the Institute of Chartered Accountants Australia
  • 2010 – Promoted to Manager at Wybenga & Partners
  • 2012 – Appointed as Associate Director
  • 2015 – Awarded a Diploma of Financial Planning
  • 2016 – Appointed as Partner of Wybenga Group and Director of Wybenga Financial

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Advisory Cadetships

What is an Advisory Cadetship?
An Advisory Cadetship enables you to commence your career whilst attaining the necessary university qualifications by studying part-time.

How does it work?
Generally, our cadets complete a relevant business or accounting degree at the University of New South Wales, the University of Technology Sydney, Macquarie University, or the University of Western Sydney.

The Firm provides 3-hours paid study leave per week to attend university. This can either be taken at the one time or broken between days depending on the individual’s requirements. In addition, the Firm provides paid study leave for both mid-semester and end-of-year exams.

We take the work life balance very seriously at Wybenga Financial and our cadets are encouraged to have a fulfilling life outside the office. A typical day will have you arriving at the office at around 8.30am with most days concluding at 5.30pm.

What are the benefits of an Advisory Cadetship with Wybenga Financial?
Our cadets benefit from the following:

  • Career path – on completion of their degree our cadets have significant practical experience which will assist them in advancing their careers
  • Work helps your studies – by working full-time our cadets are able to apply their practical knowledge in the university subjects
  • Camaraderie with other cadets – the Firm has a number of cadets at various stages of their career
  • Mentoring – cadets are paired with a senior staff member who oversees their progress and training both at work and with their studies
  • Communication and feedback – the Firm has an open door policy which enables all cadets to interact with all members of staff including Directors
  • Culture – the Firm promotes a friendly social culture with a number of functions throughout the year
  • Modern environment – including ‘socialising’ areas such as pool table and break out area
  • Training – ongoing support and technical training. We also provide internal and external training on a monthly basis
  • Remuneration – working full-time provides a market salary and independence with salaries being reviewed every 6-months

What happens when I complete my degree?
The completion of your degree is the first step of what we hope to be a long and successful career with us. The next step is the commencement of a Diploma of Financial Planning followed by completing the requirements to become a Certified Financial Planner (CFP).

There are always progression opportunities for the right cadets and we are dedicated to the long term development of our staff.

Who should apply?
Current Year 12 students or first/second year University Students who:

  • want to commence their career in financial advisory;
  • are due to commence or are currently completing a part-time business or commerce degree at university with an advisory major;
  • want to gain valuable hands-on experience while completing their qualifications;
  • are looking for a friendly working environment;
  • are team players who display initiative;
  • have a commitment to self-development;
  • possess excellent personal presentation and communication skills; and
  • are motivated and mature minded.

How do I apply for an Advisory Cadetship?
To apply for a Cadetship position at Wybenga Financial send us your details. Please also include in your covering letter why you wish to do a cadetship, include relevant qualities you possess, main interests / achievements, and any previous employment.

Interested candidates should initially forward a resume/covering letter of no more than 3-pages. Please provide full details of contact information (telephone or e-mail).

What if I have more questions?
For further information about our Cadetship program, please send your enquiry to .