How secure is your future?

[James 1077]

We're not talking individuals that invest but also, we're talking gov'ts around the world pooling their assets into equities. Why? Because the truth is returns on the index alone far outpaces any real estate investment. Intangible or not, is not the issue, it's % returns over the long term that matter and the real reason why gov'ts are able to keep a pension going.

Most governments that I know of (so European ones) don't have all that much in the way of equity investments for their pension liabilities. Those liabilities are, in essence, unfunded and the expectation is that they will be paid out of future tax receipts. Regardless of this though a government is in a different position to an individual shareholder as they will invest more than a few thousand dollars and effectively become an institutional investor. Institutional investors hold far larger sway of the direction of a company than individuals!

That's because on Wall Street (or N. America for this example) report in EPS (earnings per share).

In an IFRS world EPS is irrelevant. The earnings figure on the bottom of a P&L is an accounting fiction and is, for most large companies, an irrelevant measure of its performance. To get a true measure of a company's performance you need to look at Cash Flow generated from operating activities less that paid out in financing.

Don't make the assumption that at the time you do sell, you would be selling for a loss because retirement investing is a long term plan. Second, the same rule would apply if you held your savings in a rental property. When people have to de-leverage, it don't matter if they borrowed for a house or for the stock market.

But the Evil Empire won't make me sell my property investments should I work for an accounting firm on SEC registered clients again - only my equity investments. I therefore don't have the benefit of knowing for certain that it is a long-term plan as I could lose my job tomorrow and have to go cap in hand to one of the accounting firms for a job!


In terms of long-term investment when you factor inflation into account the S&P500 has made a negative return over the last decade - that is a pretty long-term issue there. And that includes any return that you get from dividend income. Yes, sub-prime has had a big effect on land prices but that is, in the main part, an American thing caused by Government incorrectly believing that the mortgage industry was racist and so "doing something about it". Elsewhere prices have gone down as the bubble burst but not as dramatically and probably not structurally.

Overall I think it is horses for courses - if you want to take the risk then you may end up with better returns from stocks but, by its nature, property wouldn't be too far away (I believe I read somewhere that the long term, inflation adjusted, returns are something like 1.5% for equities and 1% for property - but I could be wrong on these!). In NZ the post tax returns are likely to be closer due to the way the tax system is geared towards encouraging property investments rather than investments in overseas equities.

[Super_BQ]

In an IFRS world EPS is irrelevant. The earnings figure on the bottom of a P&L is an accounting fiction and is, for most large companies, an irrelevant measure of its performance. To get a true measure of a company's performance you need to look at Cash Flow generated from operating activities less that paid out in financing.

I see your point of view but from a finance background, it will only tell half of the story. This is what separates the Accounting majors vs the Finance majors when I was at uni. Accountants don't have to deal with the psychological aspect of the #s - just tons of journal entries of debit / credit. (to clarify - it's the finance analyst's job to put the accounting figures in a "more meaningful" figure and is why on Wall Street (where the world trades) they report in EPS (because it keeps shareholders in line of their % of ownership to the company). As I say before, NZ listed companies have a habit of issuing more shares to dilute shareholders' ownership. All the cash flow in the world won't justify this action when shareholders see less dividends paid to them than before.

This is not to say cash flow isn't important - we do look at that figure. But it offers little interest unless the company has matured (after maximizing it's market penetration globally). The reason is that a good business idea does not generate cash flows for many years, like Amazon.com. All too often I keep hearing Kiwis say, "invest in companies that pay high dividends". What a laugh because they don't realise the biggest gains come from capital growth of the share price. Of course book value per share won't rise if dividends keep paying out (but the share price inevitably does rise if the book value per share keeps accumulating - by withholding dividends.) Not to say this is bad because companies like utilities do pay good dividends. But then, typically utility companies have limited market growth and shouldn't be in the position of hoarding cash. If they do retain the profits on paper, that is the cheapest way of funding a major capital venture than to having to go out and borrow $ from a bank, or by issuing bonds, or by issuing new shares.

But the Evil Empire won't make me sell my property investments should I work for an accounting firm on SEC registered clients again - only my equity investments. I therefore don't have the benefit of knowing for certain that it is a long-term plan as I could lose my job tomorrow and have to go cap in hand to one of the accounting firms for a job!

I still don't see the relation of being an accountant has to do with your pension outlook? Any person regardless of profession can lose their job. Just like any person that borrowed against their income to buy rental properties (thinking it was their investment for retirement) can lose it it all in a foreclosure.

...I think i've gone way off the board on the original topic...