I happen to be on holiday in Paris at this moment. Zero degrees, but nothing can detract from the wonder of this beautiful city.

And, of course, the financial news here is the same here as everywhere else in the developed World;  "Markets spooked as oil leads commodity crash". Always 'the markets'. Oh dear!

In other words, the price of oil on World markets has fallen. Of course, for oil-producing countries, including the US, but particularly Nigeria, Saudi Arabia, Norway, Canada, Indonesia and Russia, this is not welcome news.

But cheaper oil means good economic news for the rest of the World, and will be a spur to economic growth. And, of course, you will be paying less for your petrol.

So, yes, there's a very positive spin on this.  But, then, share prices are down, and - as an investor - and as always - you're supposed to panic.

And if you're 'in the market'; that is, as a trader (ie, a gambler), maybe you would panic.

But as a serious, security-minded investor, who holds shares (particularly Australian 'blue chip' shares) in your SuperFund, and does so because they produce a consistent, reliable (and increasing) income-stream from company dividends, which continue unabated, why should you care about lower share-prices? Certainly, your fund value may be lower, but your Income is safe. And, in any case, prices can't stay down forever - not in a growing economy, now benefiting from lower oil prices!

So, in summary, what should we think about what is happening?

Here Are The Facts

• There is no sign of a recession on the horizon for the US, Australia or China and there are no signs of negative global growth
• Growth in Europe isn’t shooting the lights out but it is accelerating
• Japan is doing what Japan does with growth trending at about 0.5% per annum thanks to population issues.
• There is no collapse in the banking/payment system or credit squeeze like there was in 2008.

Holding (not trading) shares, as a conservative, security-conscious investor, doesn't mean you are 'in the market'. You bought your shares (at least your SuperFund did), and - unless you're selling them, prices simply don't matter.

It's an excellent time to be buying though!

This includes your Super account, Pension account, or any investment account you may have. 

The normal answer to this question is ‘I can’t lose my money’; that is, safety of capital. But is it only safety of capital? And what makes an investment safe?

It really depends on what the purpose of the investment is. For example, is it capital held in reserve for a ‘rainy day,’ or to meet some future capital payment (a future debt, or tax liability for example)? Or is it to cover present or future regular expenditure, such as retirement living expenses? ie: Is it for a Capital purpose, or an Income purpose?  

Capital or Income? 

Clearly, if you need to meet a future Capital obligation, the capital has to be there. And if you need a regular Income- stream, you need to know the Income will be there.

In regard to the latter, clearly Capital is of less importance than if you had to meet a capital liability. In other words, the safety you need for your Income-stream is the assurance that your Income-stream will be there come what may. 

Of course, you need the capital to fund the income stream, but that’s a relatively simple matter of knowing how much Income you require, and how much capital you initially need to fund that Income. 

Sounds obvious? Yes, it is. But it also depends on how the investment generates the Income-stream. Is the income Interest-income (earned on money ‘lent’ to a financial institution), or is it Investment-income (ie profit) earned on some asset you own, such as company shares, or a rental property? (We call this equity investment.) 

There is a big, big difference! The difference is that the capital value in the Interest-income investment remains constant (excluding re-invested interest), whereas the capital value of the Investment-income asset will tend to change, even day by day, despite the constancy of the income-stream. 

But in a normal, healthy economic environment, the Investment income- stream will tend to increase year-by-year. And as the Investment income increases, so too will the capital value of the investment asset. It must. 

What deceives many investors, however, is that the Income-stream and the asset value don’t automatically increase at the same time. The asset value may increase ahead of, or lag behind, the increase in the Income- stream. Sometimes, in fact, the Capital value will decrease, although the Income-stream is increasing. 

But if the Income–stream is increasing, and expected to continue increasing, then clearly, falling asset values don’t matter. The assurance of the Income-stream is what matters! And if the Income-stream does increase, and capital values ultimately follow, then we can regard the investment as safe. 

 This simple concept is the ‘trick’ to understanding share investment (or, as we at Wellinvest prefer to call it – ‘Investment in economic enterprise’). 

It is also the secret to having Peace of Mind in regard to your investment capital, and thereby in regard to your whole financial security. 

Share prices around the World have declined over the past twelve months (though have recovered somewhat over the past few weeks). However, here in Australia particularly, our economy continues to prosper and grow. Income from most of Australia’s major companies in 2008 is expected to exceed its 2007 levels. Does this suggest that shareholders in these companies have a safe investment? Even though their share prices are currently lower than they were a year ago? 

 Let us, however, recognise that this is not the lesson taught by much of the media, nor even by the investment industry itself. As we have said many times previously “It’s not about the All Ords.” 

Footnote: Many investors do invest essentially for Capital Profits, and pay scant attention to Income generation. This however is gambling – it’s speculation – no matter how calculated, or how ‘systematic’. And gamblers don’t usually win. There is no need to gamble with your Capital; it can be safely (and very profitably) invested by understanding the above guidelines. 

Are You Looking For A More Meaningful Return?

If today you hold any funds in a Term Deposit – in your Superfund, Pensionfund, or in your own name – you would be aware of the continuing downward pressure on interest rates, and your attendant lower income.

An Attractive Alternative

Given that one of the major attractions of a Term Deposit is the certainty and continuity of interest earnings, is there a more competitive alternative?

Yes, there is.

Really, the key consideration is CERTAINTY AND RELIABILITY OF INCOME.

And equally importantly, the LEVEL OF INCOME.

A product that certainly satisfies both of these requirements is MLC’s Income Builder Fund.

This fund generated a handsome SEVEN PERCENT return to investors over the past 12 months. (In fact, even higher in a superfund or pensionfund, due to tax concessions.)

Income Builder is an exclusively Australian Industrial share-fund. Its investments are selected for their long-established track-record of high and consistent dividend payments. Such investments may typically include ANZ, CBA, NAB, Westpac, Woolworths, Telstra, etc.

How Reliable Is This Income?

For example, had you invested $100,000 across these six companies in January 2001, you would have received $5,570 (5.57%) over the year.

Over the 2012 year, you would have received $11,281 (11.28%) income.

Today, a typical* Term Deposit would pay you $3,550.

If you are seeking solid, consistent and rising income,
Income Builder may be your answer.

*NAB 12 Month rate as at 28/5/2014

More information?

Call us on (02) 9416 7544, or contact us here.

See the latest Income Builder Report (31/3/2014).

Five years down the track after the greatest credit crisis in living memory, and from which the world has yet to fully recover, thank God for the fabulously valuable lessons we've learned - or yet to realise they are fabulously great.

(I'm addressing investors here. That includes (emphatically) every person, working or retired, with money in their super or pension account.)

What's the biggest, most relevant lesson?

SHARE PRICE CHANGES ARE NOT AN INVESTMENT RETURN.

Yes, it's quite true that most people - including superfund managers - regard changes in share price as investment return, but in our view this is both a cop out, and a deception.

The only true investment return is the INCOME generated by that investment. Income is real money (ie, not 'on paper') . Share-price changes are purely 'on paper'. Unless, that is, you sell your shares. But why would you sell your source of investment income?

When you hear (or read on a report) that 'your investment has increased in value', it may look good, and it may feel good, but it really is only 'on paper'. It is valueless unless you cash it in. And unless you cash it in, it is there to earn income.

Do not make the fundamental error of thinking that increased share-prices means increased income. (Or decreased share prices means reduced income, for that matter). No, no, no!

Share-income (dividends) are paid 'per share', not per dollar value. So increases or decreases in share-prices do not affect the amount of your dividend income. That's the great beauty of holding shares for investment income.

Unless you are a gambler (what? - with your life savings??), that is.

The ONLY, REAL, investment return - in ANY investment (unless you're a gambler) is the INCOME earned by your investment.

To be continued...