Numbers vs. Emotions: The Real Game of Investing   

Numbers vs. Emotions: The Real Game of Investing   

Updated on Finance, Investing

When people think about investing, they often focus on the numbers: analysing balance sheets, forecasting earnings growth, understanding sectors, and evaluating dividend yields and price-to-earnings ratios. While these elements are critical, they only make up 50% of the game.   The other 50%? It’s something far less tangible but just as important—the psychological and emotional side of investing.   The Role of Numbers in Investing   Numbers, data, and analysis are the foundation of building a solid portfolio. They help answer key questions:   This analytical side forms the basis of investment decisions—what to buy, what to avoid, and how to diversify. But understanding numbers is only half the challenge.   The Harder Half: Investor Psychology   The more difficult half of successful investing is managing emotions—what I often call “the feels.”   Here’s why: markets are inherently emotional, driven by fear and greed. With today’s technology, investors can react to news—positive or negative—within seconds, causing markets to move sharply. This high liquidity makes it easy to fall into the trap of reacting emotionally rather than rationally.   I’ve seen this firsthand with many clients, particularly retired men, who turn checking their portfolios into a daily hobby. The result? Anxiety and distress that often lead to poor decisions, such as selling in a downturn or chasing rising stocks out of fear of missing out.   When Psychology Takes Over   In times of market volatility—during corrections or crashes—the analytical side of investing takes a backseat. It’s no longer about the numbers; it becomes 100% psychological.   These are the moments when:   For those fully invested portfolios, the best decision may be to hold steady and ride out the storm. For others with cash reserves, it may be the perfect time to invest, capitalizing on undervalued opportunities.    Making the Right Decisions at the Worst Times   As a financial adviser, my role during these challenging times is to help clients make rational decisions, even when emotions are running high. Sometimes, that means encouraging them to step away:   Because when emotions dictate actions, mistakes are often made. But when fear is at its peak, it’s also the time when opportunities are greatest. As I often say: “When my clients feel this crummy, it’s probably time for me to get excited and buy.”   Competent investing requires a balance of analysis and psychology. While the numbers matter, it’s the ability to manage emotions during the tough times that separates successful investors from the rest.   The information provided in this article is general in nature only and does not constitute personal financial advice.  

Quarterly Economic Update: October-December 2024

Quarterly Economic Update: October-December 2024

Updated on Economy, Finance, Investing

The final quarter of 2024 reflected a mixed economic landscape. While consumer spending and equity markets showed resilience, persistent inflation, cost-of-living pressures and a cooling housing market have tempered optimism. Interest Rates – Will They Rise or Fall? Inflation in Australia showed signs of easing during the final months of 2024, with the trimmed mean inflation rate falling to 3.2% in November, down from 3.5% in October. The RBA held the cash rate steady at 4.35% during its December meeting, emphasising the need to maintain current policy settings to bring inflation back within the target range over time. Monthly consumer price index (CPI) data for November indicated a 2.3% rise in the 12 months to November 2024, up from a 2.1% rise in October, according to the Australian Bureau of Statistics. Economists remain divided on whether further rate hikes will be necessary in 2025, with some predicting a rate cut as early as February. Cost of Living Pressures Continue Total spending across the Australian economy increased by 1.5% in the September quarter of 2024 compared to the 2.2% in same period of 2023. Essential spending has decreased in the same period due to a decline in petrol prices and various energy relief programs. Discretionary spending increased by 0.8% compared to the same period in 2023, indicating potential signs of recovery. However, data shows that young Australians cut back spending 2% over the past year, while those aged over 60 increased their spending by 3.9% and those over age 70 increased their spending by 7.7%. Black Friday Means Big Spending Australians spent approximately $7 billion in November’s Black Friday and Cyber Monday sales – a 4% increase compared to the same period in 2023. This rise was driven by strong demand for electronics, apparel, and household goods. In-store shopping experienced a notable resurgence, with physical stores accounting for a significant portion of the sales growth. Is the Housing Market Finally Slowing? Australia’s housing market experienced a slight downturn, with national home values recording their first decline in nearly two years. CoreLogic data for December shows a 0.1% decrease in dwelling values, driven by higher interest rates, reduced borrowing capacity, and increasing cost-of-living pressures. The supply of new housing remains constrained, exacerbating affordability challenges. Global Outlook for 2025 Globally, the economic outlook remains resilient, despite significant risks. According to the OECD, global growth is expected to stabilise at around 3% in 2025 and 2026, underpinned by robust performance in emerging economies and gradual recovery in advanced economies. Geopolitical tensions, including conflicts in Ukraine and the Middle East, continue to pose challenges to supply chains and energy markets. Persistent inflation in key regions and the potential for monetary tightening remain areas of concern. For Australia, economic ties with China and commodity exports are key factors influencing the outlook, especially as China’s economic activity shows signs of stabilising. Trump’s Inauguration Looms The inauguration of the Trump administration on January 20th has prompted considerable speculation about potential economic implications. Key areas of focus include trade policy shifts, tax reforms, and geopolitical stability. Early indications suggest a renewed focus on protectionist policies, including higher tariffs on imports from key trading partners. For Australia, this could mean increased challenges in sectors like agriculture and mining, where access to the US market is critical. Stock Market Outlook Australian equities ended the year on a positive note, buoyed by easing inflationary concerns in the US and hopes of a soft landing for the global economy. The ASX200 recorded modest gains in December, aligning with broader global trends. However, analysts caution that 2025 may bring volatility, driven by geopolitical risks, fluctuating commodity prices, and uncertainty in monetary policies. The information provided in this article is general in nature only and does not constitute personal financial advice.  

Stop resting on your (high income earner) laurels!

Stop resting on your (high income earner) laurels!

Updated on Education, Investing, Superannuation

Achieving a high income is a significant accomplishment. You’ve put in the hard yards, climbed the ladder, and now you’re pulling in the big bucks!  But don’t be mistaken; a high income does not automatically equate to financial security. Just because the money is rolling in today doesn’t mean you’re protected from tomorrow’s uncertainties. Resting on your high-income earner laurels, assuming that a large salary guarantees long-term security without considering long-term financial planning, can be downright risky. So, before you get too comfortable, it’s time for a reality check. When “More” Becomes the Norm Earning more often leads to spending more, a phenomenon known as lifestyle inflation. As your income grows, so does your desire for bigger and better things—a nicer house, a new car, dinners at fine restaurants. This lifestyle upgrade can feel deserved, but without careful planning, it can leave you no better off financially than when you earned less. For instance, imagine a couple earning a combined $350,000 a year. On paper, that sounds like a strong financial position. But between a large mortgage, car loans, private school fees, and regular international holidays, their expenses could easily absorb most of their income. If an unexpected event like a job loss or economic downturn were to happen, they’d find themselves in a precarious situation, with little financial buffer. This is the danger of lifestyle inflation: it’s subtle and easy to justify, but it can undermine your ability to build real wealth. High Income ≠ Financial Security A high income can create the illusion of financial security. It’s easy to assume that as long as the money is coming in, you’re set for life. But without the right safeguards in place, a high income can actually mask financial vulnerabilities. Take Liam, for example. Liam, a 34-year-old marketing executive in Sydney, was earning $250,000 a year and living a pretty comfortable lifestyle. He assumed his high income meant he was financially secure. But when the pandemic hit, his job was made redundant, and without an emergency fund or sufficient savings, Liam found himself in financial distress within months. Liam’s story illustrates a key point: a high income is not a substitute for financial planning. If your finances aren’t structured to handle changes, even a hefty salary won’t protect you from financial uncertainty. How to Future-Proof Your Finances So, how do you make sure you’re not resting on your laurels, assuming that your high income will take care of everything? Here are some strategies to ensure you’re future proofing your finances, no matter how much you earn. 1. Create a Budget and Stick to It A budget is just as important for high earners as it is for those with more modest incomes. Avoid the temptation to spend simply because you can. Instead, allocate funds towards savings, investments, and building an emergency fund. 2. Build an Emergency Fund Even high earners need a safety net. A good place to start is having 3-6 months of living expenses in an emergency fund. This ensures that if something unexpected happens you’ll have the financial resources to cover your expenses without going into debt. 3. Invest Wisely Don’t rely solely on your salary—make your money work for you by building a diversified investment portfolio. The earlier you start, the better, as even small investments can grow significantly over time thanks to compound growth. Don’t wait—time is your biggest asset when investing! 4. Plan for the Long Term Even if retirement seems far away, it’s never too early to start planning. Superannuation is a tax effective structure for building wealth and making contributions to super can be a tax effective strategy for high income earners! 5. Don’t Overlook Insurance Insurance might not be the most exciting part of financial planning, but it’s essential. Income protection, life insurance, and health insurance are vital tools to safeguard your financial future. Take Control Before Life Happens While earning a high salary certainly opens doors to a more comfortable lifestyle, it also comes with the risk of complacency. The belief that you’re financially set simply because you’re earning more is dangerous. Lifestyle inflation, lack of an emergency plan, and failure to invest wisely can all leave you vulnerable when life throws a curveball. It’s not about depriving yourself of the things you enjoy—it’s about ensuring that your financial future is secure, so you can continue enjoying them for years to come. So, don’t rest on your laurels. Take proactive steps now to secure your financial future. You’ve worked hard for that high income. Now its time for that income to work for you!   The information provided in this article is general in nature only and does not constitute personal financial advice.  

Regaining financial control after a scam 

Regaining financial control after a scam 

Updated on Budgeting, Education, Retirement

A year before retirement, Tess’s superannuation plan was on track, and she was imagining her post-work life. With savings of $34,000 at the bank, she was looking to park it somewhere it could earn better interest while rates were rising.   Considering herself reasonably savvy with money, she began investigating her options.  After hearing about someone who’d made a fortune with cryptocurrency, Tess was intrigued and decided to look into it.   Tess researched crypto-companies and compared what was on offer. When eventually she made her decision, she believed she’d chosen the right investment – how wrong could she be!   Within hours Tess realised she’d been scammed.  Shocked and feeling ill, she reported it to ScamWatch, but over the following days the self-blame settled in.   How could she be so gullible? So naïve?  What was she thinking?! How could she have fallen for such an obvious fraud?   Who knew that financial shame was a thing? But there it was in the form of an empty bank account.  Deeply embarrassed, her financial security shattered, Tess lay awake every night berating herself; through her foolishness she’d lost all her cash savings! She became withdrawn, declined social events and refused to unburden herself, even to close friends.   Finally, in desperation, she decided to speak with a counsellor. Tess discovered organisations like Beyond Blue, ScamWatch and Lifeline offered advice and emotional support. She chose one that felt right for her.  Initially, it was difficult to open up and acknowledge her mistake, but the counsellor explained that part of her recovery was confronting her feelings head-on and realising that victims came from all cultures, backgrounds and levels of education. Feelings of humiliation and shame were normal, although unjustified, as the crooks were highly skilled criminals with access to the latest technology.  Heartened by the counsellor’s words, Tess learned to stop blaming herself and confided in her daughter Louise.  What a relief that was! Louise was gentle and supportive, and introduced Tess to her friend Jarrod, a financial adviser.  Throughout Jarrod’s career, he’d assisted innumerable people who’d fallen victim to scams. Most felt insecure and vulnerable, so his approach was to assist them with practical advice around getting their finances back on track.  He believed that Tess would benefit from a temporary, part-time job. She could rebuild her cash savings, and staying busy would distract her from her worries and help her move on.   When discussing her interests and skills, Tess mentioned she loved animals so Jarrod suggested she consider pet-minding or dog-walking, adding that he could setup the necessary insurance.  Then, Jarrod explained, that while her superannuation was on target, there was a difference between investing for retirement and investing for wealth.  Retirement investing was about saving to fund an income stream that met post-work lifestyle goals. Complying retirement funds offered tax advantages and focused on generating returns.   Conversely, investing for wealth involved accumulating assets beyond what is needed to provide retirement income.   For Tess, financial security was critical, so Jarrod considered her risk tolerance and structured a tax-efficient portfolio of growth assets to support capital appreciation and wealth accumulation.   It also meant that Tess could leave something behind for Louise – a legacy she hadn’t felt was important, until she realised how financially exposed the scam had left her.  Tess’s recovery wasn’t without its challenges. It took time and sacrifice, but along the way she developed a greater sense of independence and resilience.   She delayed retirement by a year, so she could recoup her lost savings and contribute the money from her new side hustle to her wealth portfolio.   In the end, Tess’s Dog Minding and Walking Service continued well after Tess’s retirement, for the sheer enjoyment she derived from hanging out with dogs.  The information provided in this article is general in nature only and does not constitute personal financial advice.  

Building financial resilience 

Building financial resilience 

Updated on Budgeting, Education, Finance, Investing

Resilience is the ability to quickly recover from setbacks, and while setbacks can come in many forms most of them will have a financial component. So what can you do to build financial resilience?  Expect the unexpected  Rarely do we get advance warning that something bad is about to happen to us, so the time to develop your resilience strategy is now. And while we don’t know the specifics, we can anticipate events that would throw our finances into disarray. A house burning down or a car being stolen. Not being able to work due to illness or injury. The death of a breadwinner or caregiver.   With some idea of the type of threat we face we may be able to insure against some of them. If you have taken out any type of insurance policy you’ve already made a start on your resilience plan.  Create buffers  You can’t insure against every possibility, but you can build financial buffers. This might simply be a savings account that you earmark as your emergency fund that you contribute to each payday. If your home loan offers a redraw facility you can also create a buffer by getting ahead on your mortgage repayments.   Buffers can be particularly important for retirees drawing a pension from their super fund. Redeeming growth assets for cash in order to make pension payments during a market downturn can lead to a depletion of capital and reduction in how long the money will last. By maintaining a cash buffer of, say, two year’s worth of pension payments, redemptions of growth assets can be deferred, giving time for the market to recover.  Cut costs  The Internet abounds with tips on how to cut costs and save money. In difficult economic times cost cutting can help you maintain your financial buffers and important insurances.   Key to cost cutting is tracking your income and expenditure and yes, that means doing a budget. Find the right budgeting app for you and this chore could actually be fun.  Invest in quality  There are many companies out there that have long track records of consistently pumping out profits and dividends. They may not be as exciting (i.e. volatile) as the latest techno fad stocks but when markets get the jitters these blue chip companies are more likely to maintain their value than the newcomers.  This is important. The more volatile a portfolio the more likely an investor is to sell down into a declining market. This turns paper losses into real ones, depriving the investor the opportunity to ride the market back up again.  The other key tool in creating resilient portfolios is diversification. Buying a range of investments both within and across the major asset classes is a fundamental strategy for managing portfolio volatility.  With a well-diversified portfolio of quality assets there is less need to regularly buy and sell individual investments. Unnecessary trading can create ‘tax drag’ where the realisation of even a marginal   capital gain triggers a capital gains tax event and consequent reduction in portfolio value.  Take advice  Building financial resilience can be a complicated process requiring an understanding of a range of issues that need to be balanced against one another and prioritised. Your financial planner is ideally placed to assist you in developing your own, personalised plan for financial resilience.   The information provided in this article is general in nature only and does not constitute personal financial advice.  

Active or Index Funds: What’s Your Best Bet? 

Active or Index Funds: What’s Your Best Bet? 

Updated on Investing

Ever glanced at a list of different managed funds and wondered why some have remarkably low fees compared to others? Chances are, the ones with lower fees are index funds, also known as passive funds.   Over the last couple of decades, index investing has become increasingly popular, with big players like Vanguard and Blackrock managing trillions of dollars in assets (as of 2022).  Before we dive into the reasons and consequences of this trend, let’s break down the two main investment styles:  Active Investing:  Index Investing:  So, why has index investing gained so much ground?  1. Lower Fees: 2. Performance Challenges:  For instance, at the end of 2022, 58% of Australian General Equity funds returned below the index. Over 5-, 10-, and 15-year horizons, the underperformance proportions were 81%, 78%, and 83%, respectively. Similar trends are observed in international equity markets.  While choosing index funds may seem logical, it’s essential to consider their underlying premise. Returns come from income (like dividends) and changes in capital value over time. However, for the latter to happen, there must be market activity—investors trading securities. If everyone exclusively invested in indexes, the market would cease to exist.  Index investing doesn’t screen shares, meaning investors get exposure to both ‘good’ and ‘bad’ companies. Also, there are no exclusions based on environmental, social, or governance (ESG) criteria, which some investors prioritise.  In the active versus index debate, there’s no clear right or wrong. Many investor portfolios combine both approaches. Index funds or ETFs are often used for broad exposure, while active investment may be reserved for specialised exposure, such as smaller companies, property, or infrastructure.  Regardless of your choice—active, index, or a mix—the fundamental principles of investing still apply: diversification and time in the market are key to building long-term wealth.  The information provided in this article is general in nature only and does not constitute personal financial advice.  

Quarterly Economic Update: Jul – Sep 2023 

Quarterly Economic Update: Jul – Sep 2023 

Updated on Economy, Finance, Investing

Australia’s annual inflation rate has taken an unexpected step up, increasing pressure on the Reserve Bank to push interest rates higher and once again raising the prospect that Australia will fall into recession sometime over the next few months.  The annual inflation rate for the year to August reached 5.2 per cent, up from 4.9 per cent recorded for the year to July, spurred by higher prices for petrol, financial services, and labour costs, following the 5.75 per cent wage rise for 2.4 million Australian workers in July.  Some analysts believe recent wage increases and the Federal Government’s drive to reduce unemployment levels below their current historic low levels and provide more union friendly workplace regulations, will combine to push wages even higher.  The prospect of further wage hikes, low productive improvements combined with continued high levels of inflation, threatens to return the Australian economy to the dismal economic days of the seventies and with it, stagflation.  Of all the domestic price hikes though, higher petrol prices are seen as the most troubling as they have such significant flow through effects, making everything in the country more expensive to produce and so lifting the cost of living for all Australians.  The prospect of higher oil prices internationally, following a decision by Russia and Saudi Arabia to restrict production to boost prices, has cast gloom across the global economy, putting economies everywhere under pressure of higher energy costs.   Globally, US Treasury 10-year bond yields rose to above 4.5 per cent during the past month, taking them to their highest level since the global crisis started in 2007, as fears mount that climbing inflation will persist for years to come.   This, and the generally accept downturn in growth in the massive Chinese economy, is prompting fears overseas that the US economy will certainly fall into recession next year, with developed countries around the world certain to follow.  While there was hope the Reserve Bank was succeeding in driving down inflation, this latest uptick in prices and overseas interest rates, will put the Reserve Bank under renewed pressure to lift domestic rates yet again.  Although the much talked about fixed-rate mortgage cliff seems to have been averted, where homeowners have faced the end of super low fixed rate loans and been forced to move to higher variable rate loans, pressure is emerging in the housing market.  According to figures from the research house, Core Logic, the number of homes that have been sold at a nominal loss, and which have only been owned for two years or less, has increased from just 2.7% to 9.7% during the June quarter.   Pressure is building most clearly in the sale of home units with 14.4 per cent of all unit sales across Australia selling at a loss during the June quarter, compared to just 3.8 per cent of all homes sold during the same time.  There also seems to be a trend where people who moved to the regions during the pandemic are starting to sell up and drift back to the cities.  Resales within two years of purchase, made up 11.1% of all regional resales, compared to a decade average of 7.2% per year.  A rare bright spot for investors remains the hefty returns to shareholders with Australia’s largest listed companies paying out some $21.7 billion during the last week in September, by way of improved dividend payments.   BHP paid out $6.34 billion to their shareholders via a $1.25 per share dividend, Fortesque Metal paid out $3 billion via a $1 a share dividend and after posting a record-breaking profit, the Commonwealth Bank of Australia paid out $4 billion by way of a $2.40 a share dividend.   The information provided in this article is general in nature only and does not constitute personal financial advice.  

The Wealth of Gold: Investing in a timeless asset

The Wealth of Gold: Investing in a timeless asset

Updated on Economy, Investing

As investors navigate through unpredictable and volatile economic times, it is essential to consider asset classes that can provide a level of stability and protection against market fluctuations. One such asset that has stood the test of time is gold. For centuries, gold has been a symbol of wealth and has played an essential role in the global economy.  Why Investors Turn to Gold During Volatile Times Gold has long been considered a safe haven asset, as it has maintained its value throughout history. When the stock market experiences downturns or geopolitical tensions escalate, investors often flock to gold as a way to protect their portfolios against market fluctuations. The price of gold typically moves in the opposite direction of the stock market, making it a valuable hedge against economic uncertainty. Moreover, gold is not subject to the same risks as other investments such as bonds or stocks, making it a reliable store of value. Benefits and Consequences of Investing in Gold The primary benefit of investing in gold is its ability to provide a level of diversification to an investment portfolio. By including gold in a portfolio, investors can reduce their exposure to other assets, thus lowering overall risk. Additionally, gold is a tangible asset that investors can physically hold, making it an appealing option for those who prefer assets they can see and touch. However, investing in gold also comes with some drawbacks. The most significant risk associated with investing in gold is its volatility. While gold has maintained its value over time, its price can still fluctuate significantly over shorter periods. Furthermore, investing in gold does not provide a source of income, as it does not pay dividends or interest. Investors looking for regular income streams should consider other investments, such as bonds or stocks that offer dividend payouts. Interesting Facts About Gold Gold has been used as a form of currency for thousands of years. In ancient times, individuals and countries stockpiled gold as a way to preserve their wealth. For instance, during the California Gold Rush in the mid-1800s, the US government established the first national gold reserve to help stabilize the economy. Similarly, during World War II, countries like the US and the UK stockpiled gold to finance their war efforts. Getting Exposure to Gold Investors have several options to get exposure to gold. The most common way is to invest in physical gold, such as gold coins or bars. However, buying physical gold can be expensive, and investors also need to pay for storage and insurance costs. An alternative option is to invest in gold exchange-traded funds (ETFs), which track the price of gold and offer investors an easy way to invest in gold without the hassle of buying physical gold. Finally, investors can also invest in gold mining stocks, which provide exposure to the gold industry and can potentially offer higher returns than investing in physical gold or gold ETFs. While investing in gold can offer protection against market fluctuations and diversify an investment portfolio, it is crucial for investors to carefully consider the risks and benefits associated with this asset class. By weighing the pros and cons and assessing how gold aligns with their investment objectives, investors can make informed decisions about whether to include this timeless asset in their investment strategy.   The information provided in this article is general in nature only and does not constitute personal financial advice.

Quarterly Economic Update: January-March 2023

Quarterly Economic Update: January-March 2023

Economy, Investing

The Reserve Bank of Australia has decided to pause its cycle of interest rate hikes, keeping the cash rate target unchanged at 3.6 percent due to softening inflation data, a flat unemployment rate, and the need to assess the impact of previous rate hikes on the economy. The Consumer Price Index slowed from 7.4 per cent to 6.8 per cent for the year to February with prices increasing by just 0.2 per cent for the month of February itself, raising hopes the Reserve Bank might halt any further interest rate increases. Economists though remain divided on the outlook for interest rates. Some point to the low inflation rate recorded for the month of February and say the back has been broken regarding the recent price hikes of the past year. That any further rate rises will risk tipping the domestic economy into recession with local activity already stalling in key industries such as the housing construction industry, local tourism and other recreational industries. Some economists though point to the fact inflation remains doggedly above the Reserve Bank’s preferred inflation range of between 2 and 3 per cent and that consumer spending remains doggedly high despite recent rate hikes. Recession fears are also growing, given the ACTU’s push this year for a 7 per cent increase in the minimum wage from $21.38 an hour to $22.88, taking the minimum wage to $45,337 a year for some 2.4 million workers – a pay rise of some $3,000 a year. This comes hard on the heels of last year’s minimum wage rise of 5.2 per cent. More, the ACTU is pushing for this increase to flow to a range of other award rates, prompting concerns any such move could spark a wage rise – price hike spiral, reminiscent of the 1970’s. However, the ACTU argues the cost-of-living pressures are now so high that this increase is needed just to stop workers falling in poverty. That low-income workers typically spend every cent they earn, and this is exactly what is needed to keep the local economy growing. It also points to continued record high levels of corporate profits in recent years and argues Australian employers can easily afford to pay their workers more without it placing further pressure on prices. Not surprisingly business groups point to Australia’s low level of productivity gains, another increase in the Employers Superannuation Guarantee contribution, to which is set to rise to 11 per cent next financial year and higher funding costs, to argue against any pay increases. Meanwhile, the Federal Government is set to release its first full year budget this quarter. The overriding concern is whether the Government will take this opportunity to deal with the significant structural funding issues within the budget and so start to haul in the Federal deficit. While Government revenues continued to be bolstered by strong international trading conditions for Australia’s key exports of iron ore, coal and wheat, it remains a simple fact that the Federal Government spends more on goods and services than it receives by way of taxes. This situation will only be made worse by the recent decision to acquire a new fleet of state-of-the-art submarines and other military equipment that is expected to add billions of dollars to Government spending over the next few decades. All at a time, when the Government is equally committed to spending billions helping the domestic economy transition away from fossil fuel energy sources and embark on building a new low carbon economy. Meanwhile, a growing number of economists believe the US economy will most certainly fall into recession sometime this year, as its central bank also deals with a blow-out in domestic inflation by increasing local interest rates. While US employment figures remain strong, the recent US rate hikes have put undue pressure on a number of US and international banks, causing the collapse of two high profile banks in recent months. Although the US banking system remains strong, there are fears that these failures will cause a retraction in lending to businesses and so will further increase the likelihood and depth of any pending recession.   The information provided in this article is general in nature only and does not constitute personal financial advice.

Why millennials should be mapping their retirement today

Why millennials should be mapping their retirement today

Education, Retirement, Superannuation

While millennials have for decades been treated like ‘the children of Neverland, who never grew up’, reality is fast catching up with this generation, who are now young adults between the ages of 24 and 40. Like generations before them, they are now buying, or at least trying to buy, homes and starting families of their own. And with this, the stark reality is that their retirement is looming just around the corner in the early years of 2050. For all too many, planning for their retirement is just something they don’t want to face. But the reality is that the sooner they start ‘mapping’ or preparing for their retirement, the better off they will be. According to Investopedia, if you are a 26-year-old millennial, you should aim over the next four years to have at least one year’s worth of income in your superannuation fund. If you are a 40-year-old millennial, you should already have three times your annual income in super. They suggest millennials should contribute at least 15 per cent of their gross salary, including the 10 per cent compulsory super guarantee contribution, to superannuation each year if they have any chance of achieving a secure retirement. This seems a pipe dream for Marion, who is 29 and earns $95,000 a year as a successful professional accountant. While her employer contributes 10.5 per cent of her income to super, she has less than $100,000 in super, and is more focused on boosting her non-super savings of $75,000, so she can buy a small apartment. She is not alone. Most millennials, burdened by HECS debts and increasingly casual employment arrangements, will find the need to boost their super contributions a challenge, especially as most millennials, like Marion, are also struggling to save a deposit for an ever more expensive home of their own. They know they will live longer than previous generations and that health and living costs will be much greater for them in retirement, while social security entitlements will be much less than what their grandparents received. Nonetheless, when asked, millennials want to retire earlier than previous generations and are looking for a different type of retirement. One where they can travel more while still enjoying doing so and keep working on a casual part-time basis, but only if they enjoy the work. All of this means that amongst all the competing demands on their time and money, superannuation has to become part of the landscape of Neverland. For Marion, it has meant searching for a better superannuation fund with lower fees and better investment options while scaling back her plans to buy an apartment and perhaps relying more on the Bank of Mum and Dad to help her do so. As previous generations have done, millennials need to take control of their superannuation, and the sooner, the better. The first step is to consolidate any multiple super accounts into one and then, wherever possible, boost their contributions to the magic 15 per cent mark. Happily, most millennials, including those who are self-employed, will have a super fund and will only need to add an extra 5 per cent to take their total contributions to 15 per cent of their prevailing salary. Then they can leave compound interest to work its magic and, like a snowball rolling down a hillside, build the balance within their super. It’s then a matter of working closely with our advisers who can ensure your superannuation stays on track and help you to achieve the best possible outcomes when you do start thinking seriously about retiring.   The information provided in this article is general in nature only and does not constitute personal financial advice.

Economic Update: October-December 2022

Economic Update: October-December 2022

Updated on Economy, Investing

According to the Reserve Bank of Australia, domestic headline inflation is expected to reach 8% in the final month of 2022 as consumers continue to spend despite higher interest rates. Retail spending saw a significant increase of 6.4% during November, with Black Friday sales pushing the number even higher at 8% during the last week of the month. The surge in spending during this time is relatively new in Australia, with the event being similar to the Black Friday sales that occurred in 2021 but lower than the two previous years. This suggests that the trend may be a short-lived fad in the country. Low unemployment levels and expectations of continued labour shortages throughout the economy appear to be creating newfound confidence among consumers, despite continued increases in interest rates. The Reserve Bank appears determine to halt further price rises by pushing interest rates even higher through 2023, which will inevitably flow through to higher home loan rates and further falls in property prices. This is despite its own figures suggesting that if cash rates reach 3.6 per cent next year, some 15 per cent of Australian homebuyers will be experiencing negative cash flow, where their mortgage repayments exceed their net earnings. Few analysts though are expecting widespread defaults, pointing to the build-up of large financial buffers through the pandemic, continued strong labour markets and earlier house price gains, all acting to help homeowners get through the coming year. Nonetheless, the expectation is for further downward pressure on property prices through 2023, with most analysts predicting a 15 to 20 per cent fall in national house prices from peak to trough with impaired or unrenovated properties experiencing even greater price falls. Company profits are expected to remain strong through 2023, driven mostly by strong export prices, despite efforts to speed up the decarbonisation of the economy and move to more renewable sources of energy creation. Industries are expected to benefit from embracing public-private partnerships with the newly elected Federal Government in policy priority areas such as energy, defence, education, health, and security. The continued strength of the domestic labour market and the strong international demand for Australia’s mining exports should also protect the domestic economy from the cold winds that are currently blowing through the international economy. The United States economy, typically the powerhouse of the world economy, is almost certainly expected to fall into recession later in 2023, with domestic economic growth there expected to fall to a lacklustre 0.5 to 1 per cent for the calendar year of 2023. The Chinese economy is still held moribund by the continuing impact of the pandemic with reported cases of Covid 19 soaring as winter takes its grip on the country, causing factory shutdowns and with that, a fall in exports. In the United Kingdom, inflation peaked at 11.8 per cent in October 2022 and is expected to remain in double digits for some time as higher energy prices, interest rates and general cost of living increases cause widespread price hikes around that nation. While the Bank of England is doing its best to bring inflation under control, there is widespread resentment that it is the poorest and most vulnerable in the community that are paying the highest price for the nation’s economic woes. A situation made worse by the slowdown in economic activity in Europe generally, as the ongoing war in the Ukraine continues to take its toll, driving energy prices higher and causing massive economic dislocation.   The information provided in this article is general in nature only and does not constitute personal financial advice.

The effect of rising inflation

The effect of rising inflation

Updated on Budgeting, Economy

The word ‘inflation’ doesn’t only dominate business news headlines but finds its way into general news reports too. So, what is inflation and how does it affect you? In simple terms, inflation signifies a rise in the price of goods and services, meaning you pay more for every purchase you make. Does the US influence Australia’s inflation rate? It is not a surprise that countries in today’s world are more connected than ever before. Therefore, a rise in US inflation rates will impact the Australian economy too. However, the degree and timing of its impact will vary. For example, a rise in labour costs in the US may have a limited impact on Australians; however, an increase in the price of iPhones or Nike shoes in the US will reflect in their price in Australia too. What will be the impact of rising US inflation on Australia’s economy? Interest rate movements made by the US Federal Reserve Bank (the Fed) are closely monitored by central banks worldwide, including the Reserve Bank of Australia (RBA). Over the past decade, many developed economies, including the US and Australia, have reduced interest rates to boost their economies. With rates rebounding from all-time lows there is an expectation that rates will continue increasing due to the strong performance of those economies. Quite often when the Fed increases its interest rate, Australia is quick to follow suit. The cost of borrowing funds will increase, leading to a rise in the inflation rate, making goods and services more expensive. Rising inflation rates can also negatively impact the Australian dollar, where one AUD buys less USD than it may have done previously. What will be the effect on investors? A rise in inflation affects investment markets negatively due to higher interest rates, volatility in the economy and uncertain share prices. For some investors, rising interest rates mean paying more interest on their home loan, which reduces their disposal income and, in turn reduces their capacity to invest. For retirees, an increase in the price of goods and services at a time of share market volatility can lead to having to sell more of their investment assets (potentially at a loss or reduced profit). Also, there could be uncertainty in dividend income, which many retirees often rely upon. Retiree investors will have fewer years to recover from a drop in their portfolios compared to younger investors. How should you prepare for a rise in inflation? It is important to first analyse your personal cashflow situation to understand where your money goes. Consider fixing at least part your home loan to limit your exposure to rising interest rates. Reconsider new personal loans, such as car loans. Do you need to take on new debt when interest rates are likely to increase? For the risk-taking investor, it can be tempting to invest more money into shares when prices are falling, but always consider averaging your position to avoid market timing risk. For investment purposes, consider having exposure in well established companies “blue chip stocks” vs riskier stock. Investors often find comfort knowing their funds are exposed to good quality companies with strong balance sheets. If the thought of rising inflation leaves you feeling unsettled, be sure to talk to a professional adviser. Your adviser will review your financial position, your ability to meet your financial obligations, as well as identify strategies to outpace inflation.   The information provided in this article is general in nature only and does not constitute personal financial advice.

Quarterly Economic Update: April-June 2022

Quarterly Economic Update: April-June 2022

Updated on Economy

The price of a lowly head of lettuce has never been a recognised barometer of the strength of the Australian economy, that is until the media started reporting iceberg lettuces were selling for $10 a head. Suddenly, this has become a touchstone for everything that is wrong with the domestic economy. Prices are on the rise, spurred by higher transport costs and climate-based disruptions to the food chain, and the cost of living is surging. While some relief came with an unexpected 5.2 per cent increase in the basic wage, a move endorsed by the newly elected Federal Government, the prospect of similar inflation linked wage increases were dismissed as a ‘baby boomer fantasy’ by the trade union movement. Nonetheless, fears of further wage increases remain. So, all eyes are now focused on price rises with the most recent figures from the Australian Bureau of Statistics, pegging Australia’s rate of inflation at 5.1 per cent per annum. As bad as this might seem, it is still one of the lowest inflation rates among OECD nations, beaten only by Japan and Switzerland, at the bottom of the inflation table with 2.5 per cent, followed by Israel on 4.0 per cent, and Korea and France with 4.8 per cent. However, with inflation in the United States at 8.3 per cent and 7.8 per cent in the United Kingdom and both countries expecting this rate to go higher, the fear is Australia’s rate will start moving towards 7 per cent – a rate not seen in Australia for more than 20 years. Inflationary fears were made worse by the Governor of the Reserve Bank, Phil Lowe, calling for “front-loaded” interest rate hikes to avoid stagflation and warning against any super-sized wage claims. Just the mere mention of stagflation, something not seen since the seventies, has sent a shiver through the economy. This drove fears that home loan interest rates will also be pushed higher, causing more financial stress for those who have borrowed heavily and bought property at the recent record-high prices. While all four of the big banks are reporting current home loan arrears at record low levels and the majority of customers are tracking well ahead on their home loan repayments, fears still remain about the impact of higher interest rates. Property prices have already started to slide with industry analysts expecting the average prices in Melbourne and Sydney to fall by 10 per cent this calendar year and by potentially as much again next financial year. Meanwhile, the value of cryptocurrencies, which seems to magnify prevailing market sentiments, has collapsed across the board with values falling by as much as 70 per cent. The largest single cryptocurrency, Bitcoin, which was trading at just $US67.81 in July 06, 2013, soared as high as $US68,000 last November, is currently trading at $US20,200, with little market enthusiasm. While cryptocurrency was once touted as being something of a safe haven and a means of diversifying investment portfolios, it is fast becoming a magnifier of market excess and pessimistic economic sentiment.   The information provided in this article is general in nature only and does not constitute personal financial advice.

The female investor

The female investor

Updated on Investing

Investment and portfolio building has traditionally been a male-dominated world, but these days more women are trading on the market – and they’re good at it! According to an ASX Australian Investor Study completed in 2020, female investors make up 42% of Australian investors, yet 45% of those only began investing in the year prior to 2020. It’s intriguing that younger women – known as Next Generation Investors aged 18 – 25 – are taking up stock portfolios. Their goals include saving for a holiday (50%) or paying down existing debt (34%). The ASX study highlighted a few other interesting points: Women prefer products more commonly understood, such as direct Australian shares (53%), residential investment property (37%) and term deposits (31%). Women are less concerned than men about low interest rates and market fluctuations, but consider issues like whom to trust, hidden fees and liquidity. While men are more accepting of market volatility, women prefer stable or guaranteed investment returns. While we’re about breaking down stereotypes, the study found that women are generally more successful in their investments than men. This could be because women are cautious by nature, taking longer to research investment choices and, once settled, preferring to ride out market ups and downs. Conversely, men tend to regularly review their portfolios and trade aggressively, buying and selling assets, potentially incurring additional fees and losses due to market swings. In recent times there has been a surge in Australian women backing other Australian women in start-up business ventures. According to SmartCompany.com.au, female venture capitalists are recognising that entrepreneurial women face a specific set of challenges, such as a lack of networking and mentoring opportunities, and lingering perceptions around gender-based work/family roles. Further, support for Indigenous businesswomen is increasing as women’s investment networks strive to encourage women from diverse backgrounds. Fact is, almost 40% of Australian women who are single for reasons of divorce, widowhood or otherwise, will retire in poverty. Issues around the gender pay gap are recognised contributors to women generally having less money in savings and/or superannuation: women save an average of $598 per month compared with men $839. In an effort to improve these figures, many women strive to secure their financial futures through self-education: magazines, blogs, podcasts etc. Others seek professional advice through referral from a trusted friend or relative. The financial planning industry recognises that more women are actively investing. Financial advisers are developing strategies specific to women’s needs and goals – in fact, the industry is well-served by a large number of financial professionals who are women. The Financial Planning Association of Australia (FPA) can put you in touch with a qualified professional adviser, just like us, so you can ensure all your decisions are well-informed and that your personal needs and goals are considered.   The information provided in this article is general in nature only and does not constitute personal financial advice.

Building financial resilience

Building financial resilience

Updated on Budgeting

Resilience is the ability to quickly recover from setbacks, and while setbacks can come in many forms most of them will have a financial component. So what can you do to build financial resilience? Expect the unexpected Rarely do we get advance warning that something bad is about to happen to us, so the time to develop your resilience strategy is now. And while we don’t know the specifics, we can anticipate events that would throw our finances into disarray. A house burning down or a car being stolen. Not being able to work due to illness or injury. The death of a breadwinner or caregiver. With some idea of the type of threat we face we may be able to insure against some of them. If you have taken out any type of insurance policy you’ve already made a start on your resilience plan. Create buffers You can’t insure against every possibility, but you can build financial buffers. This might simply be a savings account that you earmark as your emergency fund that you contribute to each payday. If your home loan offers a redraw facility you can also create a buffer by getting ahead on your mortgage repayments. Buffers can be particularly important for retirees drawing a pension from their super fund. Redeeming growth assets for cash in order to make pension payments during a market downturn can lead to a depletion of capital and reduction in how long the money will last. By maintaining a cash buffer of, say, two year’s worth of pension payments, redemptions of growth assets can be deferred, giving time for the market to recover. Cut costs The Internet abounds with tips on how to cut costs and save money. In difficult economic times cost cutting can help you maintain your financial buffers and important insurances. Key to cost cutting is tracking your income and expenditure and yes, that means doing a budget. Find the right budgeting app for you and this chore could actually be fun. Invest in quality There are many companies out there that have long track records of consistently pumping out profits and dividends. They may not be as exciting (i.e. volatile) as the latest techno fad stocks but when markets get the jitters these blue chip companies are more likely to maintain their value than the newcomers. This is important. The more volatile a portfolio the more likely an investor is to sell down into a declining market. This turns paper losses into real ones, depriving the investor the opportunity to ride the market back up again. The other key tool in creating resilient portfolios is diversification. Buying a range of investments both within and across the major asset classes is a fundamental strategy for managing portfolio volatility. With a well-diversified portfolio of quality assets there is less need to regularly buy and sell individual investments. Unnecessary trading can create ‘tax drag’ where the realisation of even a marginal capital gain triggers a capital gains tax event and consequent reduction in portfolio value. Take advice Building financial resilience can be a complicated process requiring an understanding of a range of issues that need to be balanced against one another and prioritised. Your financial planner is ideally placed to assist you in developing your own, personalised plan for financial resilience.   The information provided in this article is general in nature only and does not constitute personal financial advice.

Investing: How to reduce concentration risk

Investing: How to reduce concentration risk

Investing

Concentration risk. No, it’s nothing to do with thinking too hard about something. In fact, it’s more likely to be a result of not paying enough attention. Concentration risk is the increase in investment risk that comes about from not sufficiently diversifying your portfolio. In other words, too much money is concentrated in too few assets, sectors or geographical markets. This can happen: Intentionally, because you have a strong belief that a particular share or sector, such as resources, banks or property, is likely to outperform in the future. Unintentionally, through asset performance. One or two shares deliver spectacular gains, making the entire portfolio more sensitive to moves in just a couple of assets. Or maybe shares as a whole enjoy a period of strong growth. Even though you hold a large number of different shares, the increased exposure to one asset class increases the risk to your portfolio. Accidentally, through poor asset selection. As at December 2020, nine of the ten top companies that make up the MSCI World Index also appear on the top ten list of the main US index, the S&P 500. Investing in two funds, one that tracks the world market and one that tracks the US market won’t deliver the level of diversification you might expect. Managing your risk The solution to concentration risk is our old friend, diversification. Appreciate the importance of asset allocation, the art of spreading your money across the main asset classes of shares, property, fixed interest and cash. Ensure your asset allocation matches your tolerance to investment risk. Diversify within each asset class. Holding the big four banks is not a diversified share portfolio. If property is your thing, buying four one-bedroom apartments in the same building, or even in the same area, creates a huge concentration risk. Understand each investment and its role in your portfolio. Does share fund A hold similar shares as share fund B? Do they both have the same strategy? Get a professional opinion. Even if you are confident in making your own investment decisions it’s wise to run them by a licensed adviser. It’s surprisingly common for investors to develop an emotional attachment to particular shares or properties they own. Concentration risk can also increase over time due to lack of attention. Your financial planner will assess your portfolio for hidden concentration risk and help you achieve a better balance of investments.   The information provided in this article is general in nature only and does not constitute personal financial advice.

Mistakes new investors should avoid

Mistakes new investors should avoid

Updated on Education, Investing

You’re young, expecting a satisfying future brimming with friends, family and a comfortable lifestyle. You’re a Next Generation Investor, likely aged between 18 and 25, and you’re starting to think about financial security. According to an Australian Stock Exchange study, nearly a quarter of all investors over the past two years were Next Generation Investors. Additionally, some 27% of surveyed people under age 25 intend to invest over the next year. The excitement of embarking on a journey toward financial freedom is common, as is confusion, after all, in the rush of enthusiasm, how can you ensure you get the decisions made for the future, right today? What are the rookie mistakes to watch out for? Here are a few that can be easily avoided. Not clearing debt first Loans and credit cards have a knack for eating away income. It is recommended that you clear as much debt as possible before committing to serious investments. Track your spending to spot potential savings, then channel that cash towards your debts. Every little bit helps. No strategy Desire to build wealth through investment is not a strategy. The end game determines which investments will be most suitable. Consider how you feel about risk and whether you’ll need access to your money. Successful investment strategies are planned. If it feels overwhelming, seek professional advice to help you build your strategy. You’ll be surprised at how inexpensive a financial adviser can be. Not diversifying Generally speaking, the higher the potential return, the higher the potential risk. Market-linked investments, like shares, can be big-earners, but you’ll have to ride economic ups-and-downs to get there – sometimes for ten years or more. If this worries you, consider lower-risk investments. Conservative in nature, their returns are generally lower. Decide how much risk you’re comfortable with. You may be better off minimising exposure to high-risk assets by diversifying your portfolio with a variety of investment types. Trying to predict the market Investment markets are notoriously unpredictable. Buying shares at the wrong time can mean you pay more than you should, similarly, selling at the wrong time can result in losses. Short-term buying and selling might seem exciting, but it’s a fast-track to losing money. The way around this is, research, diversification and being prepared to stay the distance. Review No investment is a set-and-forget scheme. Always keep track of your savings and your ongoing investment plan, ensuring that it continues to align with your goals, particularly as they change over time. A new car may be your priority today but fast-forward a couple of years and perhaps marriage and children are your priorities. As your goals change, so must your investment strategy. A few other things… Fees and taxes are unavoidable and various investments attract different expenses and tax structures. Find out what you’re up for before making financial decisions. Feeling lost? The Australian Stock Exchange offers free online courses and the Government’s MoneySmart website has a free info Starter Pack to get you underway. Of course, nothing beats professional advice tailored to your needs. The Financial Planning Association of Australia will put you in touch with a qualified adviser suitable for you. Strategic investing sets you up financially and helps create a savings habit for life. Your financial future begins today.   The information provided in this article is general in nature only and does not constitute personal financial advice.

Quarterly Economic Update: January-March 2021

Quarterly Economic Update: January-March 2021

Updated on COVID-19, Economy, Investing

The global COVID-19 jab-fest gathered pace with some countries, including Israel and the United Kingdom, achieving high rates of immunisation. However, the rollout has had some issues. Rare side effects linked to the AstraZeneca vaccine saw a number of countries suspend its use for a period of time, and Australia was slow off the mark with its immunisation rollout. The longer it takes to vaccinate the world, the slower the economic recovery. Hot property Pushing COVID-19 off the front pages was the big jump in residential property prices. Nationally, CoreLogic’s home value index jumped 5.8% for the quarter. Sydney led the jump with a 6.7% lift. In March alone the index rose 2.8%, the biggest rise in 32 years. Most of the action was on the first home and owner-occupiers front, though investor purchases were also up. The main fuel being added to the property price fire is ongoing low interest rates. With the RBA indicating rates will most likely remain low for years, that could continue to inflate property values and see more people priced out of the market. Helping to fuel the market was good employment numbers. Seasonally adjusted, the ABS reported an unemployment rate of 5.8% in February, down from 6.3% in January. However, this counts people on JobKeeper as employed. Taking this into account, Roy Morgan put unemployment at 13.2% in February, with 21% of the workforce either unemployed or under-employed. Blocked artery In late March the container ship Ever Given provided a graphic example of how small things can have a huge impact. Strong wind gusts saw the giant ship wedge itself bank to bank across the Suez Canal, one of the world’s main shipping arteries. Suddenly 30% of world container shipping ground to a halt. Fortunately, the ship was freed after a few days, and the backlog of ships was cleared a few days after that, but it was a stark reminder of how vulnerable large parts of the economy are. Key numbers The pace of recovery in the local and international share markets slowed during the quarter as prices crept close to or exceeded their pre-pandemic levels. The S&P/ASX200 rose 3.1%, trailing the MSCI All-Country World Equity Index, which was up 4.2%. Tech shares ran out of puff with the NASDAQ only gaining 1.4%, while the S&P500 surged late in the quarter to gain 6.1%. The outlook Many countries are experiencing third and fourth waves of COVID-19, and it’s a fair bet that the virus will continue to dictate the way we live for some time to come. But it’s not the only game in town. US President Joe Biden has taken climate change off the back burner and moved it front and centre. That means our government and businesses will need to pay it a lot more attention too. Expect carbon tariffs to become a hot topic. On the local front, with interest rates all but ruled out as a tool for managing the residential property boom, talk is turning to the use of regulatory methods to dampen demand. These could involve requiring bigger deposits or limiting the rate of credit growth. And with JobKeeper now wound up employment figures will come under close scrutiny. Expect to see a jump in unemployment this current quarter.   The information provided in this article is general in nature only and does not constitute personal financial advice.

Economic Update: October-December 2020

Economic Update: October-December 2020

Updated on COVID-19, Economy, Investing

COVID-19 update Finally, some good news on the COVID-19 front: several vaccines have been rolled out in a number of countries. While a huge step forward in bringing the pandemic under control, it comes at a time when, globally, more people are being infected with the coronavirus, and more people are dying from it than at any previous point in the pandemic. There is a long way to go before victory can be declared. Meanwhile, Victoria squashed its second wave of COVID-19 infections, sparking a bounce in its economy as it enjoyed an extended period of no community spread of coronavirus. Unfortunately, the virus found a way back into both Victoria and NSW, kicking off fresh border closures and holiday chaos. The local view As was widely anticipated, the RBA cut the cash rate target by 0.15% to 0.1% in November. While welcomed by borrowers the cut put additional pressure on net savers by making it even harder to find low risk income yielding investments. Some are turning to peer-to-peer lending platforms, or even high yielding shares, which may partly explain the strong recent performance of the ASX. The official unemployment rate in November was 6.8%, the same as in August. However, using a different methodology, Roy Morgan calculated unemployment to be 11.9% in November, with a further 9.1% under-employed. While hardly cause for celebration, this was the first time since the pandemic began that both figures showed a month-on-month drop. The world stage The US election delivered a change of president, with markets responding positively as the result became clear. As the year came to a close, a sigh of relief was heard from millions as the US Congress approved a coronavirus relief package worth $US892 billion ($1.18 trillion). The package includes $US600 payments to most Americans. After years of negotiation and with just days to spare, the UK and EU managed to agree on a BREXIT trade deal. While it will keep the goods flowing between the UK and Europe, the agreement doesn’t cover the huge services sector. The markets It was a good quarter on the markets with the main global and US indices zooming past pre-COVID-19 levels. The MSCI All-Country World Equity Index rose 13.4%. The Australian market followed suit, with the S&P/ASX200 rising 13.3%. However, the Aussie market has yet to return to its February high. In the US the S&P500 rose 11% and tech stocks continued to attract buyers with the NASDAQ up 15.5%. The A$ gained strength rising 8.2% against the greenback. While partly due to a weakening of the US$, the A$ was also up 2% against the British Pound, 3.4% against the Euro and 5.6% against the Yen. The outlook Beyond direct health effects much of COVID-19’s economic impacts have been due to fear. It will take many months, but as vaccines are rolled out, and provided they bring the pandemic under control, much of that fear will dissipate. As it does economic activity should pick up strongly. Less likely to see any positive developments in the immediate future is the tense relationship between Australia and China. Australian coal miners, winemakers and barley growers will continue to bear the brunt of the dispute. Fortunately, China is still highly dependent on Australian iron ore, the price of which has soared by 78% since the start of the year. For current market conditions and further economic analysis, contact our financial advisers. We’re here to help!   The information provided in this article is general in nature only and does not constitute personal financial advice.

Market crashes: The good, the bad and the ugly

Market crashes: The good, the bad and the ugly

Updated on Economy, Investing

Just as night follows day, it seems part of the regular cycle of the world’s share markets that market crashes and falling prices follow good times and rising prices. The impact of the COVID-19 Global Pandemic has been typical of such downturns, prompting a 35 per cent sell off in world share markets and a dramatic fall in economic activity. For many, it has prompted memories of other equally, and sometimes more devastating, downturns in the world’s share markets. The most famous was “Black Thursday” in 1929, which led to an 80 per cent collapse in share prices and sparked the Great Depression, lasting for more than 10 years. What caused it? The wild excesses of the roaring twenties when consumer confidence was at a record high and the introduction of margin loans, where people could borrow up to 80 per cent of the value of shares. This created a classic investment bubble, where optimism overwhelmed caution, and people started buying shares with the mistaken belief they would always increase in value. A drop in agricultural production due to droughts and a fall in economic production caused a sudden reversal in sentiment. A similar situation occurred 60 years later in 1987 where panic selling on Black Monday wiped approximately 30 per cent from the value of the key US market index, the Dow Jones – its biggest one-day fall. It put an end to the ‘Greed is Good’ mentality of the eighties and prompted a review of the relatively new, computerised share trading systems. Yet it seems investor’s memories are short. Not long after this, markets got caught up with a new investment bubble prompted by the development and growth of the Internet. Companies raced to find their place online, and suddenly, all Internet companies were considered a sure bet. This speculative buying ran out of steam when the Dot Com Bubble finally burst in 2000, wiping 45 per cent off the value of shares. Whilst sharing commonalities with previous crashes, the Global Financial Crisis of 2008, was also in many ways unique. It was the direct result of dodgy lending practices in the US housing market, which created a toxic class of home loans, commonly referred to as sub-prime loans. Typically, these lenders ignored the individual’s ability to repay the loans and instead focused on the belief property prices would continue to rise, and there would always be people prepared to rent these properties. It created a typical investment bubble in the US housing market. Eventually, people found they could not meet their repayments, nor could they sell the properties held as securities. Causing enormous problems within the US banking system and the collapse of several international banks. The lesson to be learnt from all these devastating crashes is that while no two were the same, they were all similar in nature. All were created by exaggerated investor beliefs that prices would never fall. Therefore, it is essential to think carefully before investing, ensuring each investment is made with a long-term mindset, and that sudden market corrections do not lead to panic selling. As history has shown, market downturns follow upturns, but as long as the investment is fundamentally sound, it will fully recover any lost value. Contact us today for sound investment and financial advice to withstand market volatility.   The information provided in this article is general in nature only and does not constitute personal financial advice.

Why seeing a financial adviser could be your best Xmas gift

Why seeing a financial adviser could be your best Xmas gift

Updated on Economy, Investing

The run-up to Christmas is usually a hectic time. Aside from the shopping and Christmas parties, there are deadlines to meet, loose ends to tie up and, for many farmers, the last of the crop to harvest. Whatever Christmas looks like for you, it’s essential you spend your time and money in a way that brings you and others around you joy and deeper connection. This is a time of year where there are rarely work and other commitments that need attention, leaving us with the space to focus on deepening the special relationships around us. Put simply, Christmas is about quality time with loved ones, not overextending yourself by spending too much. Once the big day is over many of us are able to slip into a more relaxed mode, but as your focus turns to leftover turkey and pudding, or lounging on the beach, why not spare a thought for your financial situation? With everyone else relaxing, the Christmas holiday period can be an ideal time to check your finances and start the New Year with everything in order and heading in the right direction. As their clients hit the beach, the holiday period is often a quieter time for the financial advisers who remain on deck. That’ll make it easier to see a busy adviser. And while there’s always plenty to do down on the farm, that post-harvest period may be the perfect time for farmers to sit down with their financial advisers. If a rainy day puts a dampener on your holiday fun, why not dip into the filing cabinet and tidy up the paperwork? You may be able to get rid of old documents you no longer need (make sure you dispose of them securely), find new opportunities, or discover important things that you’ve overlooked. Is your cash working hard enough for you? Has your portfolio become unbalanced? Are your personal insurances all in order? Are you saving enough? So why not make a Christmas resolution, to call us and make an appointment to review your financial situation. You’ll come away well equipped with some New Year resolutions to keep your finances humming along for the year to come.   The information provided in this article is general in nature only and does not constitute personal financial advice.

Positioning your portfolio in turbulent times

Positioning your portfolio in turbulent times

Updated on Finance, Investing, Superannuation

As any experienced investor knows, all investment markets have their ups and downs. Regardless of investor experience, turbulent times are a cause of anxiety, and that can lead to poor decision-making. So, if turbulent markets are inevitable, even if their timing is not predictable, how should portfolios be positioned in anticipation of and in response to market volatility? What’s your objective? First up, it’s important to go back to your investment objective. Is it to grow wealth over the medium to long term? Or are you more concerned with preserving capital? Your objective also needs to take account of your risk profile. With your risk tolerance and objectives clarified, it’s time to get to grips with asset allocation. This is the process of deciding what proportion of your portfolio will be allocated to each of the major asset classes: cash, fixed interest, property and shares. Asset allocation is the engine room of your portfolio. The amount that you apportion to the major asset classes has the biggest effect on your portfolio performance. It has a greater bearing on your returns than individual asset selection. Asset allocation is also your key risk management tool, the more you allocate to shares and property the greater the volatility, and therefore the risk. However, in this context, risk isn’t always a bad thing. A higher risk portfolio may at times fall more in value than a lower risks portfolio, but over the long term it is also more likely to generate higher returns. Oops, too late Unfortunately, the motivation to position a portfolio for turbulent times is often a sudden upset in investment markets. But this doesn’t mean it’s too late to do anything. If your investment objectives and risk tolerance haven’t changed, rebalancing your portfolio (i.e. bringing the asset allocation back to its ideal position) may help to position it for the next upswing in investment markets. Waiting out the storms While positioning can help with portfolio risk management, many investors opt to wait out any storms. Why? Because for all the ups and downs, bull markets and bear markets, bubbles and crashes, major share markets have delivered solid long-term growth. In fact, it has been claimed that investors have lost more money trying to anticipate corrections, than they would have lost in riding out actual corrections. A detached view Concerned about the financial outlook and your portfolio’s current position? We can provide an impartial assessment of your portfolio, help you identify your objectives and your risk tolerance, and recommend investments to help you weather the turbulent times. Talk to us today to get started.     The information provided in this article is general in nature only and does not constitute personal financial advice.

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