Markets have moved with such speed and velocity in both directions since the beginning of the COVID outbreak it has been difficult for investors to adjust with so much conflicting information being circulated.
Decades of data, however, shows that staying invested through volatile times has been a smart long-term strategy.
There are three main reasons why you should avoid the impulse to hit the sell button.
Read through the full article here.
Over the past 25 years, global investors have become conditioned to the notion that central banks will bail out global asset markets amid the first sign of stress. Many of these occurrences have been when the economy has been firmly in expansion territory such as 1998 when the Russian default crisis and the collapse of LTCM saw the Fed cut rates during one of the biggest economic and speculative equity booms in recorded history. Twenty years (and a few months) later, the Fed was completing one of its slowest tightening cycles ever and decided to go on hold in early 2019 because the US equity market had declined -20% in Q4’18, and then they cut rates in September 2019 when US unemployment was at a fresh 50-yr low of 3.5%, which sparked a huge gain in the S&P 500, despite zero earnings growth.
Although there are numerous other examples of the Fed, in particular, bailing out markets in the past quarter century, all of these policy pivots were possible as their preferred inflation gauge, the core PCE, was close to the +2% target. In 2022, investors have once again formed an expectation that the Fed could pivot on policy and be easing rates as lower commodity prices means financial conditions may not need to tighten as much as previously thought to get core inflation back to 2%. This is a challenging notion as reducing inflation from 6% to 4% will be much easier, than from 4% to 2% without a recession.
In this paper, we examine more closely, why the market may be over-estimating the Fed's optionality.
Click here to view the full paper
The attached note takes a look at investment cycles - what drives them and why investors need to allow for them. The key points are as follows:
Cyclical fluctuations are a key aspect of investment markets. Most are driven by economic developments but are magnified by swings in investor sentiment.
Of particular importance are the long-term cycles which are often driven by waves of innovation and the 3-5 year business cycle. Right now, we are still in the downswing phase of the business cycle and may have entered a weaker and constrained phase of the long-term cycle.
Periods of poor returns invariably give way to periods of great returns and vice versa. The key for investors is to not get thrown off by cyclical fluctuations.
Click here to read more.
Investment markets are driven by more than just fundamentals. Investor psychology plays a huge role and helps explain why asset prices go through periodic booms and busts.
The key for investors is to be aware of the role of investor psychology and its influence on their own thinking. The best defence is to be aware of past market cycles (so nothing comes as a surprise) and to avoid being sucked into booms and spat out during busts. If an investor is looking to trade they should do so on a contrarian basis. This means accumulating when the crowd is panicking, lightening off when it is euphoric.
Click here for the full article.
As well as enjoying the benefits of self-employment, you'll need to take care with money matters. Find out how to make the right start here.
Having a plan will help you feel more prepared if your living expenses increase. Click the link here to read more on the practical steps to help you manage living costs and keep on top of bills and to check on support and services available if you're feeling overwhelmed.
Bonds can provide a stable source of income and can protect the money you invest. They are considered less risky than growth assets like shares and property, and can help to diversify your investment portfolio.
Click here to read full article.
AP Partners’ newsletter for July highlights particularly on the ones dealing with main residence capital gains tax exemption and of course some important things to think about when you have a property listed on Airbnb.
Click here to read the newsletter.
When choosing an accountant, look for one that will suit you or your business. Some accountants specialise in tax returns for individuals or for businesses in a particular industry, and others are experts in a particular area of tax.
Find out more on what should you consider in selecting an accountant that fits you.
The attached note takes a look at the outlook for the RBA's cash rate following its latest rate hike. The key points are as follows:
The RBA has hiked the cash rate by another 0.5% taking it to 1.85% and signalling more rate hikes ahead.
Market & consensus expectations for the cash rate to rise above 3% are too hawkish as: global supply pressures on inflation appear to be easing; the RBA is already getting traction in terms of slowing demand and is starting to recognise this with downgrades to the outlook for economic growth; inflation expectations are still contained; & many households will experience significant financial stress with rising rates.
We see the pace of cash rate hikes ahead slowing down with the cash rate peaking around 2.6% either at the end of this year or early next year, which is at the low end of market and economists' expectations. Rates are likely to be falling in the second half of next year.
4 Reasons to Hire a Bookkeeper
Top 10 Brilliant Money-Saving Tips
Superannuation Benefits – When and How to Access Them
Westpac rolling out ‘digital mortgages’
COVID-19 and fringe benefits tax
Victoria is best-performing state: CommSec
Flight Centre recovery beats expectations
If your bills or loan repayments are getting out of control, talk to your lender or provider about your options. Taking action straight away can stop a small problem from becoming a big one.
Click here for some practical steps you can take to get your finances back on track.
What to do about super scams and more articles on the newsletter here.
With the recent discussion about the risk of a global recession, the below looks at the following points and examines them more closely.
• Only a few weeks ago there was a “hope trade” in markets that the Fed will back off the rate hikes in the September quarter. However, extremely high inflation, very low unemployment, and very late policy tightening means central banks are not in a position to pivot on policy and bail out markets like the Fed did in 2016 and 2018. This would only occur if they have made a mistake as evidenced by a sharp slowing of economic growth or the S&P 500 declining through 3,500. Neither of these are evident at present, and central banks need to continue moving rates higher to lessen the heat from very tight labour markets.
• Although fiscal and monetary stimulus is finally being wound back, a major misalignment persists between 40-yr highs in inflation, 40-yr lows in unemployment and real interest rates close to historic lows. Central banks are well behind the curve, but Morgan Stanley estimates that the tightening in US financial condition in the past six months is equivalent to 2.5% in Fed Funds equivalent terms, albeit from incredibly low levels. However, over the past 25 years financial condition at current levels have not sparked a material decline in inflation in the subsequent two years outside the severe recession which occurred during the 2008/09 GFC. This suggests that firstly rates need to go materially higher and, secondly that the Fed does not have the optionality to pause.
• The key for markets and investors moving forward is what happens to inflation, and there is no clear path here, but at present real cash rates are far too low to see core inflation back at 2% within the next few years. There is considerable cashflow pain ahead for households given higher energy and food prices, in addition to central banks having to tighten policy to get growth materially sub-trend. This is needed to have inflation within the realm of the typical 2% target by 2024, and rate hikes this year will weigh on activity in 2023 where recession risks seem much higher than what they are for the remainder of this year
Colonial First State’s Client Resources page has new client fact sheets to help you develop your financial knowledge. You may check out these topics below:
Tax tips and super strategies to help you prepare for the end of financial year
Boosting your super with the government co-contribution
ASIC is alerting investors of the existence of a number of fake green bonds.
In Australia, green bonds are not directly available to the general public or retail investors. Any website or entity claiming otherwise is a scam.
Scammers may represent themselves as well-known financial services firms and invite people to invest in fictitious environmentally sustainable green bonds.
ASIC is aware of the existence of a number of fake green bonds. Green bonds are bonds that are used to finance new and existing projects that offer climate change and environmental benefits. They can be purchased by superannuation funds, fund managers, insurance companies and other wholesale entities, but are not directly available to the public.
Lower tax on your investments can help you reach your financial goals sooner. But don't choose an investment based on tax benefits alone.
You need to include investment income in your tax return. This includes what you earn in:
interest
dividends
rent
managed funds distributions
capital gains from property, shares and cryptocurrencies
After many years of underperformance, 2022 could finally be the year that Australian shares outperform the US market, thanks to higher commodity prices and heavy falls in technology stocks.
Read full article
The Oracle of Omaha's latest annual letter is full of lessons for investors, including waiting for value, keeping a buffer, trusting the quality of your investments, and recognising new and important trends.
Read full article
ASIC is alerting consumers to a rise in investment scams impersonating companies or financial investment firms.
Scammers often make contact through Gmail and Outlook email accounts.
Contact details of the scammers do not match the information published on the legitimate company’s website.