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Lifestyle

September 2020 Newsletter

September 2, 2020 //  by RP Partners

We hope you enjoy this months newsletter!

At Retirement Planning Partners we are always looking for ways that we can improve our service and deliver the best possible experience for our clients. If you wish to provide us with any comments or insights we would love to hear from you, or if you are happy with the service we are providing we would appreciate if you could leave us a testimonial on our Google page. You can click this link https://g.page/rppartners-com-au/review?rc to leave your feedback and help other people like you get the help they need in retirement.

Well it’s September and spring is finally here. This is always a wonderful time to get out in the garden or in nature, on foot or on your bike, even if travel restrictions mean we need to stay closer to home this year.

The recent company reporting season for the year or half-year to June 30 provided an insight into the financial impact of COVID-19 – on the economy and for investors. Analysis by CommSec showed only 75% of ASX 200 companies reported a net profit in the year to June 30. Full-year earnings were down 38% on aggregate, while dividends were down 36%. In an extremely difficult trading environment, 53% of companies either cut or didn’t pay a dividend, a move that will affect investors who depend on dividend income from shares.

There were bright spots though. Gold companies profited from rising gold prices, up almost 30% this year due to gold’s status as a ‘safe-haven’ investment. Iron ore miners benefitted from a lift in demand from China and rising iron ore prices, up 46% this year. While homewares and electronics retailers and those with a strong online presence enjoyed increased demand from Australians staying close to home. Retail trade rose 12.2% in the year to July, the strongest annual growth in 19 years. Consumer confidence is also improving, with the weekly ANZ/Roy Morgan consumer confidence rating up 42% since its March lows to 92.7 points in the last week of August. The Australian dollar is fetching around US73.5c, up almost 5% this year.

Challenges remain, however. Unemployment rose to 7.5% in July, the highest level in 22 years. Business investment fell 11.5% in the year to July and residential building activity fell 12.1% in the year to June – the biggest fall in 19 years. The Reserve Bank forecasts the economy will contract 6% this year before rebounding 5% in 2021.

Inflation, deflation - what

Inflation, deflation – what’s in a name?

When the inflation rate fell into negative territory in the June quarter, it was so unusual it begged the question of what this means for the economy. Are we facing deflation or even stagflation and what is the difference?

In the June quarter the annual inflation rate fell to minus 0.3 per cent, only the third time in 72 years of record keeping that the rate has been in the negative.

Much of the fall was attributed to free childcare (part of the special COVID-19 measures) and low petroleum prices during the quarter. The general view is that the September quarter will return to positive territory when childcare fees resume.

So what is inflation and why does it matter?

What is inflation?

In Australia, the main measure of inflation is the consumer price index (CPI). This measures the rate of change in the average price of a basket of selected goods and services over time.

While the index can move up and down, a negative inflation rate – no, that’s not an oxymoron – is referred to as deflation.

Generally, the Reserve Bank of Australia (RBA) aims to keep the inflation rate between 2 and 3 per cent. But in the current environment, the RBA is now expecting the CPI to remain below 2 per cent until at least December 2022.

A falling consumer price index – particularly one that is in negative territory – sounds like it should be a good thing as it will give you greater purchasing power with the lower prices. After all, who doesn’t like a bargain? But in reality, it can play havoc with retail businesses who are faced with lower profits but not necessarily lower costs. This can put a squeeze on their business, which can often lead to retrenchments and a spike in unemployment.

The other two occasions when Australia experienced deflation were in 1962 and in 1997-98.

The 1962 negative rate was after then Prime Minister Menzies implemented two credit squeezes to end the inflation caused by the Korean War Boom. The 1997 episode was in the wake of the Asian Financial crisis.

A slowing economy

Clearly, we are living in extraordinary times with COVID-19 and until the pandemic is more under control we can expect further slowing in the economy.

But at least this curtailment of economic activity is not coinciding with higher prices for goods. If that were the case, the country would be faced with stagflation which poses a far greater squeeze on households than deflation. Stagflation is a situation with rising inflation (prices) and slowing economic growth, often accompanied with high unemployment.

Of course, if your job is not in jeopardy, you will benefit from cheaper goods. But if lower prices become the norm, people may hold off major purchases on the expectation that they can buy even more cheaply in the future. This is not good news as consumer spending makes up 60 per cent of total economic activity, so a contraction in spending generally results in a contraction in the economy.

However, if your employment is insecure and the overall unemployment rate rises, this will depress household spending. It will also have an impact on the property market.

Unemployment takes its toll

According to the latest figures, more than one million Australians are currently unemployed and many more could face uncertainty going forward. Whether you rent or are buying your property, finding the funds can present problems.

In some areas, as demand dried up in the June quarter, rents dropped by as much as 25 per cent. This may be good for renters, but it is not for those with investment property as part of their retirement strategy. If rents fall – or indeed if your property is vacant for some time – it may jeopardise retirement income.

Property prices are also under attack with distressed sales coming to the fore as the unemployment rate grows. When property values fall, mortgages become more expensive in real terms as your equity may be reduced – and in some cases you could find yourself with negative equity in your property.

Hopefully, the measures introduced in Australia to counter COVID-19 will prove successful and the economy will begin to recover.

If you would like to discuss your overall investment strategy in light of these challenging times, then please call.

Time to break up with bad habits?

Time to break up with bad habits?

We all have bad habits, and they can be many and varied. They can be as big as poor time management which can impact your productivity, or as small as nail biting which drives your loved ones crazy! You might self-sabotage, such as tucking into that tub of ice-cream even if you’ve vowed to eat better or checking your phone during face-to-face conversations which can cause hurt feelings.

It’s of course unrealistic to be perfect, but you can part company with the habits which are not having a positive impact on your life.

How habits are formed

It’s estimated that 40% of our activities are performed daily in the same situations.i It can be hard to trace back how habits (good and bad) were formed but they served a purpose at some stage in our lives. Perhaps you took up smoking to fit in or deal with stress, or learned to self-soothe with sugary treats.

A bad habit for one person isn’t necessarily a bad habit for someone else. Having a glass or two during wine o’clock might be problematic for someone, but a welcome treat for another.

Why habits are hard to break

Habits become deeply wired over time and often reward us in some way thanks to our brain chemistry. However we don’t have to remain at the mercy of them.

As the common failure of our New Year’s resolutions show, it’s hard to break habits and/or form new ones. Fortunately there has been significant research into how habits are formed, which can help when it comes to breaking our less desired habits.

Leveraging the habit loop

All habits can be broken down into three main components; first comes the cue or trigger which could be in your internal or external environment; then the action (good or bad); and lastly the reward, where your brain receives the positive feedback for your action.ii

Appreciating how habits are formed and maintained will enable you to consciously adjust your behaviour, intercepting the habit loop and making your desired behaviours finally stick.

Firstly, create an environment that reminds and encourages you to take action. This could be having your clothes set out for your early morning workout, or scheduling time and moving to a separate space to allow for deep thinking work.

Next identify your current external and your internal cues that trigger your behaviour and set up a process for more productive response, removing any barriers to your success. Are you prone to the 3pm afternoon slump? Take a walk or have some healthy snacks at hand to save you from that sugary snack.

Creating a positive feedback loop for success

Ever wondered why your most addictive habits are often the easiest to adopt and the hardest to kick? These habits, while they may not have a positive impact on your health and wellbeing, have inbuilt reward systems which release a cocktail of positive chemicals in your brain including dopamine, encouraging you to continue your new found habit.

While not all habits have a natural inbuilt reward system, you can create a positive feedback loop to stimulate your brain and embed a new habit, particularly when you are just getting started. For example, studies have shown that a small amount of dark chocolate after a workout can stimulate the same chemicals that will eventually be released by the workout itself.iii Creating an immediate reward to spur you on.

…and pace yourself

It takes time to break habits and form new ones – on average, over two months.iv Be patient with yourself and realistic with what you can achieve. If you do fall back into your old ways, don’t be too hard on yourself, most people fail multiple times before they make it work. Treat yourself with compassion and persevere. It will be worth the effort to dump those habits that just aren’t working for you anymore.

i https://www.sciencedaily.com/releases/2014/08/140808111931.htm

ii https://www.forbes.com/sites/quora/2018/02/13/the-science-behind-adopting-new-habits-and-making-them-stick/#671e27a143c7

iii https://www.sciencedaily.com/releases/2016/09/160913101129.htm

iv https://onlinelibrary.wiley.com/doi/abs/10.1002/ejsp.674

Getting retirement plans back on track

Getting retirement plans back on track

After a year when even the best laid plans have been put on hold due to COVID-19, people who were planning to retire soon may be having second thoughts. You may be concerned about a drop in your super balance, insecure work, or an uncertain investment outlook.

Whatever your circumstances, a financial tune-up may be required to get your retirement plans back on track. You may even find you’re in better financial shape than you feared, but you won’t know until you do your sums.

The best place to start is to think about your future income needs.

What will retirement cost?

Your retirement spending will depend on your lifestyle, if you are married or single, whether you own your home and where you want to live.

Maybe you want to holiday overseas every year while you are still physically active or buy a van and tour Australia. Do you want to eat out regularly, play golf, and lead an active social life; or are you a homebody who enjoys gardening, craftwork or pottering in the shed?

Also think about the cost of creature comforts, such as the ability to upgrade cars, computers and mobiles, buy nice clothes, enjoy good wine and pay for private health insurance.

It’s often suggested you will need around 70 per cent of your pre-retirement income to continue living in the manner to which you have become accustomed. That’s because it’s generally cheaper to live in retirement, with little or no tax to pay and (hopefully) no mortgage or rent.

Draw up a budget

To get you started, the ASFA Retirement Standard may be helpful. It provides sample budgets for different households and living standards.

ASFA suggests singles aged 65 would need around $44,183 a year to live comfortably, while couples would need around $62,435.i Of course, comfort is different for everyone so you may wish to aim higher.

To put these figures in perspective, the full age pension is currently around $24,550 a year for singles and $37,013 for couples. As you can see, this doesn’t stretch to ASFA’s modest budget, let alone a comfortable lifestyle, especially for retirees who are paying rent or still paying off a mortgage.

Then there is the ‘known unknown’ of how long you will live. Today’s 65-year-olds can expect to live to an average age of around 85 years for men and 87 for women. The challenge is to ensure your money lasts the distance.

Can I afford to retire?

Once you have a rough idea what your ideal retirement will cost, you can work out if you have enough super and other savings to fund it.

Using the ASFA benchmark for a comfortable lifestyle, say you hope to retire at age 65 on annual income of $62,000 a year until age 85. Couples would need a lump sum of $640,000 and singles would need $545,000. This assumes you earn 6 per cent a year on your investments, draw down all your capital and receive a part age pension.

Add up your savings and investments inside and outside super. Subtract your debts, including outstanding loans and credit card bills, to arrive at your current net savings. Then work out how much you are likely to have by the time you hope to retire if you continue your current savings strategy.

There are many online calculators to help you estimate your retirement balance, such as the MoneySmart super calculator.

Closing the gap

If there’s a gap between your retirement dream and your financial reality, you still have choices.

If you have the means, you could make additional super contributions up to your concessional cap of $25,000 a year. You may also be able to make after-tax contributions of up to $100,000 a year or, subject to eligibility, $300,000 in any three-year period.

You might also consider delaying retirement which has the double advantage of allowing you to accumulate more savings and reduce the number of years you need to draw on them.

These are challenging times to be embarking on your retirement journey, but a little planning now could put you back in the driver’s seat.

Get in touch if you would like to discuss your retirement strategy.

i https://www.superannuation.asn.au/resources/retirement-standard

Retirement Planning Partners Pty Ltd is a Corporate Authorised Representative of Madison Financial Group Pty Ltd Australian Financial Services Licence No. 246679. This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.

September 2020 NewsletterRead More

Category: Financial PlanningTag: Financial planning, Lifestyle, Super/retirement planning, Topcial/economic

August 2020 Newsletter

August 3, 2020 //  by RP Partners

August is here and the wattle is in bloom, a sign that spring is around the corner. Australians will all be hoping for brighter days ahead, as we contend with rising COVID cases and sobering news on the economic front.

After postponing the Federal Budget until October due to COVID, the government released a budget update on July 23 which gave an insight into the economic impact of the health crisis. It estimates a budget deficit of $85.8 billion in 2019-20 (4.3% of GDP) rising to $184.5 billion in 2020-21 (9.7% of GDP). This would be the biggest deficit as a share of GDP since 1946 in the aftermath of WWII. The economy contracted an estimated 0.25% in 2019-20, with a further fall of 2.5% in 2020-21, the first consecutive annual falls in over 70 years. …

August 2020 NewsletterRead More

Category: Financial PlanningTag: Financial planning, Lifestyle, Super/retirement planning

June 2020 Newsletter

June 2, 2020 //  by RP Partners

Winter is here and we are almost to the end of another financial year. And what a year it’s been! With so many Australians impacted by fires, floods, drought and now COVID-19, let’s hope the new financial year sees a return to something like normality.

As May unfolded, hopes grew of economic re-opening. Reserve Bank Governor Philip Lowe told a Senate Committee on COVID-19 the economic downturn was less severe than feared due to Australia’s better than expected health outcomes and government stimulus and support. However, he stressed: “It’s very important we don’t withdraw fiscal stimulus too early”. Unemployment rose from 5.2% to 6.2% in April, but without JobKeeper support payments it would have been closer to 9.6%. The value of construction work fell 19% in the March quarter, 6.5% over the year, highlighting the need for government stimulus. New business investment in buildings and equipment also fell 6.1% in the year to March, although mining investment bucked the trend, up 4.2% in the March quarter. This was reflected in our record trade surplus of $77.5 billion in the year to April, despite a drop-off in imports and exports in April. …

June 2020 NewsletterRead More

Category: Financial PlanningTag: Lifestyle, Taxation, Topical/economic

April 2020 Newsletter

March 31, 2020 //  by RP Partners

Welcome to our April newsletter which we bring to you at a time of enormous economic uncertainty. At times like these it’s important to have someone to talk to, so we urge you to contact us if you have concerns about your finances.

The health and economic impacts of the coronavirus increased exponentially in March, as did the response of national governments and central banks. As part of a suite of emergency measures, the Reserve Bank of Australia (RBA) cut the official cash rate twice – first to 0.5 per cent and then to 0.25 per cent – as official rates in the US and Europe were cut to near zero. The RBA also began buying government bonds to bring yields down in line with the cash rate, as well as offering a term facility to banks so they can supply credit to small and medium businesses. …

April 2020 NewsletterRead More

Category: Financial PlanningTag: Investing, Lifestyle, Topical/economic

February 2020

February 5, 2020 //  by RP Partners

It’s February and the summer holidays are over for most Australians, but the bushfires and drought in eastern states are far from over. Our thoughts are with everyone affected.

January was unusually busy on the economic front. The International Monetary Fund downgraded its global growth forecasts to 3.3 per cent this year and 3.4 per cent in 2021, citing downside risks from geopolitical tensions and worsening relations between the US and its trading partners. And while the US Federal Reserve left interest rates unchanged in January, Fed chair Jerome Powell said: “Uncertainties about the outlook remain including those posed by the new coronavirus”.

In Australia, the economic impact of the summer bushfires and ongoing drought is also expected to be significant. The Reserve Bank held off cutting rates further for the moment as inflation lifted 0.7 per cent in the December quarter, taking the annual rate from 1.7 per cent to 1.8 per cent. Also, unemployment fell slightly from 5.2 per cent in November to 5.1 per cent in December. Both indicators fall short of the Reserve’s targets, but they are a positive sign.

Australian retail trade also improved in November, with a rise of 0.9 per cent the biggest in two years on the back of strong Black Friday online sales. However, consumer confidence remained weak over Christmas. The Westpac/Melbourne Institute survey of consumer sentiment fell 1.8% in January after a 1.9 per cent fall in December. This, along with the impact of the bushfires and drought, has hit business confidence, with the NAB business confidence index falling to six-year lows in December.

Learning from the littlies

Learning from the littlies

Being called childish isn’t usually a compliment, however there are many things we can learn from children. Here are some important life lessons that they can teach us (or remind us of).

No dream is too big

Think back to the earliest memory you have of being asked what you’d like to be when you grow up. It’s likely your answer was a bit out of the ordinary – perhaps you even wanted to be a dinosaur or a princess! When kids answer this question, their imaginations run wild and they don’t stop to think of feasible career pathways to their goal. For them, no dream is too big (even ones not grounded in reality).

While being realistic is an important life skill, as we grow up we can lose the knack of dreaming big. We can talk ourselves down by thinking that our dreams aren’t possible or that they’ll take too much hard work to achieve.

Playing it safe and not challenging limiting beliefs can keep us in a place of dissatisfaction. So whether you want to climb the career ladder, try your hand at a new hobby or go off on an adventure, channel your inner-child – let yourself believe that these dreams are possible and start fearlessly working towards them.

Don’t be afraid to ask for help

Children are encouraged to ask questions and seek help from adults when they need it. You may have had no issues putting your hand up in class, but as an adult you’re hesitant to reach out for assistance.

Research paper ‘Why Didn’t You Just Ask?’ (published in the Journal of Experimental Social Psychology) explains that “even a minor request can invite rejection, expose inadequacies, and make a help-seeker feel shy, embarrassed, and self-conscious.”i

Perhaps you could do with career advice or need help with a more personal matter. Moving beyond a tentativeness to ask for assistance will help you feel more supported and capable, so ask away. Remember, all of us need a helping hand from time to time.

We’re not that different from each other

When you watch children interact, you’ll often notice how willing they are to make new friends and interact with each other. They might be poles apart in terms of their personalities and backgrounds, yet they tend to find common ground and band together to play.

Adult relationships tend to be more complicated. However, approaching people and situations with an open mind can bring you in contact with a diverse range of views and experiences.

Look beyond your differences and remember you all share the human experience. You may find yourself establishing great friendships and partnerships you otherwise would have missed out on.

It’s great to try new things

Kids are constantly exposed to new experiences as they grow and are generally pretty enthusiastic about trying something they haven’t done before. Yet as we grow older, we become more set in our ways and can be reticent to feel like a beginner again.

Trying new things is a fantastic way to challenge yourself and build your confidence. It can also help you recognise strengths you never knew you had and also pinpoint what you’d like to work on.

Don’t worry what others think

If you’ve heard the quote that begins with “You’ve gotta dance like there’s nobody watching …” (William W. Purkey), you’ll know that as adults it helps to be reminded its ok to let loose.

As our self-awareness and understanding of social conventions (where dancing in public can be looked upon as a tad eccentric!) grows, we can also lose the ability to block out other people’s opinions. Enjoying yourself without worrying about how you’re coming across is something kids excel at and adults can struggle with.

While you don’t have to take to tap dancing in the streets, simply letting yourself have fun and not being in ‘serious mode’ all the time can be very energising and uplifting. It’s a fantastic way to feel like a kid again!

So, channel and nurture your inner child – don’t be afraid to dream big and be open to new experiences and soon you’ll be viewing the world with the wonder and wide-eyed enthusiasm of a child.

i http://francisflynn.org/wp-content/uploads/2010/03/JESP2010-2.pdf

The hunt for dividend income in 2020

The hunt for dividend income in 2020

With interest rates at historic lows and likely to stay that way for some time, retirees and other investors who depend on income from their investments are on the lookout for a decent yield.

Income from all the usual sources, such as term deposits and other fixed interest investments, have slowed to trickle. Which is why many investors are turning to Australian shares for their reliable dividend income and relatively high dividend yields.

The average dividend yield on Australian shares was 5 per cent in 2019 and more than that for many popular stocks.

By comparison, returns from traditional income investments are failing to keep pace with Australia’s low inflation rate of 1.7 per cent. Interest rates on term deposit from the big four banks are generally below 1.4 per centi, while the yield on Australian Government 10-year bonds is around 1.2 per centii.

But with shares entailing more risk than term deposits or bonds, is a dividend income strategy safe?

Dividends provide stability

When comparing investments, it’s important to look at total returns. The total return from shares comes from a combination of capital gains (from share price growth) and dividend income. While market commentary tends to focus on short-term price fluctuations driven largely by investor sentiment, dividend income is remarkably stable.

Over the past 20 years, dividend income has added around 4 per cent on average to the total return from Australian shares.

For example, in 2019 the All Ords Index (which measures the share price gains or losses of Australia’s top 500 listed companies) rose 19.1 per cent. When dividends were added, the total return was 24.1 per cent.

So how are dividend yields calculated?

Calculating dividend yields

To work out the dividend yield on a company’s shares you divide the latest annual dividend payments by the current share price.

Take the example of BHP Billiton. Its shares were trading at $37.41 in December after paying annual dividends of $1.9178, providing a dividend yield of 5.13 per cent ($1.9178 divided by $37.41). When you add franking credits, the ‘grossed up’ dividend yield is 7.32 per cent.iii

Franking credits are a type of tax credit compensating shareholders for tax the company has already paid. Companies such as BHP with fully franked shares will have franking credits equal to 30 per cent of the gross dividend value. This is not a recommendation for BHP, simply an illustration of how dividend yields are calculated.

But a big dividend yield is not always better. A high dividend yield may signal a company with limited growth prospects, a falling share price, or both. Sometimes it’s the result of a one-off special dividend.

So how can you spot a quality dividend?

Quality counts

Investors looking for a reliable income stream need to focus on companies with quality assets and strong management teams, good growth prospects and sustainable earnings. This is what will determine the future growth in dividends and/or the share price.

In the current low interest rate, low economic growth and low inflation environment, many companies have taken a cautious approach and rewarded shareholders with higher dividends. As growth picks up, companies may allocate a greater share of profits to growing their business.

Relying too heavily on dividends from Australian shares could also expose you to risk or mean missing out on opportunities elsewhere.

Consider the big picture

When hunting for a good dividend yield, it’s important to follow fundamental investment principles. That means holding shares from a variety of market sectors, with good prospects for growth and income.

Diversification is also important across asset classes. The total return from Australian residential investment property was 6.3 per cent in 2019 (from a combination of price movements and rental yields), but in other years the performance of shares and property could be reversed.iv

And despite their lowly returns, holding term deposits with different maturity dates allows you to manage your cash flow. It also helps avoid having to sell your shares and crystallise losses in a market downturn.

If you would like to discuss your income needs within the context of your overall investment portfolio, give us a call.

i https://www.canstar.com.au/term-deposits/highest-term-deposit-rates/

ii https://tradingeconomics.com/bonds

iii https://www.marketindex.com.au/analysis/dividend-yield-scan-6-december-2019

iv https://www.corelogic.com.au/news/corelogic-december-2019-home-value-index-strong-finish-housing-values-2019-corelogic-national

2019 Year in Review: A year of highs and lows

2019 Year in Review: A year of highs and lows

It was a year of extremes, with shares hitting record highs and interest rates at historic lows. Yet all in all, 2019 delivered far better returns than Australian investors dared hope for at the start of the year.

The total return from Australian shares (prices and dividend income) was 24 per cent in the year to December.i When you add in positive returns from bonds and a rebound in residential property, Australians with a diversified investment portfolio had plenty to smile about.

Humming along in the background, Australia entered a record-breaking 29th year of economic expansion although growth tapered off as global pressures mounted.

Global economy slowing

The US-China trade war, the Brexit impasse and geopolitical tensions weighed on the global economy in 2019. Yet late in the year optimism grew that US President Donald Trump would sign the first phase of a trade deal with Beijing. The re-election of Boris Johnson’s Conservatives in the UK also raised hopes that the Brexit saga may finally be resolved.

The US economy is in good shape, growing at an annual rate of 2.1 per cent. China has fared worse from the trade tensions, with annual growth of 6 per cent its weakest since 1992. In Australia, growth slipped to an annual rate of 1.7 per cent in the September quarter.ii

Despite the global slowdown, Australia continued its run of healthy trade surpluses thanks largely to a 29 per cent increase in iron ore prices.iii

Interest rates at new lows

The Reserve Bank cut the cash rate three times in 2019 to an historic low of 0.75 per cent. The US Federal Reserve also cut rates to a target range of 1.50-1.75 per cent. This was the main reason the Australian dollar lifted from its decade low of US67c in October to finish the year where it started, around US70c.iv

Rate cuts flowed through to yields on Australian 10-year government bonds which fell to just 1.37 per cent.v Total returns from government bonds (yields plus prices) were up by around 8 per cent.vi

Retirees and others who rely on income from bank term deposits had another difficult year, with interest rates generally below 2 per cent. After inflation, the real return was close to zero. It’s little wonder many looked elsewhere for a better return on their money.

Bumper year for shares

The hunt for yield was one reason Australian shares jumped 18.4 per cent in 2019, the best performance in a decade.vii The market climbed a wall of worries to hit a record high in November on optimism about a US-China trade deal, then eased back on concerns about slowing economic growth.

Despite low interest rates and personal tax cuts, consumers are reluctant to spend. The Westpac/Melbourne Institute survey of consumer sentiment fell to 95.1 in December – anything below 100 denotes pessimism.viii

Property prices recovering

Australian residential property prices rebounded strongly in the second half of 2019, driven by lower mortgage interest rates, a relaxation of bank lending practices and renewed certainty around the taxation of investment property following the May federal election.

According to CoreLogic, property prices rose 2.3 per cent on average, led by Melbourne and Sydney, both up 5.3 per cent. When rental income is included, the total return from residential property was 6.3 per cent.ix

Looking ahead

Property prices are expected to recover further this year but with shares looking fully valued and bond yields near rock bottom, returns could be more modest.

The Australian government is under pressure to do more to stimulate the economy in the short term to head off further rate cuts by the Reserve Bank. More fiscal stimulus could inject fresh life into the local economy and financial markets.

Overseas, the US-China trade war is far from resolved and could remain up in the air until after the US Presidential election in November. There is also uncertainty over the Brexit deal and its impact on trade across Europe.

The one thing we do know is that a diversified investment portfolio is the best way to navigate unpredictable markets.

If you would like to speak to us about your overall investment strategy, give us a call.

i Econonomic Insights: Sharemarket winners and losers, CommSec Economics, 2 January 2019

ii Trading Economics, viewed 1 Jan 2020, https://tradingeconomics.com/indicators

iii https://dfat.gov.au/trade/resources/trade-statistics/Pages/australias-trade-balance.aspx

iv Trading economics, as at 31 Dec 2019, viewed 1 Jan 2020, https://tradingeconomics.com/currencies

v RBA, https://www.rba.gov.au/statistics/tables/#interest-rates

vi Economic Insights: Year in Review; Year in Preview, CommSec 2 January 2020.

vii Trading economics, viewed 1 January 2020 https://tradingeconomics.com/stocks

viii https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/economics-research/er20191211BullConsumerSentiment.pdf

ix https://www.corelogic.com.au/news/corelogic-december-2019-home-value-index-strong-finish-housing-values-2019-corelogic-national

Retirement Planning Partners Pty Ltd is a Corporate Authorised Representative of Madison Financial Group Pty Ltd Australian Financial Services Licence No. 246679. This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.

February 2020Read More

Category: Financial PlanningTag: Investing, Lifestyle, Topcial/economic

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Retirement Planning Partners Pty Ltd is a Corporate Authorised Representative of Madison Financial Group, Australian Financial Services Licence No. 246679  ABN 36 002 459 001

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