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16 August 2022
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Now we're captivated by inflation and higher rates but only a year ago, investors were certain of the supremacy of US companies, the benign nature of inflation and the remoteness of tighter monetary policy.
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Companies have been slow to update guidance and we have yet to see the impact of inflation expectations in earnings and outlooks. Companies need to insulate costs from inflation while enjoying an uptick in revenue.
Weaker share prices may have already discounted some bad news, but cost inflation is creating wide divergences inside and across sectors. Early results show some companies are strong enough to resist sector falls.
In 2002, the share price of the company that became Sydney Airport (SYD) hit 80 cents from the $2 IPO price. After 20 years of astute investment driving revenue increases, it sold to private hands for $8.75 in 2022.
There are significant differences in the sector weightings of an ethical fund versus an index, and while this has caused some short-term headwinds recently, the tailwinds are expected to blow over the long term.
Many new investors make common mistakes while learning about markets. Losses are inevitable. Newbies should read more and develop a long-term focus while avoiding big mistakes and not aiming to be brilliant.
Lenders use Residential Mortgage-Backed Securities to finance mortgages and RMBS are available to retail investors through fund structures. They come with many layers of protection beyond movements in house prices.
Welcome to Firstlinks Edition 470 with weekend update 4
It's not a time for dogmatic opinions about short-term movements, as markets face more risks and dangerous externalities than at any time in 50 years or more. And do the usual tools that central banks and governments rely on work anymore?Read More.
Billionaire fund manager standoff: Ray Dalio thinks investing is common sense and markets are simple, while Howard Marks says complex and convoluted 'second-level' thinking is needed for superior returns.
After 40 years in the market, Michael Witts retired recently as Treasurer of ING Bank Australia, a position he held for 12 years. He reflects on changes over the years including in mortgages, regulations and funding.
A super fund stops paying tax when it is in the pension phase, which can mean a tax exemption on capital gains built up over many years. Does that mean a pension should be started before an asset is sold? Not always.
Phil Ruthven, AM - forecaster, entrepreneur, storyteller - passed away last week at the age of 82. Phil was a fantastic supporter of Cuffelinks/Firstlinks from the start and we link to all 26 of his original articles.
A new standard argues the majority of Australians will never achieve the ASFA 'comfortable' level of retirement savings and it amounts to 'fearmongering' by vested interests. If comfortable is aspirational, so be it.
The lessons from 22 years in the market include the lower volatility of industrial shares, how a short book differs from a long, the best leading indicators of change, plus stocks to withstand tougher times.
Central banks need data and sources as up-to-date as possible, yet Australia's Reserve Bank sees a new CPI only once a quarter. And the US Fed's rate committee waits two months for its next meeting.
One of the major questions confronting investors is the portfolio weighting towards Australian banks in an environment of rising rates. Do the recent price falls represent value or are too many bad debts coming?
With the focus on the cash rate of 0.85%, investors may overlook that fixed rate bonds are far ahead in the game. The question for high-quality bond investors is whether to go fixed or floating for the best returns.
To add to the world's problems, high inflation is exposing Europe's frailties and poorer nations have no independent monetary policies to help their economies. Core problems cannot always be kicked down the road.
Using the nine dimensions of well-being used by the OECD, and dividing Australians into Baby Boomers, Generation Xers or Millennials, it is surprisingly easy to identify the winners and losers for most dimensions.
We may have been extremely unlucky with the unforgiving weather plaguing the East Coast of Australia this year. However, on the economic front we are by many measures in a strong position relative to the rest of the world.
Most people are returning to their offices, often three days a week with flexibility. The trend to premium offices supports health and lifestyles, while office designs focus more on collaboration and social spaces.
In the 12 US recessions since WWII, the S&P500 index has contracted from peak to trough by a median of 24%. We were almost there in June 2022 but trying to time the bottom of the market can be a costly strategy.
When investors focus on the EV revolution, not enough think about the investment opportunities with the 'E'. The charging infrastructure underpins the whole sector and will undergo its own revolution.
There have been regular falls in real house prices in the past. Some of the 40% gains of 2020 to 2021 will be given back now but housing is a long-term investment and fundamentals are likely to remain strong.
Treasury has conducted a post-implementation review of the banning of stamping fees paid by product issuers to brokers and advisers. The Australian Shareholders' Association does not support the banning.
Averages provide the central value in a data series but provide no window into variation. Every market drawdown, financial crisis and recession is different, and market cycles only end when excesses are corrected.
With 62% of Australians aged 65 and over relying at least partially on the age pension, are they better off owning their home or renting? There is an extra pension asset allowance for those not owning a home.
Whether you are appointing an attorney or have been appointed as an attorney, the full extent of this legal framework should be understood as more people will need to act in this capacity in future.
The costs of aged care will only continue to increase as the Baby Boomer generation moves into their frailty years, increasing not only the demand for services but also higher consumer expectations around the quality of service.
Family trusts are used to hold wealth, with benefits like asset protection, tax planning, capital gains tax discount and ability to carry forward losses. But there are disadvantages that must be weighed up.
Depending on personal circumstances, it may be time to rethink the bias to paying down housing debt over wealth accumulation in super. Do the sums and ask these four questions to plan for your future.
Many financial advisers have left the industry because it costs more to produce advice than is charged as an up-front fee. Advisers are valued by those who use them while the unadvised don’t see the need to pay.
The rapid rise in US Treasury yields and widening spreads on almost all other types of credit have pushed down bond prices, but it now means diversified bond funds can give investors returns not seen for many years.
On any given day, whether the stockmarket rises or falls is a coin toss, but stay invested for 10 years and the odds are excellent. It's at times of market selloffs that opportunities present for long-term investors.
A $28 billion global manager still sees far more potential in value than growth stocks, believes energy stocks are undervalued including an Australian company, and describes the need for resilience in investing.
Commercial real estate still offers good yield pickups versus bonds, but some sectors are better positioned than others. What types are resilient in the face of rising inflation and interest rates?
Equity investing comes with volatility that makes many retirees uncomfortable. A focus on income which is less volatile than share prices, and quality companies delivering robust earnings, offers more reassurance.
During market dislocation events, investors react irrationally and it should be a great environment for active management. The last few years have been an easy ride on tech stocks but it's now all about quality.
Don't switch off when you see a China story. China represents one-third of Australia's global trade, and its many headwinds hitting health, economic growth, military conflict, demographics and tech are threats. Plus common sense in Dalio versus Marks.
When inflation was close to zero, it was not as important to think about markets and returns in real terms (that is, nominal returns less inflation). But factoring in inflation, a total return of 6% on an investment may only preserve purchasing power. Leaving money in cash at 1% now comes with a significant opportunity cost.
Fund manager reports for last financial year are drifting into client mailboxes, and many of the results are disappointing. With some funds giving back their 2021 gains, why did they not reduce their exposure to hot stocks when faced with rising inflation and rates?
Heard the word, cakeism? As in, 'having your cake and eating it too'. The Reserve Bank wants to simultaneously fight inflation by taking away spending power, while not driving the economy into a recession. If you want to help, stop buying stuff.
Many thanks for the thousands of revealing comments in our survey on retirement experiences. We discuss the full results. And with the ASX200 down 10%, the US S&P500 off 20% and bond prices tanking, each investor faces the new financial year deciding whether to sit, sell or invest more.
The 2021 Census reports that Millennials are now the largest generational group in Australia. While we are increasingly secular and culturally diverse, our differences are far more accepted than the way the US is heading. And please take our short retirement survey.
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.
Most global corporations' direct exposure to Russia is limited; however, rising commodity prices and supply chain disruptions will pressure consumer sentiment and raise inflationary risks.
Following on from last week's article about the need for 'fun' in investing, a bit of money to shoot for the moon can be investors’ pressure relief valve and stop people tinkering with their main portfolio.
The most common advice in a market selloff is to hang on for the long term, but that assumes a well-laid, well-maintained plan. That may not be the case for some investors and selling may be worthwhile.
At a 2022 Outlook event, the influential BlackRock (largest fund manager in the world) CEO spoke about consumer behaviour and its impact on prices, the pandemic, ESG trends and likely equity returns for 2022.
Chris has many years of experience in building successful wealth management practices.
Noel Whittaker is one of the world's foremost authorities on personal finance.
Phil Ruthven is the founder and director of IBISWorld, Australia's best-known business information, forecasting and strategic services corporation
Paul John Keating is a former Australian politician who served as the 24th Prime Minister of Australia, in office from 1991 to 1996 as leader of the Labor Party.
webinar: 5 ideas for the inflation era, 23 August 2022.
signs long-term renewable energy supply agreement with ENGIE.
webinar, part 2: Our advocacy & engagement in FY22, Aug 23, 2022.
This brief history of the GFC and the lessons we should learn is a reminder that similar events will happen again at some stage, and this time we have no excuse not to be ready.
The short-term volatility of share prices, and the rapid falls which hit markets every 15 years or so, disguise the wealth creation effects of share investments over a long-term horizon.
An investor’s fundamental investment process should be adapted to take account of the psychology and emotion involved in making such decisions, including a disciplined approach to entering and exiting positions.
A lower starting withdrawal rate doesn’t always mean living on less. The latest research on sustainable withdrawals offers flexibility for retirees to improve the chances of not running out of funds prematurely.
While the competing structure, ETFs, has increased in size far quicker in recent years, LICs remain an important part of the listed trust sector. There are differences between Traditional and Trading LICs.