Welcome to the Firstlinks Newsletter Edition 311
Graham Hand
The headlines and graphics are ready. With the All Ordinaries Index closing yesterday at 6,728, it is apparently within striking distance of the all-time high on 31 October 2007 of 6,873. But sorry to spoil the party. It's a price, like the price of bananas. We should measure the real, inflation-adjusted price to see the equivalent value, as explained last year in this article. In real terms, 6,873 in 2007 is about 8,800 now, still a couple of thousand points away. Or do people think $100 today has the same purchasing power as $100 12 years ago?
Meanwhile, on 19 August 2009 in the wake of the GFC, I bought some gold Exchange Traded Funds (ETFs) on the ASX based on a vague notion of protecting my SMSF portfolio and uncorrelated returns. I paid $111.52 a share, and the ETFs sat in my portfolio for a decade until I sold last week for $179.75 (brilliant timing, it is already up to $184). It's the highest level for gold in 10 years, so how did I go?
The 61% gain may look good, but it equates to only 5% per annum (nominal, not real). It's better than the S&P/ASX200 Price Index as shown below, but behind the Accumulation Index and less than most growth-oriented super funds with allocations to global equities and listed property.
Source: Sharesight records
Gold did well when equities dropped in 2010/2011, but fell then rose from 2011 to 2018. It produces no income, the ETF incurs fees and someone pays to store and guard the precious metal. I was not alone in selling into the recent strength, as gold had the largest outflows of any ETF category on the ASX (-$25 million) in May 2019.
Where should gold sit in a portfolio? I asked one of Australia's smartest investors, John Pearce, the CIO of Unisuper, and he said:
"I think of gold as a currency and not an asset per se. My definition of an asset is something that either generates an income or has the potential to generate an income in future. Gold fails the test. And apart from being a terrible long-term 'investment', it’s not even a great diversifier as it doesn’t always protect against the downside.
BTW, fine art also doesn’t pass my test as an asset, but fine art has been a fantastic investment over the long term. That’s the problem with sticking to principles – you win some you lose some."
While gold has many fans, that other talented investor, Warren Buffett, is also a doubter:
"[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."
So for the moment, Australian gold bugs are having a good run and gold is benefiting from its safe haven status in troubled times.
Interest rates are not offering much of an alternative. The latest Reserve Bank Board meeting minutes say:
"Given the amount of spare capacity in the labour market and the economy more broadly, members agreed that it was more likely than not that a further easing in monetary policy would be appropriate in the period ahead."
In this week's packed edition ...
Sitting down with fund managers discussing investing is a fascinating way to find out what works for them. Our Interview Series continues with James Abela from Fidelity International. Who knew about the Toddler Index and why markets are like nightclubs?
Shane Oliver has been in financial markets for 35 years, and he has selected his nine all-time most important lessons for investing. The lessons sound simple, but it's their consistent application which is not easy.
And while we're thinking in terms of decades, Aidan Geysen shows how much a small increase in the cost of annual investing reduces the accumulation of retirement savings.
ASIC recently released its annual review of 'marketplace lending', which used to be called 'peer-to-peer'. Daniel Foggo reports on the findings on this alternative to the banks.
We all know about the upheaval in the banks' financial advice businesses, and even Westpac, which looked like the last man standing among the majors, has waved the white flag. Remediation costs will top a whopping $10 billion and once-desirable businesses are being given away. Harry Chemay says there's only one way for mass market financial advice to be delivered.
Two EOFY pieces: Bradley Beer gives seven items to check on tax deductions for investment properties, while Graeme Colley explains some super contribution timing tricks (especially since 30 June this year is a Sunday) and reversionary pensions complications.
Finally, SuperGuide asked many experts what the Federal Government should be doing on superannuation and retirement incomes policies.
Graham Hand, Managing Editor
For a PDF version of this week’s newsletter articles, click here.