Written by Kris Wrenn
What have I learned this year?
That Australians will not be told what to do. The RBA has made it very clear that they want us to reduce our spending to bring down inflation, which is generally damaging to everyone. So, they have increased the Cash rate 13 times now over an 18 month period, inflicting pain on borrowers, especially those who had over-leveraged. However, Xmas spending last year was the highest on record, and even in recent months, the Black Friday sales were huge, with a prediction that they may outweigh Boxing day sales for the first time. Hence my comment, Aussies will do what they’re going to do. It is reminiscent of the “$11 lettuce” scandal .. point is, people still bought the lettuce.
I’ve also learned that there is always room to revive and reinvent a financial product. In recent years there has been a lot of evolution in the annuity and “lifetime income” space. Just in the last couple of weeks a new product was launched that, for the right client, is offering a guaranteed lifetime income of over 9% p/a, akin to some of the great defined benefit schemes of old.
Finally, to continue a theme that Hudson is very passionate about, I have learned that everyone needs a plan. You might be 25 and wanting us to model what impact saving 10% of your income each year will have over the next 40 years. You might be 35 and wondering if to buy your first home now or keep saving for something bigger. You might be 45 and wanting to start an investment for your young kids so they can buy a car or house in 10 years (this might involve using a discretionary trust to reduce the tax impact). You might be 55 and wanting to make a plan to maximise your Superannuation in 10 years-time. You might be 65 and wanting to convert your Super to Pension phase in the best possible way to maximise returns but also protect yourself from downturns.
Last Years Prediction
It is hard to see a case for a booming share market and I suspect we may see the All Ords starting with a 6 before it starts with an 8. That said, history shows very few examples of a falling share market two consecutive years in a row, with the GFC being the most recent, and having to go back a few decades to see the time prior.
I think volatility is very likely to continue. 2022 saw a 10% fall, an 11% rise, a 16% fall, a 12% rise, a 10% fall and a 13% rise, a very different experience compared to 2021 and it’s hard to see this trend ceasing as investors continue to weigh up inflation, unemployment and GDP figures as they are released.
Being the glutton for punishment that I am, let’s go with a falling $US! We’ve seen the $AUS rise from 62c to 67c since mid-October, so maybe my prediction last year is coming to fruition, and maybe time to consider increasing your hedged global share exposure as protection against a rising Aussie dollar.
The result from the share market was basically spot on. There was certainly no “booming”, with a peak throughout the year of 7770 up from 7400. It did indeed start with a 6, back in October. Finally, we did not see two consecutive years of negative returns. Although the market appears to have been flat, when you look at the accumulation index (which includes dividends), investors received around 4.5% over 12 months (slightly more when you include franking).
My volatility prediction wasn’t quite as on the mark and it’s been flatter than perhaps I had thought. We saw a 5% rise by February, followed by a 9% fall by mid March. The market rose by 8% through to end of July, fell 9% by end of October and has slowly picked up since (6%) to finish almost exactly where it began. So overall nothing in the double figures range like in 2022.
Currency (dear oh dear), I was correct .. for about a month!, with the $AUS rising to 71.5c by February, but then everything unravelled. It fell to 63c by October and has recovered slightly back to around 66c, a shade weaker than 12 months ago.
Prediction for next Year
As I continue to struggle to park at the Shopping Centre and as I continue to see people of all ages filling shopping bags, I am going to confidently say we will have a couple of rate increase before mid year 2024, let’s say one in February and one in April.
This year saw an interesting outcome, in that whether you were all in Cash, all in shares, or diversified across all asset classes, returns for most were fairly consistent at around the 4% to 6% mark and this is a trend I expect to continue. From 2009 until 2020, we experienced an investment landscape where Cash was paying next to nothing, while share market returns were strong. The covid era has forced a rebalance and with the potential of us seeing a recession both domestically and globally, it is once again hard to see a huge increase in confidence and/or an upswing on the market. Targeting niche markets could be the key to success, perhaps while building on some “value” stocks and some fixed interest assets for security.
Final word for 2023
As always, put down whatever tools you work with “be it a hammer or a pen” and enjoy the festive season with friends and family. Then, when you’re well rested and ready to start 2024, think about what kind of plan you need to get you where you want to be in 10 or 20 years. Life is what you make it. Merry Christmas all.