With the summer holiday season now completed, and as the new year is getting underway, we may well ask so, where are we at now?

Without doubt, the past year of 2022, was a continuously volatile year with ‘many fears of this and fears of that’ being exploited by traders and expounded by media hype. Yet life goes on and we move forward, sometimes facing headwinds and other times with breezy tailwinds. It was not just a year of challenges for investors, it was also a year of good opportunities for investors with adjusting portfolios and for adding cheaper but still good quality assets to their investment portfolios.

As Ausbil Investment Management notes in their monthly outlook report; inflation and monetary policy continued to occupy the market, however, the US and Australian inflationary reads (of late) supported the view that inflation may have peaked, and the markets responded with vigour over the past few weeks’. By the end of 2022, sentiment was far more positive that rate rises would soon reach a terminal level and remain on hold, offering some respite for consumers and businesses alike. This more positive outlook for the capping of interest rates is coupled with positive news from China on Covid restrictions easing, and its potential reopening of travel and doing more exports. All this underpinned the strong positive return generated in markets in last month.

The past few months have favourably seen a moderation in consumer demand and an increase in global supply. These twin scenarios should see a dampening of the high prices which we all see and feel! Without doubt, we are all noticing and commenting on the rising cost of living. Everything has gone up in price. Probably this is plateauing now but, still, it is making an impact on cash flow needs, especially for retirees. You know my views on having good business and personal cash flow management, and in the current higher costs environment it is even more important for all of us.

In saying all that, there will likely be one more rate rise from the RBA here next week based on very recent strong retail sales data and the prevailing, but anticipated, annualised inflation rate now of 7.8%; its highest level in over 30 years. Nevertheless, I agree with Shane Oliver of the AMP when he said this week that “There is still a strong case for the RBA to pause on rate hikes (after February) given the rapid rate hikes to date, to allow for the lagged impact of the (already implemented) rate hikes to work, and given the risk of unnecessarily knocking the economy into recession”. The prospect of a recession this year in Australia does remain low, while the US and Europe may delve into one or, more likely, be on a trend of sub-trend growth.

The Australian equity market is now well back in positive territory from a year ago (very few other markets are) when the unnecessary Russian/Ukrainian conflict started to unfold. Furthermore, our market is higher than its pre-Covid time of nearly three years ago.  There was a lot of dislocation in all markets, particularly in 2022, but certainly there is a gradually growing feeling of better stability and a greater return to ‘normalisation’.

As we discussed in our last commentary, Australia appears to be somewhat of a leading light around this turbulent world and compared against many other economies. Our long-term outlook is quite encouraging. Yes, we are part of the global flowing world so we indeed can be and are impacted by world events, markets, and prices, but we appear to have an array of aligned ‘positives’ in our favour such as the abundance of sought after commodities, energy, agriculture, education, and professional services. We have stable political, financial, and legislative systems, and we have growing immigration supporting a steady population expansion over the decades ahead. Population growth is an important economic driver, particularly if immigration is targeted at adding to the areas where skills shortages are prevalent. We always seem to need tradies!

We regularly speak about the keys to successful investing, such as, smart diversification and allocation of quality assets; having a long-term view and commitment; and resilience and patience in times of volatility. The fund manager company, Allan Gray, describes patience as one of the most valuable advantages that investors can arm themselves with – precisely because it is also one of the most difficult to apply in real time, especially in times of hype, greed, and fear. These are the common and regular challenges posed to investors. However, I think that a true investor has seen and received the rewards over the years with the benefits of being well invested over the years. Investing is a means to successfully achieving your financial goals, especially in one’s non-working years where it is intended to deliver effective lifestyle cash flow for an enjoyable retirement.

This leads me into a timely article I read by the financial author, Peter Thornhill, who also advocates a multi-decade investment strategy which especially articulates the merits of dividend income. Remembering that investing does not have to be complex, I am noting here some simple but important points which he reinforces.

Peter refers to investing as being the use of money productively, so that a regular income is obtained. He does not focus on the so-called volatility of share prices as he sensibly maintains that over his fifty decades plus of investing, he sees a rising stock market producing ever-increasing dividends, which he sees as his ‘income’ for life. Indeed, so true.

Moreover, only with Australian equites, there is the added benefit of franking credits, which is icing on the cake for many retirees. (The same could generally be said with investment property prices in that prices rise over time as will their rental income).

Peter wisely and correctly states that “The ‘Covid crash of 2020’ is like all previous market setbacks. They are relatively short-lived. If one is in tune with history, then this pandemic is no different to those (and similar ‘black swan’ events) we have been exposed to for the last 2,000 or so years!” There will always be bouts of volatility, but the markets move on.

One thing I have noticed in recent years, is the forecasting of where markets are going for the ‘new year’ is now rarer to see as economists seemed to have worked out that trying to do short-term forecasting is often futile and inaccurate because, unfortunately, the short-term future is far less predictable than the longer term. As investors, we invest for the longer term, and I believe that is far more ‘in tune’ with the ‘prediction’ that investing over time sees growing capital gains and increased income! Traders and hedge funds really just live (and die) for the moment and, as such, get caught up in short-termism; simply failing to understand the mindset of the true investor, and the long-term income and growth gains that result for true investors.

I look forward to continuing working with you in in pursuit of your goals and, of course, as always, should you have any queries please do not hesitate to contact us.

Disclaimer for information provided in this Commentary: This document, and the contents contained within, is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, or plan feature. The views expressed in this are subject to change at any time. No forecasts are or can be guaranteed.