These quite extraordinary times continue for people and for investors. And, we have entered the New Year and the new decade on a wave of this continued momentum.
As people, we are seeing and we are being personally impacted by faster and faster global changes through technology and automation, healthcare, social media, population growth, climate change and awareness, and demographic changes. We are also seeing a growing swell of government policy reforms being demanded by people. This ‘people’ side of things is discussed further on.
As investors, we have seen the markets finish the previous decade with a flourishing 2019, which was quite different to the close out of the preceding decade! The past decade has had its many challenges no doubt but, for the true, long-term and logical investor, it has provided solid investment returns in most sectors of the available asset allocation, especially in the growth and income producing areas of shares and property. Investors have had the opportunity to genuinely build their wealth.
In describing his recent assessment of how things look for investors ahead, the Head of Australian equities at Fidelity Worldwide Investments, Paul Taylor, states that “We are in the unusual position heading into 2020 of having tailwinds from both monetary (easing) and fiscal policy (government spending). Having pretty much used up all monetary policy ammunition (through successive easing), governments are now being asked to step up with further fiscal policy to help economies break free of this very low growth world. This will come via significant infrastructure development which should be good news (for investors) as low interest rates combined with fiscal stimulus is normally a positive environment for equity returns”. This includes, I would add, the very good global equity and property returns we saw in 2019.
The conflict or challenge to this is what Taylor adds in saying that “While conditions remain constructive for the Australian equity market, it is certainly not without risk. For lack of a better word, the ‘populism’ based politics that seems to be sweeping the world is very anti-growth in its approach. Populist policies like protectionism (i.e. trade wars), anti-immigration and government intervention are all anti-growth in nature and are likely to continue to put downward pressure on the already sluggish one or two percent economic growth range in most developed economies”. Taylor says he remains positive ahead, and he encourages investors to focus more on the next decade than just the next year. This makes good sense.
There was a degree of negativity heading into 2019, with the usual media led ‘fear of this and fear of that’ stories. This included the spruiking of a global recession being quite possible. This particular ‘fear’ was dissipated by upcoming facts and results (e.g. US corporate profits continuing very well). Facts versus Fears! So, we saw a resultant strong rally in the markets. And, 2020 appears as though this will continue onwards but very unlikely to the degree of what we saw last year, particularly as this new year has started with the markets already at record highs.
Moreover, there does appear to be more global stability than a year ago; or maybe the fact that no major meltdown happened has meant less fear. Although there are always ‘fears’ to find! There is the Chinese economy to worry about, whether the US/China trade war reignites, or in the US election late this year, will the Democrats win (unlikely, but a concern if they did)?
Although, there is no doubt that interest rate cuts and fiscal spending, allied with low unemployment, have substantially supported the strength in markets as well as turning around the what was definitely a weaker residential property market.
Traditional asset allocation models are being challenged in these changing times. The investment markets have seen investment money has moved out of cash and bonds in the latter months of last year into investments such as equities, property and infrastructure where returns at least have a chance real possibility of being better and more attractive. The fast pace of the rally in the markets of late is probably justified in the big picture but a consolidation pullback would be healthy. In saying that, there is still considerable cash looking to be invested, so any pullback(s) will be used by investors to buy yielding assets.
At mentioned earlier, these are extraordinary times for people. Despite this background of positive markets, I think that we would agree there does appear to still be this air of uncertainty or caution amongst people. There is so much change happening in all our lives. Much of the pace of this change can be daunting. Social issues such as climate change response, population growth and traffic congestion, sufficiency of energy supply and of water supply trigger concerns and often deep debate. The tragic bushfire dramas across Australia of late have further highlighted unease, and these have literally sparked a swell of ‘we do need a plan of committed action’.
I see much of the true ‘concern’ issues we face as being a lack of cohesive planning and foresight by government. I think that we all want to see long term plans in place to make our energy supplies consistent and affordable, to have proper bushfire controls, to agree a climate change response, to remove traffic gridlocks, to reduce regulation and red tape, etc.
However, plans to manage these issues must be practical and realistic, and implemented with vision not just a reactionary band-aid treatment of throwing money at the damage done..
One thing the bushfire calamity sadly demonstrated was just how bureaucracy can impede decision and action. Australia is over-governed; we have local, state and federal layers. They were arguing just which was responsible for how to respond and how to resource the growing need to fight the calamity. Do we really need a both local level and state level government? Cut one layer surely.
Having calls for a Royal Commission into what happened with the bushfires is simply a waste of resources and a way of Government avoiding it having to risk making the obvious decisions we need made What we do need is a Government brave and visionary enough to seriously work on solutions to these matters of concern. And to do so beyond a mere reaction to appease present media hype.
Furthermore, we seriously need to have a bipartisan approach between the prevailing government and the opposition (isn’t ‘opposition’ such a negative description, wouldn’t the term ‘alternative government’ conjure up something more positive in its depiction at least!) in how to tackle these such social issues with a long term strategy that will continue on regardless of which party is in power during that time.
This time frame for these ‘national development plans’ may need to be 10, 20 or 30 years national plans. In other words, plans and projects of national interest and development should be undertaken with the necessary commitment and surety of being completed and implemented, start to finish!
Government should have an acute focus on the things needing important attention. Why not have a uranium policy/plan to reduce coal dependency over time; why not use these great record low interest rates to raise long term funding for the numerous national infrastructure projects such as bushfire hazard reduction, such as water catchment and containment in city and regional area, such as more tunnels road programs, such as airport and port improvement; such as developing regional centres that will reduce city congestion. Some of these projects will take many years, even decades, to be completed, and will ‘outlive’ government after government, but that is what this planning should be realistically about. Blueprints that will happen! Build for better!
Make greater use of, and incentivise the use of private capital from fund managers, super funds, and even the ordinary person to support projects close to their hearts and minds! Get a buy in from people and from corporates! I know that it sounds a bit like the old cry to buy ‘war bonds’, but I think you get my drift!
The Morrison Government truly has a chance to really show leadership now where it matters with people and for the good of the country. Its success could actually be planning the future beyond what will be its term(s) in government. People will respect this, people like and need proactive leadership on important issues. Reducing regulation would also be on my wish list!
If this approach happens, I do believe that you will find improved confidence, optimism and greater economic benefits result too.
Switching discussion here, Governments have their role in our lives, but when it comes to personal wealth creation and management, people really are still responsible for their own planning. This is very important. Building wealth is based on investing in the right mix of assets over the long-term. It starts with having a plan, a process and a commitment to persevere. Investing is like life in some ways, it has its ups and its downs but it goes on!
Increasing wealth should and can be enhanced by using concepts such as Saving regularly, as we do through using superannuation and through dollar cost averaging; Compounding to accelerate growth, as we do through re-investment; Tax management to deliver better net outcomes, such as through the right investment structures (especially superannuation) and franking credits, and using CGT discount availability, etc; and also by having sensible Diversity in our investment asset mix.
Diversity reduces investment risk by spreading the risk, which in turn adds to actually having more stability over the long term.
Yet, the actual concept of ‘what and why’ about investing is relatively straightforward. Fundamentally, if you invest sensibly with a long-term horizon, you will be rewarded with a growing asset base, with their resultant income streams. Where many people flounder or fail to understand is with the ‘how to’ actually do investing. Investing is full of complexity, volatility and is prone to both domestic and global economic, political, and technological changes, as well as the exposure to handling negative media interference, and with what appears to be becoming more of a consideration are social issues, such as climate change considerations.
The actual concept of investing and the why to invest remain the constants in the process. It is the understanding and the navigating the investment road, including asset allocation and product selection, which are the variables, just to name a couple of them! The benefit of experience and even of being mentored in investing such as through good advice, should deliver better knowledge, appreciation and patience surrounding the diverse world of investing.
Most of us will be (and should be!) investing for many decades. It could be from say age 20 through to age 90, or more! On average, most people will be investing or using the fruits of their investing in some manner for 50,60,70+ years! If we start earning wages from school or university, we will likely be earning and investing super. This is often the starting block for many of us. The earlier people really begin to invest and also understand investing, the better i.e. the better off and more self-sufficient they should be in their years ahead.
Anyway, let’s see how the roarin’ twenties roll out! Well, a good start so far from the kick-off!
As always, should you have any queries, please do not hesitate to contact us.