Wishing you a very Happy New Year for 2021!
As we embark on the new year of 2021, we well remember the quite unimaginable year that has just gone by. It was a momentous year too in how it impacted all of us and the way we will live, work, and communicate, (and survive without overseas travel!). However, we have learnt and prevailed, and are adapting, albeit it sometimes frustrating. Yet, despite challenges that will, no doubt, pop up, as this is what simply always happens in life, this new year is envisaged by most of us as being a year of consolidation and more positivity.
As we well remember, the investment markets initially succumbed to the ‘dastardly’ Covid-19 virus, which we were first introduced to us as the ‘Corona virus’! The impact of the virus spread quickly and globally as we know. What exactly was it and how bad is it, we were asking? Panic and confusion dominated logic and, certainly, the story dominated the media in morning, noon and night. There was so much information and yet misinformation, including fear mongering.
This virus was causing governments worldwide to have daily briefings to the populace, to shutdown/lockdown economies, to ban/curtail travel (oh, other than what happened in the UK and Europe with their borders ‘open to all travellers’ over their summer! Madness!). Economies were kept afloat with what proved to be overall prudent management of broad stimulus and of financial supplements. Yes, there have been some bizarre elements of management, such as here in Australia, where they let in expats without testing them for the virus before they board planes to our island, and simply put these arrivals in city hotels! Many arrivals knew they had the virus but just wanted to get back to Australia with its great comparative healthcare. Guess what, infection leaks happened and we all go back and forward with on and off closedowns as infections get back into society. I think, finally, the governments here are responding to this major issue that is stopping containment of the infection in Australia with tighter controls on these arrivals. Let’s hope this sensibility in protection process now works properly.
We also well realise the absolute power that each of the six states and two territories command. With the amount of border closures in Australia, both intra-state and interstate, it makes us better appreciate our often taken for granted freedoms! My own recent lockdown experience (Northern Beaches) was really not too bad, given we live in Manly! It is amazing how much work you can catch up on when options to do other things are curtailed!
Without a doubt, by the end of the 2020, when compared to many, many other countries, Australia emerged as indeed the ‘lucky country’ in how we have managed and have prevailed this unprecedented situation. As we know, the opposite situation is still plaguing many other countries.
The Covid-19 vaccine was/is to be the cure to the virus or, at least, greatly reducing its harmful consequences on society. We were told that once the vaccine was to be found, the world could ‘get back to (more) normal’. However, we were also told it would take years to develop the vaccine. Fortunately, with masses of global resources applied to its development, the vaccine has now been developed within under the year of the arrival of the virus on the scene. Now, the logistical challenging global rollout of the vaccine is underway. It is logistically challenging, of course, and likely will take all of 2021 to be administered to most of the world.
We discussed in one of our client communications in March last year, during the dramatic sell-off in the markets (aka a great buying opportunity), that once a vaccine was discovered and was being made available, the markets should, all things being equal, resume strongly from where they were pre-Covid-19. This strength should be further boosted with the extraordinary level of responsive global stimulus and increased liquidity, along with record low interest rates that came about during the past year. The ‘economic train’ is back on the tracks. Markets typically are forward projecting, which is also sometimes why their actions can be bewildering. So, we have seen the positive market moves to levels now at pre-virus highs. A global recovery is being considered more and more likely by the markets, particularly with the Covid-19 vaccine cavalry of the way! Those investors who ‘kept the faith’, i.e. maintained their belief in being invested as a long-term strategy, come good and bad times, have been duly rewarded. It certainly has been a testing and busy year, but particularly the recent months have rewarded this steadfast approach.
I was asked by a client last week just what should we expect this year regarding markets and where best to invest given the events of last year. That is, knowing what will happen in the world over the next 12 months, and then a good estimate of what can be expected can be made! Trying to make such a prediction in such a short time horizon, particularly with such a volatile issue as Covid-19 in play, is really guesswork, albeit maybe an educated one!
However, there are a few points that can be made here with a broad view/opinion. We know that cash and quality bonds offer virtually no returns, and this is unlikely to change over the year ahead. If economies pick up activity and if the stop/start nature of Covid-19 induced lockdowns reduces over the next few months assisted by the results of vaccine rollouts, then equities and particular areas of property and infrastructure should remain attractive to investors. However, this Covid-19 situation is still having chronic impact in many major countries which let it get that way. So, to expect a smooth path for 2021 would not be realistic. Volatility in the markets is likely but, in saying that, pull backs in the markets represent cheaper opportunities to acquire investments, including the good quality ones. We certainly saw that being the case in 2020 during the rapid sell-off in March and April.
There are (always) the ongoing domestic political and geo-political balls in the air. With Trump hopefully gone in just over a week’s time, and an expectantly workable Biden Democrat majority in both the US House and Senate, there should be better stability in the US and in its policies. This relief should see an improved situation there once the US overcomes its current Covid-19 pressures.
Australia appears to be getting on the right tracks, and it should be placed in a relatively good position economically as we delve into this new year, and as also is indicated by the bounce back in our markets. The big unknown for us, and the world really, is China. Its blatant nationalistic behaviour and actions, especially in the past couple of years, are concerning for trade and global stability. China is throwing its weight around and being belligerent in its dealings with any country that questions its assertive actions. Yes, our own trade with China is suffering because we dared questioned the Chinese on the Covid-19 outbreak’s origins. The exception, of course, is our high-quality iron ore to which the Chinese have an insatiable demand for. Otherwise, this Chinese ‘trade embargo’ has been a good wake-up call though for Australia in that we were so easily, and lazily, dependent on China for trade, Chinese investment monies and also for their use of our tertiary education systems. Many Australian exporters are now sensibly, and out of survival necessity, looking at other international markets to sell their goods and services other than to China. We also should/must broaden our import sources too, as there is too much dependency on the Chinese. The world is a big place.
Going back to “where should we invest this year question”. Yes, the prevailing economic and political climates are important considerations, including looking at the more long-term investment impact of such as has resulted from Covid-19 . However, this question is part of other important questions that really need to be answered on a client-by-client basis, and this is how we aim to work with each client.
Personalised questions such as: Why are you wanting/needing to invest? What are you hoping to achieve? What are the risks of you investing and, as importantly, what are the risks of you actually not investing? What monies are you investing? What structure are/should you be investing through e.g. superannuation/trust? What are the tax considerations/impact in your chosen investment structure? What is your investment timeframe? What is your understanding of investing and of the types of investment assets? What asset mix is appropriate to help place you on the path to achieving your investment objectives? When are appropriate reviews/tweaks needed to an investment portfolio? Etc.
Compiling the answers to these many questions, and in applying research, all allows for a deeper understanding of what, where and how we should invest for each client, and this helps the client to better appreciate the ‘why’ segment of the equation. Clients that are engaged with the process of their financial advice and their investing through us, feel more comfortable about these matters and about the ‘what, where, and why’ they are invested. As a client, your situation may change over time, the investment markets may change, the legislation may change, and so on; so this all augments for ongoing engagement and review to better ensure what is in place remains suitable as time moves on. This also helps with the client understanding of and commitment to being invested even when the dark clouds roll in as they occasionally do.
It must be remembered that investing is a long-term strategy. The long-term belief well remains that an appropriate investment portfolio mix of good quality income and growth assets will deliver returns to investors. And, of course, we must keep in mind that you have to invest to be invested, and you need to be invested to gain income and growth from your investments over time! This is especially the needed case for when we stop working and then are ideally enjoying pleasant years of comfortable retirement. Investing and investment management works on for you!
So, wishing you a great 2021 year ahead, and we look forward to catching up and continuing working with you. We also thank you again for your trust by being valued clients of FMA Wealth.
As always, should you have any queries or need to talk about your situation please do not hesitate to contact us.