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3 July 2024
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With the RBA having lifted interest rates by 4.25% over 18 months, many investors now see cash as an attractive investment option. That ignores the silent tax of inflation, which makes other assets better investment alternatives.
Real returns on equities and multi-asset portfolios are typically poor when inflation is high, especially in times of stagflation. Factor returns, on the other hand, are relatively insensitive to inflation cycles.
With inflation above 6%, the real value of term deposits is falling rapidly, and some retirees may be shocked how quickly they qualify for and rely on the age pension. Meanwhile, the outlook for dividends is good.
Since 1980, inflation eroded 81% of purchasing power. $100,000 then can now buy only $19,000 worth of goods and services. The longer money must last, the more we need ‘growth’ assets with inflation protection.
Faced with confusing complexity which often fails to improve investment outcomes, a former managing director set himself the task of writing a one-page introduction to investing for his 18-year-old grandkids.
Cash is a drag on portfolios when the stockmarket is strong but a welcome bulwark when the market sells off. Moving to cash is justified for the plausible scenario where the value of all other assets falls.
Recent history has been spectacularly good for most asset classes but there is a the colossal gap between fundamentally-based forecasts of stockmarket returns over the next 5-10 years and investor expectations.
A comprehensive study of the impact of inflation on returns from different assets over the past 120 years. The high returns in recent years are due to low inflation and falling rates but this ‘sweet spot’ is ending.
Negative real yields have unmoored asset prices from fundamentals, but inflation pressures are likely to start pushing real yields higher. Higher real yields should feed into lower risk asset valuations.
What cost $1 in 1988 now costs $2.29 adjusted for inflation. We should make return calculations in real terms or we are deluding ourselves about investment performance over longer terms.
It's too easy to look at a long-term chart of rising share prices and be reassured about performance. But adjusted for inflation, many of our largest companies have gone nowhere in half a century.
Meeting real return objectives in a low growth environment is a challenge. Investors will need to use cyclical volatility to their advantage by riding the upside and, importantly, avoiding the falls.
Two commonly asked questions are: 'How much do I need to retire' and 'How much can I afford to spend in retirement'? This is a guide to help you come up with your own numbers to suit your goals and needs.
There seems to be more confusion than clarity about the mechanics of how the new $3 million super tax is supposed to work. Here is an attempt to answer some of the questions from my previous work on the issue.
Washington H. Soul Pattinson is an ASX top 50 stock with one of the best investment track records this country has seen. Yet, most Australians haven’t heard of it, and the company seems to prefer it that way.
We are often quoted life expectancy at birth but what matters most is how long we should live as we grow older. It is surprising how short this can be for people born last century, so make the most of it.
A new report suggests Australian housing is twice as expensive as that of the US and UK on a price-to-income basis. It also reveals that it’s cheaper to live in New York than most of our capital cities.
Here are 10 rules for staying happy and sharp as we age, including socialise a lot, never retire, learn a demanding skill, practice gratitude, play video games (specific ones), and be sure to reminisce.