Latest News from Newealth

Market Metrics: Gold

• Posted by Dejan Pekic BCom DipFP CFP GAICD

Gold is an asset because it represents as store of wealth.

This undisputed fact has been the case for millennia and Gold is also purchased heavily in times of financial fear such as during the past 2 years which has seen a rapid rise in inflation.

For example, the price of one ounce of Gold in October 2022 was US$1,624 and today it is US$2,370 which is a 45.9% increase in 20 months.

However, the problem with investing in this asset is that Gold does not multiply.

A bar of Gold does not produce baby Gold ingots which means an investor can make no money for extended periods such as between late 1970’s and the 2008 Global Financial Crisis (some 30 plus years) during which time an investor did not make a dollar.

Gold investors again made no money between 2011 and 2020 during which the Gold price once again remained below the 2011 purchase price.

Click for charts.

The principles of Value Investing teach us to not invest in commodities, Gold might be shiny but it is just too risky.

WARNING, this does not constitute Personal Advice. To discuss if this is an appropriate strategy for your given circumstances, please do not hesitate to contact us directly.

Our business is based on referrals, so if you have family, friends or colleagues that want advice please ask them to contact us.

Superannuation: Boomerang Children

• Posted by Dejan Pekic BCom DipFP CFP GAICD

A question that we often get asked is in relation to adult child and whether an interdependency exists if they are living at home.

That is a difficult question and we recommend you seek legal advice because the Australian Tax Office view is that an arrangement of commercial convenience does not prove a mutual commitment to a shared life which is needed to evidence an interdependency relationship.

The benefit of an interdependency is that there is no 15% lump sum tax plus 2% Medicare to be paid on the taxable component of the superannuation death benefit.

For example, on a $500,000 superannuation death benefit that could be the difference between paying $85,000 in lump sum tax versus NIL if there is an interdependency relationship.

We have a attached a quick reference guide to who qualifies as a dependent under the Superannuation Industry (supervision) Act 1993.

Click for table.

This is also a timely reminder to keep your superannuation death benefit nominations up to date so that the individuals that you have chosen get the money rather than leaving this to the superannuation trustee to decide.

Our business is based on referrals, so if you have family, friends or colleagues that want advice please ask them to contact us.

Market Metrics: Global Macro

• Posted by Dejan Pekic BCom DipFP CFP GAICD

As we close out another financial year, we all in our own way come to reflect on the past 12 months.

Was 30 June 2024 financial year a good year?

Yes, asset prices have increased but with investing one must keep looking forward.

We have attached growth, inflation and monetary policy expectation for five regions and the message is slow and steady economic activity.

Contributing to this slow and steady economic activity is increased investor liquidity with cash holding rising to US$5.98 trillion in the United States as at 1st April 2024 from US$4.68 trillion in 2020 or 28% according to the Investment Company Institute.

Click to read.

In the words of Benjamin Graham…’the essence of investment management is the management of risks, not the management of returns’… which is why remaining invested according to your appetite for volatility is key and when panic does take hold, react by buying more quality assets at discounted prices.

Our business is based on referrals, so if you have family, friends or colleagues that want advice please ask them to contact us.

Disruptive Technology: Grandkids won’t learn

• Posted by Dejan Pekic BCom DipFP CFP GAICD

Waymo (which stands for a new way forward in mobility) continues to expand autonomous taxi services in the United States.

It is not perfect but it is operational right now and it is being used.

This will not just negatively impact new people applying for a driver’s licenses, it will also eventually eliminate an estimated 730,000 Australian transport, postal and warehousing employees.

Click to read.

Yes, AI (Artificial Intelligence) is at an ‘inflection point’ and yes this is going to allow investors to tap into trillions of dollars of investment opportunity but it is difficult to foresee what employment role if any humans will play after this transition.

Our business is based on referrals, so if you have family, friends or colleagues that want advice please ask them to contact us.

Australian Residential Property- Undersupply

• Posted by Dejan Pekic BCom DipFP CFP GAICD

Residential property prices (especially Sydney) just keep increasing and are at record highs.

You can see from the attached that median residential property prices are about $800,000 but buying capacity in only in the $400,000’s. We have not seen this level of disconnect since the 2008 GFC (Global Financial Crisis).

Click for chart.

If the Federal Government wants to stop further steep rises in residential property prices then we need to build.

Building more residential property (increasing supply) brings economic benefits but it takes years to deliver supply of new residential property.

Our business is based on referrals, so if you have family, friends or colleagues that want advice please ask them to contact us.

Friday Tidbit

• Posted by Dejan Pekic BCom DipFP CFP GAICD

Today the AFR (Australian Financial Review) published the Rich List 2024 and Gina Rinehart takes first place with $40.61 billion.

For business it is all about growing EPS (earnings per share) which is a measure of a company’s profitability and calculated by dividing a company’s net income by its number of shares outstanding.

And as investors we want business EPS to grow.

Attached is Mr Markets consensus expectation for Australian EPS growth over the next 12 months.

Click for chart.

As Benjamin Graham taught, there is nothing that you or I can ever do about economic cycles which is why remaining invested according to your appetite for volatility is key and when panic takes hold, react by buying more quality assets at discounted prices.

Our business is based on referrals, so if you have family, friends or colleagues that want advice please ask them to contact us.

Australian Federal Budget 2024

• Posted by Dejan Pekic BCom DipFP CFP GAICD

The Federal Treasurer Jim Chalmers has handed down his third Budget with no significant changes to what had already previously been announced.

It is all about increased spending and that will cause the budget falling back into a deficit. However the Federal Treasure is telling us that all this increased spending will not fuel inflation.

This is nonsense, without increase productivity, increased spending is fuel for inflation and high inflation can only mean increased interest rates.

It is important to remember that these Budget announcements are currently proposals and will still need to be legislated.

Click to read.

Our business is based on referrals, so if you have family, friends or colleagues that want advice please ask them to contact us.

Up to a 50% guaranteed return

• Posted by Dejan Pekic BCom DipFP CFP GAICD

The Federal Government Co-contribution was introduced from 1 July 2003 as an initiative to encourage income earners to save for their retirement within superannuation.

If you make a contribution of up to $1,000 into your superannuation account before 30 June 2024, the Federal Government will add an additional sum provided that you are earning less than $58,445 this financial year.

The table below shows you how much the Federal Government will contribute for various amounts.

WARNING, this does not constitute Personal Advice. To discuss if this is an appropriate strategy for your given circumstances, please do not hesitate to contact us directly.

Yes, there are always additional eligibility conditions and if you have family, friends or colleagues that want financial advice please ask them to contact us and we will work out how best to help.

Our business is based on referrals, so if you have family, friends or colleagues that want advice please ask them to contact us.

Friday Tidbit

• Posted by Dejan Pekic BCom DipFP CFP GAICD

Much has been said about the importance of China to Australia but how long can the China growth story continue for our resource sector?

All industrialising nations eventually reach peak steel intensity which is when a nations steel consumption per capita begins to fall because the majority of the infrastructure has been built.

For the United States it was reached in the 1970’s when steel consumption averaged 637kg per capita.

For Australia, China appears to have reached peak steel intensity in the last few years as fixed asset investment (FAI) in property materially reduces. This will negatively impact commodity prices, our terms of trade and the Australian dollar.

Click for two speed economy in China.

It is not all bad news.

The Emerging Markets (which include Brazil, Russia, China, India, Mexico, South Africa, Indonesia, Philippines, Poland, South Korea, Thailand, Malaysia, Chile, Colombia, Argentina, Czech Republic, Hungry, Morocco, Peru, Taiwan, Vietnam and others) are at 35 year lows against the United States dollar which signals buying opportunities in emerging markets.

Click for Emerging Markets low.

What does all this mean?

Be smart, follow Benjamin Graham’s value investing principles, remain invested according to your appetite for volatility and let the professionals help you take advantage of these opportunities.

Our business is based on referrals, so if you have family, friends or colleagues that want advice please ask them to contact us.

Market Metrics: Inflation

• Posted by Dejan Pekic BCom DipFP CFP GAICD

Financial experts never seem to know what is going on right now but in hindsight they are perfect.

For example, the United States was forecast to go into recession in 2022 after the Russian invasion of Ukraine which resulted in supply shocks and rapid global interest rate rises but the United States did not fall into recession.

Again, the United States was forecast to have a recession in 2023 but it did not happen.

Why because no one had worked out that the insane printing of money by Governments during COVID-19 period had left consumers with excess savings. This excess has now been depleted expect for Australia.

Click for excess savings charts.

Our point is that financial experts almost never know what is going on in the present.

Markets have been forecasting (and are still forecasting) that inflation has peaked, that it will fall and consequently interest rates will be cut in 2024.

For goods inflation we agree however not for services inflation.

Wages increases are high and showing no signed of reduction in the short term which means that inflation (the sum of goods plus services) will remain high and that means no interest rate cuts in 2024. In fact, interest rates are more likely to increase in 2024.

Click for services inflation charts.

If correct and interest rates do increase in 2024 then it will again mean a correction/crash for assets prices.

What action does one take?

None, just follow Benjamin Graham’s value investing principles and remain invested according to your appetite for volatility and look to buy more quality assets when prices fall.

Our business is based on referrals, so if you have family, friends or colleagues that want advice please ask them to contact us.