Investor Discipline in the Digital Age
Have you noticed how difficult it is to escape the news cycle?
From breaking alerts on your phone to commentary filling your social media feed, world events now follow us everywhere. In this age of constant connectivity, information isn't just available but almost unavoidable.
There was a time, not so long ago, when investors might learn about market movements days after they occurred, reading about them in the morning newspaper at breakfast. Indeed, many successful investors built their wealth during an era when they might go an entire month without knowing how their investments were performing. This distance created a natural buffer against emotional decision-making.
However, times have changed.
The New Investment Environment
The contrast between yesterday's investment environment and today's couldn't be starker. What once required effort to discover now requires effort to avoid.
The financial media, competing for our attention, has discovered that anxiety and fear drive engagement. They've become remarkably efficient at transforming minor market fluctuations into seemingly urgent crises. "Markets in turmoil" has become the default headline, regardless of whether the decline is 2% or 10%.
Perhaps counterintuitively, research shows that having more information doesn't necessarily lead to better investment decisions. The human mind wasn't designed to process the volume of information we now receive. We're pattern-seeking creatures in a market that often presents random short-term movements. The cost is measurable: research shows that investors who trade frequently in response to news tend to underperform those who trade less.
Strategies for Today's Investor
How do we remain disciplined investors in this age of information abundance? Here are a few strategies that have proven effective for our clients:
Create intentional information boundaries. Consider checking your portfolio on a predetermined schedule rather than in response to headlines. For long-term investors, an annual review may be sufficient unless your circumstances have changed significantly. We see no benefit to checking your portfolio every week. As the saying goes, "The market is a device for transferring money from the impatient to the patient."
Focus on fundamentals, not prices. The true value of your investments lies in the earnings and dividends of the great companies of the world. During periods of market volatility, remind yourself that you own businesses, not stock tickers. Ask yourself: has the long-term outlook for these businesses fundamentally changed, or just their prices?
Remember your North Star. The most successful investors maintain a clear vision of why they're investing in the first place. For most investors, it's about their family's security and financial independence. During times of market turmoil, reconnecting with this purpose provides clarity that no headline can disrupt.
Taking Control
While the challenges of modern investing are real, the foundations of investment success remain unchanged. Regardless of the era, patience and discipline have always been the defining characteristics of successful investors.
It's worth remembering that we have tremendous power to shape our information environments. Despite living in a 24/7 news cycle, we are not obligated to participate in it. By turning off notifications, designating "news-free" days, or limiting financial media consumption, we can reclaim the mental space needed for thoughtful investment decisions.
As your financial advisers, we see our role not just as managers of your financial assets but as guardians of your peace of mind. We stand between you and the noise, helping you focus on what truly matters: your long-term financial well-being. In a world of increasing complexity, there's profound value in simplicity and staying the course.
Volatility - An investors friend
Investment markets have been very kind to global equity investors over the last two years. After a period of sideways markets and soaring inflation, the S&P 500 (the world’s premier stock market) rose by 24% in 2023 and another 23% in 2024.
With historical average returns in the 8-10% range, these are extraordinary returns that patient and disciplined investors will be delighted with.
Most significantly, the last two years saw no extended periods of significant declines.
In 2023, the largest decline was -10% between July and October. In 2024, the worst was a 21-day decline of only -8% between July and August.
While this was a welcome respite from the normal market rhythm, the financial media would likely have been dismayed! More seriously, there’s a danger that investors will forget the important lessons learnt from past declines.
To prepare you for the possibility of more significant declines in the coming year, we outline a few points below that you should keep in mind when others are losing theirs.
What You Should Know
It is a feature of the stock market that values do not move in a straight line but instead fluctuate around a generally upward trend. We refer to this as “volatility.”
A market correction is defined as a 10% drawdown from a previous market high. While it may sound like a significant number, these events occur far more frequently than most investors believe. Indeed, they come around as often as your birthday, with years like 2024 being the exception.
Since the turn of the century, the average annual decline has been approximately -16%. While this may surprise you, it’s worth noting that about three in four years still ended with a positive return.
We also know from market history that we expect a decline of more than -30% approximately every five years (on average), as we last experienced in 2020.
How You Should React
We know that stock markets generally provide positive returns about three in every four years. The one negative year is what earns you the other three positive years. It’s the price of admission for profiting from the collective ingenuity of the hundreds of companies working for you while you sleep. We encourage you to see the temporary declines as the reason for the stock market’s permanent returns. You can’t have one without the other.
Unfortunately, we cannot consistently predict when these fluctuations will occur or when they will reverse. To be a successful long-term investor, one must accept this with humility.
Market declines will consistently occur throughout your investing life, and your mindset during these times is a choice that will shape your financial future. We advise you to confront them with confidence rather than fear while being mindful of the opportunities they present.
Time Heals
Ultimately, what happens in the next year is relatively unimportant to your 30-year plans. If you’re investing long-term, the odds are stacked in your favour. You’re guaranteed to win.
After two years of little volatility, if we experience a decline in the coming months, be encouraged that you are busy earning future returns. Additionally, if you’re still saving, declines are your best friend, allowing you to buy more units of shares at reduced prices.
While we don’t know where the market will be at the end of 2025, we’re pretty confident about where it will be in 10 years: much higher. Time is the enemy of market declines, and most investors have plenty of time.
Difficult Conversations - the heart of financial guidance
For many years, the role of a financial adviser was limited to providing access to financial products, often acting more as an order-taker than an advice-giver.
However, in an era where financial information is at our fingertips and financial products are readily available, our role has had to evolve significantly.
Today, the best advisers act as thinking partners and professional advisers to help families achieve their most cherished financial and life goals. We are committed to this new way of being and see ourselves as partners in your financial journey, dedicated to guiding you towards a secure future.
Like any meaningful relationship, this partnership thrives on mutual respect, trust, and honesty.
Short-Term Discomfort, Long-Term Gain
While it's easy to maintain this honesty when you’re on track with their financial goals, true partnership shines brightest during challenging times. When it becomes apparent that you may be veering off course from their financial objectives, our commitment to honesty compels us to have difficult yet crucial conversations.
We regularly encounter situations that require a difficult conversation that requires empathy. Some days, we encounter a pre-retiree who believes that investing regularly is unnecessary because retirement is decades away. On other days, we encounter retirees withdrawing unsustainably from their investments, jeopardising their long-term independence.
While uncomfortable to discuss, these scenarios require crucial conversations that can alter financial trajectories. Because financial discussions can be emotionally charged, we aim to guide clients through these conversations with sensitivity and care. If we ever need to have these conversations with you, we’re here to support you as we work together towards your financial goals.
Embracing Honesty for a Secure Tomorrow
While avoiding these topics might feel easier in the moment, if not addressed, the problem will only grow, potentially causing irreparable damage. By addressing issues early, you can make smaller, more manageable adjustments rather than drastic overhauls later.
Think of your financial journey as a flight. As your advisers, we are the co-pilots, regularly checking the instruments and suggesting course corrections. Even a slight deviation can lead you far off course over time without these adjustments. Our duty is to ensure you reach the intended destination, and course corrections are inevitable.
As we navigate your financial journey together, remember that our commitment to honesty stems from a genuine desire to see you succeed. We're not just looking at the you of today but advocating for your future self – the person who will benefit from the decisions and adjustments made now.
We are committed to being supportive partners who care enough to tell you what you need to hear, not just what you want to hear. If there’s anything we need to hear that will strengthen our relationship and the value you get from it, we encourage you to bring it up.
We encourage open dialogue. Ask us questions, share your concerns, and be receptive to feedback. This collaborative approach, built on mutual trust and respect, is the cornerstone of our mutual long-term success.
The Dividend Advantage
One of the most commonly misunderstood aspects of investing is what it really means to be an equity investor. For many investors, it brings up thoughts of a casino, where some are lucky enough to win, but most end up on the wrong side of the “house”.
However, mature investors understand that when you invest in the great companies of the world, you're not just buying an invisible item– you're becoming a part-owner in real companies that sell real products and services to real people.
The long-term financial rewards of being an equity investor are twofold. The first is the hope of one day selling your shares for more than you bought them. This becomes a real possibility when the company improves its profits over time, either by selling more goods and services or passing on inflationary input prices to consumers.
The second is the hope that the company’s management will distribute a portion of annual profits to equity owners as a cash dividend.
Understanding dividends reinforces a crucial point: As an equity shareholder, you're not just speculating on stock prices – you're participating in the financial success of actual businesses. Let’s explore this aspect of equity ownership further.
The Dividend Decision: Spend or Reinvest?
As a dividend-receiving investor, you face a key decision: what to do with these payments?
The first option is to receive the dividends as cash. This can provide a regular income stream, which might be attractive if you're looking to supplement your current lifestyle or invest in other opportunities. It's an immediate win – cash in hand that you can use as you see fit.
The second option is to purchase additional shares of the same stock or fund. This approach continuously increases your ownership stake.
While receiving cash dividends offers immediate gratification, reinvesting sets the stage for potential long-term growth. By reinvesting, you're buying more of an investment strategy you already believe in without investing additional money from your pocket.
The Compounding Effect
The decision to reinvest dividends can profoundly impact your long-term financial outcomes, thanks to the power of compound growth. When you reinvest dividends, you're not just earning returns on your initial investment – you're earning returns on your returns.
Let's look at some numbers to illustrate this point. Historically, reinvesting dividends has accounted for a significant portion of the stock market's total return. For example, $100 invested in the MSCI World Index in 1999 grew to $310 by the middle of 2024. However, with dividends reinvested, your investment would be worth $557.
It's important to understand that the share prices or index levels, as reported in the financial media, often exclude dividends. If you reinvest dividends, your actual returns could be substantially higher than these numbers suggest.
This "hidden" growth through dividend reinvestment can dramatically accelerate your journey to financial independence. It's a powerful force that, over time, can turn even modest investments into significant wealth.
Harnessing Dividend Power
Understanding and appreciating the true nature of being an equity investor is the foundation of long-term investing success.
As far as possible, we urge investors to seek out funds or platforms that offer automatic dividend reinvestment. Implementing the appropriate strategy for you in this way will make it easy to put your dividend strategy on autopilot.
As your financial advisers, we’re here to help you navigate these decisions and implement an investment strategy that aligns with your long-term financial goals. With our help, we hope you can make informed decisions that align with your unique goals and circumstances.
The inevitable outcome for those harnessing this power of compound growth is financial independence and a dignified retirement.
The cumbersome nature of modern financial housekeeping
Financial planning has made significant strides over the past few decades, giving today’s investors advantages that would have been unimaginable to previous generations.
Access to caring financial advisers available online, low-cost investment administration options, digital signature capabilities, easy account aggregation software, and global equity portfolios with no upfront fees are just some advancements that have become commonplace.
Technological advancements have streamlined even the most complex financial tasks, allowing for more efficient personal financial management. Implementing a financial strategy in a sensible and cost-efficient manner is easier than ever.
The Growing Tangle of Financial Administration
Despite these advancements, investors increasingly face a growing burden of financial administration and housekeeping. Though driven by well-meaning consumer protection measures, this proliferation has become counterproductive. The sheer volume of paperwork and compliance requirements can often feel like a full-time job, overwhelming even the most organised investors.
An anecdote that aptly illustrates this trend is a parent recently being required to complete a risk assessment questionnaire for their three-year-old child. This isn't just a quirky story; it symbolises the sometimes absurd and often frustrating world of financial administration that has been thrust upon us.
From annual "Know Your Customer" (KYC) updates to the complex "source of wealth" forms demanded by banks, the complexity of these tasks is skyrocketing. Much of it feels disconnected from our real lives, as the questions asked often miss the mark, failing to capture the nuances of an investor’s true situation or understanding of the market.
A Light in the Maze
Worryingly, this trend is deeply embedded in our financial ecosystem, growing denser each year, and we are concerned that most investors are not equipped to navigate this maze.
The caring financial adviser can play a significant role in helping consumers navigate this tangle of forms, procedures, and endless requests for information. While it’s not our primary role, we alleviate the anxiety that comes with this burden in three ways.
First, we help clients make sense of the administrative minefield. We cut through the underbrush of paperwork and procedures, providing a clear path for clients to follow. Knowing what’s being asked is often half the battle, and we understand the landscape better than most.
Second, we protect clients from the increasing number of phishing attempts designed to defraud unsuspecting victims. Financial scams are increasing, and elderly, retired investors are often targeted.
Third, we assist clients in completing the necessary tasks, often removing many unnecessary requests from their plates altogether.
From Chaos to Clarity
While personal finance has seen remarkable advances, the escalating complexity of financial administration can sometimes overshadow these benefits. This complexity can make the financial landscape seem more like a labyrinth than a clear path to financial security.
We are your guides in all financial matters, ready to assist when needed. Though some financial housekeeping is unavoidable, today’s burdens can be navigated more efficiently with our help.
By showing you the simplest way through this maze, we hope to give you more time to focus on what matters most to you and your family. Our ultimate goal is to ensure that you can enjoy the benefits of modern financial advancements without being overwhelmed by administrative duties.
The allure of ‘more’
Cashflow is the lifeblood of any financial plan. How we allocate the money coming in will determine both the present and the future of our families. It’s not a glamorous topic, but it’s undeniably ground zero of financial success.
Our cashflow challenges evolve as we move through the different life phases. Our early working years are typically about providing for essential daily “needs”. For those whose careers allow them to break free from daily concerns, the allure of certain “wants” starts to emerge. These desires challenge our beliefs about what we need to be happy.
This internal battle rages on throughout life, and how we respond to this challenge will determine our future financial success. But what truly brings fulfilment, and what consequences do these decisions have for our future selves?
The Quicksand of Accumulation
Our desire to accumulate more is grounded in evolution. A striving for “more” drove past generations to create the world we now live in, and current-day economic theory is still based on the assumption that “more is better”. But, in a world where most of us have moved well beyond providing for basic needs, does this instinct for more create problems we could do without?
Embracing The Tradeoff
There are many ways that spending can bring happiness and joy – many of my clients have shifted their spending from possessions to experiences with family and loved ones.
However, everything in financial planning is a tradeoff. For many, embracing “more” comes at the expense of their own “tomorrow”.
Yet, we need the balance to not miss out on today for a tomorrow that might never come.
Before all of us lies the invitation to let go of pursuing “more”, choosing instead to embrace “enough”. We appreciate and understand that everyone’s definition of satisfaction and “enough” is unique and personal.
The other week I had back to back meetings with retirees - the amount they spent on a monthly basis was greatly different to each other. Yet both were incredibly happy.
Each persons Enough will be different.
Navigating Together
While you will always remain the expert in the design of your own life, my job is to be the expert in guiding families in making the tradeoffs that provide them both meaning in the present and an independent future.
Guiding families from pursuing “more” to embracing “enough for tomorrow” is our reason for being. The comprehensive planning we provide includes all the tools you need to walk your financial journey successfully. We look forward to guiding you on your journey to “enough”.
Longevity - the underappreciated risk
There are two distinct stages in an investor’s financial planning lifetime.
The first requires them to squirrel away money for the future, hoping to benefit from the magic of compounding returns. We call this the “savings stage”.
At retirement, the investor transitions to the “spending stage” of life. From this point, they will withdraw from, rather than continue adding to, their investment portfolio. While any habit of frugality they developed during their life will continue to be beneficial, this major change in direction can be a difficult adjustment.
In this phase of life, we’ve identified two risks facing the retired investor: one risk we believe they fear a little too much, and the other risk we see them fear not enough. We’ll unpack both risks and highlight why the one deserves more attention.
The Eternal Fear – Volatility
Like the pre-retirement investor, retirees also have an innate fear of market declines. These are periods when market prices decline, often due to a global crisis or worsening economic fundamentals.
The technical term this has become known by is “volatility” – the erratic fluctuations of market values around a typically rising baseline. In essence, the takeaway for the investor is that while the market has historically risen, it does so not in a straight line.
The fear for the retiree is that while the market is experiencing a temporary decline, they will need to sell investment units at a lower price to fund their living expenses. This, all other things being equal, does have an impact on the expected lifetime of their assets. It’s a factor that should be considered, but it can also be planned for.
For example, many retired investors retain a lump sum in cash, from which they can make income drawings during times of market decline.
The reality is that temporary declines happen regularly without warning. The best way to earn the full market returns is to endure these periods with patience and discipline. By planning properly, we can essentially shield an investor from permanent damage happening from temporary declines.
The Underappreciated Fear – Longevity
Over the last few decades, the average investor's life expectancy has significantly increased. A few generations ago, it was rare for a retiree to live for longer than fifteen years while relying on their investment assets. Today, thanks to advancements in medical care, diets, and healthier lifestyles, a retired couple has a one-in-three chance of one of them living to age 95.
For the average retiree, that is over three decades of living expenses, medical care, and unexpected emergencies that need to be funded by their pensions and investment assets. From experience, the typical retiree vastly underestimates the risk that this poses to them in their quest to remain financially independent. The investment decisions they will need to make to provide for this period will require them to put aside other fears, such as the innate fear of market declines, to give them the best chance of success.
The goal is three decades of a rising, inflation-cancelling income. The risk is that they focus on short-term fears that disadvantage them in the long term.
A Changing Landscape
The shift in focus that increasing longevity brings into play will impact the mindsets, approaches, and rules of thumb that retirees have become used to. This stresses the importance of a comprehensive retirement income plan built on evidence and rigour.
Additionally, those who are still firmly in the “savings stage” will need to adjust their expectations for what the appropriate amount is to save for their future selves. It’s a changing world, and no one is safe from the need to adapt.
As the world continues to evolve in various ways, we encourage you to consider how this impacts the way you are providing for your own future. Our financial planning philosophy will always emphasise regular reviews, and in this way we hope to make sure that our clients are always prepared for changes that others are yet to identify. Ready to start your journey?
Your Financial Levers
When managing money and working towards financial goals, it's important to understand which factors we can control and which we can’t.
Interest rates, inflation, investment market returns, and economic growth fall outside our control. However, there are many factors we can control, and each of these becomes a lever we can pull to adjust our future financial circumstances.
In this article, we will explore the various financial levers that investors can utilise to enhance their financial well-being and achieve their desired outcomes.
Controlling Expenses
One of the most powerful levers at our disposal is the ability to control our expenses. It's vital to assess our lifestyle choices and avoid falling into the ‘lifestyle creep’ trap, where we progressively increase our spending as our income rises.
How mindful are you of your spending habits? By spending less and living within our means, we can free up resources for savings and investments.
Increasing Income
Another financial lever that investors can pull is increasing their income. While this may seem obvious, many individuals underestimate its potential. We can accelerate our wealth-building journey by actively seeking ways to earn more through career advancement, side hustles, or entrepreneurial ventures. Increasing our income provides us with more resources to save and invest, expands our financial opportunities, and enhances our financial security.
Investing More
Investing more is a powerful lever that can significantly impact our long-term financial success. By allocating a larger portion of our income towards investments, we can capitalise on the power of compounding and benefit from the growth potential of various asset classes. Adopting a disciplined approach to investing, such as automatic savings and paying ourselves first, is crucial. By consistently investing over time, we can build an investment portfolio that aligns with our financial goals.
Enhancing Investment Returns
While controlling expenses, increasing income, and investing more are essential, investors should also focus on enhancing their investment returns. This lever involves making informed decisions about asset allocation and diversification, and selecting investments that align with our long-term objectives. While investment returns alone should not be relied upon as the primary driver of financial success, optimising our investment strategy and seeking opportunities to maximise returns can significantly impact our overall wealth accumulation.
Adjusting Retirement Timeline
One often overlooked financial lever is adjusting our retirement timeline. While many individuals plan to retire at a specific age, it's important to re-evaluate this timeline based on our financial situation and goals. Extending our working years can give us additional time to save and invest, allowing our assets to grow further. On the other hand, some individuals may choose to retire earlier, focusing on achieving financial independence and creating a fulfilling lifestyle. By carefully considering our retirement timeline, we can make informed decisions that align with our unique circumstances.
Avoiding Financial Mistakes
Avoiding financial mistakes is critical to protecting our wealth and financial well-being. By being vigilant and educated about common financial pitfalls, we can mitigate risks and preserve our financial resources. Learning from our mistakes and seeking wisdom from experienced individuals can help us navigate the complex landscape of personal finance and make sound financial decisions.
Housing Considerations
Housing decisions can also serve as a financial lever. Right-sizing or downsizing our house can release equity and reduce housing-related expenses, freeing up resources for savings and investments. Additionally, exploring innovative options like equity release can provide additional financial flexibility without the need to move house. We can optimise our housing decisions to align with our broader financial goals by carefully evaluating our housing needs and considering the financial implications.
Empowering Your Path to Financial Success
In summary, investors have a range of powerful financial levers to take control of their financial situation. Pulling these levers consistently over time can compound to create life-changing results.
However, working with a qualified financial adviser can provide invaluable guidance in adjusting these levers to match your specific circumstances and financial goals. By understanding these levers and collaborating with a financial adviser on how to pull them, investors put themselves in the best position to choose their financial path and progress steadily towards their definition of financial success.
A beauty in simplicity
As we grow up and experience more of the world we learn that a topic typically gets more complicated as we dive deeper into it.
For example, supply and demand is a concept most of us can grasp quickly, but having a deep understanding of how these variables are affected by changes in interest rates, inflation and trade relations requires further study.
We also find that for those who push past a certain point in any discipline things seem to simplify again. The detail fades away, you unlearn some of the complexities that don't seem to matter, and you're able to distil the subject into the few key points that really matter.
True simplicity comes from a deep understanding and appreciation for the subject matter. When shared, this simplicity allows the rest of us to make sense of the world without becoming an expert in every field.
Every great teacher or writer has this quality. Richard Feynman's writing can make anyone appreciate the key lessons in physics, and he'll make you laugh. Who would have thought physics could be humorous?
Complexity For Its Own Sake
Unfortunately, we too often encounter complexity where simplicity is what we really need. In many cases it's used as a way to confuse, leaving the recipient with little understanding and keeping them reliant on the expert.
The financial industry is no different. Experts highlight the dismal level of financial literacy and argue for financial education to be part of the school curriculum, but very few contribute to the changes we need.
Most industry players are complicit by using complexity to spread fear and a reliance on an industry which is happy to sell a product without having the buyer understand what they are getting themselves into.
The media creates the crisis of the day (or fans the flames) while the financial machine stands ready with the solution which would have solved the previous crisis but little chance of being suitable for the current challenge.
If there's anything we've learnt from the history of the financial markets it's that there are a few key learnings which will always apply. Once you approach every new crisis with this knowledge, the world becomes much simpler.
Simple Is Better
Money, too, can be simple if you want it to be.
If it's complexity you want, then financial product providers will give it to you. There's a product for every financial fear you might have. But starting here is likely to lead you astray. You'll need to work out what these mean for you and the lifestyle you want to have. A new crisis might make you second-guess your tactic, taking you back to square one.
A true understanding of money allows you to build on your understanding of your own situation and the life you want to live.
A strategy can then be built on a simple understanding of the concepts of spending less than you earn, investing for your unknown future, providing for short term expenses, compound interest, and historical market returns combined with old-fashioned discipline and patience.
We have found that people find the above process easier when it's facilitated by a caring financial adviser who can educate, encourage, and hold them accountable.
Products may be required, but they'll be put in their rightful place.
The Choice Is Yours
We have a choice between simple and complex in many areas of life. Sadly, complexity is often perceived as clever and sophisticated. It's easy to look down on a simple strategy when a complex one will make you look smart. With financial matters, nothing could be further from the truth.
The real tragedy is that many don't know that simplicity with money is an option. They accept the complicity sold to them with the result often being overwhelm and a lack of understanding. In many cases this leads to disengagement, which itself compounds into long term consequences.
Our experience is that simple and done is almost better than complex and perfect. Clients taking action and engaging in their own financial affairs leads to a proper understanding of how their decisions will impact their long term future
How can your plan be simplified to remove the unnecessary?
The active mess
Australian investors throw away millions of dollars each year using funds with active fund managers.
An actively managed fund involves a fund manager buying and selling stocks and shares in an attempt to outperform the market they’re operating in - such as the Australian or international share markets.
However, research company PIVA monitors these funds and annually produces reports chronicling if any of these managers manage to beat their targets.
As you’ll see in the above chart, in the Australian share market sector in year one nearly 60% fail this test. And as the years go on that number increases.
For international shares the results are even worse. In fact, over 10 years 90% of fund manages fail to beat the basic benchmark.
So why do people keep using them? Firstly, there’s some huge fees and advertising in play here. Secondly, humans instinctively follow trends and a fund that may have outperformed in year 1, will see an inflow of money from people jumping on. Years 2, 3 and 4 might be a disaster and the money drips away and in many cases the fund shuts down.
We don’t use active fund managers at Metric Wealth. That means we aren’t gifted their private lunches, drinks parties and sports tickets, passed out to those that recommend their funds - and we’re ok with that.
Our funds are highly diversified, low cost, purchasing every stock on the market - some of those companies will do poorly but they’ll be overshadowed by those that do well. There’s no guessing, no gut feel and no guesswork - it’s boring and it works. And we’re ok with that.
A Patchwork Quilt
Want to understand this patchwork quilt?
It's the rankings of different global equity markets on a year by year basis.
Australia (the aqua green colour box) was the best region to hold stocks and shares last year (despite still making a -1.1% return.)
But that's rarely been the case. And there's no way of knowing which region will be best next year.
But diversifying your savings across the world would get you constantly in the top half.
Don't look for the needle in the haystack - buy the haystack.
Rational Optimism
It is difficult, if not impossible to make a good investor out of a natural pessimist.
Investment success is based on an continual long term optimism.
Not a one-eyed optimism that says everything will be perfect along the way - it will not, there will be challenges - but a rationality that whatever the problem-du-jour: inflation, war, unemployment.... that marks the front of our news pages today, shall be overcome at some point in the future.
It has done in the past and shall be in the future.
Human progress and problem solving is inevitable but we cannot time or control it. Instead, seek advice around the areas you can control, to negate your own blindspots, from those who are rationally optimistic.
Round It Up
I heard today that around 75% of Australian's never leave tips at restaurants. I appreciate it's not as ingrained as other countries here but that still surprised me.
If you've had good service anywhere at the moment, times are really tight for anyone in the industry. If you're lucky enough to be able to still regularly enjoy the great restaurants and cafes of our area, then tip well.
There's nothing wrong with rounding up your bill at any local business, not just where you eat or drink.
Paying it forward benefits all parties. It'll brighten your day as much as the receiver.
Full House
Full house for the The Sydney Morning Herald today - almost every headline on the front page using negative language: Crisis, Loss, Failures, Battles, Fears…
Negative news sells - it’s entertainment.
Negative headlines online collect 3x the clicks of positive stories.
Shutting out the noise helps our clients plan effectively for successful lives.
Let’s focus on the top left and the 20 Best Bars
New Financial Year Checklist
Welcome to the new tax year.
The new tax year provides an opportunity to give our finances a spring clean, with rising inflation putting more strains on our spending, I’ve put together a few simple things to consider implementing:
1. Review Debts and Mortgages
The bank rate is expected to climb still further this year. If you have a fixed mortgage due to expire in the next few months, it’s time to start thinking about this now. Some places may be able to lock in a new rate before your old one expires.
If you’re on a variable (and wish to stay so) then there is a range of standard variable rates.
First port of call is your own bank – give them a ring and tell them you want a better rate or you’ll look elsewhere. Most will cut your rate over the phone – they’d rather do that than lose you.
Once that’s done, it’s worth checking with a mortgage broker if you could do any better.
I work with a couple of great mortgage brokers, so if you’d like an introduction, let me know and I can do part of the leg work for you, to give them some basic info on the situation.
2. Check your local garage is giving you the best fuel price.
Petrol prices are flying up and with the Government temporary cut on fuel excise soon to end, will trend higher still. I use www.petrolspy.com.au to quickly check the stations around me before a big fill up.
3. Review your gas and electricity costs
The Government’s Energy Made Easy Site https://www.energymadeeasy.gov.au/ allows you to compare gas and electric charges after answering a couple of questions on your usage.
Pretty much all providers have hiked their prices on 1st July. A switch should be fairly easy to implement – but check reviews – sometimes the cheapest provider can have a string of customer service complaints following them around.
4. Increase your regular savings
This may sound counterintuitive but bear with me. If you’re making regular contributions to a savings or investment account you should be looking to increase it each year anyway. Small increments to a regular saver are far easier for our brain to accept than one off lump sums.
By increasing now, you’ll benefit from buying shares at lower prices and also build up more of a war chest should this money be needs to support your expenses in the future.
Pay yourself first – cover your expenses with the remainder.
5. Increased accessibility to Commonwealth Seniors Health Card
If you’ve reached age pension age, it is now extremely likely you’ll qualify for the Commonwealth Seniors Health Card. Qualification is based on an income assessment which has been significantly increased from 1st July 2022.
A couple can now have income up to $144,000 per annum and still qualify. As well as cheaper prescriptions, you’ll also find an entitlement to savings on:
· electricity and gas bills
· property and water rates
· health care costs, including ambulance, dental and eye care
· public transport fare.
These benefits vary by state so check your local homepage for details.
If you’d like me to check your entitlement to this card, drop me an email - martin@metricwealth.com
Budget thoughts
Key Points
The 50% reduction in the minimum drawdown for super pensions will be extended to 2022/23.
This year’s Low and Middle Income Tax Offset will increase by $420.
Age pensioners and other social security recipients, Commonwealth Seniors Health Card and Pensioner Concession Card Holders will receive a $250 payment in April 2022.
The fuel excise will drop by 22.1 cents a litre for 6 months.
The pre-election budget is typically a cash splash to encourage voters to maintain or turn support to the incumbent Government.
Tuesday’s budget was no exception – but how do you splash cash when you’re billions of debt already?
Primarily by using even more debt and only introducing one off or short-lived measures. The $250 one off payment to pensioners and benefit claimants combined with a higher than expected tax rebate for middle income earners does very little to address the problems that face an economy.
It’s a bribe, a little tap in the back pocket to remind you to vote Liberal in a few weeks time.
When inflation is soaring, you don’t get this under control by printing more money. It’s like putting petrol onto a fire. It will lead to interest rates rising sooner than those of us with mortgages would hope.
I’d expect many of us to get refunds from our tax returns later in the year. Don’t let this fall into cash – mentally allocate it now to your goals via investments or super. It’s the only way you’ll protect it from inflation in the long run.
The cut in fuel duty is only for 6 months (until the other side of the election – funny that.) There were no steps again to address the cause of our dependence on petrol such as the incentives in many progressive nations to reduce the cost of electric vehicles.
On the plus side for those of you in retirement, the reduction in the minimum withdrawal from your pension pots has been extended for another year. I’d like this rule to be abolished completely – but that won’t happen as no government wants you sitting on large untapped pots of tax-free assets.
So all in all, a very lightweight budget potentially saving some bigger punches to be promised in election campaigning.
If you have any questions on the above or how it affects you, just let me know
Lessons from Warnie
It was sad this week to hear of the passing of Shane Warne.
You must be special as an Australian Cricketer to be liked by me or any other Englishman. Warnie passed that test with flying colours.
At his final Ashes match in England the Barmy Army paused their celebrations to chant ‘We wish you were English’ to Shane as he left the field.
Yet 52 is no age at all and a sharp reminder that each day counts, and that life balance is key in our planning.
It’s hard to imagine Shane having any regrets about what he’d done and achieved in his life (even though there’s a few tabloid stories he’d not want to relive.)
I’ve been doing some planning in the last few months several of my clients who are looking to retire at 60. They’ve made significant sacrifices in the last few years to fund their plans to the point where this is likely to be an option to them.
We’ve stress tested the plans as much as possible but there’s always uncertainty of the future. I’m sure working to 65 would make these plans pretty watertight - but at what trade off to a return on life?
5 extra years of working v 5 years of ticking experiences off the retirement wish list.
When you make your own wish list for things you’d like to do in retirement (or in the future if you’re already retired) are there things marked up as ‘One day we’ll go / got / see …..’ ?
What stops you from doing them now? What would Warnie do?
Context
The stock market globally took a bit of a correction this week, fueled primarily by the US Fed hinting that they may raise interest rates much sooner than anticipated to curb the level of inflation.
Interest rates go up, savings accounts look more attractive, borrowing becomes more expensive, potential future earnings from companies lower and the stock market turns down a bit.
This happens on and off over every period of history you look at and is completely normal.
It's all part of the business cycle of life.
The newspapers this week are already wheeling out the words 'pummeled,' '$X billion hit' and so on - it sells papers
But let's look in context at a 20 year Australian Share market graph as we are long term investors.
Nothing out of the ordinary or that we haven't seen before.
The long term trend is always upwards as a) populations rise so consumer numbers increase and b) inflation means companies will always increase their prices over time.
How do we use this recent news positively - let's split us into two groups
Accumulators (pre-retirees): Your regular employer super contributions and personal regular savings are going to be buying holdings in the great companies of the world, companies that will still be around long into the future, at a 10% discount to their market value in August last year.
If you make extra monthly contributions to your plans or were drip feeding in a lump sum, you are getting much more for your money now. You may wish to increase your contributions. These are units of the global economy that will sustain your lifestyle way into the future. If you have cash on the sidelines, you were thinking of investing, we should have that discussion.
Retirees: Whilst it's not nice to open our accounts and see them worth less, this has happened at a time when you will likely have received the January dividends from several of your funds. Your cash accounts within your pensions will be full and you won't be having to sell any units of these shares for a while. They have time to begin their inevitable rise again.
We purchase and use items from the stockmarket every day. Toothpaste, petrol, electricity, entertainment etc.
The only time we need to worry about the stockmarkets long term returns is if we and everyone else on the planet stops consuming. It's simply not going to happen.
Omicron tests the markets
Global equities were heading along calmly before being hit on Friday by concerns over a new Covid variant – Omicron.
COVID variants are obviously going to continue to occur, but markets moved due to the World Health Organisation’s (WHO) decision to label it yet another ‘variant of concern’ – due to its apparent speed of transmission so far and a few initial tests indicating it had mutated sufficiently to potentially have an improved resilience to existing vaccines.
This is the fifth ‘variant of concern’ identified so far, following Delta, Alpha, Beta and Gamma.
U.S. stocks sank by just over 2% last Friday but have since steadied.
Of course, what the markets really want to know is not about the Covid variant itself but it’s potential to impact a sufficient number of important countries (especially the U.S.) If they feel the need to re-impose mobility restrictions or lockdowns we could again see a slow down in recovery.
For this to happen, the new strain needs to be not only highly transmissible, but also vaccine resistant (which is possible, though we can’t yet be sure) and – lastly and most critically – cause severe symptoms that could quickly overwhelm hospitals.
We may learn more on the latter within days, but the history of viruses is that they usually get more transmissible but less severe over time – after all, keeping their host alive maximises their chances of surviving. Suggestions are there are only mild symptoms so far.
Either way, given we know so much about Omicron, other experts have already suggested a new more effective vaccine could be created fairly quickly (although this still leaves the problem of testing and distribution).
So far, other variants of concern have not led to new lockdowns in the U.S. – although other countries did enter new lockdowns but there was a strong relation with this and their own vaccination rates and infrastructure.
All up, while it’s still early days but given the high levels of vaccine take up in Australia, it would seem unlikely we could see further disruption to our ability to travel and work (beyond each states own agendas.)
We could see an increased push of the booster programme which is currently in operation for those who’ve been fully vaccinated for over 6 months – but I’ve seen little public health messaging promoting this and I would expect it to increase.
The market (and in turn your portfolios) will continue to have these dips when unknowns are pushed into the equation but it does not alter our long term belief that economies can and will get through this.
Not Back in Black - potential for tax reform?
We’ve all taken on some debt in our lifetime. A credit card, a car loan and most of us will have a mortgage at some point.
But what if your debt was $829 billion and predicted to rise to $963 billion by the middle of 2022?
That’s the current outlook for the Australian Government.
Now this isn’t all new debt from having to pay the Covid costs of Jobseeker etc. as even the 2019 debt level was around $530 billion. Government regularly have debt in their accounts for the same reason I advise many of you to not overpay your mortgages – if you can create increased revenue elsewhere for less than the cost to service the debt, it’s a sensible strategy.
However, a debt is still a debt and must be repaid sometime. This isn’t a problem unique to Australia of course – the USA and UK have all increased taxes in this year’s budgets.
Both of these countries did so in different ways – the UK raising ‘National Insurance’ an income tax that applies on earnings for those up to the highest tax bracket from 10% - 12%.
The USA targeted the top end of town with increases in personal tax and capital gains tax.
Australia has yet to propose its solution for the obvious reason that we are due an imminent election. The Government probably hoped to call this in November on the back of a successful vaccine roll out. The shutdowns of two of the major state curtailed this option so we can expect this to now happen in the early part of next year.
My views on some of the areas they could target –
Income Tax
This is the most obvious area but also relatively unlikely 9and most unpopular for someone seeking election.) The Government is currently 2/3rds of the way through a 3-step simplification of the income tax system, with the final stage due in 2024.
Having worked hard to gain opposition support for the plan, it is unlikely either side would go back on this, leaving the other an open goal in the campaign.
Superannuation
In the meetings I’ve had with client sin the last few months, this has come up most times. My opinion is that changes to post retirement Superannuation treatment (the tax-free stage) are very unlikely. The Government would face a significant backlash from people who’d planned their retirements only to find that taxation left them running out of money sooner – which would then lead to more claims on the state pension. A lose-lose for the Government.
Changes to the tax in accumulation phase (15% on pre-tax contributions and 15% on dividends and income earned) could be a potential revenue source. Unpopular yes (all these solutions are) but a raise that wouldn’t hit the current pockets of taxpayers might slip through with less resistance.
GST
The 10% tax on goods and services may well be an option for the Government. It is widely viewed as a n equal tax as a millionaire buying a loaf of bread pays the same GST as a low-income earner.
But equally there would be push back that higher earners weren’t paying their share. Furthermore, it presents a problem to Governments when faced with the inflation pressures we currently see – making standard goods even more expensive.
Interest Rates
Not much wriggle room here, with rates at all time lows. But there has never been a rule out of negative interest rates which some countries have used to good effect.
A good way to encourage economic activity but bad for social problems such as housing affordability which are already spiralling on the back of cheap loans.
Also, interest rates are controlled by the central bank who aren’t afraid to stand up to any pressure for change by the government.
Company taxes
Companies pay tax on profits at 30% (25% for those with revenues under $50m.) Again, it is a double-edged sword to look at this area. It’s always popular with voters to see big companies paying their shares but with the ease most companies can base their headquarters around the world, it is detrimental to the economy to be uncompetitive.
Instead, the Government would like seek incentives to companies to hire more staff rather than tax them further.
As you’d expect, no easy answer. If I was to place my bets on any outcome, I’d expect a slight increase in GST at some point and possibly a delay to the Income tax changes due in 2024.
We will wait to see how each party spins their strategy in the new year!