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YourSummer 2023/24PERSONAL WEALTHWelcomeAs highlighted in the Spring edition,uncertainty leads to market volatility,and also opportunity, and it certainlyhas been a volatile time forinvestment returns. Fears of a US recession haveincreased as advanced economieshave experienced a pronouncedslowdown in growth. Yet the USeconomy has been surprisinglyresilient. Join us as we take a look at theparadox of Australian financialmarkets, and ponder balancingenjoying today while investing fortomorrow, together with timelystrategies for surviving the post-Christmas sales.We wish you and your loved ones allthe joy of a fabulous festive season!It has been a volatile timefor investment returnsover the last 6 months.October 2023 continuedthe downward return trendfollowing the Septemberquarter. Over 3 months, allasset classes had negativereturns. The only positive6-month figures in theasset class returns tablewere US and Globalequities in AUD, whichbenefitted from the fall inthe Australian dollar.It should be noted that thegrowth in US share priceshas been predominatelydue to the technologysector, ‘the Mega 7,’ whichnow makes up 30% of themarket capitalisation of theS&P 500.Related to the volatility inequities is the gradualincrease in both US andAustralian long-term bondyields to close to 5% levels,which makes bondsattractively pricedcompared to equities. What has happened?Fears of a US recession(with most of Europe andthe UK now in recession)have steadily increased,especially since February2022, as the conflictbetween Ukraine andRussia escalated, on top ofongoing US–China tensionover Taiwan. The IMFreported that advancedeconomies, especially,have experienced apronounced slowdown inAn uncertain economicand geopolitical eraAn uncertain economicand geopolitic eraGetting all you can fromyour money and your lifeThe paradox of Australianfinancial marketsSurviving the post-Christmas sales - what is your strategy?Contents134CONTINUED ON PAGE 2Source: www.visualcapitalist.com
growth, from 2.7 % in 2022 to 1.3 % in 2023. This was prior tothe current crisis in the Middle East.The US economy has been surprisingly resilient. However,another factor that has been worrying investors is that despiteUS core inflation falling from 6.28% in October 2022 to 4.15% atthe end of September 2023, so-called sticky inflation has beenincreasing since July 2023 and is now 4.5%. The US Fed isdetermined to reduce core inflation to between 2-3%. The fearis that the Fed will keep interest rates higher for longer, whichadds to the possibility of a recession. Australian shares have been volatile and have underperformedglobal equities (of which US equities comprise 70% of the globalshare market), due to the absence of a technology sector inAustralia, and subdued global growth, especially in relation toChina, which is our biggest trading partner.Changes in values by asset classes (to end Oct 2023)Federal Funds Rate & UST 10y (plus key events) CONTINUED FROM PAGE 1We do not believe the recession will beas severe as 2008 when US stocks fell by54% and took 4 years to recover. Rather,we think there may be a sharpcorrection of around 20% in the sharemarket. We also anticipate that longdated bonds will provide equity-likereturns. Historically, markets haveposted strong long-term gains followingdeclines.What this could mean for yourinvestment portfolioEconomies move through cycles ofgrowth and contraction that are hard topredict. Investment markets invariablyrespond to these cycles. Fortunately,there are many different investmentasset classes and investment styles tochoose from, and these do well indifferent economic conditions. Forexample, shares generally do well inboom times, and bonds do well in downmarkets. Likewise, speculative stocksand sub-investment grade credit oftendo well in boom times, but quality stocksand investment grade credit are betterto hold in periods of stress.This unpredictability is why we, asadvisers, construct your investmentportfolio both in accordance with yourrisk profile and life stage objectives anddiversify your portfolio using a range ofdifferent asset classes. This helpssmooth returns over time.PAGE 2 SUMMER 2023/34Recession or soft landing?The major concern in the financial markets is whether there willbe a US recession or a “soft landing”. It seems that whileeconomists are divided, fund managers are more optimistic. On balance, we believe there is a high chance of a mildrecession at some stage in 2024. This is usually the case after aperiod of interest rate tightening.High interest rates have made life difficult for Australianconsumers and businesses, especially those who rent or havemortgages. Banks continue to tighten their lending criteria,making obtaining finance more difficult.While overseas central banks are forecast to hold and reducerates, Australia’s inflation at 5.4% is well above the RBA targetrate of 2-3%, making further rate rises probable. The IMF hasforecast Australia’s growth to slow to 1.25% in 2024.Values (mid November 2023) Source: JCB
PAGE 3On the one hand, owing to Australia'sgeographic position as the largest economy inSoutheast Asia, Sydney joins Singapore as oneof the only two major financial centres in thisregion of almost 700 million people. As a result,a relatively high number of non-Australiancompanies are listed on the AustralianSecurities Exchange (ASX). However, the Australian Securities Exchange(ASX) is only the 17th largest stock marketoperator worldwide[1], much lower than onemight expect given that the Australiandollar/U.S. dollar is the sixth most tradedcurrency pair in the world[2], and that Australiais the 14th largest economy in the world byGDP (Nominal)[3].The paradox of Australian financial marketsYou may have heard about a book with the tantalisingtitle, Die With Zero – Getting all you can from yourmoney and your life by Bill Perkins. In his book,Perkins suggests that we are products of our journeythrough life, where experiences, choices, and lifelessons shape who we are. His message is simple: ifyou die with zero dollars left, you’ve lived the richest,most fulfilled life you possibly can. This resonated with me as a financial planner, thinkingabout how we can help our clients enjoy their livestoday – because financial wellbeing, like life, is ajourney – not simply a destination. I’m not suggestingwe live entirely in the moment, letting the future takecare of itself. It’s about remembering to balance allstages of our lives and engaging with what brings usjoy, our priorities, and our financial goals as theyevolve during our lifetime. Bill Perkins’ wisdom reminds us that the memories weaccumulate become the fabric of our lives. Providingfor your retirement is vital, but investing in lifeexperiences adds depth, joy, and enrichment to eachday. As your adviser, I can help you create a strategy thatenables you to retire with a sense of purpose,financial security, and a hoard of cherished memories.Getting all you can from your money and your lifeSUMMER 2023/24[1] https://www.visualcapitalist.com/largest-stock-exchanges-in-the-world/[2] https://statisticstimes.com/economy/projected-world-gdp-ranking.php[3] https://www.statista.com/topics/8705/financial-markets-in-australia/#topicOverviewProjected GDP (Nominal) Ranking 2023
Disclaimer: The content in this newsletter is of a general nature only and are not to be taken as recommendations as they might be unsuited to your specificcircumstances. The contents herein do not take into account the investment objectives, financial situation or particular needs of any person and should not be used asthe basis for making any financial or other decisions. Your Lifespan adviser or other professional advisers should be consulted prior to acting on this information. Thisdisclaimer is intended to exclude any liability for loss as a result of acting on the information or opinions expressed.Make sure you have a clear idea of what yougenuinely need versus what just catches your eye. Do your homework by comparing prices, readingreviews, and setting a budget. Be on guard against those all-too-temptingimpulse buys. Save for a rainy day: Life is unpredictable. Havinga safety net can make all the difference.Debt reduction: Free yourself from the burden ofdebt by paying down your credit cards and/or anyloans. Invest: Think stocks, bonds, or other avenues togrow your wealth.Financial goals: Would you rather have a newoutfit or be one step closer to that dream holiday,new car, or first home?How can one truly benefit without falling into thecommon traps? The key lies in being mindful anddiscerning. With a bit of planning and restraint, the post-Christmas sales can be both enjoyable andeconomically rewarding.Smart money moves beyond salesIt’s easy to forget about your longer-term goals whenthere are neon signs screaming discounts of 50% OFFor more! But remember, every dollar spent puts youfurther away from achieving those longer-term goals. Before you fall prey to the post-Christmas sales,consider these alternatives:Post-Christmas sales can be both a treasure trove anda minefield. The choice is yours. This festive seasondon’t succumb blindly to the allure of holiday salediscounts. Instead, either purchase your “need tohave” items (remember, be mindful) or skip the salesentirely and opt to put the money towards achievingyour financial goals sooner. Here's to spending wisely and enjoying a financiallysavvy new year![1]www.retail.org.au “Unprecedented growth on Boxing Day as pre-Christmas retail spend hits record $74.5 billion”, ARA (30 Dec 2022)Is that shiny gadget truly a necessity?Do those new outfits genuinely add value to yourwardrobe? Or might there be a wiser way to allocate yourhard-earned money?We've all experienced it… the undeniable allure ofpost-Christmas sales. No sooner has Christmas wrapped up for the yearthan the frenzy of Boxing Day sales descends upon us.Every store window beckons, and our inboxesoverflow with promises of unbeatable discounts.Before you indulge in some festive leftovers and makea beeline for the air-conditioned wonderland of sales,let's take a moment to pause and ponder...The allure and reality of post-Christmas salesThe holiday season often leaves our wallets feelinglighter than usual. Australia's festive spending reachedan eye-watering $74.5 billion in 2022, marking an 8.6%increase from the previous year, according to theAustralian Retailers Association. And Boxing Day? Awhopping $1.23 billion was spent in just 24 hours[1]! These figures aren't just numbers; they paint a pictureof our collective weakness for a good holiday sale. Buthere's the other side of the coin: while sales can offergenuine bargains, they also come with pitfalls. The riskof accumulating more debt is a very real reality formany shoppers, especially with credit cards groaningfrom holiday shopping on top of budgets alreadystretched from increased cost of living.And let's face it, impulse purchases often lead tobuyer's remorse and an overstuffed home.The merits of post-Christmas salesWhile the post-Christmas sales period often comeswith warnings of overspending, it's not all doom andgloom. When approached with a well-thought-outstrategy, these sales can be an excellent opportunityto secure essential items—electronics, clothing, orhousehold goods—at a fraction of their original prices. Surviving post-Xmas sales - what’s your strategy?AFSL 229892 ABN 23 065 921 735 lifespanfp.com.auLevel 24, 1 Market Street, Sydney, NSW, 2000Phone: 02 9252 2000 Email: advice@lifespanfp.com.auYour financial planner is an Authorised or Corporate Authorised Representative ofLifespan Financial Planning Pty Ltd