TW3 – Millionaires Choose Melbourne Over Miami

Market Wrap

The sharemarket is a peculiar beast. On Christmas Eve 2018, most major markets had plummeted 15%-20%. Permabears who had been prophesying the next GFC for years were finally being vindicated, and it seemed that the US Federal Reserve was destined to send the global economy into recession by raising rates too quickly. 2019 was going to be a year of subdued returns, if not extensive losses.

Fast forward four months and the pessimism of Christmas is nowhere to be seen. Hopes of progress in the trade war and dovishness from the Federal Reserve have propelled shares more than 20% this year. Hot money IPO’s (Pinterest, Lifted) have returned to the Fray, with Uber set to raise more than $10b USD despite warning that it may never make a profit. This week both Australian and US shares reclaimed their 2018 highs – the show goes on!

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In local news, the Australian economy continues to sputter, with core inflation growing at its lowest level since the inception of the series in 2003. The result boosted shares mid-week, as the soft inflation figures place additional pressure on the RBA to cut interest rates.

Finance 101 – Patience

When their life savings are at stake, it is only natural for investors to continually monitor their portfolio to ensure that everything is running smoothly. As with most things investing however, doing what feels natural is a recipe for underperformance.

In his seminal work “Thinking, Fast and Slow”, Nobel Prize winning behavioural psychologist Daniel Kahneman wrote that “Closely following daily fluctuations is a losing proposition, as the pain of the frequent small losses exceed the pleasure of equally small gains”. This the Loss Aversion bias in action, which we have covered in a previous Finance 101. Most investors will check their portfolios after reading hysterical headlines in the financial papers, which is why they would be better off avoiding financial publications (with the exception of TW3, of course).

So how often should you check your portfolio? In the words of one money manager “If you own growth stocks, you should only look at the price every 12 months. That way, you’ll only suffer one sleepless night a year”. Successful investing requires a degree of patience that most people simply do not have, which is why one of the key roles of a financial adviser is to simply guide you through the inevitable twists and turns of the sharemarket. To quote Warren Buffett The stock market is a device for transferring money from the impatient to the patient”.

Bookies Back Bill

With less than a month to go before Bill Shorten does his best Stephen Bradbury impression, conservative pundits are pulling out all the stops in the hopes of engineering a miracle victory for the Liberals. Despite delivering Australia’s first budget in more than a decade, the major betting agencies give the Liberals’ less than a 25% chance of winning in May, considerably lower than the 40% probability they had in the lead-up to last year’s leadership spill.

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Property Pain Persists

The property market continued to slide in March, with Sydney now down 14% since peaking in July 2017. Many investors will be keeping a keen eye on the Federal election, with Labor’s proposed crackdown on negative gearing and capital gains having the potential to cause a rush for the exits in 2019.

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Source: Corelogic

The Corelogic report is a reminder that investing in Australian property is not always a winning bet. Property prices in Darwin have fallen 27% since peaking in 2014, with prices now back to where they were in 2007!

Rent or Buy?

With the Sydney property market likely to continue its recent downtrend, many millennials are now asking themselves a previously unfathomable question – should they rent or buy?

Ernst and Young have given their two cents, reporting that over 60% of Sydneysiders who bought property in the last 25 years would have made more money if they had rented and invested their savings in the sharemarket. But before they ditch their mortgage broker for their stock broker, millennials should keep a few things in mind:

  • There is more to life than maximising your net worth. The average person would also be wealthier if they never went on holidays and worked weekends, but that would not be a life well lived. Buying your first property is a major life event, especially if you’re planning to raise a family in it.
  • The Ernst and Young report is flawed in a number of ways. It assumes that property investors were only buying units, despite houses outperforming units over the last 25 years. It also assumes that renters were mindlessly investing in the sharemarket each month, even though both retail and professional investors tend to let their emotions get the better of them, getting carried away when markets are booming and panic selling during downturns.
  • One of the benefits of a mortgage is that it forces you to save. Many renters would be tempted to spend their savings rather than invest it in the sharemarket. Property owners don’t have that luxury, with the bank demanding their pound of flesh each month!

As always, the answer to the rent-vs-buy question varies from person to person. As to whether property or shares are a better long-term investment, here’s our Chief Investment Officer Ashley Owen going toe to toe with renown buyer’s agent Patrick Bright!

The Value of Advice

Australia’s two largest regulators have published world leading data regarding the Australian insurance industry, showcasing the value of advise when it comes to insurance policies. Claimants in each of the major insurance categories (Death, Total & Permanent Disability, Trauma and Disability Income) were more likely to have their claims approved if they were adviser directed.

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Source: APRA

The events that lead to these claims are nightmare scenarios, and the last thing you want your family to worry about is whether they will be secure financially. Please contact Stanford Brown if you would like to have a review of your insurances.

Millionaires Choose Melbourne Over Miami

Australia has bested the US as the top destination for global millionaires for the 4th year in a row!

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According to AfrAsia’s Global Wealth Migration Review, Australia remains the preferred destination for the world’s wealthy thanks to strong scores in:

  • Safety – Australia has one of the lowest crime rates in the world, with significantly lower violent crime rates than the US (e.g. gun violence is so bad in Chicago that it is colloquially known as “Chiraq”)
  • Healthcare – The Australian healthcare system is one of the best in the world, and is considerably cheaper than the American system
  • Tax – Unlike most other developed nations, Australia does not have an inheritance tax (we’ll see what Bill Shorten has to say about that!)
  • Lifestyle – Australia’s climate, education system and proximity to Asia makes it a desirable destination for Asian high net worth individuals

Name That Line!

Congratulations to Gordon (aka Mr Tibbs) for correctly guessing our last instalment of Name That Line! A bottle of red is en route!

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But what was the classic line in this scene?

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Tweet of the Week

These damn millennial monkeys and their smartphones!

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Video of the Week

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Jonathan Hoyle, CEO & Nicholas Stotz, Investment Analyst

Stanford Brown

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