(03) 9020 2905Being the banker for shady international characters, money launderers and cyber criminals has got to be a profitable business, doesn’t it?
Well, for the masterminds behind Liberty Reserve, it probably was. Until they got caught. It’s a bugger how that happens.
There’s got to be an easier way to make money.
Thankfully, I’m no economist. Economists’ predictions are known to make weather forecasters’ predictions look good. But it’s that time of year. Debt Man needs to dust off his crystal ball.
Crystal-ball gazing in the financial sector is crazy. But one thing is certain. Making the least crazy predictions makes for less embarrassment when things go horribly wrong.
Cash
Let’s start safe. It’s going to be a crap year for cash.
Interest rates are in the bargain basement. The Reserve Bank’s “official cash rate” is 2.75 per cent. It’s going nowhere fast. Maybe down a little.
But hear this – your cash savings will go nowhere. Maybe even backwards.
If you earn 4 per cent on cash, strip away both tax and inflation to get the real return. You’ll lose up to 46.5 per cent in tax. That 4 per cent has become 2.14 per cent. With inflation at 2.5 per cent, your money has hit reverse.
With one exception. Mortgages with offset and redraw accounts will get returns of 5-6 per cent. Tax. Free.
Nothing exciting to see here.
Fixed interest
If you had a working crystal ball in 2008, you’d have put all of your money into fixed interest (bonds). And you’d have got 8 per cent for the past five years.
But few did. Prior to 2008, bonds had been a dud for 10 years, because before the GFC, banks had loads of cheap money.
Bond returns are moderating. They’re won’t turn negative. But the fabulous post-GFC returns from bonds are done and dusted.
Property
Now we’re getting into exciting, risk-taking stuff.
Many don’t understand property is actually quite diverse. There’s residential investment property, which most of us are familiar with. And then there’s commercial property, which is what super funds and managed funds invest in.
Commercial property has had a knock-out year. Australian property did 31 per cent – great for super funds. International commercial property has done a very healthy 23 per cent.
Residential property has been in the doldrums since 2010. Nationally, property prices have been in decline since then until … depending on which stats you read … earlier this year. I think that’s a positive sign.
It’s hard to keep a good thing down. Low interest rates and dramatically lower prices than three years ago add up to a positive FY13-14 for residential property for mine.
And that’s where I’ll be putting my money in the year to come. But not for one-year returns. Residential property is a minimum 10-year return.
Shares
Pontificating on the share market’s direction is more dangerous than any other aspect of financial advice. Completely unpredictable.
So let me first point to a recent win.
A year ago, I made a prediction in one of these articles (here). It was less a prediction than poking a bit of fun at the funds management industry and its unending ability to market a trend way longer than too late.
On this occasion, it was Betashares. In July last year, Betashares launched the “Bear Fund”. After four years of alternating between relentless bear markets and rubbish rallies, Betashares was offering a way to profit from continuing disillusion. Their sales pitch seemed to be: “This bear market will continue forever.”
I announced it was “The Sign”. Not since BT launched their technology fund in March 2003, which heralded the start of the tech-wreck, had I seen such a sign.
As predicted, the Betashares “Bear Fund” was the end of the bear market. Since inception, the “Bear Fund” has done minus 16 per cent. Over the same period, the ASX200 has done nearly plus 24 per cent.
I said then that I was “loading up … now”. And I did.
So, what will happen to the Australian share market this year?
No idea.
I decline to answer on the grounds that I might incriminate myself, or be ridiculed, in a year from now.
If I have to give an answer … I think Australian shares are probably still undervalued a bit. I won’t be underweighting them, except to go into residential property.
Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au), a licensed financial adviser and mortgage broker. bruce@debtman.com.au.