The omens are good for an investor over the coming decades
Here we are again. The end of another year and time for me to scrape the cobwebs off my highly flawed crystal ball and ponder what may happen in 2018. As I have done each year since Money magazine began, it seems only fair to take a look at what I said last year. For most of us the key issues are likely to be property, shares, interest rates, employment and the Aussie dollar.
I’ll give myself about eight out of 10 for my predictions for 2017. Let’s take a look back to what I said in late 2016 about 2017:
“Property prices should slow and fall in some areas of oversupply. We’re building a lot of apartments, so take care there. I am positive about shares, in particular as they did not do much in 2016. I think interest rates will remain low and the Aussie dollar in that 65¢ to 75¢ band against the US dollar.
“I think we’ll see plenty of bad local and global news. Undoubtedly we’ll get some more nasty shocks and market volatility. But unemployment will remain low and our economy continues to be well positioned. Globally the outlook is a mixed bag, with the good outweighing the bad.”
I was OK on property – price increases generally did slow and fall in places, notably a small decline in Sydney. My positive view on shares was also fair enough. The All Ordinaries was around 5800 at the start of 2017. As I write this in November 2017, it is hovering around 6000.
If the market stays near this level, that gives investors a gain of some 3.5% plus dividends of around 4%, so the average Aussie share portfolio should have delivered around 7%.
As you know, I don’t favour holding only Aussie shares – our market is small and has a resource bias. So we should all hold international shares in our portfolio, be this in super or in our own names. Here investors should have done very well. The US market is up some 18% for the year and globally returns have been very solid.
Predicting the Aussie dollar is something I do reluctantly, as neither I nor anyone else I know ever gets this anywhere near correct year after year. My guess was on the low side: a range of 65¢ to 75¢ to the US dollar. It is sitting at 76¢ at the moment, so
Read all the alarmist comments and you’d end up hiding in a cave with a supply of baked beans and water
the Aussie dollar held up better than I thought. Interest rates were a no-brainer; they did stay low. No surprise there.
Our employment figures are one of the highlights of my year. I love seeing strong employment growth, meaning, of course, low unemployment. So I am just thrilled to see that in 2017 our economy has created 371,000 net new jobs. Even better, most are full time.
These are the best job growth numbers in any one year since 2005 and we should all be applauding. It is not hard to understand. Jobs pay people, people spend their pay and everyone benefits. Unemployment payments fall and the government’s tax take increases, meaning more money for the things we want such as schools, hospitals, infrastructure and a vast range of services.
I said the global economy would be a mixed bag, with good outweighing the bad, and I think that was a pretty fair call, if a bit conservative. I appreciate that we and the media tend to turn to bad news, not good news, but the global economy had a decent year in terms of jobs and growth.
Barring our planet being hit by an asteroid, or a virulent plague as has happened every few centuries, or another geopolitical nasty such as a nuclear attack, the outlook for 2018 is actually pretty good. Sure, there are threats everywhere but I don’t spend much time on day-to-day alarmist comments. Read all of these and you’d end up hiding in a cave with a large supply of baked beans and water.
The truth is, though, that this is about the safest time to be alive in documented history. Unlike the previous thousands of years, when no one had the first idea of what was going on outside their own community, the internet instantly brings us every negative issue on the planet. So the world feels unsafe. But there are plenty of great things going on. In the past two decades, for example, global poverty has been reduced by over 50%. Hundreds of millions of people are moving into the middle classes every year. Humans are also living longer, much longer.
It is very difficult not to be positive about being an investor over the coming decades. A growing global population, living longer with more money, will generate strong demand for property, products and services. This will be good for property prices and companies that supply these services, hence share prices.
Focusing on just one year can easily go wrong due to unexpected short-term events but, having said that, my views are not dissimilar to last year’s. I do not see the property bubble bursting in our big capital cities but I expect flat prices there and in most of the country. I expect interest rates to remain low but with strong job growth and low unemployment I expect wages to improve. So I can’t see rates going any lower, and as we move into 2018 I’ll be looking for some small rate rises.
The Aussie dollar remains a mystery to me. About all I ever get right is to see it as cheap when it gets close to 50¢ to the US dollar and expensive when it gets to $1 to the US dollar, so for 2019 I’ll stick with a trading range of 65¢ to 75¢. But I expect I will be wrong for reasons I don’t yet know.
Australian shares have underperformed other major markets, and while they are not cheap they are also not expensive. So I will continue to invest in shares and add to my portfolio, mainly in my super fund.
As always, there will be some nasty shocks around the planet but that has always been so!
Thank you for your continued support of Money and I would like to wish you and your families a merry Christmas, a happy new year and, of course, a successful 2018.