Create the life you want
Welcome to the Spring edition of the Chrysalis Lifestyle Planning newsletter. Has Spring really sprung? Will the wet weather really going to go away, or will it just come back another day?!
2022 continues to be a challenging year, with inflation, interest rate uncertainty, COVID recovery, geopolitical conflict and floods, amongst other things! With such a mixed bag of significant issues and the ever-positive media coverage (insert sarcasm here), it’s very easy to get caught in the now and take on a negative mindset.
It’s at times like these that the importance of keeping the right perspective and mindset is paramount – not only for our mental health but also for our long-term financial wellbeing.
Whilst no one can say how long the current uncertainty and volatility in markets will continue, we know from firsthand experience this time will also pass. In the meantime, there are some key learnings that we have seen apply over the +100 years of combined advice experience from your advice team of Phil, Mike, Mark, Jo and Sanders.
Firstly, in volatile periods (both positive and negative), it’s important to stay vigilant around your wealth and manage this accordingly. However, this activity must be centred on logical decision making rather than reacting to our natural ‘fear’ or ‘greed’ emotional responses. Emotional decisions, as hard as they are to ignore at times, almost always result in a poorer long-term result and cause the journey to be very stressful along the way.
Secondly, capitalism prevails through turmoil, regardless of our thought and the rhetoric that ‘this time is different’ – Covid19, GFC, Twin Towers, Y2K, the Tech Wreck, Twin Towers, Russian Financial Crisis, et al. Despite the dire commentary and media ‘forecasts’ at that time, the entrepreneurial spirit prevails and prospers to provide strong long-term returns. The same will apply to our current period. History has shown us repeatedly that high quality, actively managed investments provide strong, positive returns over time.
Stay positive. In addition to the things that matter most (health, family, friends and residing in the ‘lucky country’ and the like), other positive things to also keep in mind are: Australia’s balance sheet continues to remain one of the strongest globally, we continue to experience very low unemployment, tourism is returning (albeit slowly), foreign workers are beginning to return to meet our excess employment needs, and the new Albanese government is appearing to take a more progressive style of administration being prepared to ‘step into’ key longer term issues including climate change and equality/reconciliation. There is much to be positive about.
What about inflation, interest rates and the markets?
As you’re aware, the Reserve Bank of Australia (RBA) increased the official interest rate recently by another 0.5% aimed at curbing inflation. This is the fifth rise this year and takes the official rate to 2.35%. Currently most commentators are predicting another rate rise in October of a similar magnitude, with the further potential of a smaller rise again in November (closer to 0.25%).
So how high will the RBA raise the official rate? This is the $64m question. The RBA wants to have long-term inflation between 2% and 3%pa. With inflation currently predicted to approach 8%pa in 2022, most bank economists are predicting the official rate will land somewhere between 2.85% and 3.35%. Whilst the Banks are not obligated to follow the RBA’s lead in changing interest rates, they tend to follow each other closely as illustrated below:
Changes to the standard variable home loan rate
Chart: Canstar.com.au Source:RBA/Canstar (September 2022) Created with Datawrapper
Furthermore, the Federal Treasurer Jim Chalmers will hand down his first budget on the 25th of October and has stated it’s one “that would deal with the difficult spending challenges” ahead. We will have to wait and see exactly what that means. As usual, we will provide you with a Budget update once we see the details, letting you know what it means for you and your financial planning.
So, what does the remainder of 2022 hold for investors?
The big detractor for well-diversified portfolios year-to-date has been the Bond and Fixed Interest asset sector. Typically, this segment of a portfolio provides an offset when the equity segment of your portfolio is underperforming. However, this sector has also under-performed this year, thanks mainly to interest rates increasing much sooner and quicker than expected.
We are expecting the volatility across the markets to continue for the immediate term until there is greater certainty that inflation is coming down and where the official interest rate will land as a result. We discussed in detail in our recent Winter 2022 newsletter (see “News” section of the Chrysalis website), that it’s paramount in these times that you remain focused on your long-term investment objectives. Short term concerns and volatility are ever present but over the longer term, markets correct and grow – which is the fundamental nature of capitalism.
We remain optimistic regarding opportunities that currently exist with undervalued quality assets that your fund managers are proactively looking to acquire, which will set your portfolio up for success when the markets recover (which they will).
It’s important to understand the cyclical nature of investing and the importance of staying invested, which is shown by the chart below. The chart shows that over the past 100 years or so that US equities have averaged strong positive returns over 1, 3 and 5 year periods following a steep decline in their value. Whilst this research is US based, the same principles also apply to developed stock markets such as Australia. The danger for investors attempting to ‘time the market’ (going to cash then back to growth assets), is that more often than not, the timing won’t be correct, and they miss the crucial rebound days as shown below – you must keep your long-term perspective.
Source: Fama/French Total Us Market Research Index returns July 1, 1926 to December 31, 2020.
In a poignant quote in the AFR in May this year Arian Neiron, CEO of Global Investment Management firm, Van Eck, wrote:
“Bear markets are the ultimate behavioural test for investors. The outcome of this test says more about their likelihood of success in building wealth over the long run than does the direction of financial markets. Investors will either stay smart or yield to emotion, which can ruin the potential for gains.”
Don’t yield to emotion. Stay true to the time-tested fundamentals of investment diversification and long-term investing in high-quality fund managers who are actively securing investment opportunities now (in the down market) that will deliver over the medium to long term. Your Chrysalis recommended portfolios are highly diversified and well positioned to continue to deliver above average long-term returns despite the current backdrop of volatile markets, rising interest rates and geopolitical instability.
Christmas Party 2022 Invites
We are delighted to be hosting our Chrysalis Christmas Party again this year. Lock in 6pm Wednesday, 14th December at the Hotel Steyne, Manly. Your personal invitation will be send via email in the coming days.
If you haven’t received your invite by Monday October 10th, please check your spam/junk folder and if it’s not there let us know and we will resend this to you. We are looking forward to seeing you there and celebrating some Christmas cheer together.
Chrysalis News – supporting the community
At Chrysalis, we are committed to giving back and supporting our local community. Most recently Chrysalis sponsored one of our Manly Marlin’s Junior Rugby Union representatives, Ariki Wihongi, (Jo’s son) in his upcoming rugby union tour to New Zealand in Easter 2023.
Ariki has been selected to represent the Manly Marlins U11’s on their four-city tour of New Zealand. The Marlins traditionally tour every two years and have been doing so for over thirty years. It is a tremendous opportunity for the selected up-and-coming young players. In addition to providing them with exposure to high-level rugby, it also provides them the experience of other cultures and traditions along the way.
We would like to congratulate Ariki in his selection and wish him the very best. He has all our support from the Chrysalis team!
Your Chrysalis Team
We would like to let you know that we still consider it a privilege that we get to work so closely with our client and supporting them to achieve their financial (and personal) goals and objectives – even more so in more challenging periods such as the year we find ourselves in. It is the reason why we do what we do.
As always, please feel free to contact our office to speak with your adviser if you would like to discuss any of the above content or any other financial planning matters.
Please also feel free to pass on our details to anyone you feel we may be able to help and support to also achieve their financial goals. Our passion is for people and as always, are happy to help where we can.
Wishing you a great spring,
The Chrysalis team
The information contained in this website is provided for general information only. In preparing any advice in this site Chrysalis Lifestyle Planning Pty Ltd (AFSL Number 318597; ABN 22 127 418 982) has not taken into account any particular persons objectives, financial situation or needs. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend investors obtain financial advice specific to their situation before making any financial investment or insurance decision. This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.
