What the US election means for investors

What the US election means for investors

Democrat Joe Biden is pressing ahead with preparations to take the reins as the next President of the United States. Despite legal challenges and recounts, the early signs are that markets are responding positively.

In fact, the US sharemarket hit record highs in the weeks following the November 3 election as Biden’s lead widened.

So what can we expect from a Biden Presidency?

Biden’s key policies

The policies Joe Biden took to the election which stand to have the biggest impact on the US economy and global investment markets include the following:

• Corporate tax increases. The biggest impact on corporate America would come from Biden’s plan to lift the corporate tax rate to 28 per cent. This would partially reverse President Trump’s 2017 cut from 35 per cent to 21 per cent. Biden is also considered more likely to regulate the US tech giants to promote more competition. These plans may face stiff opposition from a Republican Senate (which appears likely).

• Stimulus payments to households. Biden supports further fiscal stimulus to boost consumer spending. While there were hopes that this could be delivered before the end of the year, action now seems unlikely until after January 20.

• Infrastructure program. Biden has promised to rebuild America’s ageing public infrastructure, from roads, bridges, rail and ports to inland waterways. This would stimulate the construction and engineering sectors.

• Climate policy. Biden is expected to rejoin the Paris Climate Accord and join other major economies pledging zero net carbon emissions by 2050. To achieve this, he would likely promote renewable technologies at the expense of fossil fuels.

• Expand affordable healthcare. Biden wants to create affordable public health insurance and lower drug prices to put downward pressure on insurance premiums.

• Turn down the heat on trade. Biden will continue to put pressure on China to open its economy to outside investment and imports. But unlike President Trump’s unpredictable, unilateral action, he is expected to take a more diplomatic approach and build alliances with other countries in the Asian region to counter China’s expansionism.
While a Republican Senate may oppose measures such as higher corporate taxes and tougher regulation of industry, it is expected to be more open to other policy initiatives.

The outlook for markets

The general view is that further stimulus spending should support the ongoing US economic recovery which will in turn be positive for financial markets.

While Biden is committed to heeding expert advice in his handling of the coronavirus, a return to lockdown in major cities may put a short-term brake on growth.

Longer-term, recent announcements by pharmaceutical company Pfizer and others have raised hopes that vaccines to prevent COVID-19 may not be far off. This would provide an economic shot in the arm and continued support for global markets.

However, as sharemarkets tend to be forward looking, the US market appears to have already given Biden an early thumbs up with the S&P500 Index hitting record highs in mid-November.

Lessons of history

Despite the Republicans’ more overt free market stance, US shares have done better under Democrat presidents in the past with an average annual return of 14.6 per cent since 1927. This compares with an average return of 9.8 per cent under Republican presidents.

While the past is no guide to the future, it does suggest the market is not averse to a Democratic president.

What’s more, shares have done best during periods when there was a Democrat president and Republican control of the House, the Senate or both with an average annual return of 16.4 per cent.i

Implications for Australia

Australian investors should also benefit from a less erratic, more outward-looking Biden presidency.

Any reduction in trade tensions with China would be positive for our exporters and Australian shares. While a faster US transition to cleaner energy might put pressure on the Morrison government and local companies that do business in the US to do the same, it could also create investment opportunities for Australia’s renewables sector.

Ultimately, what’s good for the US economy is good for Australia and global markets.

If you would like to discuss your overall investment strategy as we head towards a new year and new opportunities, don’t hesitate to contact us.

i https://www.amp.com.au/insights/grow-my-wealth/joe-biden-on-track-to-become-us-president-implications-for-investors-and-australia

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.

Outsmart your biases using investor psychology to your advantage

Outsmart your biases: using investor psychology to your advantage

Outsmart your biases using investor psychology to your advantage

Outsmart your biases: using investor psychology to your advantage

When it comes to decision making, we don’t always get it right. It is human nature to fall for several behavioural traps when making everyday decisions and also when trying to predict the future. Even the smartest people can succumb to their own biases when forming judgements and making choices.

While it’s unrealistic to expect to never again make a bad decision, we can of course recognise and anticipate possible biases so we can make informed decisions. This knowledge helps us to better understand how our mind works so we can use this information to our advantage for our next financial decisions, investments and life choices.

Here are a few of the most common behavioural biases (and therefore traps) to be aware of and tips for how to overcome them.

Loss aversion

This bias is ruled by fear, as you are focused on what you can lose rather than what you can gain. Mark Twain posed the example of a cat who jumps on a hot stove once and never will again, even though the stove would be cold and potentially contain food later, as a way to illustrate loss aversion.

Overcoming this bias requires confidence and pragmatism, as often the fear and expectation of loss is greater than the loss itself. It can help to lower the cost of failure (for example, if you are investing) and increase the likelihood of success to feel more assured when making decisions.


On the flipside, overconfidence can cause bad decision making as it means you’ll take greater risks. Facets of this bias include an illusion of control, planning fallacy (such as underestimating how long a project will take) and positive illusions.

This type of bias is often linked to people with high self-evaluations, however anyone can fall into the trap of overconfidence. To avoid it, consider the consequences of the decision and explore all possibilities rather than just the best case scenario. Be open to feedback and advice from others to help balance overconfidence and to give you more options to consider.


Groupthink is where you are influenced by the ideas of others in order to reach a consensus in a group situation – this is also called the bandwagon effect. Something might not sit well with you but rather than voicing your feelings and being at odds with the group, you go along with it.

It is easy to get swept along with group consensus but there are ways you can minimise groupthink. Encouraging conversation and debate allows differing ideas and opinions to be considered – in a group scenario this enables everyone to have their voices heard.

Even when making a decision by yourself you can still be swayed by the opinions of others, so don’t let these overpower your instincts. Think critically and have confidence in your own analysis.

The primacy/recency effect

This bias is part of the serial-position effect: why we can often remember the first and last items in a series the most clearly (and forget what comes in the middle). The primacy and recency effect are intertwined for this reason, and they are often used by teachers, speakers, lawyers and advertising, in order to make their message most impactful.

Awareness of this effect can help you understand why you’re likely not using all information presented in your decision making, but only the first and last messages. Keep a record of all information to get a more accurate picture of the situation. It also helps to do your research so you won’t just be influenced by the message from one source either.

These are just some of the biases that impact our decision making, from the day-to-day to the bigger life decisions. Having a trusted adviser in your corner can help improve your financial decision making, by providing market research together with considered advice through an external, unemotional lens. In fact recent findings from Russell Investments found one significant benefit of an advisers is they prevent clients from making silly behavioural mistakes.i

We can offer guidance to help you overcome your biases and make better choices, so don't hesitate to get in touch today.


i https://russellinvestments.com/au/blog/5-key-ways-advisers-deliver

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.

Making your savings work harder

Making your savings work harder

Making your savings work harder

Making your savings work harder

With tax cuts and stimulus payments on the way, Treasurer Josh Frydenberg is urging us to open our wallets and spend to kick start the national economy. But if your personal balance sheet could do with a kick along, then saving and investing what you can also makes sense.

One positive from this COVID-19 induced recession, is that it has made many of us more aware of the importance of building a financial buffer to tide us over in lean times. Even people with secure employment have caught the savings bug.

According to the latest ME Bank Household Finance Confidence Report, 57 per cent of households are spending less than they earn. This is the highest percentage in almost a decade.i

More troubling however, was the finding that one in five households has less than $1,000 in savings, and only one third of households could maintain their lifestyle for three months if they lost their income.

Whatever your financial position, if saving is a priority the next step is deciding where to put your cash.

Banking on low interest

Everyone needs cash in the bank for living expenses and a rainy day. If you’ve been caught short this year, then building a cash buffer may be a priority.

If you have a short-term savings goal such as buying a car or your first home within the next year or so, then the bank is also the best place for your savings. Your capital is guaranteed by the Government so there’s no risk of investment losses.

But with interest rates close to zero, the bank is probably not the best place for long-term savings. So once your need for readily accessible cash is covered, there are more attractive places to build long-term wealth.

Pay down your mortgage

A question often asked is whether it’s better to put savings into super or your mortgage. Well, it depends on factors including your age, personal circumstances and preferences, interest rates and tax bracket.

If you have a mortgage, then making extra repayments can reduce the total amount of interest you pay and cut years off the life of your loan. This strategy has the most impact for younger people in the early years of a 25 to 30-year loan.

If your mortgage has a redraw or offset facility, you can still access your savings if you need cash for an emergency or home renovations down the track. This may be a deciding factor if retirement is a long way off.

Boost your super

Making extra super contributions is arguably the most tax-effective investment, especially for higher income earners.

Even so, super is likely to be more attractive as you get closer to retirement, the kids have left home, and your home is close to being paid off.

You can make personal, tax-deductible contributions up to the annual cap of $25,000. Be aware though that this cap includes super guarantee payments made by your employer and salary sacrifice amounts.

You can also make after-tax contributions of up to $100,000 a year up to age 75, subject to a work test after age 67.

Invest outside super

If you would like to invest in shares or property but don’t want to lock your money away in super until you retire, then you could invest outside super.

If you are new to investing, you could wait until you have saved $5,000 or so in the bank and then buy a parcel of shares or an exchange-traded fund (ETF). ETFs give you access to a diversified portfolio of investments in a particular market, market sector or asset class.

First home buyers might consider the Federal Government’s expanded First Home Loan Deposit Scheme with as little as 5 per cent deposit. There are limited packages available and price caps on the home value, depending on where you live.

With tax cuts set to flow and a new appreciation of the importance of financial security, now is the perfect time to start a savings plan. Contact our office if you would like to discuss your savings and investment strategy.

i https://www.mebank.com.au/getmedia/c27b0a0d-cc4e-470e-8a37-722d6f00af98/Household_Financial_Comfort_Report_July_2020_FINAL.pdf

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.

Inflation and deflation - what do these terms mean for our economy?

Inflation, Deflation what's in a a name

Inflation and deflation - what do these terms mean for our economy?

When the inflation rate fell into negative territory in the June quarter, it was so unusual it begged the question of what this means for the economy. Are we facing deflation or even stagflation and what is the difference?

In the June quarter the annual inflation rate fell to minus 0.3 per cent, only the third time in 72 years of record keeping that the rate has been in the negative.

Much of the fall was attributed to free childcare (part of the special COVID-19 measures) and low petroleum prices during the quarter. The general view is that the September quarter will return to positive territory when childcare fees resume.

So what is inflation and why does it matter?

What is inflation?

In Australia, the main measure of inflation is the consumer price index (CPI). This measures the rate of change in the average price of a basket of selected goods and services over time.

While the index can move up and down, a negative inflation rate – no, that’s not an oxymoron - is referred to as deflation.

Generally, the Reserve Bank of Australia (RBA) aims to keep the inflation rate between 2 and 3 per cent. But in the current environment, the RBA is now expecting the CPI to remain below 2 per cent until at least December 2022.

A falling consumer price index - particularly one that is in negative territory – sounds like it should be a good thing as it will give you greater purchasing power with the lower prices. After all, who doesn’t like a bargain? But in reality, it can play havoc with retail businesses who are faced with lower profits but not necessarily lower costs. This can put a squeeze on their business, which can often lead to retrenchments and a spike in unemployment.

The other two occasions when Australia experienced deflation were in 1962 and in 1997-98.

The 1962 negative rate was after then Prime Minister Menzies implemented two credit squeezes to end the inflation caused by the Korean War Boom. The 1997 episode was in the wake of the Asian Financial crisis.

A slowing economy

Clearly, we are living in extraordinary times with COVID-19 and until the pandemic is more under control we can expect further slowing in the economy.

But at least this curtailment of economic activity is not coinciding with higher prices for goods. If that were the case, the country would be faced with stagflation which poses a far greater squeeze on households than deflation. Stagflation is a situation with rising inflation (prices) and slowing economic growth, often accompanied with high unemployment.

Of course, if your job is not in jeopardy, you will benefit from cheaper goods. But if lower prices become the norm, people may hold off major purchases on the expectation that they can buy even more cheaply in the future. This is not good news as consumer spending makes up 60 per cent of total economic activity, so a contraction in spending generally results in a contraction in the economy.

However, if your employment is insecure and the overall unemployment rate rises, this will depress household spending. It will also have an impact on the property market.

Unemployment takes its toll

According to the latest figures, more than one million Australians are currently unemployed and many more could face uncertainty going forward. Whether you rent or are buying your property, finding the funds can present problems.

In some areas, as demand dried up in the June quarter, rents dropped by as much as 25 per cent. This may be good for renters, but it is not for those with investment property as part of their retirement strategy. If rents fall – or indeed if your property is vacant for some time - it may jeopardise retirement income.

Property prices are also under attack with distressed sales coming to the fore as the unemployment rate grows. When property values fall, mortgages become more expensive in real terms as your equity may be reduced – and in some cases you could find yourself with negative equity in your property.

Hopefully, the measures introduced in Australia to counter COVID-19 will prove successful and the economy will begin to recover.

If you would like to discuss your overall investment strategy in light of these challenging times, then please call.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.

Investment opportunities amidst the COVID-19 disruption

COVID-19 is resulting in significant disruption to well-established business paradigms, impacting businesses, sectors and stocks across the board.

However as Albert Einstein once said “in the middle of difficulty lies opportunity”. That certainly rings true in 2020 as analysists predict significant changes in the types of businesses that will prosper through the crisis and beyond, with certain sectors and types of businesses dominating others.

At a time where our movement has been constrained in an unprecedented way, sectors relating to the movement of goods, data and people are being heavily impacted by the crisis but are also well positioned to capitalise on the changes brought on by the pandemic.

Supply chain and logistics embrace technology

The pandemic has significantly impacted many bricks and mortar businesses, yet online shopping has boomed. Australia’s e-commerce industry had a growth of over 80% in the two months after the COVID-19 pandemic was declared by the World Health Organisation.

Yet this boost to e-commerce has brought its own challenges. Back in April 2020, Australia Post was delivering an estimated 1.8 million parcels each day, which resulted in lengthy delays to delivery times.Meeting the demand for timely deliveries, avoiding supply chain disruption and bottle necks has called for innovation in logistics.

While demand may not remain at the heightened COVID-19 levels, experts are predicting long-term shifts, such as micro supply chains and decentralising of manufacturing capacity. Also critical to the creation of smart and nimble supply chains and effective logistics is the use of technology to drive efficiencies and manage significant fluctuations in demand.

Data movement and security a focus for business

It’s clear that where people’s physical mobility is limited, fast and secure movement of data is critical. 2020 has seen innovation being applied to find new ways to secure, verify and exchange business-critical information.

With many workers based at home, this shift to a hybrid workplace means a change in workflows as well as the immediate need for security measures to protect networks, as staff are no longer using their corporate networks. The increase of Zoom calls, for example, has meant becoming more aware and prepared for the potential of cyber hacks.

Businesses need to ensure their systems are robust and well-tested as we move to an increased reliance on technology. Expect a stronger emphasis on collaboration tools, workflow management and data protection.

Challenges and opportunities for travel

Suffice to say the travel industry has been one of the hardest hit during the COVID-19 pandemic. There’s no doubt travel will surge once restrictions loosen, although this industry is one that will see profound change as it adapts to the post-COVID landscape.

Airlines are struggling to navigate uncharted territory. The ones that survive this crisis will have to be strategically creative to find a way to prioritise public health and sustainability, all the while maintaining profitability.

With more rigorous sanitation requirements, the quick turnaround times budget airlines have relied on may not be possible, meaning fewer flights and at a higher cost – this will change the budget carrier landscape substantially and make travel less accessible for some.

Longer term trends emerging from the crisis will include greater automation driven by public health and budget constraints, and changing consumer preferences such as holidaying closer to home.

Public transport will also be impacted, as the need for distancing will restrict the number of passengers allowed to travel. Less congestion on our roads may be the silver lining to more flexible working arrangements, with some people continuing to work from home. This ability to work from anywhere will make it possible for an increasing number of Australians to relocate to regional areas.

The term ‘new normal’ has been expressed many times already and for good reason – lives have changed permanently. Only time will tell what life will look like post-pandemic, but there will be more changes as society emerges from the pandemic that will impact how we live, and these will drive innovation in the way businesses and industries operate.

The Foundations of Successful Investing

If you have any interest at all in financial well-being and security, you’ve probably heard the advice many times that you need to invest your savings.

And you probably also know that just as some investments can reap huge profits over time, others go badly wrong and even wipe out your savings entirely.

Why Invest at All?

Knowing that investment can be a very risky business, it’s tempting to think it might be safer to just forgo the chance of investment returns and simply hold on to what you’ve got. To avoid investment risk entirely and just keep your money in cash, in the bank.

But this is not a great option.

True, so long as your bank doesn’t go bust, the dollar value of your savings won’t go down. But over time, inflation will eat away at your money’s real value, allowing you to buy less and less with it.

So what’s to do?

Just as you need a home to live, you need somewhere to put your money. But where? And what sort of ‘place’ should you be looking for?

Fundamental Principles of Safe Investment

Thinking about building an investment portfolio as if it were a bricks and mortar building is a useful analogy.

If you’re building a home, one of the most important risk factors to take into account is weather.

When you think about it, adverse weather conditions have perhaps the greatest power to destroy or lower the value of your home:

lightning, bushfire, typhoons, floods, freak hail storms, prolonged spells of extreme heat and drought.

Even with modern technology, we’re unable to predict adverse weather events far enough in advance to do anything about them. So, when we build, we need to choose our site, materials and design with care. We need to lay strong foundations and create a structure sturdy enough to withstand unpredictable and unusual weather conditions.

Your investment portfolio derives its value and earnings from the national and global economies. Just like the weather, these economies are prone to big swings and are notoriously unpredictable.

Even the best financial forecasters only get things right occasionally and will freely admit they can’t predict much of what happens. Worse still – unlike weather forecasters – economists and other financial forecasters rarely agree with each other. So, you never know whom to trust when it comes to economic predictions.

The COVID-19 crisis is good example of how unpredictable global economies can be. At the start of the year, many of the world’s stock markets were riding high. But as investors panicked with the news of the pandemic, the value of shares plunged, wiping trillions of dollars off everyone’s holdings.

In December of last year – NO ONE could have predicted this crisis with any certainty whatsoever.

And so, to construct a good investment portfolio, you need to build with a view to withstanding many types of economic risk, as far as possible – some predictable, some not.

With a carefully built portfolio based on sound foundations, you have a much better chance of weathering financial storms.
Investment principles.

The foundations of a strong portfolio rely on four key ‘pillars’ or investment principles.

Quality, Value, Diversity and Time.

Each of these pillars are equally important. Overlook just one and you are exposing yourself to too much risk.
Let’s look at each briefly, as they’re all crucial to your investing success…


Good quality investments should have an established track record of earnings. They also need a sound basis for their operations and any expected growth. ‘Exciting’ new investments based on emerging ‘fads’ or trends offering unusually large returns would be unlikely to tick the quality box.

Investments that offer good value will provide a return that is at least as good as the market average, and ideally, better. In the case of property or bonds, you’d look at yields and compare those to opportunities elsewhere.

Note that quality and value often go hand in hand – so it’s a case of looking for a balance between the two.

Quality assets may trade at such high prices that they offer lower initial value. Or it could be that earnings expectations are sometimes too high. The key here is quality… the expectation is that they will be around for a long time, not just a ‘good time’.

Lower quality investments often appear to offer higher yields, but may carry a higher degree of risk. We all hear of get rich quick ‘opportunities’ from time to time and hopefully know to ignore them. These almost always constitute very low-quality investments.


We’re all familiar with the saying, “don’t put all your eggs into one basket”. This is what diversifying your portfolio means.
Diversity provides a degree of protection for portfolio.

By spreading your risk, you’re reducing your exposure to mishaps. Case in point, transport, oil and leisure stocks during the COVID pandemic, which have suffered very large losses. On the other hand, some sectors have benefitted greatly at the same time, such as healthcare and supermarkets.

True diversity in a portfolio gives the investor the opportunity to take advantage of “hot stocks” or asset classes, whilst balancing out the risk with quality stocks and asset classes. It can provide a buffer against mistakes in assessing value because nobody gets it right all of the time.

A well-balanced portfolio should be designed to cope with occasional losses.


Time applies to the previous three pillars. It can give you the best chance of success.

Every market will suffer periodic downturns. But the prices of most asset classes e.g. shares and property, do rise with over time, with inflation.

A golden rule of investing is to be patient and avoid short termism. In other words, don’t panic when you see values go down suddenly, and avoid trying to pick smart short-term winners for quick gains – which can lead to many needless mistakes and much higher transaction costs than necessary.

Obviously, this little article is just a quick overview. There’s a lot more to these principles than we can cover here.

Please bear in mind too, that there is no one size fits all approach to building a portfolio. Constructing a portfolio that’s right for you requires taking into account your personal circumstances and financial goals.

Would you like to talk to a professional adviser about building a quality portfolio, or managing existing investments?
Contact the House of Wealth Financial Planning Team today for a free consultation.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.

“Hey what just happened to my super balance?” — How Shares and Other Asset Classes Perform Over Time

Depending on how your Super is invested, you may have noticed your balance drop quite a bit in value soon after the COVID-19 pandemic took hold. If a significant portion of your portfolio is invested in the share market, a widespread drop in share prices would be a likely cause. Share markets suffered quite large losses as worries about the crisis spread.

At such times, it’s only natural to wonder if investing in shares is the right thing to do.
This is a question about Asset Allocation. And the best way to answer it is to consider your investment objectives.

If you’re a longer-term investor, with a time frame of five years or more, you’ll be hard pushed to achieve reasonable objectives without the benefits of growth investments such as shares or property.

Growth investments experience greater volatility than other classes of assets. In other words, their prices experience larger swings – in both directions – up and down. Even so, good quality assets, bought at reasonable values, whether shares or property, will generally rise in value over time.

Average Rates of Return

When you invest in growth assets it is important to understand you should be targeting an average rate of return. In this context, average means taking the rate of return over successive years and calculating the average.

Some years you may achieve returns well in excess of your target, while in others, the return may be lower, and sometimes negative. But so long as you achieve your targeted average over the longer term you will meet your objective.

It’s also important to understand that different asset classes will outperform, or underperform in different years. You can see this effect at work by looking at five major asset classes over the 10 years to June 2018.

Occasionally the asset class which outperformed in one year showed a poor, or even negative, return the following year. This illustrates the importance of having a diversified investment portfolio covering all the major asset classes.

Financial year returns for major asset classes

Year to 30 JuneCashAustralian Fixed InterestListed Property Trusts (Aust)Australian SharesInternational Shares

Source: Vanguard Interactive Index Chart. All figures shown are before fees and taxes.

Always remember…

  • Seek professional advice to choose appropriate investments for YOU. These should have been well researched for their financial soundness, whether they are individual investments or managed funds.
  • Be sure to have a portfolio which is diversified across major asset classes and subclasses. The balance of the portfolio should be designed to achieve your long-term objectives at an acceptable level of volatility. Diversification is harder to achieve when you’re starting out – but becomes easier as your portfolio grows in value.
  • Try not to panic when you see values fall. It is human nature to be concerned when you see the value of your assets fall. However, markets eventually recover and a sound investment will perform over the longer term. Selling after a downturn will not help you achieve your objectives.
  • Review your portfolio at least annually to ensure it is still appropriate to your objectives and market conditions.
    Past performance is no guarantee of future results.

Would you like advice on managing your investments?

Contact House of Wealth today for a free financial planning consultation.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.