19 December 19

Christmas Update – December 2019

Here is Advice for Livings Christmas Video for December 2019.

If you would like a summary please read below.

Financial markets have been delivered what looks like two very timely Christmas presents.  The Americans and the Chinese appear to have struck a first stage deal to increase trade and hold off the imposition of further tariffs.  Increased trade sends very positive messages to the market.

BREXIT

Secondly, I’m sure you’re all aware Boris Johnson and the Conservatives won an overwhelming majority in the UK election late last week.  All Conservative candidates were required to sign an undertaking in advance of the election that they would support the BREXIT legislation, and so we should expect that when their parliament meets later this week that the BREXIT legislation will pass the House of Commons with very little trouble at all.  This sent very positive signals to financial markets.  Regardless of which side of the debate you are on, financial markets hate uncertainty and for better or for worse we now know what is going to happen with Britain.  As a result markets have responded positively already.  Their share market is up and so is the pound.  This is great news unless of course you are planning to go to Britain for Christmas in which will now cost you more.

Forecast for 2020

Against this positive news there continues to be a number of commentators suggesting anything between a minor correction and a recession.  On the other hand with cash rates for things such as term deposits and home loans remaining stubbornly low, and with expectations that this will be the case for some time to come, there is an alternative view that the high prices for shares are the new normal.

My personal view is that although shares in some markets do seem reasonably expensive I suspect that many investors have been prepared to push up the price of shares and receive proportionately lower returns rather than lock themselves into guaranteed low returns from cash and similar products.  As a result, I believe next year we might see more moderate returns compared to what we have seen from this year, which has been a bumper year for returns in almost all markets. Is there a possibility of a downturn in markets next year?  There is some possibility.  

What I’m not seeing is a major recession, markets don’t seem to have got too far ahead of themselves and so if there is some sort of a correction next year I’m expecting it would be relatively mild.  This is of course unless something completely unforeseen happens but then if we look back on this year you could easily have thought that the confusion caused by the BREXIT mess and the US China trade arrangements could have created enormous difficulties for financial markets, and yet in the end we have had enormous returns from basically all markets.

Stay the course!

If there is some sort of a correction next year my message to our ongoing clients is to stay the course.  Don’t panic!  The portfolios that we have recommended take into account your approach to risk, your financial objectives, and whether you are building for retirement or in retirement and drawing down on your pension.  For those of you who are building if there is a correction then your funds will have time to recover.  For those of you who are in pension we have created cash buckets to give you a couple of years of pension payments so that if there is a correction in markets again your growth funds will have time to recover.  So again if there is some sort of downturn in the markets next year remember that you have had very good returns over the last 10 years and it maybe that you’ll have to give a little bit of this back, but hopefully only in the short term.

Christmas closure

On a cheerier note Alison and I and the team here at Advice for Living wish you all the very best for a lovely Christmas and a happy New Year, rich and fulfilling 2020.  At the office here we will be closing this Friday after lunch and we will be reopening the office on Monday, January 20.  This is a slightly longer break than normal but is necessary as with the new Government requirements from the Royal Commission, from 1st January there is a whole range of new rules and requirements coming into place and we need to spend a few days getting our systems ready and coming to grips with what we will need to do differently.  Having said that even though the office will be closed we will be around and keeping an eye on our emails and phone calls.

As usual, if you have any questions or concerns, please contact us.  Please feel free to pass this newsletter on if there is anyone who you think might be interested in this.  Also, if you think they would benefit from a meeting with me then we would be very pleased to do that and if you give them our office number (03) 8370 5307 to make an appointment.