Client Information BulletinDecember 2016
There is No Magical Wand
Retirement income comes from very few sources. Rent from property, dividends from shares, a little bit of bank interest, or taxes taken by the Government from the Rich and given to the Poor.
Pooling those areas together and giving it a fancy name, “Superannuation”, so that Fund Managers can charge fees, doesn’t make it any different, those are still the only things that generate income in retirement.
Nowadays if you want an income of $50,000 p.a. that will grow and keep up with inflation, you need $1,000,000.
If you want to put your savings in the bank for the long term, then you need closer to $2,500,000 invested at 2%, to generate $50,000 p.a. interest.
However, if you can keep working, even part time, every $20,000 you can earn is equivalent to having $1m in the bank.
So my suggestion when you are considering retirement is to strongly consider Not retiring. Eventually we all will retire of course, but best to try and avoid retiring without enough money, and condemning yourself to a breadline existence.
The Year in Review
Acknowledgement to Terrence Duffy, Lead Researcher “Cycles Trends and Forecasts” for my paraphrasing his summary.
“The year opened with plenty of turmoil. George Soros warned it looked like a repeat of 2008. Royal Bank of Scotland (RBS) warned of a cataclysmic year, advised investors to sell everything and added that 2016 looked very much like 2008.
(RBS, the same bank that was totally caught out by the events that lead to the GFC, was forecasting a major collapse. 2 out of 2 – Wrong!)
The Dow Jones, the S & P 500, the NASDAQ and the FTSE are all trading around all-time highs.
It’s not the equities market which drives the economy, but the real estate cycle.
2008 was the peak of the real estate cycle, when prices fell below the level of loans outstanding. Whereas in 2016 real estate is moving off the lows of 2011-12, the constraints placed on banks after 2008 mean none of the banks are lending loosely. 77% of Commonwealth Bank mortgages are 30 months ahead in their repayments.
Not the conditions when housing crashes!”
In fact Donald Trump made it one of his election platforms that he would be removing the rules and regulations placed on the banks after the GFC. This is an absolute free kick for the next major boom in US housing. Subsequently the rest of the world will follow. 10 years of growth leading up to the next major crash in 2026.
Trump has promised tax cuts and infrastructure spending. That alone points to a bullish year ahead for the US stock markets.
2016 The poor All Ordinaries had another year that went nowhere!
However if you were invested in either of the 2 InterPrac Funds we recommend to clients you have had growth exceeding 20% for 2016.
If you were a subscriber to one of the boutique share subscription services you may have been fortunate enough to have achieved in excess of a 50% return from only a very small number of recommendations made for the year.
There are excellent returns out there, however the major funds are so constrained by having to just invest in the Blue Chips that they have achieved very inglorious returns the last few years, leaving their investors more Red Faced than Blue Sky.
(On that point – The money that was in the shares component of your Superannuation back on 1/11/2007 still won’t have got back to being worth what it was then until the All Ordinaries returns to its value on that day of 6,851. Since then the main reason your Super has grown has been because you put more money in, not because the Fund Managers have made you anything)
How is the American investment fund going? Fantastic!
Every 18 years when property has crashed and the world goes into a state of despair, accompanied often by a share market crash, what follows is a share recovery and land is available at bargain basement prices. A huge gain is what should be the expectation! The returns for our USAIC clients who invested in the Drapac Stars and Stripes Funds managed by the Drapac Group have been incredible. House prices in the US have just recently exceeded their previous highs. The cycle continues!