It turns out we’ve enjoyed a pretty good 12 months – especially if you haven’t had a significant chunk of your wealth tied up in cash.
The last 12 months have been steady on a number of financial fronts. Even the official cash rate has remained unchanged for the entire year, and that’s been a plus for local businesses. Reflecting this, Australian shares have performed well.
Double digit gains on shares
As I write in mid-November, the ASX 200 Total Returns Index has dished up gains of 11.27% for the year to date. This in turn has impacted our super savings – especially “balanced” funds, which typically have a solid investment in equities. According to research group SuperRatings, long-term (7-year) returns for super funds continue to sit at around 8.2% annually. That’s good news for our nest eggs.
All asset classes move in cycles, and reflecting the economic recovery that’s taking place in many developed nations, international shares have been a strong performer this year.
The MSCI World Index (excluding Australia) notched up gains of 18.9% for the year to date. Past returns are no guide for the future, but returns like this are a compelling case to add global equities to your portfolio. An international share fund – either listed or unlisted, offers an easy way to do this.
Key property markets are cooling
Despite the robust gains on equities, residential property has once again attracted plenty of media attention.
According to CoreLogic, values in Sydney have begun to cool, with annual price gains of 7.7% as at the end of October. Values in Melbourne, where the market is still rising, have soared 11.0%. But the real scene stealer has been Hobart, where property values have climbed 12.7% over the past 12 months.
For property investors, the slowing pace of capital growth especially in Sydney, reflects tighter credit policies among lenders. The shift to lower risk loans and stricter borrowing limits is not necessarily a bad thing. Coupled with rate premiums for interest-only borrowers, this is forcing many people to consider whether a rental property really suits their long-term goals.
Planes, trains and automobiles deliver strong gains
One asset class that can that be easy to overlook is infrastructure. Yet things like toll roads, railways, airports and utilities can be a steady performer for investors.
The ASX Infrastructure Index has achieved gains of 12.79% for the year to date. As with international shares, you could invest directly in individual infrastructure companies but an easier way to get a slice of the action is by investing in an infrastructure fund. This also has the advantage of spreading your money across a broader range of underlying assets.
With returns on cash still looking very ho-hum, it could be worth looking beyond savings accounts (where you’ll be lucky to earn 3% before-tax), to think about where you could put at least part of your money to work in 2018 to earn a stronger return.
Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.
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2017 was a relatively smooth year and 2018 is looking OK but expect more volatility.