The past 12 months have been rewarding for shares in Australia and around the world. The local market was up by 14.1%, driven by profit revivals in the large miners following the Chinese stimulus announcements in March 2016. Up by 14.7%, international equities were the strongest asset class, with the big Asian markets surging by more than 20%. Most of Europe also rose, with the US not far behind.
Considering the strong returns from equities, it’s not surprising that superannuation funds also put in a good year. The median return was 10.7% as reported by Chant West. Once again, industry funds outperformed retail funds, continuing a 15-year trend.
Importantly, this year was the 8th consecutive year of growth recorded for superannuation funds and the bull market in US equities. During the year, we saw media frenzy about the potential negative impact of the Brexit vote, Trump victory and US rate hikes. These and other events provided a steady stream of ‘end of the world’ panics, but in hindsight turned out to be mere speed bumps as markets continued to rise.
The current expansion of the US economy and bull market in equities is already the second longest in US history. The previous record was 9 years that ended when the tech bubble burst in 2000. This means no bull market, defined as prices that continue rising without being interrupted by a 20% decline, has ever made it past 10 years. This begs the question: Will the cycle change and the bull market die of old age?
Predicting when a bull market will end is impossible because no one can forecast with any certainty the timing of a shift in investor emotions or preferences. There have been hundreds of legitimate reasons given over the past few years but markets don’t always care about reasoning. In the short to medium term, markets will do what they want regardless of investor worries or definitions of fundamentals. Much the same can be said about property in Sydney and Melbourne over the last number of years.
After years of easy money, interest rates are rising. While you can’t predict market behaviour, now is a good time to prepare – have the right strategy in place. This must be aligned to your objectives and working through scenarios so you can plan for a wide range of outcomes. Some of my tips include: get the right mix of assets in your portfolio; don’t over commit all your cash; be cautious of debt; ensure most of your investments pay regular income; look for strong industry tail winds that will ride out market cycles; and have a bias toward investments backed by real assets that are cashflow positive.
The market could keep motoring along or it could all end tomorrow – I wouldn’t be surprised either way. The most important thing is to have a plan with a long-term view.
Rob Gilmour
0415 927 868
rob.gilmour@wealthsimplicity.com
Rob Gilmour is the Managing Principal of Wealth Simplicity. The information provided should not be considered personal financial advice as it is intended to provide general advice only. The content has been prepared without taking into account your personal objectives, financial situations or needs. You should seek personal financial advice before making any financial or investment decisions.