Hi guys and welcome to Finance and Fury. Today we will start off on the miniseries with the best place to invest money in 2019.

Investments to Consider in 2019

Where should you invest your money?

  1. Question plagues both beginning investors and established pros. We are always looking for the best place to invest money for the here and now, and beyond
  2. No investment is guaranteed, I wanted to share my thoughts on different investment options for 2019 and beyond. Each one of these will suit someone’s circumstances better than the other

Maybe you have built up a respectable sum of money in a high-interest savings account, but you know that saving cash isn’t enough, you want to do something with it.

The propensity to hold more money in a high-interest savings account versus stepping into the realm of risk and buying into something that can go up, and can go down. But, over the long-term has a higher return than cash but in the short-term can definitely lose more than cash.  

What are the options:

Break these down over 2 episodes, Today and next Monday.

Today we will break down the share market. Should you be investing in shares.

For the next Monday episodes we will look at investing in property, then yourself (education), starting a business (risk/return versus capital) and should you reduce debt?

Should you invest in shares in 2019?

Shares

  1. If you have been paying attention lately, you’d have noticed the market lost some value. Is this a correction or will it continue through 2019?
    • ASX (Australian Stock Exchange) has suffered some heavy losses. From the start of September, it started declining, with a peak in August
    • S&P 500 will have lost all its 2018 gains by the end of the year and then some, and many believe that’s just the beginning of a spiral that might last years.
  2. First point: Breaking down the market, which is shares being bought and sold by millions of people
    • CBA is down -12%, WBC also down -18%, ANZ is down -12%, and NAB is down -16%. This equals by weight of 22% of the market a total -3.26% loss on the market. But during the same time, CSL gained 38%. This goes to show the market is made up of many different shares.
    • Why have the banks gone down? There has been a lot of bad press during the Royal Commissions with class action payouts, and the new bail in laws where banks lost their government backing
  3. Why has the market crashed? Comes back to a lot of uncertainty
    • Covered some in previous episodes on shares, see resources at the bottom of the page. Is it anything new?
    • Not really, it’s more of the same thing happening
    • Trade wars: the Tariffs between China and America
      • Allies and enemies: Xi Jinping (China’s leader) is meeting with a lot of African leaders to secure resources
      • The risk to us isn’t some short-term reduction in trade, but long-term as sides are picked. This will be further explored in a later episode
    • Midterms are over: Republicans kept the senate
      • The Democrats won the house. Which is good for Trump. He has achieved a lot in the first 2 years with tax cuts. When you look at the state of the American economy, the rising federal reserve rate has dampened market growth, which is a correction and saves it from reaching the growth bubble territory.
    • Europe: Yellow Vest Protests or “gilets jaunes“. This is still going on, as Europeans are waking up finally and protesting against policies provided by the EU
      • France: 84,000 across the country in the 9th week straight
      • Emmanuel Macron: National debate on 15 January in response to weeks of protests by the “gilets jaunes“, so we will see how that goes
      • This has spread across the rest of Europe and even reached Canada
      • Concerns in France are that of Macron in response wants to reduce taxes on pensioners and increase the minimum wage. Which is just more of an increase to public spending
        • Will do nothing but require the government to borrow more, pushing up France’s debt
        • Keep the EU Block’s interest rate low to afford the repayments
        • Cause pressure on EU Bond market. Especially with Italy as well, being one of the biggest bond providers in the EU
    • Brexit: I will do a follow up episode on this one in the near future as well
      • By plan or by blunder, the failed negotiations may accelerate the collapse of the EU
      • I personally don’t think it was some well thought out 4D chess move. But the no deal means no 40bn pound payment to the EU
      • How happy will the France and Germany population be to have to cover this in additional taxes?
  4. What is the effect of these things? Most have little effect on the underlying health of companies here in Australia, beyond tariffs
    • Cash flow on companies: The ones that dropped heavily are AMP, Banks, RFG, TLS
      • These drops were specific to the company, not the economy. Not a good outlook though for some sectors
    • What about the rest of the market? Profit taking caused a drop in some. The real question is will it continue?

I like patterns and data. I spent a few hours going through all of the historical data since 1902

  1. Markets don’t behave like they used to
  2. Cumulative growth over time has slowed down
    • 1902-31 = 2,507% gain, 1932-61 = 3,467%, 1962-91 = 4,323%, 1992-2018 = 893%. Only 27 years, but behind by:
      1. 2,141%, 1,262% & 2,409% respectively
    • What has happened? There is a very deep issue, and we will cover why in next week’s Friday’s episode. After going through property as well as these topics overlap
  3. Beyond the lower compounding growth, what are the chances we will have a negative year this year?
    • Statistics since 1902: Let’s look at how markets behave when there is a 12-month loss
      • There have been 21 negative years, 5 of those have been back to back
      • After a negative year, there is a 70% chance of a positive year, 30% chance of a loss. 5 times in 116 years there have been 2 years in a row losses
    • How much does it rebound on average?
      • Gain of 20% from 17 rebound years after a loss
      • Loss of 16% from 5 after a previous year loss
      • Averages out to 8% p.a. the year after
    • Probability: Normative distribution of having 0% or negative year = 35% chance it will go down further and 65% chance of a gain
      • 3 years after a negative year: there is a 3% chance of having 0% or negative average return over 3 years after loss. This is a 50% chance of 13% growth p.a.
      • 50/50 chance of 45% compounding gain over 3 years after loss
      • 9% chance that the compounding returns will be 0% or less

 

Technical Analysis:

No guarantees here!

  1. Will the market keep going down?
    • It looks a lot like profit taking end of 2015
    • Average decline of about 2.7% p.m. over 7 monthsindex price changes
  2. Recovery patterns: it looks like there is a chance of a mini-correction
    • Rebounded 5.6% over the last 3 weeks
    • May drop back a few percentage, repeat this process, then break through back to 6,300
    • But who knows, the market gets spooked very easily at the moment, and are all off future expectations

Fundamental Analysis:

The economy’s current and future expectations

  1. Market has responded to trade, currency, rates. The economy looks like a bit of a mess at the moment
  2. Pretty reliant on other countries: Mostly in Asia, like China, Indonesia, and Japan
  3. But what about our indicators?
  4. GDP growth: Growth ranges are narrowing. At similar levels to 2016, but are lower than throughout most of the pre-2000s
    • Debt to GDP ratio is about the same at 41%
  5. Unemployment is slightly lower now: 5.8% vs 5.1%
    • Employed people in Australia up 600,000 over 2 years
    • Labour participation rate is up from 64.8% to 65.7%
  6. Productivity is about the same
  7. Business Confidence is at a major loss from 6 to 3
  8. Consumer confidence is up a little from 100 to 103

The economy while not flash, isn’t any worse off now compared to a few years ago, it’s actually a little bit better according to the fundamental health of the economy. However, everyone is looking into the future and is aware of the risks associated with the financial market.

Risks to the market: What would cause a collapse in Australia?

China and our economy

  1. We will cover this next week on Friday
  2. Run through some worst case scenarios like what would actually make our market tank?
  3. This seems like a correction at the moment. 6 years of gains in a row. That stats: 8 years, 2 losses. Which is acting in line with historical trends

What to do?

  1. Remember the plan
    • Investing for the long haul. Ride the wave before you retire, you may not have to worry too much about short-term corrections.
    • Diversify well, If you were 100% invested in banks you would have had a bad year
    • If invested in a diversified growth portfolio, you would have walked away with 3% gain
    • Shares should not make up 100% of the investment
  2. Worried things will go down further? Split the investments up
    • Dollar cost averaging, where you invest the same amount of money every month to buy the average price over a period of time.
  3. Not comfortable trying to pick shares: Consider investing in globally diversified and low-cost index funds
    • Every week it seems like some blue chip has lost 30% in a day
    • Investing in ETFs, LICs, and Managed Funds removes the major risk of single holdings
  4. What I’ve done: Invested some lump sums
    • December: Just before Christmas I put $1k in super and $1k between 4 Managed funds each
    • Last week: On the 2nd, I did it again, $1k in super and $1k between 4 Managed funds each
  5. No guarantees with the share market. The market has the same price as for December 2016, 2 years ago

Summary:

  1. Investing is for the long term
  2. No crystal ball, but if you are investing for a period of longer than 5 years, the chance of having a loss over this period is very very very small
  3. Nobody can time the markets, but the price seems okay to invest
    • If you were willing to invest 6 months ago, but not now, why? You could be getting what you wanted 6 months ago for a lot cheaper

 

Thanks for listening, if you want to get in touch you can over at the contact page here.

Next Monday we will run through the property side of things, and what will make our market go down.

 

Related episodes:

Current Australian share market:

https://financeandfury.com.au/current-australian-share-market/

Why Group Think threatens your Financial Freedom

https://financeandfury.com.au/furious-fridays-austrian-economics-and-why-group-think-is-the-most-dangerous-thing-threatening-your-financial-freedom/

Property market going down

https://financeandfury.com.au/did-you-hear-the-property-market-is-going-to-drop-by-45-percent/

Regulation impacting financial crashes

https://financeandfury.com.au/history-repeats-itself-gfcs-and-how-the-banks-and-government-regulation-have-impacted-financial-crashes-in-the-past/

Leave your emotions at the door

https://financeandfury.com.au/repress-suppress-invest-check-your-emotions-at-the-door/

Financial crash-proof your share investments

https://financeandfury.com.au/financial-crash-proof-your-share-investments/

Buying property and financial crash proofing your investments

https://financeandfury.com.au/buying-property-financial-crash-proofing-your-investments-how-to-get-yourself-into-a-position-to-survive-any-market-correction/

 

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