During 2020, most economists and commentators predicted that property values would plummet by 10%, 20% or even 30%! In May I wrote a blog outlining the reasons why I disagreed with these overly bearish forecasts. We now know that property prices didn’t fall by any more than 2% to 3% and have since recovered.
In 2021, I predict the property market rhetoric will switch from “values will fall” to “values are too high”! The media will start saying that property prices are too high, they’re over-valued and so on. Again, they will be wrong. Be prepared to expect and ignore this useless hyperbole.
Here are 4 reasons that we should expect a very strong market next year.
(1) The past 5 years have been below averageThe property market needs to make up for the past 5 years of lacklustre growth. According to the Real Estate Institute of Australia, on average, median house prices in Melbourne and Sydney have appreciated by a measly 2.85% p.a. in the 5 years ended June 2020. That is well below the average growth rate of 7.5% p.a. over the past 40 years (Melbourne and Sydney). We know that all markets have a strong trend of mean-reversion. That is, periods of below trend growth are typically followed by periods of above trend growth.
Over the past 5 years the property market has had to navigate a number of unique and significant events. Severe tightening in credit occurred throughout 2015, 2016 and 2018. During 2018 and 2019, the market had to digest the potential impact resulting from the banning of negative gearing and higher CGT as proposed by the ALP (remember, the ALP were tipped as clear winners). As we all know, in 2020, the market had to deal with the impact of Covid.
These three major events have occurred consecutively over the past 5 years, hence the below trend growth. Investors should take comfort from the fact that property has actually performed relatively well considering the circumstances.
(2) Low interest rates inflate asset valuesLow interest rate settings are put in place by governments to stimulate economic activity. Low interest rates encourage businesses and consumers to increase spending (because their interest expense falls) and investment (because money is cheap). The cost to hold assets, such as property, is reduced and as such these assets tend to rise in value. It’s a commonly acceptable economic principal.
I wrote a blog in May this year citing that in many situations, it’s cheaper to own property than rent it. Since May, rates have fallen further, especially for owner-occupiers. This phenomenon won’t last for long. Property values will rise until, once again, it’s cheaper to rent than own. This would have happened already if it wasn’t for the event of recent years (discussed above).
The government has slated some substantial changes to credit laws which could significantly increase borrowing capacities from March 2021. If this becomes reality, it will further fuel the impact of low interest rates.
(3) There’s plenty of support for the property market by banks and governmentsIn November, the property market benefited from a number of changes announced by state and federal governments.
The federal government extended its HomeBuilder package that was set to expire at the end of 2020. NSW announced that it will seek to

Our most popular free guides:

Over the years we've written hundreds of articles. These three bring our best thinking together on the topics that matter most right now: choosing a super fund, debt recycling, and navigating the new tax changes.

Download them here

My new book, Wealth by Design, is out now:

Buy online or in bookstores. The ebook is available now, audiobook coming soon.

Got a question for the podcast?

Email us at [email protected]

Interested in working with our team?

Discover how we can work together

Subscribe to my weekly blog:

Stay connected here

Important

This podcast provides general information about finance, tax and credit. It doesn't take into account your specific objectives, financial situation or needs, so you need to assess whether it's relevant to your circumstances before acting on it. If you're not sure, speak to a licensed, trustworthy professional.

One of the advantages of investing in property is that you can make improvements to enhance its value and consequently your personal wealth. A disadvantage is that dwellings require ongoing maintenance, and this expense reduces an investment property’s cash flow.
Minimising or avoiding maintenance costs is often a false economy. Maintenance cannot be avoided, only deferred. Problems either remain unresolved or they get worse. Either way, you will have to complete the maintenance at some stage or accept a lower (eventual) sale price, as most potential purchasers will factor in these costs.
How much should you spend on maintenance and improvements?As a general rule-of-thumb, it is a reasonable expectation to spend circa 0.40% to 0.75% p.a. of a property’s value on ongoing maintenance. You may not need to spend that each year, but over a 10-year period, that would not be an unrealistic expectation. Houses tend to require more maintenance than apartments.
Items that increase rental incomeIt is important to ensure that your property is in good tenantable order so that its comparable to other properties in the surrounding area. Also, it is wise to look for items that will enhance or maximise its rental income. Such items tend to include:§ Air conditioning, particularly in apartments, is highly desirable and can often increase your weekly rental income by up to $20. That is a pretty good return on investment considering a split system cost around $3k to $4k to install.§ New carpets.§ Re-grouting tiles in kitchens and bathrooms. Not only is this good preventative maintenance, but it can have a positive impact on a property’s appeal.§ Sprucing up bathrooms and kitchens. It is advisable to maintain both the kitchen and bathroom to the same standard, otherwise it looks a bit odd. These projects can be completed cost-effectively by replacing the flooring (e.g. new vinyl), painting cupboard doors and replacing handles, replacing benchtops, appliances, tapware and so on. Avoid full kitchen refits where possible.
The standard of any maintenance and improvements must be in-keeping with the area and in line with tenant expectations.
Items that increase the value of a propertyCompleting maintenance typically preserves a property’s relative value. However, completing improvements often increases a property’s value, although its typically a once-only improvement.
Some examples of improvements include renovating kitchens and bathrooms, improving natural light (e.g. through painting, installing skylights, etc.), adding a bedroom (for houses). These enhancements can improve a property’s value by more than their cost.
Non-cosmetic expenses such as rewiring, reroofing, plumbing and so on tend to have little to no impact on value, but sometimes they are unavoidable.
Don’t go overboardYou cannot expect a tenant to take good care of your property if you don’t. Therefore, it is important to maintain your property to a good standard, commensurate with tenant and potential purchaser expectations, so that you attract quality tenants.
However, improving a property is a financial decision, not an emotional one. You don’t need to put in marble kitchen benchtops and European appliances. It must be durable and attractive whilst also being cost-effective and good value for money.
Apartments: common areas and facadeIf you own an apartment, you will know that the Owners’ Corporation is responsible for maintaining common areas and the building.
It is important that these are adequately maintained to improve street-appeal, security and structural integrity. Also, where poss

Our most popular free guides:

Over the years we've written hundreds of articles. These three bring our best thinking together on the topics that matter most right now: choosing a super fund, debt recycling, and navigating the new tax changes.

Download them here

My new book, Wealth by Design, is out now:

Buy online or in bookstores. The ebook is available now, audiobook coming soon.

Got a question for the podcast?

Email us at [email protected]

Interested in working with our team?

Discover how we can work together

Subscribe to my weekly blog:

Stay connected here

Important

This podcast provides general information about finance, tax and credit. It doesn't take into account your specific objectives, financial situation or needs, so you need to assess whether it's relevant to your circumstances before acting on it. If you're not sure, speak to a licensed, trustworthy professional.

Without wanting to seem too philosophical, I believe that life offers us lessons, but we must be prepared to look for them. As we are approaching the end of 2020, I thought it would be a good idea to reflect on what Covid has taught us about our financial decisions.
I have been very proud of how my clients have stayed-the-course this year. Only one client insisted on selling down some investments when the pandemic hit. To be fair, there were some extenuating circumstances. Thankfully, we helped many clients invest new monies during the peaks of market volatility. Whilst these investments were made with the sole goal of maximising long-term value, their performance to date has been very rewarding.
I wanted to share some important lessons that I think the Covid experience has offered us (even as a reminder).
Expect markets to crashMarket corrections are not uncommon. They seem to occur every 8 to 12 years. Of course, the cause of these corrections is always different, unique and completely unpredictable. That’s why they cause a lot of volatility, because the market gets spooked by an event it didn’t or couldn’t have anticipated. And that’s why it always feels like “this time is different”.
Whilst every crash feels different, they are all the same. Firstly, the market overreacts, and all investments are punished, almost regardless of quality and outlook. In March, everything fell in value – shares, bonds, gold… everything! But the reality is that a crisis will impact some asset classes to a greater extent.
Secondly, markets tend to rebound much faster than we expect, which is evident in this chart I shared in a blog at the beginning of March.
The lesson is to be ready for times of very high uncertainty. Stay the course. Don’t let these events tempt you to make any rash decisions i.e. selling. If appropriate, be prepared to make additional investments.
In the midst of a crisis, focus on the long termIn times of a crisis, it’s difficult to focus on the long term because it’s hard to visualise how the crisis might play out. However, despite that, there is great value in sticking to the long game.
For example, the world share index has generated good returns over the long run i.e. 10.7% p.a. between 1970 and 2019 to be exact. Investing in an index like this during a crisis might not generate above average returns in one month’s time, or even one years’ time. But because we know that markets always rebound strongly within a 5-year period after a crisis, it is likely it will generate above average returns in the medium term. It is this approach that serves investors well.
And this is the approach I adopted when investing clients’ monies during March, April and May (and anytime really). I invested in a way that aimed to maximise medium to long term returns. I was not focused on trying to generate short term profits. However, as it turns out, the result in the short term have been fantastic.
The lesson is that focusing on the long run helps people make investment decisions during times of (very) high uncertainty. In fact, it’s the only option, as adopting a short-term outlook tends to be paralysing.
Cash buffers are importantHaving plenty of cash savings provides a safety net in case your income unexpectedly falls, or a large expense crops up. I typically advise my clients to hold between 6 and 12 months of living expenses in cash savings. Depending on your financial position and risk appetite, it might be important to hold more.
Whil

Our most popular free guides:

Over the years we've written hundreds of articles. These three bring our best thinking together on the topics that matter most right now: choosing a super fund, debt recycling, and navigating the new tax changes.

Download them here

My new book, Wealth by Design, is out now:

Buy online or in bookstores. The ebook is available now, audiobook coming soon.

Got a question for the podcast?

Email us at [email protected]

Interested in working with our team?

Discover how we can work together

Subscribe to my weekly blog:

Stay connected here

Important

This podcast provides general information about finance, tax and credit. It doesn't take into account your specific objectives, financial situation or needs, so you need to assess whether it's relevant to your circumstances before acting on it. If you're not sure, speak to a licensed, trustworthy professional.

Interest expenses are often an investors largest tax deduction. You must realise that the onus of proof is on the taxpayer (you), not the ATO. That is, you must be able to prove to the ATO that your deductions are legitimate. If you are not able to do that unequivocally, you risk the tax deduction being denied in full (and you will have to pay interest and penalties).
Therefore, it is wise to understand some basic tax rules so that you do not inadvertently put any of your tax deductions as risk. There is a lot more detail (whole chapter) in my latest book, Rules of the Lending Game, but below is a summary of the top 10 rules that relate to investment loans.
(1) You only get one chance to set the maximum tax-deductible loanThe initial amount you borrow when you first acquire an investment will be the maximum tax-deductible loan amount.
For example, if you purchase a property for $800,000 the total cost of the acquisition will be $845,000 including stamp duty. If you have $300,000 of cash, you need to borrow $545,000. In this situation, $545,000 will be the maximum tax-deductible loan. You cannot go back to the bank and increase the loan at a later stage because the “purpose” determines it tax-deductibility (which I discuss below). A possible solution to this would have been to borrow the full cost and deposit monies in a linked offset – more about this below.
(2) Loan applicants may not have tax consequencesWho’s name the loan is in (i.e. the loan applicants) typically has no impact on the deductibility of the debt. From the perspective of the ATO, especially with spouses, the main determining factor regarding deductibility is (1) who owns the asset in question – i.e. whose name is on the title; and (2) who has been making the repayments.
For example, if the investment property is in the husband’s name but the loan is in joint names, and repayments are being made from a bank account that is solely in the husband’s name, the husband should be entitled to 100 per cent of the tax deduction (Taxation Ruling TR 93/32).
It’s preferable (and cleaner) if you can arrange for the name(s) on the loan to match the name(s) on the title, as this eliminates any doubt. However, some lenders’ policies or procedures might make this difficult, costly (in terms of time or legal costs) or impossible. It’s wise to document why the loan has been established in this way – that is, because the bank declined to set up the loan solely in the owner’s name.
(3) The owner must make loan repaymentsA common mistake is that repayments in respect to a loan used to fund an investment in one spouse’s name come from a joint account i.e. in both spouse’s names.
In this situation, the ATO could argue that since both of you have been repaying the loan, the deduction should be split. However, since only one spouse owns the property, only that spouse is entitled to a deduction – and consequently now half of the interest is not tax deductible!
To avoid this risk repayments should be debited to an account that is solely in the owner/s name.
(4) A loan’s security does not matterThe property/s used to secure a loan has no bearing on its tax treatment whatsoever. For example, you could have an investment loan secured by your home and it would still be tax-deductible. The purpose for which the funds are used and who’s been making the repayments will determine the tax-deductibility.
(5) Purpose is kingUltimately, the biggest determining factor as to whether interest is tax-deductible is the purpose for which the loan funds are used

Our most popular free guides:

Over the years we've written hundreds of articles. These three bring our best thinking together on the topics that matter most right now: choosing a super fund, debt recycling, and navigating the new tax changes.

Download them here

My new book, Wealth by Design, is out now:

Buy online or in bookstores. The ebook is available now, audiobook coming soon.

Got a question for the podcast?

Email us at [email protected]

Interested in working with our team?

Discover how we can work together

Subscribe to my weekly blog:

Stay connected here

Important

This podcast provides general information about finance, tax and credit. It doesn't take into account your specific objectives, financial situation or needs, so you need to assess whether it's relevant to your circumstances before acting on it. If you're not sure, speak to a licensed, trustworthy professional.

Understanding how Covid lockdowns have impacted certain individuals and industries, helps to inform us about how quickly the economy and markets may recover.With this in mind, I thought it was useful to share a number of charts published recently by the RBA and banks which provide important and interesting insights.Covid has discriminated against younger workers and lower income earners Workers between the ages of 15 and 34 account for more than half of the jobs lost (unemployment) to August.

The RBA broke up changes to employment into five groups - from the highest income earners to the lowest earners. As the chart below shows, the lowest paid 40% of Australian's suffered the largest loss of employment (over 80% of the total jobs lost to August).

It is not surprising to see that Covid has impacted a finite number of industries, especially hospitality and travel.

The good news is that employment has recovered significantly between May and August - as denoted above by the dark-blue dots versus the light-blue bars.Those that have been less impacted have been saving money and repaying debtFor those that have not been materially impacted by Covid, disposable incomes have actually increased (mainly due to low rates), consumption has fallen (due to lockdowns) and savings rates has increased significantly.

People have been making repaying large repayments towards credit card balances.

And borrowers have been making larger principal repayments and/or accumulating more cash in offset accounts. So, overall, personal debt has reduced during Covid.

Offset accountsSpending and confidence has rebounded strongly National consumer spending (using credit card data compiled by ANZ) is 8% higher than this time last year. Victoria has rebounded strongly. This demonstrates that the cohort of people that have not been impacted by Covid more than make up for those that have. Large spending increases have been observed in furniture, homewares and electrical categories.

Consumer confidence (per Westpac/Melbourne Institute) is now at a 7 year high. It is likely that confidence has been buoyed by Australia appearing to now be Covid-free and people can now see past 2020, looking towards a Covid-normal 2021. The possibility of a successful vaccine arriving if the first half of next year also helps the global economic outlook.

What does all this data tell us? (1) Higher earners will probably drive the property market recovery The above data demonstrates that there are two cohorts of Australians.The first cohort that has unfortunately been adversely impacted by Covid. These are likely to be lower income earners and younger Australian's. As such, it is less likely that they will be owners or prospective buyers of property located in blue-chip suburbs.The second cohort are those that haven't been impacted by Covid (or only to a minor extent). These are likely to be higher income earners, over the age of 34, have more savings in the bank (offset) and have lower debt levels as a result of spending less (thanks to lockdowns). It is this cohort that will probably implement their property plans (purchase, upgrade, invest) sooner rather than later. Historically low interest rates will also benefit this cohort to a greater extent, as they tend to have high levels of borrowings.(2) Higher spenders will drive the economic recovery Lower income ear

Our most popular free guides:

Over the years we've written hundreds of articles. These three bring our best thinking together on the topics that matter most right now: choosing a super fund, debt recycling, and navigating the new tax changes.

Download them here

My new book, Wealth by Design, is out now:

Buy online or in bookstores. The ebook is available now, audiobook coming soon.

Got a question for the podcast?

Email us at [email protected]

Interested in working with our team?

Discover how we can work together

Subscribe to my weekly blog:

Stay connected here

Important

This podcast provides general information about finance, tax and credit. It doesn't take into account your specific objectives, financial situation or needs, so you need to assess whether it's relevant to your circumstances before acting on it. If you're not sure, speak to a licensed, trustworthy professional.

If you need financial advice, how much should you expect to pay for it? Of course, the cost is what you pay, but value is what you receive. The value needs to exceed the cost for it to be worthwhile. So, how do you assess the value of financial advice?
Whilst the answers to these questions can vary significantly, we must take into account that value assessments can be subjective, and I wanted to share my insights to help people with this analysis.
Financial advice fees create tensionOn one hand, the lower the financial advisory fee you pay, the more money you save to invest and that has to translate to a higher likelihood of achieving your financial goals.
On the other hand, in many respects, you get what you pay for. The cheapest financial advice is not always the best.
Your willingness to pay more for financial advice may create some valuable consequences:§ It is likely that you will attract an advisor with more experience. An advisor with 20 years of experience isn’t going to work for $20 per hour – a graduate with zero experience might;§ It will allow that person to spend more time thinking about (analysing) the advice they give you. However, if profit margins are very thin, it inevitably creates pressure to cut corners – and certainly no scope to provide proactive advice; and§ The more human and economic resources a firm has, the more it can invest in their people and systems to continually improve the value they provide you. Better research, more analysis and more thinking time creates value in the long run.
The truth is, because of the tension advisory fees create, a balance must be found. The fees you pay must be as low as possible. But not too low that it risks the value of the advice you receive.
How much does it cost to give financial advice?The cost of giving financial advice can typically be categorised into four components.
(1) StaffingThe cost of employing the right people can be significant. The quality of the people determines the quality of advice and service that you can expect to receive.
Of course, the knowledge and experience of the advisor is paramount. Someone with very vast knowledge and many decades of experience will usually command a higher salary.For example, I’ve spent years honing my craft, learning, investing in myself. Consequently, the advice I give is substantially more valuable than an advisor with only a couple of years of experience. But it comes at a cost.
(2) Compliance and riskThere are a number of costs associated with having your own financial services license (AFSL). These include paying for an audit at least annually, training and education, license related fees paid to ASIC, professional indemnity insurance – the cost of which rivals some of the riskiest medical occupations and the time cost of fulfilling all compliance obligations.
Giving advice does not come without risk. Advisors accept a huge responsibility for formulating the right advice. Advice on simple matters is of course a lot less risky. However, advice that involves large sums of money or complexity carry higher levels of advice risk, because even small errors or misjudgements can have significant financial consequences (in dollar terms). Higher risk engagements attract higher levels of advisor compensation (fees).
(3) OverheadsAll businesses have overheads including office occupancy, technology and software costs and so on.
(4) ProfitA sustainable business must make a profit. The profit must be sufficient enough to compensate the o

Our most popular free guides:

Over the years we've written hundreds of articles. These three bring our best thinking together on the topics that matter most right now: choosing a super fund, debt recycling, and navigating the new tax changes.

Download them here

My new book, Wealth by Design, is out now:

Buy online or in bookstores. The ebook is available now, audiobook coming soon.

Got a question for the podcast?

Email us at [email protected]

Interested in working with our team?

Discover how we can work together

Subscribe to my weekly blog:

Stay connected here

Important

This podcast provides general information about finance, tax and credit. It doesn't take into account your specific objectives, financial situation or needs, so you need to assess whether it's relevant to your circumstances before acting on it. If you're not sure, speak to a licensed, trustworthy professional.

Most people acknowledge that a will is an important document to create, but we all hope there’s no urgency to prepare it. As such, many people rarely ‘get around’ to it.
One of the reasons for this is they don’t know enough about it and how to get started. This blog answers commonly asked questions and matters that should be considered when drafting estate planning documents.
Rules are State basedThe laws that govern the administration of wills and intestacy (if you die without a will) is the State’s jurisdiction. This means rules may vary from state to state.
Generally, if you die without a will, it is referred to as dying intestate. There are many adverse consequences of this including your assets being distributed in a way that you would not otherwise agree with. In addition, it creates unnecessary work and complexity for surviving family members to arrange probate.
Simple circumstances requires a simple willIf your situation is simple, you only need a simple will. Simple means that you do not have significant assets, you do not have any specific beneficiaries or financial dependents. In this situation, typically, a template will should be satisfactory. You can purchase these online for approximately $200. Make sure your will is witnessed correctly.
However, the more assets you have (in terms of value), the greater the need for personalised legal advice. Like in many situations, often it’s what you don’t know that could cause problems.
Kids complicate mattersIf you have children (or are contemplating having children), you should engage a lawyer to draft your will. Not only do you need to ensure that all financial dependents will be looked after, but you must address guardianship of your children. In the event that you and your spouse1 pass away, who will be the legal guardian of your children? This is an important decision which must be included in your will.
I would typically advise people with children to insert a testamentary trust into their will. A testamentary trust is a special discretionary trust that is created upon death. The will maker can permit the executor to transfer the estate assets into the testamentary trust. Testamentary trust’s provide serval advantages including taxation savings (discussed below) and asset protection benefits.
Blended families complicate matters furtherA blended family includes situations such as:

• both spouses have children from a previous relationship; and/or
• one spouse has children from a previous relationship as well as children with their current spouse.

Blended family arrangements can create a myriad of potential risks that must be considered and addressed when drafting estate planning documents. Anyone in this situation must seek personalised legal advice from an experienced estate planning lawyer.
Beneficiaries with special needsIf you have beneficiaries or financial dependants with special needs such as a child with a disability, battling addiction, mental health or similar issues, it is very important that you receive personalised legal advice.
Ways to minimise the likelihood of family conflictMoney and grief do not mix well. Otherwise healthy family relationships can turn sour when money is involved. But there are some steps you can take to minimise the chance of your family members fighting over your estate.
Have difficult conversations You invite

Our most popular free guides:

Over the years we've written hundreds of articles. These three bring our best thinking together on the topics that matter most right now: choosing a super fund, debt recycling, and navigating the new tax changes.

Download them here

My new book, Wealth by Design, is out now:

Buy online or in bookstores. The ebook is available now, audiobook coming soon.

Got a question for the podcast?

Email us at [email protected]

Interested in working with our team?

Discover how we can work together

Subscribe to my weekly blog:

Stay connected here

Important

This podcast provides general information about finance, tax and credit. It doesn't take into account your specific objectives, financial situation or needs, so you need to assess whether it's relevant to your circumstances before acting on it. If you're not sure, speak to a licensed, trustworthy professional.

It is my observation that investment-grade apartments in Melbourne have under-performed (from a capital growth perspective) compared to houses over the past 8 to 10 years.
That is, apartments have generated very little capital growth (sometimes none), whereas houses have grown in value by between 5% and 8% p.a. over the same period.
I have prepared a detailed report investigating the factors that have contributed towards this capital growth performance gap. Whilst I have focused my analysis on the Melbourne market, many of the factors identified and discussed have had an impact in Melbourne and to a lesser extent, Sydney.
I provide a brief executive summary below. I invite you to download a copy of the full report (link is at the bottom of this page).
We know that property growth tends to occur in cyclesThe chart below sets out the distribution growth in the median price of apartments in Sydney, Melbourne and Brisbane over the past 40 years.
It is clear that growth cycles tend to last between 5 and 10 years (although Brisbane between 1980 and 2002 is the main exception). This is constant with what I have observed for houses, as previously charted here.
Chart 1



We need growth of circa 9% p.a. to make up for the under-performanceIf you purchased an apartment 7 years ago for $600,000 in Melbourne, it may be worth $650,000 today. Most people would (and should) be disappointed with receiving only $50,000 of capital growth over 7 years. Applying the change in land values (as implied by the actual change in house prices) to apartments, one could argue that the intrinsic value of this apartment may be closer to $900,000. This intrinsic valuation is illustrated by the blue dotted line in the chart below.
I calculated that this apartment would need to generate an average capital growth rate of 9.2% p.a. over the next 10 years to “make up” for its past under-performance (i.e. to grow from value A to value B).
That is, the value of the apartment would need to increase from $650,000 to $1.55 million over the next 10 years. Whilst that might seem unrealistic, we note that apartments have delivered growth above 9.2% p.a. in the past, as illustrated in the chart above.



Dramatic increase in supply of new apartments between 2008 and 2018It is likely that the increase in supply if new apartments (i.e. new construction) has been the main contributor to the low levels of capital growth. When supply equals demand, price growth does not occur. However, when demand exceeds supply (like it has in the housing market), this imbalance contributes towards price appreciation.
The chart below sets out the number of residential unit constructions commenced per quarter. This trend data is provided by the ABS and is seasonally adjusted. In the main, supply began increasing in 2008/9 but has started to taper off around 2017/8.



This increase in apartment supply is evidence in investment-grade suburbs too. The next chart below sets out the proportion of apartments listed for sale compared to houses in a selection of investment-grade, blue-chip Melbourne suburbs since 2011 (when the data series began).



As you can see, in 2011, on average, 60% of properties listed for sale in these suburbs were apartments. By 2017, that proportion increased to 78%. Importantly, the proportion of apartm

Our most popular free guides:

Over the years we've written hundreds of articles. These three bring our best thinking together on the topics that matter most right now: choosing a super fund, debt recycling, and navigating the new tax changes.

Download them here

My new book, Wealth by Design, is out now:

Buy online or in bookstores. The ebook is available now, audiobook coming soon.

Got a question for the podcast?

Email us at [email protected]

Interested in working with our team?

Discover how we can work together

Subscribe to my weekly blog:

Stay connected here

Important

This podcast provides general information about finance, tax and credit. It doesn't take into account your specific objectives, financial situation or needs, so you need to assess whether it's relevant to your circumstances before acting on it. If you're not sure, speak to a licensed, trustworthy professional.

Investment update: How to navigate current uncertaintiesThere is never a perfect time to invest. The stars never align. In reality, there will always be reasons why investing now feels risky. The solution is to learn to dance with uncertainty.
Generally, most people can achieve this by doing two things. Firstly, focus only on generating quality investment returns in the long run. Ignore any short-term outcomes, as they are rarely relevant. Stick to proven investment fundamentals. Only adopt evidence-based strategies. Playing the long game often inspires higher levels of confidence.
Secondly, embrace the fact that uncertainty is your friend. Potential investment profits are greatly improved during times of higher uncertainty. Early April is a good example. We helped many clients invest in the share market during April and subsequent months. Whilst we are fixated on maximising long term investment returns, our clients have generated very good returns in the short run.
With this in mind, I thought it would be useful to share my thoughts on a number of risks (read: opportunities) that present themselves at the moment, and how I think you best navigate these.
The US electionThe first thing to realise is that markets focus on policies, not personalities. From a pure market/economics perspective, a Trump victory is probably more attractive, at least in the shorter term. The reason for that is Trump’s agenda is to continue reducing taxes, whereas Biden wants to wind back some of Trump’s previous cuts. It is questionable whether now is the right time to raise taxes, especially since the US economy needs all the help that it can get at the moment. That will be ‘the markets’ primary concern.
There is also some divergence in energy policies. It is fair to say the Biden’s energy policy generally favours environmental protection (Biden plans to impose a ‘carbon adjustment’ fee).
Of course, whether a President can implement their policy agenda depends on whether they control the House of Representatives and Senate. The Democrats already have a majority in the House of Representatives, so it needs to win the Senate in next month’s election to control all three arms of government. If they don’t, the Republicans can block legislation unless the Democrats can get rid of the filibuster, which you can read about here.
The big question is whether Trump will go quietly. I’m sure most people would agree that this is unlikely. A refusal to leave the white house, a legal challenge and who knows what else are all possible outcomes. Market’s dislike uncertainty and such events will probably result in higher levels of share market volatility, which investors must be prepared for.
In addition, any delay in inaugurating a new president will further delay the approval of a second trillion-dollar stimulus package which could exacerbate economic damage.
There is nothing long term investors can or should do to accommodate these risks. It is merely a case of acknowledging that this volatility could arise, but it’s unlikely to persist for more than a few months (hopefully).
US tech sector valuationsThe chart below eloquently illustrates the impact that the FAANGM stocks have had on the overall US share market index’s performance (the FAANGM stocks include Facebook, Apple, Netflix, Google, Amazon and Microsoft).
These six stocks have contributed approximately 40% of the index’s return (i.e. the return over the past 7.5 years was 10.4% p.a. or 7.4% p.a. excluding the FAANGM stock).

Our most popular free guides:

Over the years we've written hundreds of articles. These three bring our best thinking together on the topics that matter most right now: choosing a super fund, debt recycling, and navigating the new tax changes.

Download them here

My new book, Wealth by Design, is out now:

Buy online or in bookstores. The ebook is available now, audiobook coming soon.

Got a question for the podcast?

Email us at [email protected]

Interested in working with our team?

Discover how we can work together

Subscribe to my weekly blog:

Stay connected here

Important

This podcast provides general information about finance, tax and credit. It doesn't take into account your specific objectives, financial situation or needs, so you need to assess whether it's relevant to your circumstances before acting on it. If you're not sure, speak to a licensed, trustworthy professional.

Have you ever had a strong opinion (prediction) about investment markets which was subsequently proven to be incorrect? A recent example was when many people predicted borrowers would be forced to sell their properties due to the Covid lockdowns and the market would crash. This outcome now seems unlikely.
It is my view that a humble mindset is the best way to avoid being blindsided by unexpected investment risk, whilst at the same time spotting all opportunities. Let me explain.
Predicting the end of the world isn’t a risky endeavourRobert Glazer wrote about the concept of cognitive dissonance in his recent blog:
“… the authors examined the followers of cult leaders who predicted that the world was going to end on a specific date, and told everyone to prepare. When that day passed without a fiery inferno, you may have expected these cult leaders to have lost all credibility with their followers. Instead, the exact opposite happened. The leaders simply declared their prediction was incorrect and declared a new date. Like clockwork, their followers doubled-down and began preparing for the next apocalypse. Why would they do this? According to Tavris and Aronson, it was likely too painful for the cultists to admit they had fallen for a fraudulent prophecy. It was easier to avoid interrogating their own judgment, and to instead dig a deeper hole of delusion for themselves.”
This shows the danger of holding strong opinions and leaving no room for the possibility that you could be wrong, particularly when you are investing money.
Perpetual property bears seem to ignore the evidenceThere are two prominent commentators that have been perpetually bearish about the Australian property market since I started ProSolution in 2002.
They are Martin North from Digital Financial Analytics and economist Dr Steve Keen, who is now working in London. Of course, there are others but these two stand out in my mind.
They have both been outspoken and incorrectly predicted property price crashes on a number of occasions. In fact, I recall watching Dr Keen on the TV program, Sixty Minutes in 2008 telling all Australian’s to sell their property. Apparently, he even sold his apartment. He predicted that prices would crash by 40% between 2008 and 2010. He was so certain. Of course, he was wrong.
People that hold perpetually negative views, that leave no room for the possibility they could be wrong and ignore all the evidence, lack credibility.
Financial advisors that hold strong beliefs are also dangerousI know some advisors that hold very strong beliefs about the methodologies they utilise. They believe their way is right and everyone else is wrong.
Whilst I admire their conviction, such strongly held beliefs are dangerous. In life, things are rarely that black and white. There’s almost always some nuance.
Hold strong opinions, looselyThe saying “hold strong opinions, loosely” perfectly suits investing. You should have a strong conviction in the robust investment strategy you adopt, especially since it should be supported by sound, evidenced-based methodologies. However, at the same time, you must leave room for the possibility that you could be wrong. That every investment you make may not work out how you had hoped.
This humble mindset will greatly reduce the risk that you will be blindsided by unexpected

Our most popular free guides:

Over the years we've written hundreds of articles. These three bring our best thinking together on the topics that matter most right now: choosing a super fund, debt recycling, and navigating the new tax changes.

Download them here

My new book, Wealth by Design, is out now:

Buy online or in bookstores. The ebook is available now, audiobook coming soon.

Got a question for the podcast?

Email us at [email protected]

Interested in working with our team?

Discover how we can work together

Subscribe to my weekly blog:

Stay connected here

Important

This podcast provides general information about finance, tax and credit. It doesn't take into account your specific objectives, financial situation or needs, so you need to assess whether it's relevant to your circumstances before acting on it. If you're not sure, speak to a licensed, trustworthy professional.