Despite the usual turmoil along the way and ending on a weak note with Greek and Chinese-related turmoil, 2014-15 provided another year of solid returns for investors who were prepared to move beyond cash. Most asset classes had reasonable returns resulting in average superannuation funds returning 9.9%, their third financial year in a row of returns around 10% or more.
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It’s now coming up to six years since Greece first revealed that it had understated its true level of public debt. Greece is now rapidly approaching another moment of truth, and this has been causing increasing angst in investment markets with the risk of more to come.
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Way back in the early 1980s it was pretty obvious that the medium term (five year) return potential from investing was pretty solid. As it turns out most assets had spectacular returns in the 1980s and 1990s. This can be seen in returns for superannuation funds which averaged 14.1% in nominal terms and 9.4% in real terms between 1982 and 1999 (after taxes and fees).
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The case for the RBA resuming interest rate cuts this year has been fairly clear: commodity prices have fallen more than expected; the $A has remained relatively high; while residential construction and consumer spending are okay the outlook for business investment has deteriorated pointing to overall growth remaining sub-par; and inflation is low.
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The perpetual China worry list remains and recent Chinese data has been on the soft side. But last year Chinese shares were among the world’s strongest. What gives? Is China on the brink of a boom or a bust? Probably neither.
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Investing can be profitable as well as fun, but it can also be unnerving and unprofitable if you don’t understand markets and don’t have the right mindset.
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With Greece back in the headlines after Syriza’s election win, it’s natural to wonder whether we are going to see a rerun of the Eurozone crisis that roiled global financial markets in 2010-2012. However, much has changed since 2012.
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2014 has had its share of worries with a range of geopolitical threats, uneven global growth, the end of quantitative easing in the US, plunging oil and iron ore prices and a debilitating debate about budget cuts in Australia.
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It stands to reason that the cheaper you buy an asset the higher its prospective return will be. However, this is frequently forgotten with investors often tempted to project recent returns into the future regardless of valuations. And there are always issues around the valuation measures themselves.
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After phasing down its quantitative easing (QE) program all year the US Fed has finally ended it. Monetary tightening still looks unlikely until mid-next year at the earliest and is contingent on further improvement in the economy and higher inflation.
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