Stewart Financial

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Australian stocks will crush housing over the next decade!!!! Housing was hideously overvalued, about 40% overvalued on estimate with Morning Star commentators. It made housing in Australia one of the most expensive assets in the world. Even more expensive than the ‘Magnificent Seven’ stocks at the time, which themselves were considered tremendously expensive yet had infinitely better growth prospects than residential property here. Because of this overvaluation, It is therefore a high probability that future returns from housing would be mediocre, in the range of 2-5% over the next decade. That was using relatively optimistic assumptions too. Conversely, Australian shares last December appeared reasonable value. They were trading largely in line with their long-term averages. Assuming average earnings growth with the then dividend yield of 4.4%, returns on shares would be in the range of 6.5-10% over the next 10 years, in my view. So far, Australian shares have crushed housing over the last 12 months. Yet, it’s early days and there’s much to play out. The fascinating part of the past year was that the gain in shares was driven entirely from an increase in valuation. Earnings for stocks were relatively flat over the period. However, the price attached to those earnings increased, with the price-to-earnings ratio (PER) rising from 17x to 22x. House prices also look stretched according to price-to-income ratios. In June, international consultants, Demographia, released its widely respected annual survey of residential property across eight countries. Its report suggested that Australia’s five major capital cities, excluding Canberra, Hobart, and Darwin, were either severely unaffordable, or impossibly unaffordable. Demographia said that Australia’s median price-to-income multiple of 9.7x was more than 2x that of the US, and almost 2x that of the UK. Morningstar maintain a forecast of housing returns of 2-5% over the 10 years from December 1, 2023. Their forecast is based off a starting net yield of 2.45%, in addition to 2.5% average rental earnings growth (compared to the 2% historical average). Assuming no change in valuations, that would give you an annual nominal return for housing of 4.95% (2.5% plus 2.45%). For shares, Morningstar's forecast annual returns are within the range of 6.5-10% for the next 10 years. Valuations have pushed the market higher, even though earnings have lagged. The market dividend yield has also come down, from 4.4% last year to 3.4% now. That makes the market less attractively valued and vulnerable to a pullback in the short term.

The latest dwelling value results from CoreLogic and Prop Track showed that the market has ground to a halt, led by Sydney and Melbourne. The weakness in the nation’s housing market is also reflected in listing volumes, which have risen on the back of old listings. I guess property does go down in Australia???

Allot of people ask what is the best super fund out there. Super is just the structure. The question is what is the best Investment, Fund, SMA or Managed Fund in your super. Allot of younger accumulation clients we help have a portion in their super that has access to gearing as you can see the returns for the ETF GEAR have been incredible this year. This is a long term strategy and returns like this are not to be expected every year. It is very important to understand that gearing can magnify gains but it can losses as well but if you have along time before retirement like 10 - 20 - 30 years it is a great strategy to add to you portfolio for the long term as you can ride out any large market swings and you are continually adding to the portfolio. If you would like to see how sensible gearing in a portfolio can work for you please reach out. (Of course this if for factual info only not advice)

Something interesting from Russell Investments that was sent late last week which gives a guide on past returns after the election. Now that Donald Trump has won the race for the presidency, defeating Vice President Kamala Harris to earn a second term in the White House. The Republican party has also won the Senate, while control of the U.S. House of Representatives remains up for grabs. As the race for control of Congress plays out, they believe investors are best served to look through any short-term volatility and stay focused on the long-term. Markets have typically trended up over the long term, regardless of the party in the White House. From this I believe markets will continue going higher the next 12 months. I do believe Property in Australia will start to pull back though over the next 12 months. Not a catch but a weel deserved pull back. As interest rates lower property prices do as well country to people belief as this is the slowing of the cycle. (But also, what would I know - ask a property spruker with a 5-day course they know the best!)

What is the Sahm rule? Note there is increasing chatter about the ‘Sahm rule’ which is an historical observation that every time the 3-month moving average of the US unemployment rate has lifted by 0.5% above its previous 12-month low, it has coincided with the beginning of a US recession – and a subsequent much larger rise in unemployment. That rule was triggered on Friday, and along with the long inverted US yield curve and earlier inflation surge is another historical recession indicator which will ultimately again be either vindicated or relegated to the dustbin of history. What the experts say - they can’t see a reason for a sudden US lurch into recession. As former RBA Governor Ian Macfarlane once observed, recessions usually arise from imbalances or shocks – and the US is not really suffering from either at present, with corporate and household balance sheets still in reasonable shape and inflation almost back to the Fed’s target level. Rather, what we may be seeing is an easing back or ‘re-normalising’ in conditions after the post-COVID pressure cooker environment of extreme labour shortages and stimulus-driven demand.

Stewart Financial Services is a leading innovator in SMSF services — bringing together services you need for your SMSF through technology built for the future. We are dedicated to providing the highest level of service for your SMSF administration, reporting, and compliance. We take the hassle out of administering your SMSF so you can focus on your investments. Our technology enables you to receive timely and intuitive information to help you make decisions about your financial future. Stewart Financial Services administration service includes: ·       Setting up a new SMSF or transferring an existing SMSFs administration ·       SMSF compliance activities, including lodgement of annual financial statements, income tax and regulatory returns. ·       Mail house and electronic document storage accessible anytime from your online dashboard ·       Support from a dedicated customer service team who specialise in SMSF’s. Fee’s ·       Set Up Cost $2,950.00 Including Investment Strategy. ·       Limited Recourse Borrowing Arrangment $1,100.00 ·       Annual Administration and Tax submission $2,500.00 ·       Audi fee $550.00 to $880.00 ·       Property Depreciation Schedule’s can be organised. ·       Liaise with Lending Specialist for loan requirement. ·       Statement of Advcie if required with banks $2,200.00 plus commision recived on isnraunce.

It is amazing what you can create in Canva in an hour. This is a flyer I have done to send through toa few referral partners. Having a large client base of retirees I want o build our business to help younger professionals and get them started on their investment journey. If you are a young professional and feel advice is not affordable or worth it feel free to reach out for a chat today. Financial Planning is actually more needed when you are young so you don't have to make drastic decisions when you get older.

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