Aspirations Insights: July 2024

AW constantly monitors the investment markets and aims to keep our valued clients regularly informed and updated. We aim to help investors cut through all the media noise and hype and understand what is really driving investment markets and portfolio returns.

In this edition, we cover:

  • What are franking credits?
  • How does AW use franking credits in client portfolios?
  • Immigration – driving house prices up?

What are franking credits?

A franked dividend is when a company pays dividends to investors with after-tax income. This means that the company has already paid tax on that income. When they do this, the investor receives a tax credit.

At tax time, investors only need to pay tax on the dividend if their marginal tax rate is higher than the company’s tax rate (normally 30%). If the investor’s marginal tax rate is lower, they may be able to claim a refund of the tax.

The purpose of franking credits is to prevent double taxation, where the same income is taxed both at the company level and again as personal income when received as dividends. 

Franking credits are a unique element of the dividends paid to investors who own Australian share investments. 

How does AW use franking credits in client portfolios?

AW utilises franking credits to maximise the tax efficiency of the portfolio and enhance the income being received across superannuation, pension and investment portfolios.

Superannuation Portfolios: Within the superannuation phase, dividends and earnings are taxed at a rate of 15%. Franking credits offset this 15% tax, reducing the overall tax liability. This reduction allows the tax savings to be reinvested, enhancing the growth of the superannuation portfolio.

Pension Portfolios: Within the pension phase, dividends and earnings are tax-free, allowing franking credits to be refunded to the investor at the full rate. This provides an additional source of income, boosting the overall returns from the pension portfolio and enhances the stability and sustainability of your retirement income.

Investment Portfolios: Within investment portfolios, dividends and earnings are subject to the investor’s marginal tax rate. If the investor’s marginal tax rate is higher than the company’s tax rate (normally 30%), tax will need to be paid on the dividend. However, if the investor’s marginal tax rate is lower, they may qualify for a tax refund. Thus, franking credits play a crucial role in optimising tax outcomes for investors.  

Immigration – driving house prices up?

Australia is a popular destination for people looking for a better lifestyle, a promising economic future, advanced healthcare and a welcoming community. Every year, a large population of international students and skilled workers visit Australia to live, work, or study in the country. Simultaneously, many Australian residents also travel abroad for various purposes. 

In recent years, there has been a notable increase in immigration to Australia compared to emigration (moving abroad), altering the country’s demographic landscape and affecting the balance between incoming and outgoing migrants. This demographic shift has contributed to rising house prices and rents.

The current challenge in Australia is the insufficient number of building approvals to keep pace with the rising immigration rates. The chart below depicts the disparity between building approvals and population growth in Australia. Population growth has surged while building approvals have not kept pace. This mismatch is a significant factor driving both house prices and rents.

The chart below illustrates the growth of house prices in various Australian capitals throughout 2023.

______________________________________________________________________________________

Any advice contained in this insight/update is general advice only and does not take into consideration the reader’s personal circumstances. To avoid making a decision not appropriate to you, the content should not be relied upon or act as a substitute for receiving financial advice suitable to your circumstances. When considering a financial product please consider the Product Disclosure Statement. Aspirations Wealth Group is a Corporate Authorised Representative of Aspirations Private Wealth Pty Limited. ABN 57 622 182 076 – AFSL 503889.

Aspirations Insights: June 2024

AW constantly monitors the investment markets and aims to keep our valued clients regularly informed and updated. We aim to help investors cut through all the media noise and hype and understand what is really driving investment markets and portfolio returns.

In this edition, we cover:

  • Key Super Changes from 1 July 2024
  • Aspirations Wealth’s Support for Women and Families Fleeing Domestic Violence

Key Super Changes from 1 July 2024

Employer Super Guarantee (SG) Contributions:

Your employer will contribute more towards your super. If you’re a PAYG employee, your compulsory super guarantee (SG) payment will increase by half a percentage point to 11.5%.

Superannuation Contribution Caps:

There are annual caps – or limits – on how much money you can contribute towards super, both in terms of pre-tax ‘concessional’ contributions and after-tax ‘non-concessional’ contributions. Both these caps are going up, so if you have any spare funds, you’ll be able to move more of your money into super’s low-tax environment.

  • The concessional cap is increasing from $27,500 to $30,000 a year.
  • The non-concessional cap is increasing from $110,000 to $120,000 a year.

Personal Income Tax Cuts:

The Government’s long-awaited ‘stage 3’ tax cuts are coming into effect on 1 July 2024. While there have been well-publicised changes – lower income earners will receive a higher cut than originally proposed, while higher income earners will receive a lower cut – the bottom line is that all personal income taxpayers will pay less tax.

Minimum Pension Payment Drawdowns:

Depending on your age, there is a minimum amount you must withdraw as a pension payment from a super account-based pension each financial year.

As a reminder, these minimum pension payments are:

Aspirations Wealth’s Support for Women and Families Fleeing Domestic Violence

In 2022, following a move to Brisbane, our former paraplanner and compliance manager – Anne joined Peggy’s Place, a non-profit refuge for women and children transitioning from domestic violence crisis situations to independent living.

Peggy’s Place offers secure communal living, essential support services, and activities to help residents rebuild their lives and regain self-sufficiency. Alarmingly, over 9,000 women flee violent partners annually in Australia, often facing financial difficulties and a lack of immediate financial counseling.

Given the lack of financial counselling, Aspirations Wealth has agreed to sponsor Anne to undertake the approved Financial Counselling Course to provide Financial Counselling to women fleeing domestic and family violence.

Please click on this secure link to read more.

______________________________________________________________________________________

Any advice contained in this insight/update is general advice only and does not take into consideration the reader’s personal circumstances. To avoid making a decision not appropriate to you, the content should not be relied upon or act as a substitute for receiving financial advice suitable to your circumstances. When considering a financial product please consider the Product Disclosure Statement. Aspirations Wealth Group is a Corporate Authorised Representative of Aspirations Private Wealth Pty Limited. ABN 57 622 182 076 – AFSL 503889.

Aspirations A to Z Investment Terms

– A –

Annualized rate of return – The average annual return over a period of years, taking into account the effect of compounding. It can be called compound growth rate.

Asset allocation – The process of dividing investments among cash, income and growth buckets to optimize the balance between risk and reward based on investment needs.


– B –

Benchmark – A standard, usually an unmanaged index, used for comparative purposes in assessing performance of a portfolio or mutual fund.

Blue chip – A high-quality, relatively low-risk investment; the term usually refers to stocks of large, well-established companies that have performed well over a long period. The term ‘blue chip’ is borrowed from poker, where the blue chips are the most valuable.


– C –

Capitalization – The market value of a company, calculated by multiplying the number of shares outstanding by the price per share.


– D –

Diversification – The process of owning different investments that tend to perform well at different times in order to reduce the effects of volatility in a portfolio, and also increase the potential for increasing returns.

Dividend – A dividend is a portion of a company’s profit paid to common and preferred shareholders. Dividends provide an incentive to own stock in stable companies even if they are not experiencing much growth. Companies are not required to pay dividends.


– E –

Equities – Shares issued by a company which represent ownership in it. Ownership of property, usually in the form of common stocks, as distinguished from fixed-income securities such as bonds or mortgages. Stock funds may vary depending on the fund’s investment objective.


– F –

Fixed income fund – A fund or portfolio where bonds are primarily purchased as investments. There is no fixed maturity date and no repayment guarantee.


– G –

Growth investing – Investment strategy that focuses on stocks of companies and stock funds where earnings are growing rapidly and are expected to continue growing.


– I –

Index – An investment index tracks the performance of many investments as a way of measuring the overall performance of a particular investment type or category. The S&P 500 is widely considered the benchmark for large-stock investors. It tracks the performance of 500 large U.S. company stocks.

Inflation – A rise in the prices of goods and services, often equated with loss of purchasing power.

Interest rate – The fixed amount of money that an issuer agrees to pay the bondholders. It is most often a percentage of the face value of the bond. Interest rates constitute one of the self-regulating mechanisms of the market, falling in response to economic weakness and rising on strength.


– J –

Junk bond – A lower-rated, usually higher-yielding bond, with a credit rating of BB or lower.


– L –

Liquidity – The ability to have ready access to invested money. Mutual funds are liquid because their shares can be redeemed for current value (which may be more or less than the original cost) on any business day.


– M –

Market price – The current price of an asset.

Maturity – The date specified in a note or bond on which the debt is due and payable.


– N –

Net Asset Value per share (NAV) – The current dollar value of a single mutual fund share; also known as share price. The fund’s NAV is calculated daily by taking the fund’s total assets, subtracting the fund’s liabilities, and dividing by the number of shares outstanding. The NAV does not include the sales charge. The process of calculating the NAV is called pricing.


– P –

Portfolio – A collection of investments owned by one organization or individual, and managed as a collective whole with specific investment goals in mind.

Price-to-earnings (P/E) Ratio – A stock’s price divided by its earnings per share, which indicates how much investors are paying for a company’s earning power.


– Q –

Quality distribution – The breakdown of a portfolio’s assets based on quality rating of the investments.


– R –

Ratings – Evaluations of the credit quality of bonds usually made by independent rating services. Ratings generally measure the probability of timely repayment of principal and interest on debt securities.

Recession – A downturn in economic activity, defined by many economists as at least two consecutive quarters of decline in a country’s gross domestic product.

Risk tolerance – The degree to which you can tolerate volatility in your investment values.


– S –

Sector – A group of similar securities, such as equities in a specific industry.

Securities – Another name for investments such as stocks or bonds. The name ‘securities’ comes from the documents that certify an investor’s ownership of particular stocks or bonds.


– T –

Time horizon – The amount of time that you expect to stay invested in an asset or security.


-U-

United Nations-Supported Principles for Responsible Investment (PRI) – An official network of investors that works to promote sustainable investment through the incorporation of environmental, social and governance factors.


– V –

Valuation – An estimate of the value or worth of a company; the price investors assign to an individual stock.

Value investing – A strategy whereby investors purchase equity securities that they believe are selling below estimated true value. The investor can profit by buying these securities then selling them once they appreciate to their real value.

Volatility – The amount and frequency with which an investment fluctuates in value.


– W –

Weighted average market cap – Most indexes are constructed by weighting the market capitalization of each stock on the index. In such an index, larger companies account for a greater portion of the index. An example is the S&P 500 Index.


– Y –

Yield – Annual percentage rate of return on capital. The dividend or interest paid by a company expressed as a percentage of the current price.


– Z –

Zoo – Great place to take the kids to learn about animals… hahaha


Aspirations Insights: April 2024

AW constantly monitors the investment markets and aims to keep our valued clients regularly informed and updated. We aim to help investors cut through all the media noise and hype and understand what is really driving investment markets and portfolio returns.

In this edition, we cover:

  • The A to Z of investment terms.
  • What is Artificial Intelligence (AI)?

A to Z of Investment Terms.

Becoming a successful investor means getting your head around some commonly used investment terms. We’re here to help with this A-Z glossary. 

Please click on this secure link to the Aspirations A to Z of investment terms

What is Artificial Intelligence (AI)?

Recent years have seen remarkable advances in the world of Artificial Intelligence (AI), the much-hyped technology that has exploded onto the global public consciousness. Propelled by the momentous rise of Open AI’s ChatGPT as the world’s most talked about new tech since Google, AI is being hailed as the disruptor of virtually every industry from information technology and finance to healthcare and transport.

AI is a machine’s ability to perform the cognitive functions we associate with human minds, such as perceiving, reasoning, learning, interacting with the environment, problem-solving, and even exercising creativity. You’ve probably interacted with AI even if you don’t realise it—voice assistants like Siri and Alexa are founded on AI technology, as are some customer service chatbots that pop up to help you navigate websites.

AI applied to real-world problems has serious implications for the business world. By using artificial intelligence, companies have the potential to make business’ more efficient and profitable. But ultimately, the value of AI isn’t in the systems themselves. Rather, it’s in how companies use these systems to assist humans and their ability to explain to shareholders and the public what these systems do in a way that builds trust and confidence.

In your portfolio you own a number of investments that benefit from AI. Such as: Microsoft, NVIDIA, Google and Amazon.

The following image shows the potential applications of AI in various business sectors:

______________________________________________________________________________________

Any advice contained in this insight/update is general advice only and does not take into consideration the reader’s personal circumstances. To avoid making a decision not appropriate to you, the content should not be relied upon or act as a substitute for receiving financial advice suitable to your circumstances. When considering a financial product please consider the Product Disclosure Statement. Aspirations Wealth Group is a Corporate Authorised Representative of Aspirations Private Wealth Pty Limited. ABN 57 622 182 076 – AFSL 503889.

Aspirations Insights: March 2024

AW constantly monitors the investment markets and aims to keep our valued clients regularly informed and updated. We aim to help investors cut through all the media noise and hype and understand what is really driving investment markets and portfolio returns.

In this edition, Michael Barker from Aspirations Wealth and Leigh Cronin from Evidentia Group discuss:

  • Evidentia Group and how they help Aspirations Wealth.
  • Leigh’s role at Evidentia Group.
  • Investment process and how we select stocks for our clients.
  • View on Australian markets: 2023 summary & 2024 outlook.
  • View on interest rates.
  • Should we be worried about markets hitting all-time highs?

______________________________________________________________________________________

Any advice contained in this insight/update is general advice only and does not take into consideration the reader’s personal circumstances. To avoid making a decision not appropriate to you, the content should not be relied upon or act as a substitute for receiving financial advice suitable to your circumstances. When considering a financial product please consider the Product Disclosure Statement. Aspirations Wealth Group is a Corporate Authorised Representative of Aspirations Private Wealth Pty Limited. ABN 57 622 182 076 – AFSL 503889.

Aspirations Insights: February 2024

AW constantly monitors the investment markets and aims to keep our valued clients regularly informed and updated. We aim to help investors cut through all the media noise and hype and understand what is really driving investment markets and portfolio returns.

In this edition we cover: 

  • Interest rates cuts for 2024?
  • The pitfalls of term deposits!
  • What will happen to share markets if Trump wins USA election?

Interest rates cuts for 2024?

It’s likely that 2024 will mark the commencement of interest rate reductions across most parts of the world. Inflation is moving back towards the target and unemployment is showing signs of easing. We believe that it is now the right time for diversified investors to plan their portfolios for a declining interest rate cycle.

For context, in the United States, the markets have factored in an approximate 1.5% reduction in interest rates over a span of a few years, with Australia anticipating about half of that. This poses a challenge for investors holding substantial amounts in cash or term deposits. On a positive note, interest rate cuts are expected to benefit the economy, influencing both the stock market and providing favourable conditions for bond investors.  

The pitfalls of term deposits!

Consider two couples with a $1 Million nest egg each at the start of retirement. Their goal is to sustain an annual income of $50,000 throughout a 30-year retirement.

Option 1: Investing in a term deposit, with the bank offering a 5% term deposit for a 1-year term, anticipating a decline in rates in the coming years. This choice ensures a steady $50,000 income with no market volatility.

Option 2: A diversified, 75% growth portfolio, comprising of both bonds and shares, with the objective of achieving a 7% long-term return after factoring in costs.

Option 2 is the winner and superior choice! With its’ strategic approach, it emerges as the key to a truly great retirement, providing not only flexibility and enhanced outcomes but also the potential for leaving an inheritance for the next generation.

What will happen to share markets if trump wins USA election?

Investors are already planning out for the potential impacts of the upcoming 2024 USA presidential election, scheduled for November, on the share markets.

The competition between former President Donald Trump and Democratic President Joe Biden is anticipated to be closely contested, likely hinging on narrow margins in key battleground states.

Both ageing candidates, however, come with their challenges. Notable policy distinctions exist, particularly in key areas:

Taxes: Biden aims to increase taxes on wealthy individuals and certain corporations, framing it as an effort to introduce fairness to the tax code. In contrast, Trump is positioned to maintain or deepen tax cuts, viewing them as catalysts for economic growth.

Trade: While Biden’s campaign has not explicitly outlined a second-term trade policy, his administration has taken an assertive stance against some adversarial countries, such as China, while securing trade deals with others. Trump, on the other hand, intends to intensify the confrontational trade policy from his initial term, proposing to impose tariffs on a majority of imported goods.

Jobs: Trump’s campaign portrays its tariff policy as a safeguard for U.S. businesses, fostering a robust job market and reinforcing the domestic supply chain. In contrast, the Biden administration has implemented federal legislation designed to attract investment to U.S. companies, consequently increasing the demand for workers.

The chart below shows the returns from the USA share market (S&P500) over the past 4 presidents.

Aspirations Wealth remains undeterred by external distractions and noise, instead we choose to stay focused on the primary objectives.  We firmly believe factors such as the Federal Reserve interest rate policy, the economic cycle and corporate earnings will ultimately hold greater significance in shaping the share markets.

______________________________________________________________________________________

Any advice contained in this insight/update is general advice only and does not take into consideration the reader’s personal circumstances. To avoid making a decision not appropriate to you, the content should not be relied upon or act as a substitute for receiving financial advice suitable to your circumstances. When considering a financial product please consider the Product Disclosure Statement. Aspirations Wealth Group is a Corporate Authorised Representative of Aspirations Private Wealth Pty Limited. ABN 57 622 182 076 – AFSL 503889.

Aspirations Insights: January 2024

AW constantly monitors the investment markets and aims to keep our valued clients regularly informed and updated. We aim to help investors cut through all the media noise and hype and understand what is really driving investment markets and portfolio returns.

In this edition we cover: 

  • 2023 Market Returns  
  • Investment Themes to Watch
  • The Year of Elections  

2022 VS 2023 Market Returns

The table below shows the returns comparing calendar year 2022 to 2023. The good news was spread across all major asset classes in the 2023 year.

Markets rallied in December to finish the year off strongly. Whilst last year we faced fears of rising inflation and rising interest rates leading to expectations of a recession, the markets are now eyeing the prospects moderating inflation, falling rates and moderate growth. The S&P500 has recovered back close to its’ all-time record highs.

We still face a scenario that inflation around the world remains higher for longer which may put the “Soft Landing” outcome at risk. If this occurs, shares could experience a pullback.

Investment Themes to Watch

Ongoing themes for investors are likely to include:

  • The rapid development of AI and other transformative technologies
  • Innovations in healthcare and pharmaceuticals
  • Renewable energy to support global emission targets
  • Lithium and other components in batteries to power EV’s
  • Increased awareness of the need for cybersecurity technology

If the last few years have taught us anything, it’s to expect the unexpected. One thing we can predict with some certainty is that market volatility and uncertainty are likely to persist in 2024, and that investors with a diversified portfolio tailored to their needs, who maintain a long-term focus and stay the course, are likely to weather whatever conditions come their way.

The Year of Elections (Biggest in History)

In 2024, we will see more than 70 elections in countries covering 4.2 billion people (approximately 50% of the world’s population). While many of these elections will be routine, we have seen the rise of fringe parties cause upsets or instability in power, and therefore some of the elections will have an effect on investment markets.

Here are the major elections to watch this year:  

Taiwan: The incumbent Democratic Progressive Party was re-elected last week defeating the pro Chinese opposition Kuomintang party. China has already voiced its displeasure at the US congratulating the elected President and the world awaits for more retaliatory actions from Beijing.

India: In the spring of 2014, Bharatiya Janata Party (BJP) leader Narendra Modi was sworn in as India’s 14th prime minister. A decade later, he appears poised to win a third straight term in office in what will be history’s largest-ever democratic exercise: 900 million people voters will choose their next government.

Mexico: They are gearing up for its’ largest-ever election on June 2 that could see it elect a woman as its president for the first time. Mexico has a population of about 129 million and approximately 96 million registered voters.

USA: On November 5, the USA will vote for its’ president, all seats in the House of Representatives and a third of the seats in the Senate. The presidential race this year seems to be reminiscent of 2020, where Democrat Joe Biden, who is the current president, faced off against Republican Donald Trump, whom he defeated four years ago.

Indonesia and Pakistan: The world’s fourth and fifth-most populous countries, respectively, will hold general elections in February with Jakarta looking for a new leader as President Joko Widodo is ineligible for a third term, while Islamabad hopes to emerge from a constitutional crisis that led to the ouster and imprisonment of former Prime Minister Imran Khan.

FYI: Australia does not hold a Federal election until May 2025.

______________________________________________________________________________________

Any advice contained in this insight/update is general advice only and does not take into consideration the reader’s personal circumstances. To avoid making a decision not appropriate to you, the content should not be relied upon or act as a substitute for receiving financial advice suitable to your circumstances. When considering a financial product please consider the Product Disclosure Statement. Aspirations Wealth Group is a Corporate Authorised Representative of Aspirations Private Wealth Pty Limited. ABN 57 622 182 076 – AFSL 503889.

Aspirations Insights: December 2023

Welcome to the last edition of the Aspirations Wealth (AW) Insights for 2023. AW constantly monitors the investment markets and aims to keep our valued clients regularly informed and updated. We aim to help investors cut through all the media noise and hype and understand what is really driving investment markets and portfolio returns.

In this edition we cover: 

  • Outlook for 2024
  • The cash conundrum
  • The risk trade off

Outlook for 2024

Looking ahead to 2024, global growth has been more resilient than anticipated over 2023, with inflation falling in most major economies. While the risk of a global recession has moderated this year, we do still expect economic growth to slow in early 2024 as the full impact of the rising interest rates is felt around the world. However, falling inflation could allow USA central bank to ease rates as the year progresses, setting the global economy up for a good recovery mid to late 2024. Shares and property would benefit from rate cuts.

As we head into 2024, AW see good options for portfolios: bond yields are high, equity valuations are fair, private markets continue to offer good results, while also becoming more accessible to investors. Even cash doesn’t look so bad. After negative share market returns in 2022, sideways moving share markets in 2023, we look forward to rising share markets in 2024 and 2025.  

Cash conundrum

At a 5% yield, cash can’t be ignored. But, it doesn’t tend to work best in the environment we see moving forward. Cash works pretty well when central banks have to hike more than expected and when inflation expectations are moving higher – as we saw over the last two years. But today, few are still debating whether the USA Federal Reserve will hike another time. The focus, rather, has decidedly shifted to when – and by how much – the USA Fed will cut rates next year.

Consider this, the market is pricing in a 60% chance of the USA Fed cutting rates by March…and a 100% chance that it does so by May. In all, investors think we’ll see 1.25% worth of cuts by December. This might be a bit too optimistic, but one thing is still clear: rates are headed lower. At the same time, earnings growth expectations on shares are improving and risk sentiment is recovering. This means cash comes at a greater cost in this next stage of the cycle. Be clear on how cash fits into your goal-aligned wealth plan.

Risk Return

The amount of risk you take in your portfolio will determine your return. Cash is a less volatile investment vs shares, on the other hand, will have periods of above average returns and periods when they fall in value. This trade-off between risk and return is not just theoretical, it is possible to observe it in real life. 

Let’s consider 3 different portfolios:

A) 100% cash

B) 50% cash and 50% shares (a balanced-style portfolio)

C) 100% shares

By looking at these 3 portfolios where the cash rate is 4%, and the return from shares varies from 12% (good year) to 8% (average year) and -10% (poor year), we can see the way returns are linked to the amount of risk, in this case exposure to shares, taken on by the portfolio.

______________________________________________________________________________________

Any advice contained in this insight/update is general advice only and does not take into consideration the reader’s personal circumstances. To avoid making a decision not appropriate to you, the content should not be relied upon or act as a substitute for receiving financial advice suitable to your circumstances. When considering a financial product please consider the Product Disclosure Statement. Aspirations Wealth Group is a Corporate Authorised Representative of Aspirations Private Wealth Pty Limited. ABN 57 622 182 076 – AFSL 503889.

Aspirations Insights: November 2023

Welcome to the November edition of the Aspirations Wealth (AW) Insights. AW constantly monitors the investment markets and aims to keep our valued clients regularly informed and updated.

In this AW Insights edition we cover:

  • Interest rate increase 
  • Investment market returns 
  • GLP-1 weight loss drugs

RBA increases cash rate from 4.10% to 4.35% 

The pause in interest rates over the last four months came to an end on Melbourne Cup Day with the RBA raising rates by 0.25% (the 13th increase in 18 months). 

Inflation remains stubbornly high at around 5.5% and is still well above what the RBA targets (which is an inflation rate of between 2-3%).

Following comments from the RBA Governor about the risk of inflation staying higher for longer, the markets are now pricing in the possibility of a further rate hike in February 2024. Any expected cuts to interest rates have now been pushed back to late 2024.

So why is high inflation so much of a concern? These comments from the Governor sums up the situation well…“High inflation makes life difficult for everyone and damages the functioning of the economy. It erodes the value of savings, hurts household budgets, makes it harder for businesses to plan and invest, and worsens income inequality.”

Investment market returns 

In stark contrast to the past three months, where shares were negative, November started with its’ best week of the year for shares (up 5%). November and December have historically been two of the better months for shares.

The US central bank held their interest rates steady earlier this month and didn’t raise rates. The markets saw this as a signal that the interest rate raising cycle in the US was near the peak which is positive for shares.

GLP-1 weight loss drug

Glucagon Like Peptide 1 (or more commonly called GLP-1) drugs were initially approved to treat diabetes. A side effect of the drug was it made people feel full and not want to eat. These drugs are now being hailed as a miracle treatment for weight loss. Hollywood celebrities promoted it and now countries are running out of it.

Popular GLP-1 drugs include Eli Lilly’s Mounjaro and Novo Nordisk’s Ozempic and Wegovy, the latter of which has been approved by the Food and Drug Administration for weight loss management.

The potential growth in this drug segment is phenomenal.

Currently only 40 million people in the U.S. have access to these medicines through their insurance plans (reimbursements) however there is an estimated 110 million people in the US living with obesity. According to the World Health Organization estimates, more than 750 million people in the world are living with obesity, which causes 5% of deaths globally.

Analysts estimate sales of these medicines will exceed $56 billion in 2030.

FYI: Eli Lilly is a share holding in your portfolio.

______________________________________________________________________________________

Any advice contained in this insight/update is general advice only and does not take into consideration the reader’s personal circumstances. To avoid making a decision not appropriate to you, the content should not be relied upon or act as a substitute for receiving financial advice suitable to your circumstances. When considering a financial product please consider the Product Disclosure Statement. Aspirations Wealth Group is a Corporate Authorised Representative of Aspirations Private Wealth Pty Limited. ABN 57 622 182 076 – AFSL 503889.

Aspirations Insights: October 2023

Welcome to the ninth edition of the Aspirations Wealth (AW) Insights for 2023. AW constantly monitors the investment markets and aims to keep our valued clients regularly informed and updated.

In this AW Insights edition we cover:

  • Interest rate outlook
  • Third quarter (Q3) share market update

RBA leaves cash rate on hold at 4.10% for the fourth month in a row

The pause in interest rates over the last four months comes after the biggest interest rate hiking cycle (4% over 14 months) since the late 1980s which preceded the early 1990s recession. The rise in interest rates has taken mortgage rates back to levels last seen in 2011.

The possibility of one more interest rate hike is still high particularly with sticky inflation. Economists seem to be split roughly 50/50 as to whether there will be another rate hike or not and our assessment is that the probability is around 50%. Continuing to raise interest rates will only add to the already very high risk of unnecessarily knocking the economy into recession. At the very least the economy is likely to have slowed substantially by early next year with unemployment starting to rise faster than the RBA is allowing for. Based on a cash rate of 4.10%, we would say rates are very close to the high we will see during this part of the economic cycle, however we also don’t see rate cuts coming any time soon.

Q3 Share market update

After rising in July, shares fell in value during August and September – see chart below showing world share market returns for past quarter.

With the trajectory of the world economy hanging in the balance, shares fell in value during this quarter. Many investors have concerns about the current economic environment. While inflation is falling, investors understand that interest rates are likely to stay higher for longer than expected, which usually puts pressure on shares. AW think there are good reasons to stay actively invested in quality shares however with one eye on the lingering risks.

Over much of this year, fears about recession have gradually faded, at least in the US, and rising confidence that inflation has peaked has supported a reasonable rally in shares (until recently). 

The performance of share markets this year has been better than in most economic downturns. Markets have been pricing in a soft landing, a peak in interest rates and the re-emergence of technology deflationary forces on the back of the Artificial Intelligence phenomena. However, a resurgence in oil prices, stickier inflation, and stronger economic data, predominantly in the US, has raised the risk that interest rates will need to stay higher for longer. High interest rates should result in weaker growth and lower inflation, this will likely lead to higher share market volatility and shorter sharper market cycles.

AW are ready to buy more quality shares if the market weakens further and happy to own bonds paying high interest as well (i.e. hold a good diversified portfolio).  In this current environment, we believe it is important to dial down the noise, take a medium to longer-term perspective, and remain focused on quality.  

______________________________________________________________________________________

Any advice contained in this insight/update is general advice only and does not take into consideration the reader’s personal circumstances. To avoid making a decision not appropriate to you, the content should not be relied upon or act as a substitute for receiving financial advice suitable to your circumstances. When considering a financial product please consider the Product Disclosure Statement. Aspirations Wealth Group is a Corporate Authorised Representative of Aspirations Private Wealth Pty Limited. ABN 57 622 182 076 – AFSL 503889.