All Good Things....
Despite the trials of the past year, life has been pretty good in Australia over recent decades.
Homeowners have seen prices rise while mortgage rates drop. Stock market investors have enjoyed a steady and growing dividend stream, coupled with some incredible returns from the sale of public assets.
Consider CSL. Sold by the government at $2.30 per share in 1994, it traded over $300 per share last year – and that’s after a stock split.
If you bought in the float ( and still hold), you’ve basically made over 400 times your money in
It’s even better in bitcoin. In less than a decade you could have turned $1000 into more than a billion! Don’t you wish you listened to those tech nerds now!!
Even if you had all your money in bonds for the last 20 years you would have had outsized returns.
In short, it hasn’t really mattered where you invested your money – bonds, gold, stocks or property , you would have done well.
But every run eventually comes to an end and in investment markets, the end is usually more of a bang than a whimper.
Years of accumulated wealth can disappear overnight as prices fall.
Financial experts differ on what the future holds but there are some clear markers that every investor needs to consider.
Interest rates are at 5000 year lows. That allows people to borrow very cheaply, which means they will accept lower returns, which in turn props up asset prices.
There are even negative interest rates which means people are lending money to governments for 10, 20, 30, 50 or even 100 years and some of them expect to get less back in return. That’s plain crazy.
Governments around the world are also printing money which eventually has to find a home somewhere. It’s no good leaving it in the bank because there is no real return. That means a lot of that money flows into investments which is pushing almost all prices higher.
The entire world– government, business and consumers - is awash in a sea of debt. It’s as close to a perpetual borrowing binge as we’ve ever seen but the hard truth is that all debts have to be repaid eventually.
They are either paid by the borrower, defaulted on ( which means the lender pays, or it’s eroded by inflation.
And that’s what governments are currently desperate to do. Create inflation.
But that means interest rates will rise, making repayments higher, which may change asset valuation causing your investments to fall in price.
It’s a catch 22 in the perfect financial storm, and most Australians won’t even see it coming.