As we race towards 2011, it’s worth taking a look at how 2010 has panned out and laying some plans for the New Year.
Earlier in 2010, Australians were reminded about the dangers of uncontrolled debt, when the cash-strapped Greek government went cap in hand to the European Union for financial help. More recently, Ireland has taken the same path. It’s a timely warning to ease back on credit card spending over the festive season to avoid hitting 2011 burdened with high interest debt.
The strength of the Aussie dollar has made headlines in 2010 as our dollar skyrocketed from US60c to near parity in just 12 months. In the currency game there are winners and losers, and while now may be a good time to take a trip overseas, businesses that face competition from imports, or which are dependent on export markets will be feeling the pinch.
The strength of the dollar isn’t just related to our healthy economy. Australia’s official cash rate, currently 4.75%, is one of the highest in the developed world. That’s attracting plenty of interest from overseas investors but it’s also enticing Australians to save rather than spend. Rates on savings accounts are up to around 6.5% – just below the cheapest home loan rates, and that’s a great enticement to start a regular savings regime.
It’s quite a different picture on the sharemarket, which has swung from highs and lows to deliver a year to date total return of around just 2%. Ironically, many of our leading companies are in better shape than they were prior to the GFC, and taking a long term approach to shares is the key to reaping the rewards of a healthier corporate sector.
The real star of investment markets in 2010 has been emerging market shares.
The MSCI Emerging Markets Index shows a return of over 15% for the year to mid-December, making emerging markets an appealing investment. Plenty of managed funds focus on emerging markets but be warned, this is a notoriously volatile asset class. As a guide, the 3-year return on emerging market shares is -2.7%, so again, plan to invest for the long term.
In mid-2010 the Cooper Review suggested a number of changes to our super system including the creation of MySuper – a default option for workers who don’t nominate their own fund.
MySuper is a good idea however I firmly believe that superannuation is an asset worth taking an interest in. Australians collectively have $1.2 trillion invested in super – money that will fund our retirement, and it makes more sense to keep track of your nest egg than waive it away to a default option. If you don’t have a clear idea of where your super is, use the Tax Office’s online Super Seeker function at www.ato.gov.au to hunt down any lost super.
Over the next few weeks Australians will be bundying off from work and sharing time with family and friends. If you have a few spare minutes it’s worth giving your personal finances a quick review. It could pay dividends as you head into 2011. In the meantime, I’d like to take this opportunity to wish you and your family all the best for a safe festive season and a prosperous New Year.