What a year it’s been. Four years on from the global financial crisis, and we’re still dealing with its aftermath. Europe is wracked by debt problems, the US economy remains sluggish and despite the best efforts of governments around the world, the global outlook continues to be uncertain.
There are some bright spots though. Many emerging economies especially those of Asia, are experiencing strong growth. Australia is benefitting from global demand for coal and iron ore, and a massive pipeline of investment is poised to expand our resource output especially in liquid natural gas. Households have made a return to saving and we have become a lot more cautious about taking on debt.
Nonetheless, for investors the two-speed global economy is dishing up plenty of conflicting signals.
Despite the health of our economy, the Australian share market has been caught up in the wave of volatility that has rocked global stock markets. As I write in mid-November, the S&P ASX 200, which measures the performance of our largest 200 listed companies (by market capitalisation), is down by 6.35% for the year. Yet the same index rose 6.9% over the last quarter.
The housing market experienced a slowdown in 2011 but research group RP Data believes it could be turning the corner. Median values rose in September in a number of cities including Brisbane and Adelaide, and the November rate cut is likely to give buyers the confidence and financial means to return to the market.
focus on you
In uncertain times like the present it’s important for investors to choose a clear path. One of the best ways to do this is by tuning out from the day to day dramas on world markets, and focus on your personal long-term financial plan.
Stashing the bulk of your wealth into term deposits for instance, as many Australians have done this year, may seem like a sensible option today. But over time it will cost you dearly in lost capital growth and fully taxed returns.
By contrast, the shares of many leading Australian companies are now priced well below their value of a few years ago. Yet many are paying excellent (tax-friendly) dividends and have solid foundations for a bright future. Remember too, opportunities aren’t limited to Australia. Adding some global stocks to your portfolio provides valuable diversification.
The upcoming holiday season is a time to relax, celebrate and prepare for 2012. At this busy time of year it’s easy to let money matters take a back seat to festivities, but it’s worth sticking to your normal financial routine. Aim to pay a bit extra off your home loan each month – an easy way to do this is to maintain your repayments at the pre-November rate cut level. Where possible, continue to grow your investments through dollar cost averaging and use the balance of your bank account, not your credit card limit, to shape your Christmas spending.
My best wishes for a safe and merry festive season.