Sitting in cash? Here's what you've missed

What you may have missed in 2024 and what you can't afford to miss in 2025, according to two financial advisers.
Hans Lee

Livewire Markets

The S&P 500 is sitting at record highs just one month out from the end of the Australian financial year. If you predicted that 12 months ago, I probably would have said you were either CNBC's favourite perma-bull Tom Lee, or were simply betting on too many things going right. 

Nonetheless, here we are. 14 of the world's 20 largest equity markets are at or near all-time highs, including our very own S&P/ASX 200. In fact, if you took your money out of cash and were invested in most asset classes, this year was a very good year to be invested in. That's even though central banks kept interest rates elevated, the grind to get inflation down to target has slowed down, and two major ongoing global conflicts. 

This is a strong argument for the idea that you should always be fully (or at least close to) invested. 

But if you haven't started investing or still feel too risk-averse to move significant piles of cash, then what can you do? 

In this wire, I crunch the data on what you may have missed in FY23/24 and speak to two financial advisers - Ben Nash from Pivot Wealth and Sarah King from Stockspot, to get their sense of the big themes and their best investable ideas for FY24/25.

What You Missed - FY24 Edition

Before we look ahead to next year, we must look back at the past year. And while past performance is no guarantee of future performance, it's also true that markets don't magically reset to zero as soon as July 1st rocks up. So if you were stuck in cash all year long, this is what you missed:

Asset Class

Jul 1 2023

May 22 2024

Return (%)

Cash

$1,000

$1,052.50 5.25%

Australian stocks

$1,000

$1,144.60 14.46%

Global stocks

$1,000

$1194.90 19.49%

Australian bonds

$1,000

$1,021.70 2.17%

Global bonds

$1,000

$1,007.60 0.76%

Commodities

$1,000

$1,053.20 5.32%

Alternatives

$1,000

$1,106 10.60%

Data and Sources: 'Australian Stocks' is S&P/ASX 200, 'Global Stocks' is MSCI World Ex-Australia Index, 'Bonds' and 'Commodities' data supplied by Bloomberg, 'Alternatives' data is based on the performance of the SPDR SSGA Multi-Asset Real Return ETF. Most data is in Australian dollars (except for the Global Bonds category) and is the total return year-to-date as of Wednesday 22 May 2024. Data compiled by Capital.com’s Kyle Rodda. Past performance is not an indicator of future performance. Always consult an investment professional before making any decisions.

Ben Nash, Pivot Wealth and Sarah King, Stockspot
Ben Nash, Pivot Wealth and Sarah King, Stockspot

What is one lesson you are taking away as an adviser from FY 23/24?

Nash: My big lesson is the fact that investors shouldn’t give too much weight to the story that the world is going to end and markets are going to crash, which has been a consistent commentary theme on markets since COVID - especially while the markets have continued to perform strongly. 

It’s natural for investors to be fearful, but this fear can be paralysing, and as you can see from these results, sitting on the sidelines means you’re missing out on the big opportunity to get ahead.

King: The importance of blocking out a lot of the noise in the media, particularly around short-term changes in interest rates and inflation, so clients can stay focussed on their medium and long-term goals. Understandably, a lot of this noise leads to short-term thinking, which tempts clients to deviate from their medium and longer-term goals, for example switching to cash or savings (chasing higher savings rates), when we know that investing in a well-diversified portfolio will outperform money in savings in the long run.

Undoubtedly, cost of living pressures have had a big impact on household budgets, reducing the ability of many households to save and invest the same amount they were in prior years. It stresses the need for clients to have a very healthy savings buffer, so they feel comfortable and confident to stay invested during more challenging economic times, and stay on track to reach their goals.

What is one theme that investors can’t afford to miss in FY 24/25?

Nash: The theme for investors to keep in mind over the next year and the years ahead is that cash is effectively going backwards after inflation and taxes. No one is going to get ahead, let alone build real wealth without investing cash into growth investments. Risk management is important, and markets will continue to be volatile, but ultimately growth investments are the best way to get ahead.

King: Being well (and properly) diversified, which is owning a mix of investments that aren’t all positively correlated with each other. In times when sectors like Tech and AI are booming, the less loved, ‘boring’ defensive assets like bonds and gold can be overlooked. But look at what’s happening now, gold has just reached a new all-time high and continues to provide that downside protection in client portfolios - ‘it’s the umbrella you want before it rains’.

Tell us about 3 assets you are investing in on behalf of clients ahead of FY 24/25. 

Nash: The three main investments we are helping our clients with at the moment are the Australian index ((ASX: VAS) and (ASX: GEAR) are two of his favourites), the US index ((ASX: IVV) and (ASX: GGUS) are two of his favourites), and residential property. 

Given the significant changes in sector performance from year to year over the last half-decade, and the unpredictability of these trends, using the index ensures clients are always getting a reasonable level of exposure to the best-performing investments. 

Residential property continues to be a winning strategy due to the power of leverage and strong property market performance, and the property supply shortage suggests this will continue in the years and years ahead.

Typically, premium properties within 10 kilometres of Sydney, Melbourne, and Brisbane CBD are worth a look. We focus on quality properties and buy and hold for the long term, as opposed to chasing hotspots or quick returns.

King: Our portfolios cover 5 key asset classes and we use a single ETF to cover each asset class. This keeps costs low and allows clients to easily access Australian and global share markets, plus other important portfolio diversifiers like bonds and gold.

Global X Physical Gold ETF (ASX: GOLD)

We allocate 14.8% of client portfolios to gold. Gold is an excellent portfolio diversifier and acts as a safe haven in times of volatility, we will continue to have a larger exposure, which has served our clients well during the COVID-19 share market fall, the fall in share and bond markets in 2021 and 2022 and even in recent months with gold reaching a new all-time high. According to the World Gold Council, gold has returned an average of 9% p.a. which is higher than many people expect.

Vanguard Australian Shares Index ETF (ASX: VAS)

Exposure to Australia’s top 300 companies on a market capitalisation basis, with access to fully and partially franked dividends. Australian shares have been a consistent source of returns over the past decade (earning around 10% p.a.), with less risk than global share markets.

iShares Global Developed Shares ETF (ASX: IOO)

This allows clients to get exposure to the top 100 companies in global developed share markets, including the big tech companies, which we know are running hot right now but if that changes, there’s exposure to other sectors and countries as well.


........
Livewire gives readers access to information and educational content provided by financial services professionals and companies (“Livewire Contributors”). Livewire does not operate under an Australian financial services licence and relies on the exemption available under section 911A(2)(eb) of the Corporations Act 2001 (Cth) in respect of any advice given. Any advice on this site is general in nature and does not take into consideration your objectives, financial situation or needs. Before making a decision please consider these and any relevant Product Disclosure Statement. Livewire has commercial relationships with some Livewire Contributors.

Hans Lee
Senior Editor
Livewire Markets

Hans is one of Livewire's senior editors, specialising in global markets and economics. He is the creator and presenter of Livewire's "Signal or Noise".

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.

Comments

Sign In or Join Free to comment