Over the long-term holding cash will have a negative effect on your investments. We all know and understand the effects inflation has on cash. However, there are times when being overweight cash makes sense. Over the past twelve months the ASX 200 has returned 14.7%. We expect that the market has more upside from here, however, there are several issues also looming in the background which makes us comfortable maintaining an overweight cash position.
Inflation, most countries are getting inflation under control. Australia continues to struggle due to issues coming out of COVID.
- In Australia interest rate increases effect 80% of mortgage holders.
- Australia has the second highest debt service ratio in the world.
- Government has increased the base wage, pushing up inflation.
- Australia’s debt is at all-time highs of $1.75 trillion.
- Large influx of immigrants pushing up GPD.
- The highest increase in spending in Australia has been travel.
So, what does this mean for investors? The economy is running on debt, which at some point will put the brakes on the economy. At present we are still facing two more interest rate rises of 0.25% each. The United States has already started to see consumption slow down. Keep in mind that interest rates generally sit between 4% to 8% as such current interest rates are with the average levels.
Market View
We expect that the market will pull back in the coming years. This week the ASX 200 went above 8000 points. This could be the start of the ASX 200 moving to a new high over the coming year. We will be watching the ASX 200 closely over the next 12 months on expectations of further growth and look for opportunities to take profits. Given the high interest rates we are comfortable holding overweight cash positions will provide a hedge against a market pull back.
There is a lot happening in the markets around AI and electricity.
AI will bring the next big change as to how we live, but before that AI will have a large impact on the material sector. To build the servers which will house AI we will need to increase mining to get the materials needed to build and run these servers. The price of the metals required have already moved up to all-time highs. The copper price has more than doubled over the past couple of years and is not looking to pull back.
The electricity supply that is needed to run these servers is expected to increase the amount of electricity up to 160%. This demand will increase the demand for coal and uranium to meet the electrical demands. Renewables simply will not be able to produce the electricity required.
We expect companies in this sector will outperform, it will take time for the benefits to be felt in your portfolio, but we are looking now for the companies which will most benefit from this new trend.
Tax Time
July has ticked over, and we are now processing all your tax statements for the 2024 financial year. We expect your tax reports to be ready in mid-September. These will be sent electronically to you so you can then email them through to your accountants.
For our clients using our Self-Managed Super Fund service we will automatically pass the reports to our accountants to compete your Super Fund financial statements and organise the Audit for your Self-Managed Super Fund.
If you have any questions, please contact our office.
AFSL 403509
51 Thuringowa Drive
Kirwan QLD 4817
Phone: (07) 4771 4577
Email: [email protected]
Jason Fittler: [email protected]
Jane Fittler: [email protected]
