Government relief measures have helped cool inflation, now at 2.4% (down from 2.8% in September 2024). Trimmed inflation sits at 3.4%, edging closer to target levels. While progress is promising, mortgage holders would welcome multiple rate cuts in 2025.
Globally, markets reacted to major shifts—Trump’s return, ongoing US-China tech tensions, and Nvidia’s record 17% single-day plunge after Chinese AI firm DeepSeek introduced a cost-effective alternative. However, markets quickly rebounded.
Domestically, the ASX 200 hit an all-time high of 8,532 points despite volatility, while the Aussie dollar remains steady at 62 US cents.
With economic shifts underway both locally and globally, all eyes are on what’s next for interest rates, markets, and the cost of living in the months ahead.
Navigating turbulent times in the share market
As investors grapple with uncertainty, keeping a cool head has never been more important.
“Time in the market, not timing the market” is a popular investment philosophy that emphasises the importance of staying invested over the long term rather than trying to predict short-term market movements. While markets can be volatile in the short term, historically, they tend to grow over time.
It’s a strategy that helps you avoid getting caught up in short-term market fluctuations or trying to predict where the market is heading.
With the recent market turbulence, from the global effects of US President Donald Trump’s administration to ongoing conflicts in Ukraine and the Middle East, savvy investors look beyond the immediate chaos to focus on strategies that encourage stability and growth over the long-term.
It’s a hallmark of the approach by the world’s most high-profile investor, Warren Buffet, who argues that short-term volatility is just background noise.
“I know what markets are going to do over a long period of time, they’re going to go up,” says Buffet.i
“But in terms of what’s going to happen in a day or a week or a month, or even a year …I’ve never felt it was important,” he says.
Buffet first invested in the sharemarket when he was 11 years old. It was April 1942, just four months after the devastating and deadly attack on Pearl Harbour that caused panic on Wall Street. But he wasn’t fazed by the uncertain times.
Today Buffet is worth an estimated US$147 billion.ii
Long-term growth in Australia
While growth has been higher in the US, investors in Australian shares over the long-term have also fared well. For example, $10,000 invested 30 years ago in a basket of shares that mirrored the All Ordinaries Index would be worth more than $135,000 today (assuming any dividends were reinvested).iii
And it’s not just the All Ords. If that $10,000 investment was instead made in Australian listed property, it would be worth almost $95,000 today or in bonds, it would be worth almost $52,000.
In real estate, the average house price in Australia 30 years ago was under $200,000. Today it is just over $1 milllion.iv
Meanwhile, cash may well be a safe haven and handy for quick access but it is not going to significantly boost wealth. For example, $10,000 invested in cash 30 years ago would be worth just $34,000 today.v
Diversify to manage risk
Diversifying your investment portfolio helps to manage the risks of market fluctuations. When one investment sector or group of sectors is in the doldrums, other markets might be firing therefore reducing the chance that a downturn in one area will wipe out your entire portfolio.
For example, the Australian listed property sector was the best performer in 2024, adding 24.6 per cent for the year. But just two years earlier, it was the worst performer, losing 12.3 per cent.vi
Short-term investments – including government bonds, high interest savings accounts and term deposits – can play an important role in diversifying the risks and gains in an investment portfolio and are great for adding stability and liquidity to a portfolio.
Ongoing investment strategies
Taking a long-term view to accumulating wealth is far from a set-and-forget approach and by staying invested, you give your investments the best chance to grow, avoiding the risks of missing out on key growth periods by trying to time your buy and sell decisions perfectly.
Reviewing your investments regularly helps to keep on top of any emerging economic and political trends that may affect your portfolio. While it’s important to stay informed about market trends, it is equally important not to overreact when there is volatility in the share market.
Emotional investing can lead to poor decisions, so remember the goal is not to avoid market declines but to remain focussed on your overall long-term investment strategy.
Please get in touch with us if you’d like to discuss your investment
i Warren Buffett: The Truth About Stock Investing
ii Bloomberg Billionaires Index – Warren Buffett
iii, v, vi Vanguard Index Chart | Vanguard Australia Personal Investor
iv The Latest Median Property Prices in Australian Cities
How to financially ease into retirement
Deciding when to retire is a big decision and even more difficult if you are concerned about your retirement income.
The average age of Australia’s 4.2 million retirees is 56.9 years but many people leave it a little later to finish work with most intending to retire at just over 65 years.i
If you’re not quite ready to retire, a ‘transition to retirement’ (TTR) strategy might work for you. It allows you to ease into retirement by:
- supplementing your income if you reduce your work hours, or
- boosting your super and save on tax while you keep working full time
The strategy allows you to access your super without having to fully retire and it is available to anyone 60 years or over who is still working.
Working less for similar income
The strategy involves moving part of your super balance into a special super fund account that provides an income stream. From this account you can withdraw funds of up to 10 per cent of your balance each year.
As you will still be earning an income and making concessional (before-tax) contributions to your super, this approach allows you to maintain income during the transition to full retirement while still increasing your super balance, as long as the contributions continue.
Note that, generally speaking, you can’t take your super benefits as a lump sum cash payment while you’re still working, you must take super benefits as regular payments. Although, there are some exceptions for special circumstances.
Take the example of Alisha.ii Alisha has just turned 60 and currently earns $50,000 a year before tax. She decides to ease into retirement by reducing her work to three days a week.
This means her income will drop to $30,000. Alisha transfers $155,000 of her super to a transition to retirement pension and withdraws $9,000 each year, tax-free. This replaces some of her lost pay.
Income received from your super fund under a TTR strategy is tax-free but note that it may affect any government benefits received by your or your partner.
Also, check on any life insurance cover you have under with your super fund in case a TTR strategy reduces or stops it.
Give your super a boost
For those planning to continue working full-time beyond age 60, a TTR strategy can be used to increase your income or to give your super a boost.
To make it work, you could consider increasing salary sacrifice contributions into your super then using a TTR income stream out of your super fund to replace the cash you’re missing from salary sacrificing.
In another example, Kyle is 60 and earns $100,000 a year. He intends to keep working full-time for at least another five years. Kyle transfers $200,000 from his super to an account-based pension so he can start a TTR strategy then salary sacrifices into his super.
This will reduce his income tax, but also his take-home pay. So, he tops up his income by withdrawing up to 10 per cent of his TTR pension balance each year.iii
A TTR strategy tends to work better for those with a larger super balance, a higher marginal income tax rate and those who have not reached the cap on concessional contributions.
Nonetheless, it can still be useful for those with lower super balances and on lower incomes, but the benefits may not be as great.
Some things to think about
TTR won’t suit everyone. For example, be aware that you cannot withdraw more than 10 per cent of your super balance each year.
Also, if you start withdrawing your super early, you will have less money when you retire.
The rules for a TTR strategy can be complex, particularly if your employment situation changes or you have other complicated financial arrangements and investments. So, it’s important to seek professional advice to make sure it works for you and that you are making the most of its benefits.
If you would like to discuss your retirement income options, give us a call.
i Retirement and Retirement Intentions, Australia, 2022-23 financial year | Australian Bureau of Statistics
ii, iii Transition to retirement – Moneysmart.gov.au
Thinking about an SMSF? Here’s what you need to know
Some investors find it satisfying to take a do-it-yourself approach to retirement savings – taking on the responsibility for the growth of their retirement savings in a self-managed superannuation fund (SMSF).
While you have total control over how your retirement funds are invested within the confines of the laws, many factors need to be considered first.
Before taking the plunge, weigh up the risks and rewards by understanding the various super and tax laws, check out the costs involved as well as the level of administration required and start considering your investment strategy.
What you need to know
Setting up an SMSF can be a complex and time-consuming process and there are quite a few regulations and rules that you need to be familiar with before setting up an SMSF. Therefore, seeking professional advice can be beneficial to get your SMSF off on the right foot so it qualifies for the tax concessions available through the super system. We can assist to ensure your SMSF is set up correctly in the first instance to ensure you are eligible for the tax concessions and it is easier to administer throughout the year.
The advantages of an SMSF
A SMSF offers several advantages, particularly for individuals who want more control over their retirement savings and investments. Some of the key pros of having an SMSF include:
Investment control
SMSF members have complete control over their investments, you decide where to invest and when assets are disposed. You could also incorporate in property as part of your portfolio.
Estate planning
SMSF members can set up binding death benefit nominations to specify how their superannuation will be distributed after they pass away.
Asset protection
SMSFs can protect members from bankruptcy and litigation, and their superannuation benefits are usually protected from creditors.
Diversification
An SMSF has greater access to investment options and a diversified SMSF portfolio could reduce risk and improve returns over time. Speaking to your accountant or financial adviser can help to ensure you are well-diversified.
Tax advantages
SMSFs have one of the lowest tax rates in Australia. Other tax credits can help to further reduce the tax rate.
Lower costs
Running your own SMSF can have lower ongoing costs, especially for larger funds.
Lump sum payments
SMSF can pay benefits as a lump sum, a pension or a combination if the payment is under the laws and the trust deed.
The disadvantages of an SMSF
While there are several benefits to having an SMSF, there are also some drawbacks and challenges. Here are some of the main things to consider:
Responsibility and learning
Trustees must understand and comply with legal and financial requirements.
Cost
SMSFs can be expensive to set up and maintain, especially for SMSFs with smaller balances.
Time and effort
Running an SMSF requires a significant amount of time, effort, and expertise. Engaging with your accountant or financial adviser for assistance and ongoing support can help to ease the burden.
Risk
SMSFs are not guaranteed by the government, and investment returns are not guaranteed. If you lose money, you won’t have access to the government compensation scheme.
Is an SMSF right for you?
Setting up an SMSF is worth the time for those who want greater control over their retirement savings, however before you start, you need to consider whether you are comfortable taking on the responsibility of making investment decisions and if you will have the time to manage the ongoing administration tasks associated with it.
Get professional help
Establishing and running an SMSF is not something you can do easily without professional assistance. Many of the legal and regulatory requirements are complex and must be adhered to ensure the fund is compliant. These requirements are also regularly updated or changed so you’ll need to keep an eye on any new obligations.
Many trustees need help with the day-to-day running of the fund and to meet its ongoing reporting and administrative obligations.
If you are considering setting up an SMSF, give us a call. We can help you decide whether an SMSF is right for you and assist you with the set-up and administration of the fund if you decide to proceed.
