Do you feel like you are living in debt? Finding it hard to get ahead? Australia leads the world in household debt with debt to income figures worse now than before the Global Financial Crisis (GFC) in 2008. In fact, household debt is at its highest level on record!
In my normal daily routine of research and analysis, I came across an article from the Fairfax Media group (no affiliation I promise), with the headline “Australian households awash with debt: Barclays”. As the US equities and options analyst, I am a little detached from the Australian economic statistics despite the fact that I am Australian and live beachside on the eastern coastline.
Still, I had thought the Australian economy was shuffling along reasonably well despite the headwinds of a slowing Chinese economy, declining commodity prices, and pressures on the Resources sector. Maybe this was due to the lavish stock broker lifestyle that I (supposedly) live?
But all may not be as it seems!
While the ASX200 index formed a new long-term high this month, touching 6,000 points for the first time since December 2008, the economics behind it are not so favourable. Our current Annual GDP Growth Rate is 2.5%, less than half of the 5.4% in the height of the boom in 2007. And unemployment is at 6.3%, the highest since mid-2002. So less people have jobs and growth has halved. This is not a recipe for prosperity.
Most people I know are feeling the pinch. Sure, Interest Rates are at record lows and lower Crude should (and I say should) reflect lower costs of fuel. But this is barely offsetting the cost of home electricity, water, rates, food, and the general cost of living.
I would almost be confident in stating that this psychology should result in less consumer spending. Surely the consumer wants to save during times of hardship? However, the data shows consumer spending has a continual increase over the last decade, to the highest level on record. Is that a reflection of increasing costs of living, or as my opening paragraph states, increasing household debt? Consumer Credit data confirms a similarly rising trendline for the same period, so clearly it is debt driving our spending.
Australia’s economy is dominated by the Service sector, representing approximately 65% of total GDP. Compare this to the Mining sector at 13.5%. But the Service sector includes not just Retailers but the Banks as well. Here lies the reason for the rising stock market. Banks have been performing very well since the GFC and have been a decided difference in comparison to the US, Asia, and European economic performance.
But where does that leave us as Consumers?
All the data in the world is useless unless confidence helps drive the economy. Although we are 20% below 2007’s figures, Consumer Confidence has improved slightly in recent months. Of course, this could easily teeter lower as we sit precipitously on a knifes edge. Weaker data from China, Greece leaving the EU, Europe slumping further into Recession, or even (god forbid) a terrorist attack, could trigger further weakness in confidence.
Many of us knew that Australia is one of the most expensive countries to live in the world. In a report released by the Economist Intelligence Unit earlier in March, Sydney is ranked 5th most expensive city in the world (behind Singapore, Paris, Oslo, and Zurich), with Melbourne ranked 6th! It’s cheaper to live in Hong Kong (9th) or New York (10th)!
Slow road to retirement
The current disposable income and high debt levels will not last forever. However, the longer this drags on, the greater the impact on your potential to retire comfortably. Following the GFC, I spoke with many people who had seen their superannuation decline substantially, causing a deferral of retirement or worse still, retiring with far less capital to live from.
For many of us, the need to have a sizeable superannuation to maintain any resemblance of our current lifestyles is definitively clear. Which is why the aforementioned data has struck such a strong cord with me.
The need to have your superannuation working for you as effectively as possible has never been more apparent. Much of my customer base is focussed on superannuation funding, shifting away from the large institutional funds management, which can be expensive and less flexible.
Investors looking to achieve the equivalent to the leading stock market index returns have had to invest into funds that charge exorbitant fees on entry and in management. Let alone if you want to exit. But to gain these levels of exposure, you also have the ability to simply purchase what is known as an Exchange Traded Fund (ETF) which can represent almost exactly the same exposure. Cut out the management fees, and simply deal with low brokerage costs. Seems like a no brainer to me!
At the same time, Risk management is imperative. Whether that involves advice from a licensed professional who can provide Derivative management to offset Risk of a falling market, or specific strategies such as the Covered Call that look to benefit from Derivative (option), premiums. Fact is, there is more you can be doing to gain effective use of your superannuation, without increasing Risk!
Of course, you may not want to spend the next decade learning how to effectively implement these strategies. For this reason, we do all the analysis and number crunching for you. All you need to do is revise our analysis, select the position, and agree to management processes, and the rest is done.
While we focus on the stock market, both Australian and US, your superannuation can be effectively utilized in property as well. For this reason, we have teamed up with experts in that field. You have been invited through our relationship, to learn more about how you can maximize the potential of your superannuation through property.
There is an information evening in Brisbane on Tuesday the 31st March. For more information, and to secure your seat, CLICK HERE, with details to follow.