Investing in inflation


Inflation appears to be firmly on the rise and while that is bad news for consumers it’s not necessarily bad news for investors. In fact, inflation may provide new opportunities. In the September quarter, the consumer price index (CPI) rose 3 per cent year on year, a level previously not forecast to be reached until 2023. The underlying rate of inflation, which removes extreme price changes and is generally considered a more accurate reflection of what is happening on the ground, increased 2.1 per cent on an annual basis. Now the Reserve Bank of Australia (RBA) is looking at bringing forward interest rate rises in the wake of this growing inflation rate. When it does, it will be the first time in 11 years that the bank has raised interest rates. This development is highlighted by the RBA’s relaxing and then abandoning its target for the 3-year government bond rate (the benchmark) which it had originally set at 0.10 per cent. By the start of November, the market had pushed this rate above 1 per cent, 10 times the RBA’s original target, effectively forcing its hand.i The RBA’s stated aim is to keep the inflation rate within its 2-3 per cent target range. But some seasoned market observers are forecasting the rate could get as high as 3 to 5 per cent by 2023, and perhaps a touch higher.ii So why is this happening now? Factors behind the rise There has been a combination of factors leading to the uptick in inflation, mostly resulting from events stemming from the COVID-19 pandemic and the prospect of a recession fading fast. These influences include cost pressures from global and local supply chain bottlenecks along with higher energy prices, an uptick in rents and rising insurance costs. A shortage of labour, partly on the back of the absence of migration and casual overseas workers throughout the pandemic, is now also putting pressure on wages. For some months, there has been debate over whether inflation was just a transitory event in the wake of COVID, but it is beginning to look more permanent as the months go by. Opportunities for investors Inflation is not all bad news for investors, but it may change the way you think about your investments. The low interest rate regime that led to soaring property prices has left many investors with healthy gains in asset prices, adding to their wealth. While the move to higher interest rates may make borrowing money harder and take some of the boom out of the housing market, it is worth remembering the gains made to date are unlikely to be completely wiped out. But it’s not just property; all major asset classes are highly valued at present. Rising inflation traditionally erodes the value of bonds and cash. As interest rates move north, the appeal of those bonds offering the current low rates will fall and in turn so will the price. As a result, it may be worth assessing whether your asset [...]

Investing in inflation2021-12-07T07:33:50+09:00

Kicking financial goals in 2022


After a difficult year of COVID disruptions and uncertainty, the summer holidays can’t come quickly enough. It’s a chance to refresh and reflect on the year that was and hopefully set some goals for year ahead.

Kicking financial goals in 20222021-12-01T09:24:17+09:00

Can you afford your dream retirement?


Planning your dream retirement can be an exciting time. The chance to travel overseas or around Australia without having to rush back to work, time to pursue new hobbies, learn a language or spend time with the grandkids. The possibilities are endless, but what will it cost?

Can you afford your dream retirement?2021-11-22T10:13:00+09:00

FIRED up for financial independence


Millennials are often accused of living for the present and wasting their money on smashed avocado. So it may come as a surprise that younger Australians are at the vanguard of a growing movement committed to the old-fashioned virtues of thrift and saving, but with a modern twist.

FIRED up for financial independence2021-11-18T08:45:22+09:00

Love and money: achieving financial harmony


The past 12 months have been a challenging time for many of us on a personal level, with the pandemic having a far-reaching impact on so many aspects of our lives. While the Australian economy is proving remarkably resilient, personal finances have been affected in different ways by lockdowns and government initiatives put in place to soften the economic toll of the pandemic.

Love and money: achieving financial harmony2021-11-11T07:36:24+09:00

Is your money personality set in stone?


Our upbringings hugely influence the attitudes we have towards money. Did you observe your parents working hard to put food on the table? Was money a cause of conflict in your household? Was it spent freely, or were budgets obeyed?

Is your money personality set in stone?2021-11-02T08:01:34+09:00

Aged care payment options


When it comes time to investigate residential aged care for yourself, your partner, parent or relative, the search for a facility and how to pay for it can seem daunting. The system is complex, and decisions often need to be made in the midst of a health crisis.

Aged care payment options2021-10-28T07:54:15+09:00

Time to review your income protection cover


If you’ve owned an individual income protection or salary continuance policy in recent years, you may have seen your premiums increase as insurers struggled to cover their large losses on these products.

Time to review your income protection cover2021-10-26T11:31:18+09:00

Spotlight on super performance


Superannuation has provided most fund members with stellar returns since last year’s COVID lows. As always though, some funds performed better than others and recent government reforms make it easier to find out how your fund compares.

Spotlight on super performance2021-10-13T09:01:22+09:00