Bear Market Territory

Welcome to edition #2 of our quarterly newsletters.

As we officially entered bear market territory during the quarter, inflation and interest rates have continued to dominate debate among the crystal ball gazers.

Is inflation here for longer? Possibly. Will interest rate rises cause a recession? Probably in the US, possibly in Australia, but not definitely in either. Do asset prices go up or down from here? No idea.

I appreciate that, having been through the emotional rollercoaster that has been the last 6 months, those answers may seem flippant and unhelpful coming from your paid financial adviser. Problem is: I don’t own a crystal ball. The future, whether financial or not, is unknown.

What the team at Korff Wealth is here to do, is to help you grow your wealth effectively by helping you make good financial decisions, and to discourage you from making bad ones, by applying established investment fundamentals and decades of experience.

So, here are our thoughts on avoiding self-harm in a bear market:

  • Have conviction: we helped you establish an investment strategy designed to withstand these periods. Stay the course.
  • Retain perspective: historically, most corrections last months. Your wealth will be invested for your lifetime.
  • Focus on income: typically around half of your returns from shares and property come from income (dividends and rent). This income continues to be paid in a correction.
  • Get on with life: the financial press set out to scare and overwhelm you. Ignore them.
  • Take advantage: paradoxically, if a department store offers a 20% discount there are queues at the door. Yet, if the share market is down 20% everyone wants to sell because “it can only get worse”. The market offers a price for an asset at a point in time. It does not determine value.

Here is some data to help you with that:

  • If you invested for any 8 year period over the 145 year history of the ASX, you made money. Indeed, on average you made a 15% return;
  • From 1980-2020 there have been 37 bull market years and only 4 bear market years;
  • If you invested $500 a month in the ASX over this period (Black Wednesday, Dot Com bubble, GFC, Covid), your investment is now worth approx. $2.7m;
  • If you invested immediately prior to the GFC crash (a disaster, right?), your returns to 31 May, 2022 (ie. incl. the current correction) from US and Australian shares were a not so disastrous 10% and 6% respectively.*

* All figures are approximate and assume re-investment of dividends. Sources: Vanguard and Katana Asset Management.

Managed Fund – case study

To give you an insight into how the fund managers in your portfolio are approaching the current environment, I have included the link below to Ophir Capital Management’s recent performance update. A number of you will have one or more of the Ophir funds in your portfolio. They focus on small/midcap stocks, which traditionally get hit hard when rates rise due to their reliance on debt (relative to large cap stocks) and future growth. The current correction is no exception.

EOFY Super Contributions

Many of you made the tax effective decision to top up your super prior to 30 June. This will not only provide you with tax breaks on your income in FY2022, but also on your investment earnings for the rest of your life.

While I appreciate many business people need to wait until June each year to determine whether there is available cash for super contributions, a more effective approach is to make your contributions in a lump sum at the beginning of the year and/or regularly over the course of the year. This gets your money working for you sooner. Please call us if you would like to discuss a plan for FY2023.

From 1 July, 2022 the employer super guarantee increases to 10.5% of an employee’s income. The FY2023 Concessional (tax deductible) Contributions limit is $27,500 (incl. SG contributions) and, if your super balance is below $500,000, you can “catch-up” up to 5 prior year’s limits. Also, your Non-Concessional Limit is $110,000 or $330,000, bringing forward 2 years’ limits. In addition to these limits, there are special super contribution categories for small business owners and people 60 or over downsizing their home.

Always check with us or your accountant before making personal contributions to ensure you are eligible and within applicable limits.

Time to Refinance?

As interest rates fell to record lows over recent years, the motivation to take your debt to market and get competitive pricing on your interest rate may not have been that strong. However, with rates on the rise, the prospect of a property market correction and a possible recession in 2023, ensuring that your debt is as cheap as possible and structured effectively could be critical.

Our mortgage broking team is available to help you find the most competitive debt in the market and keep it that way! They also handle the paperwork and communication with your chosen lender, so the pain of moving is minimised. Although, more often than not, the result of their efforts is them leveraging their market knowledge to renegotiate a better rate with your existing lender.

Campbell Korff

Our goal is to provide you with timely, practical and succinct commentary on issues impacting your wealth creation and investments. Not to add to the financial crystal ball gazing conducted by the media and various online gurus.

If we stray from this goal or fail to meet it to your satisfaction, please provide us with feedback.

Korff Wealth is a Corporate Authorised Representative of InterPrac Financial Planning Pty Ltd ABN 14 076 093 680 Australian Financial Services Licence Number 246638, Level 8, 525 Flinders Street Melbourne VIC 3000

Disclaimer: The information and articles in this newsletter are of a general nature only and are not to be taken as recommendations as they might be unsuited to your specific circumstances. The contents herein do not take into account the investment objectives, financial situation or particular needs of any person and should not be used as the basis for making any financial or other decisions. InterPrac Financial Planning Pty Ltd directors and advisers may have investments in any of the products discussed in this newsletter or may earn commissions if InterPrac clients invest or utilise any services featured. Your Financial Planning adviser or other professional advisers should be consulted prior to acting on this information. This disclaimer is intended to exclude any liability for loss as a result of acting on the information or opinions expressed.