Returns have remained strong for most fully invested investors, with shares at all-time highs and bonds stable.  Investment markets are still much more interested in inflation and jobs numbers than politics, even though we’ve been witnessing seismic political shifts almost daily in the US, France and the UK.  We may see some volatility as we get closer to the US election.

The central narrative is that inflation is slowly returning to target levels in most countries, interest rates will be cut and recessions will mostly be avoided.  Importantly, financial markets are now convinced that US interest rates (currently 5-5.25%) will start to be managed down during quarter 3.  This would normally mean a tailwind to investment returns.  The UK and Europe are already reducing rates.  Australia is somewhat out of step though, at 4.35% its rate is already 1% lower than the US and conditions don’t look right for a rate cut yet.  In fact, a temporary interest rate hike in Australia should not be ruled out if the June quarter inflation number looks strong.  That statistic comes out on 31 July.

Our main investment focus at Grand Plan Wealth is the compounding of wealth for long term investors. Short term returns may be fascinating (at least to the finance types) but they are essentially a lottery. We can be much more confident in long term forecasts, because long term returns are mainly derived from the more predictable earnings that flow out of diversified investment portfolios – profits, dividends, interest payments, rents etc. On this note, Vanguard updated their long term forecasts in quarter 2. The numbers have softened a little, but with all the usual caveats they are still tipping worthwhile returns across traditional market portfolios over 10 and 30 years, even after the impact of inflation. And because interest rates are currently elevated, even conservative ‘bond heavy’ portfolios are expected to do relatively well.

Reach out to us if you’d like more detail.

General Advice Warning: Any advice included in this article and associated links is general in nature and would not consider your particular objectives, financial situation or needs. If a product we recommend has a Product Disclosure Statement (PDS), you should read it before making a decision. Past performance is not a reliable indicator of future performance. Other than cash deposits falling under the Australian Government’s Financial Claims Scheme, any investment we recommend has the potential to deliver a loss to an investor. Nevertheless, we are of the view that for Australian investors it is reasonable to expect a skilfully managed diversified portfolio to deliver positive returns over the long term, over and above cash returns and the impact of inflation.