Unchartered Territory

As I watched markets such as 30-year US and UK Treasuries plummet on Wednesday night it was becoming clear that if Trump followed through as publicly proposed something in the global economy would soon break. It was concerning because without a pause or some kind of intervention, an economic or financial catastrophe was brewing. Whether it was part of his plan or due to pressure from within the Republican Party, he paused and provided the circuit breaker the market needed. It still appears to me, as I outlined last week, that there are two parts to this. It is negotiation in the short term and a strategic repositioning of the US in the long term.

While many are calling Trump pausing most tariffs for 90 days a ‘backflip’ I expect this was part of the plan. Push as hard as you can and at the point at which it looks like something in the system might break hit pause. One of Trump’s advantages in negotiations is his perceived unpredictability. I'm not sure his tactics are a great way to run a country or create stability but purely from a negotiation standpoint it’s effective. The world cheered as he hit pause but in one fell swoop, he set the minimum and maximum parameters and deadline for each country ahead of negotiations.

I'm not pro or anti-Trump in this view; I’m simply looking at it as objectively as I can. My observation is that the anti-Trump camp tends to underestimate him while his supporters tend to overestimate him. I pay attention to what he says and does but also what he doesn't say and do. There are patterns and a method to his madness. He uses hyperbole and misinformation to his advantage, and it keeps people uncertain, so they don’t know what to expect and can't get comfortable. You don’t know if he’s telling the truth or bluffing. You can’t be sure about anything. But that is how he negotiates. All of this gives him control of the negotiation.

With many moving parts to digest and many variables we either don't yet know or don’t know how they will interact. On top of all that at any moment the situation can change, and the goalposts can move. Trump could decide without warning to remove or exempt a country from tariffs. He could extend or truncate the pause in tariffs. Central Banks around the world could start dropping interest rates. The outcome of the escalating trade war between the USA and China will be pivotal. China could adjust its currency or retaliate in an unexpected manner. We don’t know which countries will retaliate, compromise or give in. At any point, there are weaknesses within the global economy or financial markets and these developments can apply additional stress.

There are mixed views on how this all plays out for the global economy. While tariffs are inflationary, they are also likely to negatively impact economic growth. Central banks will soon have to make a very tough choice to make. Do they raise interest rates to fight inflation and potentially destroy the economy or do they cut interest rates to save it and risk adding fuel to the inflationary fire? Unless inflation is running out of control, I believe that a slowing economy will be seen as the biggest pain point, and in the face of an economic slowdown Central Banks will choose to cut interest rates to stimulate the economy and deal with the consequences of high inflation later. There is a long way to go, and patience is key to taking advantage of opportunities as they unfold.

Vladimir Lenin famously said, “There are decades where nothing happens, and there are weeks where decades happen.” As this situation continues to unfold and eight decades of trade agreements are upended, it appears that this is one of those times. This is all unchartered territory. I watched an interview with the legendary investor and founder of Oaktree Capital, Howard Marks where he said this is the most significant change he has seen in his illustrious 5-decade career. When someone held in such high esteem in the investment world makes a comment like that, it’s worth being mindful that this is a significant moment that should not be underestimated.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

The Art of the Tariff

There are a few layers to the tariff conversation that are worth elaborating on given the recent ‘Liberation Day’ tariff announcements and the subsequent share market reaction. Firstly, there's no scenario where you introduce tariffs, and it directly results in better global growth. This is not a positive for the global economic outlook. The share market and company share prices are falling because the prospect of sustained tariffs and potential trade wars are negative for economic growth and business conditions. Investors are no longer under the illusion that Trump is just posturing.

By applying tariffs across the board, he has laid the foundation for every country to effectively renegotiate their existing deals on his behalf and make a better offer. So, in the first instance that is an efficient way to conduct a bulk negotiation. Much simpler than going from country to country one at a time. The tone has been set. Some countries are more in need of the US than others and more amenable to doing a deal. I expect those countries to be rewarded and highlighted to set the tone. Others will simply be opportunistic. Those who retaliate will be penalised.

His policies are changing the shape of global alliances. Europe understands that they can no longer rely on the US and will massively boost defence spending. When there is someone else to do the heavy lifting others will happily take a step back. But once there is not then they become surprisingly capable. So, Europe will be okay with or without the US. The implications here are far reaching and bring into question the USA’s willingness to help allies who have always assumed that they have the US protection if needed. That extends to Australia too.

Prioritising the USA’s national security is more real than ever. The initial phase of the decoupling from China in the USA supply chain saw a range of nations such as Vietnam benefiting. Suddenly imports from China fell and the US was importing more from Vietnam. It looked like the risks in the supply chain were being addressed. But simultaneously Vietnam was importing more from China. There was merely an extra link added to the chain not a new chain. The aggressive tariffs on placed like Vietnam indicate that the US is not only aware of this but very serious about genuinely decoupling from China.

Part of the complication is that the tariffs create far reaching implications across every aspect of the global economy. It will take some time for the consequences to be understood and for the second and third order effects to flow through. These areas range from manufacturing and jobs in the US to the redirection of investment capital across the world. There will be impacts on interest rates, inflation and consumer sentiment. I have concerns about stagflation in the US as this plays out.

The rise of anti-USA sentiment across the world will have an economic impact too.  Travel from Canada to the US is down 70% since the introduction of tariff talks. Will Canadians stop buying US cars like Fords and Teslas? Quite possibly. But will the rest of the world stop buying McDonalds or Coca-Cola? Will they stop using Facebook or Microsoft? I think that is unlikely. However, investors need to consider the implications of all these issues on a case-by-case basis.

Trump’s approach is all about extracting better trade outcomes for the USA in the short term and national security and strategically positioning the USA in the long term. This is all about the USA and the USA’s position in the world in the years ahead. The Trump Administration is clearly of the view that where a country benefits from engaging with the US economy then there is a price to pay to participate. When it comes to defence rightly or wrongly, this is also their attitude. As Winston Churchill once said of the US back in World War II “You can always rely on the USA to do the right thing after they have tried everything else."

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Are your dreams big enough?

I remember many years ago when I was a kid sitting around the dinner table and the family discussion turned to what you would do if you won $1m on lotto. It was always fun imagining what we would do with our newfound fortune. We were talking about buying houses, going on a holiday, selecting a new car, and giving money to our closest family and friends.

But after some quick calculations, it was clear there was not much imaginary lotto money left. Suddenly we were reducing the amount we were giving to family and friends, getting a cheaper car and scaling back the holidays. There was a major problem, but it was not a financial one. It was clear to me that even in our dreams of winning the lottery we had self-imposed financial limits.

I remember saying to mum and dad, “Why don’t we just pretend we won $5m or $10m?” Everyone stopped for a minute and recalibrated. We were rich again now and there was more than enough to go around. That conversation stuck with me for the rest of my life and had a profound effect on my mindset. It was a great insight into the way people limit themselves. It made me realise that if people think like that when they dream, how limiting must their thinking and expectations be in everyday life?

Admittedly, Australia often isn’t the best place to cultivate big ambitious thinking. Tall Poppy Syndrome is alive and well. We love it when people have a go but not when people get too big for their boots. We like people to do well but not too well. I guess it's why we are the ‘lucky country’ and not the ‘massively ambitious overachieving country.’

Too often people with big dreams are discouraged by well-meaning family and friends who haven’t succeeded in achieving their dreams. We limit ourselves to smaller goals because they are more acceptable. If our goals are big, we feel self-conscious about sharing them. I think we learn that at an early age and stop dreaming big and eventually forget how.

For any young people out there, if you have a big dream go for it. But don’t waste time. Don’t get caught up in talking about it. Pursue your dream relentlessly until you make it happen. Don’t do it to impress anyone or do it for anyone but you. Life is too short to spend chasing a goal for someone else.

For any older people out there, if you have a big dream, what’s stopping you? It’s easy to become shackled within the confines of everyday life, especially once you have kids and responsibilities. But life is short and there is no better time than now to start planning to do what you’ve always wanted to do. Find a way to start working on it now so you don’t regret it later.

So next time you hear someone talk about a crazy big dream that makes you raise your eyebrows, why not take a moment to wish them well and remind them to go all in and enjoy the journey ahead. It might just be the encouragement they need at the right time to help them, on their way to becoming the next champion athlete or business success story.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

What’s Your Plan?

One of the most fascinating parts of my job is meeting people who have accumulated wealth over many years, often without even realising they were doing it. High-net-worth individuals (HNWIs) and families usually have a cornerstone asset or business that provided the cash flow to fund additional investments over time. But in many cases, they never sat down and mapped out a grand plan. Instead, they bought assets here and there, sometimes opportunistically, sometimes out of necessity, and before they knew it, they had built significant wealth.

When it comes time to think about the future, especially retirement, many people aren’t quite sure how their assets should be structured to provide an income. More often than not, something triggers the need for a serious conversation: an asset sale, a divorce, an inheritance. Whatever the catalyst, the process doesn’t need to be overwhelming. You are where you are today, and you want to ensure your wealth supports you in the years ahead. The key is to put a clear, strategic plan in place to make that happen.

Getting the Right Structures in Place

Structuring wealth correctly is essential, but it’s not as complicated as many people assume. Most families I work with have a mix of entities — companies, family trusts, and self-managed super funds (SMSFs). This is where collaboration with accountants is critical to ensure everything is set up correctly from the start. The right structure depends on several factors, but tax efficiency and asset protection are almost always top priorities.

Superannuation, for instance, is often misunderstood. I hear people ask whether super is a good investment, but the truth is, super is just a vehicle, it’s not the investment itself. The real advantage of super lies in the tax treatment: a 15% tax rate while accumulating assets and a 0% tax rate when converted to a pension in retirement. That’s an incredibly effective place to build long-term wealth.

The Often Overlooked Area: Estate Planning

One of the trickiest but most important conversations I have with clients is about estate planning and asset protection. No one likes thinking about their mortality, and as a result, too many people put off making a proper plan. But I’ve seen firsthand the impact of not having these conversations — family disputes, contested wills, unnecessary legal battles.

It’s not always as simple as writing a will. Families can be complicated, and if you have multiple entities or trusts, getting proper legal advice is essential. Every family has its dynamics — whether it’s a vulnerable adult child or concerns about a son or daughter-in-law who might not have the best intentions. The right structures, including trusts and other protective mechanisms, can ensure that your wealth is passed down as you intended, without unnecessary risk.

Looking Ahead: Projecting Your Financial Future

A big part of what I do is helping people project their financial position into the future. That could mean forecasting where they’ll be at retirement or estimating their financial situation in their later years. It’s a simple equation, understanding the assets and liabilities today, projecting income and expenses, and then mapping out how that looks over time.

For example, if you have an investment portfolio spread across cash, bonds, shares, and property, it might generate an income of 4-5% per year, plus capital growth. If you’ve accumulated $5 million in assets, that equates to an income of $200,000-$250,000 per year. With $10 million, it’s between $400,000-$500,000 per year. Ideally, you want enough exposure to growth assets so that your wealth keeps pace with inflation, or better yet, exceeds it.

The Final Piece: Investment Strategy

Once we have the structures in place and a clear understanding of future financial needs, the final step is shaping an investment strategy that aligns with your risk profile and long-term goals. This isn’t about chasing the latest market trend, it’s about building a well-diversified portfolio that provides both stability and growth. The goal is simple: to give you confidence in your financial future, knowing that your wealth is working for you.

Planning ahead isn’t just about protecting what you’ve built, it’s about making sure your money continues to support the life you want to live, now and into the future. If you haven’t thought about your long-term strategy yet, there’s no better time to start.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

The Rationale of Buying and Selling

Investing is as much about making sound decisions when buying assets as it is about knowing when to sell. At the core of successful portfolio management lies the principle of diversification and the allocation of capital to investments across asset classes and within those classes. As assets grow at different rates, it's critical to manage your portfolio proactively to adjust the exposures to sectors and investments.  

Asset allocation is a critical part of portfolio management. A well-diversified portfolio will include a mix of growth-oriented assets such as property and stocks and defensive assets like fixed interest bonds, hybrid securities, term deposits, and cash. Then there is diversification within each of the asset classes. Most of our long-term client portfolios will hold 15-20 Australian stocks and a similar number of international stocks. This broad exposure helps to mitigate risk while optimising potential returns. 

If a portfolio is set up to have 70% exposure to growth assets and 30% to defensive assets as the growth assets increase over time the growth defensive split will skew high. Left unchecked you end up with the growth assets being a much higher percentage of the portfolio. It's critical to adjust these weightings periodically to ensure that you don't inadvertently end up with a greater exposure to higher risk assets than you intended to or than is prudent. This also applies to the levels of exposure to each asset class and the specific investments within asset classes, such as when an individual stock grows to become a larger part of the portfolio than is prudent.  

A common conversation I have with clients, especially now as stocks have performed so strongly, is around the timing and rationale of selling to take profits and rebalance the portfolio and then identifying entry points for new investments. If a stock's price has increased significantly faster than its profits, it might be an opportunity to lock in profit, reduce your exposure to the stock and reallocate funds to undervalued investments. The market can often overreact, pushing prices beyond reasonable levels. Selling gradually, or "averaging out," helps manage this risk and ensures gains are locked in while leaving room for further upside as you keep the bulk of the holding.  

A good example of this currently is the Commonwealth Bank of Australia (CBA). Over the past year, its share price climbed from $105 to $160, even as its profits fell slightly. There is a disconnect between the share price increase and CBA’s profit growth. Many investors now have an overweight position in CBA and the banking sector. I think it’s prudent to take some profit as the price rises well beyond the stocks fair value. In many cases we’ve sold small amounts for clients at $150 a share and again at $160. This approach retains the bulk of the holding while strategically reducing exposure to an overvalued asset. If the CBA share price goes higher in the short term, I am happy to continue selling incrementally knowing that we’ve prudently derisked and reinvested in better value assets elsewhere.  

Once profits are realised, the next step is reinvesting. This could mean allocating to another asset class, depending on the portfolio's overall balance, or investing in undervalued companies. Opportunities often lie in overlooked or neglected stocks trading below their fair value. While buying into such companies can be challenging, it’s essential to remain focused on their underlying value rather than current market sentiment. Both buying and selling should follow a measured approach. Investing incrementally allows you to spread risk, especially when markets are high and corrections are more likely. Similarly, gradually selling ensures you benefit from further gains while locking in profits. This disciplined strategy prevents overreactions to short-term market movements, both up and down, and aligns with a fundamental long-term investment philosophy. 

Managing a portfolio is a dynamic process that requires balancing opportunities with prudence. Whether it's reallocating capital from overvalued stocks or identifying undervalued opportunities, the goal is always the same: to manage money in the most efficient and effective way possible. By staying disciplined—buying low and selling high—you can navigate the complexities of the market while maintaining a robust and resilient portfolio. 

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Solving the Housing Crisis

The solution to fix the housing crisis is simple because it’s a supply and demand issue. We need more houses or less people. More supply or less demand. While the solution may be simple that doesn’t mean it is easy.  

The obvious way to increase supply is to build more homes and apartments. But this is constrained by the realities of market forces around capacity, finding workers, the cost of materials, and time. It will take many years to build the number of houses and apartments needed to solve the problem.  

Achieving the massive increase in supply needed will address the issue in the medium to long term. It will also play a huge role in the continued growth and prosperity of our country. But increasing supply is not going to solve the housing crisis we face right now. 

There are two distinct phases to solving this problem. A short-term solution to fix the crisis and a long-term solution to solve the issue once and for all. The short-term solution will incur economic pain, but it is necessary to avoid a more serious crisis.  

The short-term solution is simply to substantially reduce immigration for a period of time, say 12-24 months. Many people don’t like that idea but the rapid rise in immigration is a big part of the issue. I’ve got no issue with immigration levels where they are at, I think it’s great for our nation and the economy more broadly. But you can’t just keep bringing people in if you don’t have enough homes, and at the moment we don’t.  

If you owned the only hotel in town and had say 100 rooms and you booked them out to 110 families who are flying in from overseas that weekend, it would be a problem. Not only is it unethical its irresponsible. Your lack of planning or deliberate overbooking is ruining the holidays of many people because you are being either greedy or lazy. 

When you bring in almost 550,000 people from overseas annually when you don’t have enough homes, our nation is doing exactly what the hotel operator in my story above is doing. Except what we are doing is even worse. Many of the people coming into our country are relatively wealthy including the students from overseas and can afford to pay higher accommodation expenses.  

The people most severely impacted here are everyday Australians who are being priced out of the market. Rents and property prices are being forced ever higher, not because they should be but because of the dynamic we have created by our own poor planning. As with any business or enterprise, you need to ensure you build your capacity ahead of ramping up sales or you will crumble under the weight of the increased demand.  

To be clear, I am not suggesting a lower immigration policy beyond what is needed to address the crisis Australian families are facing right now and will continue to in the 12-24 months ahead. There are massive benefits for our country and the economy by opening our doors to people who can contribute to our nation. But right now, we need to take a step back to take the next sustainable leap forward.

General Advice Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Head in the Sand

There are dozens of different types of risks and biases that investors need to consider when making investment decisions. Some such as market risk, concentration risk, credit risk, liquidity risk and time horizon risk are easier to quantify and are well understood. Others such as recency bias, confirmation bias and herd mentality are more nuanced and require some self-reflection to mitigate or offset their impact.

Share markets have been kind to investors over the past several months, and our portfolios have enjoyed solid returns on the back of this. However, the recent buoyancy in share markets has not changed my underlying cautiousness regarding the risks that investors face. I still think the world is precariously placed, even though the share market doesn’t seem particularly concerned now. Wars can escalate, inflation may not be over, the list goes on.

Investors have become complacent and seem to ignore any potential for bad news. Rather than factor in risks more conservatively, the share market has taken an attitude that everything is great until it has been proven that it is not. This binary thinking isn’t very smart because it doesn’t account for the reality that there are indeed risks that exist with varying degrees of probability. These risks need to be factored in.

To make the math simple, let’s imagine there are 2 separate global events, event A and event B. Let’s further assume each event has a 50% probability of occurring in the next 12 months and would result in a 20% decline in the share market. Based on the probability of each of the 2 events happening, the following outlines the combination of possible outcomes and their probabilities of occurring:

1.      25% chance that neither event A nor event B occur.

2.      50% chance that either event A or event B occurs.

3.      25% chance that both event A and event B occur.

Unfortunately, investment markets often misprice event risk. Perhaps it is due to complacency or the intangible nature of assessing risk. Nevertheless, in the absence of an event occurring, the default assessment of these risks by investors in the current market seems to be to ignore it until it happens.

This might turn out to be ok in the 25% chance where neither of the 2 events occurred. But that results in a mispricing of risk until that point because there was a 75% chance of a negative outcome whereby at least one of the events occurs. If the events do occur markets need to adjust much more aggressively. In the basic scenario I outlined above, there is a 50% chance that one or the other event occurs, resulting in a 20% fall. While there is also a 25% chance that both events occur leading to a much larger fall in the share market.

In reality, there are many risks at play of varying probability and consequence. But in today’s complex geopolitical and global economic environment, where there are many more event risks than usual, the prudent assessment of risk is imperative. It’s critical to think differently and ensure you don’t get caught up in the herd mentality as markets throw caution to the wind. Consider the way various biases impact your thinking and assessment of risk.

So, while investment markets and many investors seem to have taken a head in the sand approach to considering these risks, I am happy to carefully consider them. It means that we continue to take profit from time to time as share markets go ever higher. We want to be prepared for the day when one or more of these events do occur because eventually, they will.


General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.