Are you making the most of the tax breaks available on your superannuation contributions, provided you don’t mind not seeing that money again until you’re in your 60s?
I have the confidence to invest because I know I have budgeted for all the big bills and regular expenses in my family budget. I also have a fully funded emergency fund worth six months of basic cash seated living expenses.
At the end of each month, I calculate my monthly budget surplus and know exactly how much surplus funds I need to deploy to invest, if I wish.
I also regularly cap my tax-deductible contributions to the super, and I’ve already saved up and made a down payment to buy my house.
I considered the potential role of leverage (borrowing to invest) in my strategy and decided what I’m comfortable with. And I’ve considered alternative investments to stocks, such as real estate, and considered how the two fit into my overall investment strategy and risk tolerance.
Above all, I know I really don’t want to touch the money I’m investing for at least 15 years, and only then if I decide I want to retire a little before 60 and can access my super .
So how am I?
“I know that, over the long term, equities have provided an ‘equity premium’ to investors for deploying their savings more riskily.”
Well, at the end of a year of investing, my portfolio value is slightly in the red.
My Aussie investments have nearly broken even, with dividend income (pre-tax) offsetting a slight decline in the value of my total portfolio since purchase (remember my purchases have been spread over the year, so recently I bought when stock values were lower).
My international investments are more firmly in the red, amid rising inflation and rotation in ‘growth’ stocks such as technology, where the Australian market is less focused.
There was a war. There have been supply chain issues. There has been a drastic reassessment of the likely trajectory of future interest rate hikes to manage.
I went from checking my balance several times a day (rookie mistake) to checking it maybe a few times a week.
Amid all the heightened volatility, the past two months have felt like some sort of “blood.” I saw the paper value of my investments drop and I held on, continuing to follow my strategy and invest my surpluses.
I know that, over the long term, equities have historically offered an “equity premium” to compensate investors for the riskier deployment of their savings. It’s common to quote the long-term annual return on stocks, including dividends, at around 8%.
But, as they say, past performance is no guarantee of future performance. We know it is completely normal and expected to produce negative returns for a few years. I have come to accept that it is entirely possible that we are currently in an extended period of below average returns.
However, as long as there is value to be created through the process of companies combining labor and capital inputs to produce goods and services, there should be benefits to be gained from becoming co-owners of these businesses, both by earning dividends and settling for the long haul.
I am concerned for young investors who may have invested with too short a time horizon and risk selling at the bottom of the market and missing any upside potential.
I look forward to the day when money in the bank will once again earn more than negligible interest. This process is now underway, and it is the one that will ultimately lead to greater stability down the line. And that can only be a good thing for long-term investors like me.
- The advice given in this article is of a general nature and is not intended to influence readers’ decisions regarding investments or financial products. They should always seek professional advice that takes their personal circumstances into account before making financial decisions.
Jessica Irvine is the author of the new book Money with Jess: Your Ultimate Guide to Household Budgeting. You can follow Jess’s other money adventures on Instagram @moneywithjess and sign up to receive her weekly email newsletter.