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A rising tide lifts all boats

Most economists believe that 2021 will be a good year for Australian shares.  After a difficult and uncertain 12 months, in which a health crisis became a full-blown economic crisis, there’s a lot to feel optimistic about.

We have snapped back from the COVID recession, with economic growth of 3.3 per cent in the September quarter.  There are several vaccines being rolled out globally in what is the biggest vaccination campaign in history.  Across 51 countries, 2.44 million doses a day are currently being administered.  Here in Australia, we are looking to start our domestic program next month.


A good year ahead

This positive news is improving business and consumer confidence.  According to CoreData’s High Net Worth Investor Sentiment Index©, the rich are feeling more confident right now than they have at any other time in the past seven years.

This positive sentiment will increase demand and should push share prices up as investors return to investing in the share market.  But that’s just the start.  There will also be more demand for shares from retirees as they search for investment income.  

Many unadvised retirees see no alternative but to increase their risks and invest more in shares for the dividend income. Record low interest rates mean that the potential dividend yield from shares is way more attractive than what term deposits are currently paying out.


Cyclical shares should perform well

All this means that the share market is likely to rise, particularly cyclical shares.  Cyclical shares move up and down with the systemic changes in the economy.  Most cyclical shares involve companies that sell discretionary items that people buy more of during good times but spend less on during tough times.

In Australia these include financial services and insurance companies as well as basic materials stocks.

Other sectors should perform well too.  Shares in online delivery platform companies and internet publishing and broadcasting companies should perform well because of changing consumer habits that are likely to outlast COVID.  The Government stimulus package provides favourable conditions that make infrastructure and large-scale construction companies attractive as well.


But not every sector will perform

There will be some industries that lose money in 2021, left behind by the rising tide.  The global vaccination program is likely to be a long, drawn-out process, with negative implications on the hospitality and entertainment industries. 

It’s also unlikely that Australia will return to international travel during 2021.  That has implications for the travel and higher education industries that are likely to continue to spiral downwards.


What this means for retiree investors

Rising share markets are welcome news for retirees, especially when interest rates are so low.  It means that we can rebalance our investments, replenish our short-term cash reserves and de-risk our financial plans with confidence.

No one ever went broke taking profits and selling shares when prices are rising can be a smart thing to do, especially in the midst of a global pandemic.


At When Financial Solutions we can help you make sense of the complexity.  We can help you make the most of the prevailing economic conditions, so it’s not a matter of ‘if’ you will have a comfortable retirement, but ‘when’.


Michael Bowman and James McMaster are co-founders of When Financial Solutions.  This article is general and does not consider your personal circumstances.  If you would like advice specific to you please give us a call.


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