Will the 2020s be a 'lost' decade for equities like the 1970s?

Having recently switched our superannuation asset allocation back to our long term strategy of being 100% in 'growth' assets (via the Vanguard High Growth fund), I am of course now worried about the prospect of poor market returns, and the lack of a viable asset to 'rotate' into as a viable alternative. An article in the SMH described how any increases in interest rates by the US Federal Reserve in 2021 and beyond to combat possible inflation could pop the US equity bubble. Our Vanguard investment is about 60% International (mostly US) : 40% Australian equity exposure, so a bear market in US equities would impact our retirement savings considerably. And while there seems little immediate prospect of high inflation or increasing rates by the Australia Reserve Bank for next few years, the Australian share market tends to reflect movements in the US market most of the time.

The strength of the share markets during 2021 was a bit of a surprise in light of the economic impact of Covid-19, but can be explained by the higher p/e ratios being justified in comparison to drops in the 'risk free rate'. But as economies start to recover in 2021 and beyond, central banks will look to move back towards more 'normal' interest rates. Increasing interest rates would induce equity market 'corrections' to more normal p/e ratios even while company profitability may be on the rise. And increasing interest rates would drive up bond yields, which in turn will reduce bond values. So both equity and bond markets could experience poor capital growth over the coming decade.

And while cash rates are close to zero, shifting asset allocation back into cash isn't particularly attractive (our V2 'high interest' savings account is only paying 0.42% interest). An increase in the central bank rates from 0.25% to 1.5% might be a six-fold increase in interest rates, but that is still a poor rate of return (especially if inflation moves back towards the desired 1.5-2.0% target band).

So investors could see poor total returns from stocks, bonds and fixed interest during the 2020s. I can't see any obvious asset reallocation, so perhaps we'll just stick with the High Growth fund and see how things pan out.

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A few blog layout changes

I'm supposed to be sorting and filing away a backlog of financial paperwork this weekend, so instead I'm fiddling with my blog layout ;) 

I decided to put a blog roll back into my layout, but most of the PF blogs I used to follow seem to have gone inactive or have turned into generic cash-generating machines with lots of cookie-cutter content and monetization, so I've only added two links to the blog roll so far. I'll add more if and when I find something worth following...

I've also removed most of the monetization ads from this blog (Amazon books and google ads in the sidebar), as no-one ever buys anything via the Amazon links and my google Adsense has not been working properly for many years (even though my site traffic is reported to hover around 100-200 people per day according to the google blogger stats, google Analytics (and hence Adsense) reports that the site traffic is only 1/10th of that). So my google AdSense revenue has been averaging only 5 cents per month, and at that rate it would take forever for my current accumulated Adsense revenue (around $88) to grow enough to receive another cash payout (I think that would be at A$100). 

I still have Adsense turned on for automatic insertion between posts, but I don't think that actually works (at least I never see any ads between posts when I have a look at this site). Overall, its not worth worrying about monetization of a low traffic blog, so I decided to just clean up my layout a bit instead. It's a bit like the interest received on bank savings accounts - such a tiny amount that its not worth worrying about.

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Net Worth: DEC 2020

My monthly Net Worth calculation has been updated in NetWorthShare for end of December. The stock markets were volatile during December but ended the month fairly flat, so my stock portfolio ended the month at $309,781 (down $1,894 or -0.61%) and my estimated super balance was $1,284,074 (up $5,595 or 0.44%). We've nearly finished the transfers back into Vanguard High Growth Fund from the ANZ V2 cash account, after liquidating the Growth and Conservative investments in mid-December and then having to BPay the cleared funds back into the Vanguard High Growth retail fund (closed to new investors) via $100K/day BPays. The final BPay was done on 1 Jan, and there is also a Vanguard distribution for 31 Dec that is in the process of being credited, so those adjustments won't affect the SMSF calculations until end of Jan.

Our estimated house price was slightly down (-$1,884 or -0.22%) for the month, but the Sydney residential real estate market is showing signs of strength, and a few forecasters have started predicting rises over 2021 and 2022. Hopefully the valuation of my investment unit will be higher than the 'off the plan' price by the time construction is completed in Q2 2023 (when I'll need to get a mortgage to pay the balance of the purchase price).

My net worth figure increased very slightly (by $2,152 or 0.08%) overall, to $2,728,126. 

During 2021 my NW increased from $2,442,188 to $2,728,126, which was a gain of $285,938 or 11.70%. Considering 2020 was a global pandemic and my salary package is only around $110K before taxes (and my financial planning business had no customers and cost me around $18,000 to run, plus I paid uni fees for my masters degree of around $12,000) I was very happy with my financial progress for 2020.

In 2021 I will finish off the final three subjects for my Master of Financial Planning degree (so the uni fees I pay will reduce to about $9,000 for 2021) as well as a couple of specialist financial planning subjects and the Advanced Diploma of Financial Planning from IIT (that I've already paid the fees for). Hopefully I will also get a few paying financial planning clients during 2021, so the net loss of my financial planning business should reduce (I'd like it to cover the running costs, but that may not happen in 2021). House prices in Sydney are expected to rise slightly during 2021, and our home loan will continue to slowly reduce. Depending on how the markets perform during 2021, I might hit $3m NW by the end of 2021... 

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End of December "12% solution" portfolio changes

For the end of December the emailed trading signal was still to be invested 60% in IWM (iShares Russell 200 ETF (All Sessions)) and 40% in JNK. This was the same as last month, so I don't need to do any trades again this month, which will help reduce trading costs. It will be interesting to see how this portfolio performs during 2021.

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