It’s a common enough scenario facing many older Australians: you find yourself living alone, due to divorce or the death of a partner, and the kids have moved away – often interstate or overseas – leaving you with no close family nearby. If this describes your situation, both you and your family might be worried about how you’ll stay safe in retirement.

According to the Australian Bureau of Statistics, around one quarter of all Australian’s aged 65 and over live alone, and while you may consider being independent a hallmark of ageing well, avoiding social isolation in retirement is important, and not just to avoid loneliness.

Being part of a community and having a purpose can be key to a happy, healthy life regardless of your age. Research has found that people who are socially isolated are at a higher risk of cardiovascular disease, infectious illnesses, cognitive deterioration and earlier death.

And remaining connected as you get older can also be important for your safety, as a network of contacts can help to monitor your health and wellbeing.

Ways to avoid isolation and stay safe

• Join a club that gets together on a regular basis to meet with people who have common interests, such as your local golf, tennis or bowls club, or Rotary or Probus club.
• Look into programs for seniors run by the local council, such as book clubs, or council-run courses to learn new skills.
• Find out if you have a local Men’s Shed which run a variety of skill-based classes, such as cookery or woodwork. (Visit their website at mensshed.org).
• Have a scheduled, regular catch-up with a friend or group of friends.
• Have a standing check-in with a family member, such as a fortnightly dinner or nightly phone call.
• Getting to know your neighbours can provide an excellent safety net and informal monitoring of both your wellbeing and the security of your home.
• Look into services that can put you in touch with volunteer visitors, such as the Community Visitors Scheme, which is available for people receiving home care packages through the government, or the Old Mate campaign. (Visit their website at oldmate.org.au).
• If you have medical issues, are susceptible to falls or just want some extra peace of mind, invest in a personal or medical alarm. When triggered, this sends an emergency alert to pre-set mobile phone numbers or a 24-hour monitoring service.

Consider your living arrangements

If you’d like to remain living at home, but health or mobility issues are making things a little more challenging, consider using Meals on Wheels or another in-home community care service. They can provide help with tasks like shopping, cleaning and gardening, plus regular check-ins on your wellbeing, so you can remain in your home for longer.

You could also consider making modifications to your home such as adding shower rails, hand rails, ramps or an emergency alarm.

To prevent losing touch with the community you could consider your retirement living options – if you’re a social being, perhaps you’d rather be in a retirement community than at home alone?

Or if a friend is in the same situation as you, consider moving in together. Not only would you have live-in company, but by splitting the costs of housing and bills you’d both save money too!

More options

If you feel like you need more advice, either for yourself or a loved one, visit the Government’s My Aged Care website (www.myagedcare.gov.au) to learn more about aged care options.

Source: AMP.

Investors spent 2017 monitoring activity in the US, political rhetoric and disruption, economic turmoil in the UK, North Korean activity and the impact of a range of natural disasters. So what should they consider in 2018?

Here are our top 5 themes.

1. Synchronised global economic growth

Not since 2010 have we seen coordinated economic growth occurring across most regions and countries. According to the Organisation for Economic Cooperation and Development (OECD), the global economy is now growing at its fastest pace since 2010. The OECD projects that the global economy will grow by 3.6% this year and by 3.7% in 2018, before easing back to 3.6% growth in 2019.

The OECD expects the United States economy to grow at 2.2% in 2017, rising to 2.5% in 2018, then dropping back to 2.1% in 2019. The Eurozone is projected to grow at a 2.4% rate in 2017 and a 2.1% pace in 2018, before slowing to a 1.9% pace in 2019. Growth in China is projected at 6.8% in 2017, 6.6% in 2018, and 6.4% in 2019, as China rebalances its economy to a more domestic focused services-led growth model.

Japan has sealed its longest stretch of economic growth in 23 years, but that might be as good as it gets for a while, according to the OECD: it forecasts 1.5% growth for the Japanese economy for 2017, with growth lapsing back toward 1% in 2018 and 2019 as the decline in the working-age population accelerates.

The OECD also expects the emerging markets to help drive global growth. In particular, it believes India will show 6.7% growth this year, before accelerating to 7% in 2018 and 7.4% in 2019, on the back of reforms that are expected to boost investment, productivity and growth. Russia is well and truly out of recession, with the OECD seeing 1.9% growth in 2017 and 2018, and 1.5% in 2019. The politically troubled Brazil is also expected to exit recession, with a 0.7% growth rate in 2017, before solid improvement to 1.9% in 2018 and 2.3% in 2019. This level of economic growth should support strong growth in company earnings, and underpin improving global trade and commodity prices.

2. Chinese growth is still strong

China’s economy surged in 2017, supported by government economic initiatives. With huge infrastructure spending expected to continue, China’s economy is expected to keep humming along – although at a slightly lower rate, as per the OECD forecasts above.

3. Quantitative tightening is here

World markets had plenty of warning earlier this year that “quantitative tightening” – the unwinding of “quantitative easing” – was on the way. With the Federal Reserve firmly in quantitative easing mode, the European Central Bank beginning to follow – but with the Bank of Japan lagging, and the Reserve Bank of Australia unlikely to consider raising interest rates until later in 2018 – the world is likely to have a year of monetary policy divergence. Inflation should make a comeback in the US, but spare capacity in the Eurozone and Japan will mean this will not be uniform. In any case, even with quantitative tightening having begun, there is still an estimated US$18 trillion ($23.7 trillion) in the system, so share prices are not likely to come under undue pressure in 2018: if anything, asset prices should remain strong in 2018.

4. In the long run, politics does not drive markets

Virtually anywhere an investor looks around the globe, politics is front page news, mostly for the wrong reasons. Washington is stuck in a theme of extreme partisanship; Germany doesn’t have a formal government at present, and may have to re-run its election; “Remainers” in the British parliament seem to be working with Brussels to circumvent the British electorate’s expressed desire to leave the European Union; Australia’s political conversation daily plumbs new depths of inanity relevant only to its participants; and everywhere, populist fringe parties seem to be the only ones profiting from a free-falling trust in politicians. On the geo-political front, North Korea’s regime is increasingly erratic and bellicose; the Middle East is as restive as ever; religious extremists increasingly affect the way modern societies live; and political crises continue to hold back African economic development. But to share markets, none of this matters, as long as company earnings can rise on the back of real economic growth.

5. Amazon unlikely to kill Australian retail

Amazon’s impending – now actual – arrival in Australia has weighed heavily on the retail sector in 2017, having a definite impact on some companies’ (and retail landlords’) share prices. Amazon will definitely cut into the revenue and earnings of some Australian players, but it won’t blow the whole sector away. The advent of Amazon will be a good thing if it urges retailers to invest in ways to drive efficiencies, improve customer experience and lower prices.

Managing these themes and any ‘unknown’ market events that may arise in 2018 will come down to having a clear and up-to-date investment strategy, with carefully researched diversified investments, that are constantly monitored and reviewed.

Source: BT.

The recent share pullback has seen much coverage and generated much concern. This is understandable given the rapid falls in share markets seen on some days.

Considerations for investors

Sharp market falls with talk of billions of dollars being wiped off shares are stressful for investors as no one likes to see the value of their investments decline. However, several things are worth bearing in mind.

First, periodic corrections in share markets of the order of 5-15% are healthy and normal. For example, during the tech com boom from 1995 to early 2000, the US share market had seven pull backs greater than 5% ranging from 6% up to 19% with an average decline of 10%. During the same period, the Australian share market had eight pullbacks ranging from 5% to 16% with an average of 8%. All against a backdrop of strong returns every year.

During the 2003 to 2007 bull market, the Australian share market had five 5% plus corrections ranging from 7% to 12%, again with strong positive returns every year. More recently, the Australian share market had a 10% pullback in 2012, an 11% fall in 2013 (remember the taper tantrum?), an 8% fall in 2014 and a 20% fall between April 2015 and February 2016, all in the context of a gradual rising trend. And it has been similar for global shares, but against a strongly rising trend. In fact, share market corrections are healthy because they help limit a build-up in complacency and excessive risk taking.

Second, the main driver of whether we see a correction (a fall 5% to 15%) or even a mild bear market (with say a 20% decline that turns around relatively quickly like we saw in 2015-2016) as opposed to a major bear market (like that seen in the global financial crisis (GFC) is whether we see a recession or not. Our assessment remains that recession is not imminent:

• The post-GFC hangover has only just faded, with high levels of business and consumer confidence globally only just starting to help drive stronger consumer spending and business investment.
• While US monetary conditions are tightening they are still easy, and they are still very easy globally and in Australia (with monetary tightening still a fair way off in Europe, Japan and Australia). We are a long way from the sort of monetary tightening that leads into recession.
• Tax cuts and their associated fiscal stimulus will boost US growth in part offsetting Fed rate hikes.
• We have not seen the excesses – in terms of debt growth, overinvestment, capacity constraints and inflation – that normally precede recessions in the US, globally or Australia.

Reflecting this, global earnings growth is likely to remain strong, providing strong underlying support for shares.

Third, selling shares or switching to a more conservative investment strategy or superannuation option after a major fall just locks in a loss. With all the talk of billions being wiped off the share market, it may be tempting to sell. But this just turns a paper loss into a real loss with no hope of recovering. The best way to guard against making a decision to sell on the basis of emotion after a sharp fall in markets is to adopt a well thought out, long-term investment strategy and stick to it.

Fourth, when shares and growth assets fall they are cheaper and offer higher long-term return prospects. So the key is to look for opportunities that the pullback provides – shares are cheaper. It’s impossible to time the bottom, but one way to do it is to average in over time.

Fifth, while shares may have fallen in value the dividends from the market haven’t. So the income flow you are receiving from a well-diversified portfolio of shares continues to remain attractive, particularly against bank deposits.

Sixth, shares and other related assets often bottom at the point of maximum bearishness, ie: just when you and everyone else feel most negative towards them. So the trick is to buck the crowd.

Finally, turn down the noise. At times like the present, the flow of negative news reaches fever pitch – and this is being accentuated by the growth of social media. Talk of billions wiped off share markets, record point declines for the Dow Jones index and talk of “crashes” help sell copy and generate clicks and views. But such headlines are often just a distortion. We are never told of the billions that market rebounds and the rising long-term trend in share prices adds to the share market.

Source: AMP

Market and Economic overview

Australia

• Employment continued to rise in December, with a further 34,700 jobs being created. In 2017 as a whole, more than 400,000 new jobs were created in Australia, providing a significant boost to the economy.
• Consumer confidence has risen to its highest level in more than four years on the back of the improving labour market conditions.
• Higher confidence levels are being reflected in spending habits. November retail sales grew at the fastest monthly pace since February 2013, for example, and new car purchases are at record highs.
• In spite of the higher spending, inflation remains slightly below the Reserve Bank of Australia’s 2% to 3% target range. This suggests there is a limited likelihood of interest rate increases in the near term. Official interest rates were left on hold at 1.5% at the Bank’s last meeting in December.

United States

• For a few days in mid-month, politics overshadowed economic news. A number of government departments had to shut down as Congress failed to pass a new funding deal. A temporary solution was subsequently agreed, enabling investors to refocus on economic data releases.
• Corporate earnings were also announced by around a quarter of companies in the S&P 500. As ever, these releases attracted a great deal of scrutiny.
• In spite of the improvement in economic conditions in the US over the past year, inflation appears to remain under control. Annual CPI of 2.1% was announced for calendar year 2017. Higher employment, improving confidence and buoyant retail sales have not yet resulted in significant inflationary pressure.
• The recovery in US manufacturing continues. Industrial production rose 1.8% in 2017, the first gain since 2014.
• The employment picture also remains encouraging. December’s jobs report was broadly in line with expectations, with 148,000 new jobs being created. Wage growth also continued to edge higher.
• Towards the end of the month, investors focused on the release of employment statistics for January, which were released in early February. Data showed that a further 200,000 jobs were added in January, which was well above expectations.
• Average hourly earnings also rose 2.9% yoy in January; the fastest pace of growth since 2009. This prompted some commentators to suggest that the labour market could be showing signs of overheating.

Europe

• Euro area GDP rose 2.5% in 2017 as a whole; the best performance in the past decade.
• Improved conditions have resulted in rising new job vacancies and have seen the unemployment rate fall to 8.7%. While this remains high by Australian standards, it is well below the 12%+ rate seen around five years ago.
• The employment picture has also improved in the UK, where the overall number of people in work is now higher than ever before. The official unemployment rate (4.3%) is the lowest in more than 40 years.
• Encouragingly, UK exports are rising and the manufacturing sector is performing well. Negotiations over ‘Brexit’ continue; this has the potential to derail the economy in a worst-case-scenario outcome for the UK.

New Zealand

• CPI data for the December quarter highlighted annual inflation of 1.6%. This was well below expectations and was the lowest quarterly reading in the whole of 2017.
• The subdued reading was attributed to moderating food prices, although selected other sectors including education and utilities continued to see quite strong price increases.
• The lower overall inflation reading affirmed investors’ existing view that the Reserve Bank of New Zealand is unlikely to raise interest rates from the current 1.75% throughout 2018.

 

Asia

• Data confirmed that the Chinese economy expanded 6.9% in 2017; ahead of the government target of 6.5%. The performance in 2017 was also an improvement on the 6.7% growth witnessed in 2016, which was the country’s lowest growth reading for more than 25 years.
• Elsewhere in Asia, Japanese inflation quickened to its fastest pace since early 2015, driven by rising food prices. In spite of the spike, official interest rates remain below zero (-0.1%).
• The Japanese government forecasts economic growth of 1.4% this year, which could result in inflation of around 2% in 2019.

Australian dollar

The Australian dollar appreciated by more than 1% against a trade-weighted basket of currencies in January.

The dollar performed particularly well versus the US dollar, rising to its highest level since May 2015 (US$0.8136). The move was supported by general weakness in the US dollar and a more positive outlook for global economic growth. Buoyant Australian economic activity was also supportive.

The Australian dollar lost ground against the British pound, partly reflecting the release of favourable UK economic data.

Commodities

Commodity prices were mixed during January, although most were supported by a weaker US dollar and growing optimism regarding the global growth outlook.

Coking coal saw the most noticeable change, falling -18%. A restocking cycle that helped prompt coking coal prices higher at the end of December was unwound in January, as stockpiles grew sharply. Iron ore tracked mostly sideways, as demand for higher-grade ores remained strong (see our Chart of the Month on the following page), despite evidence of easing restocking demand in January.

Base metals were mixed. Nickel (+10.6%) and Zinc (+8.5%) rose, while Copper (-0.8%) and Aluminium (-0.8%) edged lower.

Gold continued its strong momentum, adding 2.5% on a weaker US dollar.

Oil (+7.0%) continued its march higher, reaching three-year highs. Strong demand, OPEC production cuts and positive IMF economic growth forecasts all helped to support the oil price.

Australian equities

Following a strong December, the Australian equity market (S&P/ASX 200 Accumulation Index) edged -0.4% lower.

Bond proxy sectors Property Trusts and Utilities weighed on the broader market, with both falling appreciably (-3.3% and -4.5%, respectively) amid rising bond yields.

There was some divergence of stock performance within the Industrials sector (-2.1%), with Macquarie Atlas Roads (-8.7%), CIMIC Group (-8.4%) and Aurizon (-5.7%) among the underperformers.

Health Care was the best performer, adding 3.2%. The sector was boosted by gains in Sirtex Medical, which surged 66.1% after agreeing to a $1.6 billion takeover by US firm Varian. ResMed (+15.0%), Sonic Healthcare (+4.3%) and CSL (+3.6%) also outperformed.

Materials (+0.5%) and Energy (-0.5%) took a breather after both added 23% in 2017. Financials finished -0.8% lower, as the ‘big four’ banks all lost ground.

Within Consumer Staples (-0.1%), a2 Milk had another stellar month, adding 14.6%, bringing its gains for the past 12 months to 294%. This was insufficient, however, to offset weakness in sector giants Wesfarmers (-1.4%) and Woolworths (-1.3%).

In the Consumer Discretionary sector, strong gains in JB Hi-Fi (+17.2%) and Flight Centre (+15.4%) were offset by losses in Retail Food Group (-20.9%) and Fairfax Media (-9.0%).

Listed property

The S&P/ASX 200 A-REIT Index fell -3.3%.

Retail A-REITs (-2.3%) and Office A-REITs (-2.3%) were the stronger performers, while Industrial A-REITs (-3.9%) lagged.

All stocks lost ground in January. The worst performers included specialised A-REIT, Iron Mountain and diversified A-REIT, Abacus Property Group. Iron Mountain suffered for the second month in a row, having fallen more than 8% in December after announcing the acquisition of the US operations of IO Data Centers. The deal was subsequently closed in January. Abacus Property Group fell over the first half of the month, in particular, after announcing the retirement of its Managing Director, who had been with the Group for more than 21 years, with 11 years as MD.

Scentre Group and Vicinity Centres outperformed peers, although neither company released any meaningful news.

The global FTSE EPRA/NAREIT Developed Index (TR) was flat in USD terms. In local currency terms, Japan (+7.8%) was the strongest property market, while the US (-4.2%) underperformed.

Global equities

Global equity markets had a happy start to the new year. The MSCI World Index surged 5.3% in USD terms, having been up 7.2% before profit-taking and higher bond yields saw a weaker finish in the final week. Markets continued to set new records over the month in terms of both index levels and the sustainability of the recent rally. Investors even shrugged off some jitters over the potential for broader government shut-downs in the US, with the Senate threatening to block a funding bill. Markets were also supported by favourable economic data and solid earnings results in the US and Europe.

The US market was the strongest performer in local currency terms, with the S&P 500 up an impressive 5.7%. Of the 24% of S&P 500 companies that announced results in January, 81% reported sales above consensus estimates.

The FTSE 100 was one of the weaker performers, down almost 2%. Investors remain nervous over the potential outcome of ‘Brexit’ negotiations. Additionally, the resources-heavy UK bourse contains few information/bio technology companies that have been driving markets in the US and Asia.

Growth companies outperformed their value peers. MSCI World Growth was up +6.3% in USD terms, versus MSCI World Value, which added +4.3%. There was a similar gap in favour of large caps, with the MSCI World Large Cap Index (+5.5%) outperforming the MSCI World Small Cap Index (+3.6%).

MSCI Emerging Markets (+8.3%) also continued to strongly outperform their developed counterparts in USD terms, helped by the weakness in the US dollar. Latin American indices performed particularly well, with the resources-rich Brazilian bourse leading the way (+11.6%).

Global and Australian Fixed Interest

Buoyant investor sentiment towards risk markets in early 2018 resulted in a strong upward move in global government bond yields. US 10-year Treasury yields rose to their highest level since April 2014.

Market optimism was bolstered by US tax reforms passed at the end of 2017 and announcements that many US companies would be awarding pay rises and bonuses.

CPI remains below target in most countries, there was also a marked increase in market expectations for inflation worldwide.

Global central banks are also pulling back on asset purchases, most notably the European Central Bank (ECB). The ECB has started to talk about the possibility of lifting interest rates once its asset purchase program ends later this year.

Continued discussions on the North American Free Trade Agreement also exerted upward pressure on bond yields, with suggestions that the US, Canada and Mexico are nearing an agreement on trade talks. Other geopolitical issues were more subdued in the month, with limited developments on the ‘Brexit’, North Korea and President Trump impeachment fronts.

Global credit

Global investment grade credit spreads continued on the long-held tightening trend, reflecting ongoing optimism towards risk markets.

Issuance remained strong, with a number of global investment grade bond issues being met with demand as the hunt for yield continued.

Average credit spreads closed the month 9 bps narrower, at 0.85%. US credit moved 7 bps narrower, to 0.82%. In Europe, spreads closed January 12 bps narrower, to 0.74%.

US high yield credit spreads widened 27 bps, to 2.59%. The high yield market continues to be impacted by downgrades, particularly in the energy and mining sectors.

Source: Colonial First State.