Markets Steady as Change Continues
As 2024 draws to a close, we’ve seen markets stabilise while transformative forces – from AI to generational wealth transfer – continue to impact the traditional investment landscape.
In our final Exchange Newsletter for the year, our business leaders share their insights on the opportunities and challenges ahead for you, your family and your business in 2025.
Damien Cooper (Chief Executive Officer)
Building on Emerging Opportunities
While uncertainty remains, 2024 brought a period of relative stability with Financial Decisions helping clients benefit from steady market growth. As a business, we continue to expand, consolidating our tax and accounting team under Peter Lever, who you’ll hear from below.
The generational wealth transfer continues to gather pace, and we’re helping more clients make prudent planning decisions around superannuation, estate planning and wealth preservation. For those still in the building phase of their retirement nest egg, there’s a growing urgency to maximise superannuation contributions ahead of potential regulatory changes.
Market conditions are creating new opportunities. With traditional lending tightening and interest rates remaining elevated, we’re seeing attractive possibilities in private credit markets where clients can often achieve returns of ~9% with the security of underlying assets.
The US election result has provided an initial sugar hit to markets, though the longer-term impacts of trade policies on inflation and international commerce remain to be seen. Here in Australia, our own Federal election in the next six months will also have an impact.
As our team explores below, factors including artificial intelligence, evolving regulations, shifting market dynamics and demographic changes are all contributing to making 2025 a year of risk and reward. We’re always here to help you make the most of emerging opportunities.
Daniel Rolley (Chief Investment Officer)
Investment Strategies for Peak Markets
2024 has been a positive year for our Managed Discretionary Account (MDA) portfolios, with most achieving double-digit returns and strong client adoption. While these results are encouraging, we’re mindful that share markets are trading at or near all-time highs, requiring careful portfolio management as we move into 2025.
The incoming US administration under Donald Trump is expected to introduce significant changes that will affect the world’s largest economy, including higher tariffs, lower corporate taxes and deregulation. While these policies could boost economic activity, they may also increase inflation and interest rate risks. We’re watching closely to see whether the proposed tariffs emerge as more of a negotiating tactic than an economic barrier.
Technology sector investments continue to show multi-year growth potential. We’re seeing compelling opportunities in the global tech platforms as well as the companies developing the fundamental computing and processing capabilities that power AI innovation. The combination of market dominance, strong earnings potential and reasonable valuations in this sector makes for attractive investment opportunities.
Looking ahead to 2025, market return forecasts are more measured, primarily due to stretched valuations following 2024’s strong performance. While US corporate earnings growth looks promising at around 10%, Australian corporate earnings may be more modest due to banks reaching peak cycle earnings and resources facing lower growth and China exposure.
Defensive fixed-income assets remain particularly attractive, with high cash yields and low corporate defaults supporting expectations of high single-digit returns. We’re also exploring areas with latent potential, such as small caps and private equity, to complement these positions.
For a confidential discussion about your investment strategy or to learn more about our portfolio management approach, please contact us to arrange a consultation.
Tim Brosnan (Head of Wealth)
An Economic Turning Point
This year marked a turning point as inflation peaked and major economies largely managed a soft landing while avoiding widespread recessions. While Australia is a little behind the US and Europe in terms of inflation and interest rates, the RBA has been holding the cash rate steady, and its next move is expected to be down.
After the volatility of recent years, we’ve seen steady performance across multiple sectors. Defensive assets like credit funds and term deposits are delivering returns not seen for four to five years before 2023, benefiting investors seeking reliable income streams. Many analysts expect these attractive yields to continue while rates hold steady, before moderating as forecast rate reductions begin in 2025.
Looking ahead, two major elections could reshape markets in 2025. The return of Donald Trump sets up a predictably unpredictable four years, particularly regarding international trade relationships and geopolitical tensions. Closer to home, Australia’s upcoming Federal election may bring significant changes, including proposed regulation reforms that could impact areas such as self-managed superannuation, tax structures and trust distribution rules.
As AI continues to transform industries and business practices, we’re exploring new ways to leverage data and AI to enhance investment analysis, track client goals and deliver more transparent reporting at Financial Decisions.
From an investment perspective, many clients seek exposure to this trend through technology funds and major players like Microsoft, Meta (Facebook/Instagram), Alphabet (Google) and Amazon – corporations making substantial bets on the future of AI. Companies like chipmaker Nvidia are particularly interesting as they provide the fundamental infrastructure – the ‘picks and shovels’ – powering these AI platforms.
While we remain optimistic about underlying market trends for 2025, there will inevitably be periods of volatility and uncertainty.
Wade Stanley (Head of Mortgages)
Property Markets enter a New Phase
After the unprecedented rate rises of 2023, this year has brought welcome stability to the mortgage market. The Reserve Bank’s cash rate has held steady at 4.35% since December 2023, giving borrowers some breathing room as they adjust to the new higher-rate environment.
Looking ahead to 2025, we’re cautiously optimistic about the potential for rate relief, though this will depend heavily on inflation indicators meeting the RBA’s targets.
While some economists suggest we could see rate decreases as early as February 2025, our analysis points to mid to late 2025 as more likely for meaningful reductions. This uncertainty is impacting market dynamics for property prices. Currently, APRA’s continued enforcement of a 3% serviceability buffer means that for a loan at 6.19%, borrowers must demonstrate they can service payments at 9.19%. This has naturally impacted borrowing capacity and contributed to more measured market activity.
The property landscape continues to show significant regional variation. Perth, Brisbane and Adelaide are maintaining solid growth trajectories, while parts of Sydney have experienced recent price retractions. Melbourne’s market has seen some softening, particularly as investors adjust their positions. As Sydney and Melbourne represent our largest population centres, their performance significantly influences national figures.
Looking to 2025, any interest rate reductions would boost borrowing power, potentially allowing more buyers to enter higher price brackets. However, the impact on property prices will depend on the balance between this increased buying capacity and housing supply. Current forecasts suggest we’re likely to see either a flattening or only modest growth in house prices, depending on how these factors play out.
To prepare for these changes, now is an opportune time to review your debt arrangements. Key questions: Is your current home loan offering competitive rates and appropriate features for your needs? Have you explored options to leverage equity from your primary residence for investment opportunities? Are you contemplating property investment or downsizing in the year ahead?
For a confidential discussion about your specific circumstances or an objective second opinion on your options, we’re here to help with obligation-free consultation and advice.
Peter Lever (Head of Tax & Accounting)
Navigating Tax Compliance and Wealth Transfer
Having partnered with Financial Decisions for many years, I was pleased to officially join the tax and accounting division early this year. Getting out and meeting clients face-to-face alongside our advisers has been a highlight, and I look forward to connecting with more of you in 2025.
After taking a more relaxed stance during the COVID years, the ATO is significantly tightening its approach. With over $50B in owed taxes, plus substantial amounts tied up in late or non-lodgements, its top priorities are lodgement obligations, debt recovery and ensuring correct classifications and registrations – including scrutiny of payroll tax, land tax and expense classifications.
If you have grey areas in your finances, unresolved questions or anything that has fallen through the cracks, now’s the time to tidy up any loose ends. We’ll be working proactively with clients to stay ahead of lodgements and paperwork to ensure compliance.
The historic wealth transfer we highlighted last year continues to accelerate. While many clients are keen to help children or grandchildren by transferring shares, property or cash, thoughtful structuring can make a significant difference in the outcome. For instance, a direct transfer of shares to help grandkids save for a deposit might trigger unnecessary capital gains tax, while simply converting inherited assets to cash without proper planning could create avoidable tax implications.
Whether you’re planning to transfer wealth or are in line for an inheritance – timing and structure are critical. Let us know if you’d like a confidential discussion about your tax and accounting circumstances or if you would like to optimise the tax position of your estate.
Looking ahead, potential new regulations may reshape the landscape. The proposed Division 296 tax on superannuation could significantly impact funds over $3M if enacted. Additionally, recently proposed changes to ATO Trust Distribution rules may affect those receiving inheritances from overseas. Our team monitors these developments closely to provide timely advice.
Here’s to a Prosperous 2025
We thank you for your continued trust and partnership with Financial Decisions. As change and opportunity continue to shape our financial world, we’re committed to your success.
Please note: the Financial Decisions office will be closed for the Christmas period. We hope you enjoy a peaceful break.
Disclaimer: This publication has been compiled by Financial Decisions (AFSL/ACL Number 341678). Past performance is not a reliable indicator of future performance. While every effort has been taken to ensure that the assumptions on which the outlooks given in this publication are based on reasonable data, the outlooks may be based on incorrect assumptions or may not take into account known or unknown risk and uncertainties. Material contained in this publication is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The information and any advice in this publication do not take into account your personal objectives, financial situation or needs. Therefore you should consider its appropriateness having regard to these factors before acting on it. While the information contained in this publication is based on information obtained from sources believed to be reliable, it has not been independently verified. To the maximum extent permitted by law: (a) no guarantee, representation or warranty is given that any information or advice in this publication is complete, accurate, up-to-date or fit for any purpose; and (b) Financial Decisions nor its employees are in any way liable to you (including for negligence) in respect of any reliance upon such information or advice. December 2024
Contact: Financial Decisions PO Box 484 Mona Vale NSW 1660, T 02 9997 4647