November 2024 Newsletter

Advice can play a critical role in helping Aussies manage financial stress

When it comes to financial advice, there’s a common misconception out there. People tend to think it’s all about numbers.

How much extra can you tip into super. What return your investments are making. How much you’re going to have in retirement.

And sure, the dollar amounts are important. But financial advice is about so much more than numbers on a spreadsheet. An adviser is someone to confide in and collaborate with to achieve your financial goals.

So, what do Australians think of financial advice? And how does it affect their overall financial wellbeing?

Untapped potential

Recent research shows 11% of Australians have engaged an adviser over the past 12 months¹. This means almost 9 out of 10 Aussies aren’t getting professional help with their finances and are at the mercy of bogus advice from other sources – both online and offline. Mates down the pub. Random tweeters. Dr Google.

More than one in four (27%) people say they have been exposed to financial misinformation – and worryingly, 31% have acted on the incorrect information.

And the top sources of financial misinformation? Yes, not surprisingly it’s social media (37%) and online searches (20%).

The top 5 barriers to seeking advice

So why aren’t Aussies seeking advice? Here are the top five factors putting people off.

1. 46% feel the cost was too high.
2. 34% think their finances are simple enough to manage themselves.
3. 33% prefer making their own financial decisions.
4. 24% see themselves as able to make financial decisions without advice.
5. And 20% simply don’t trust others to look after their finances.

Research shows Aussies in 2024 tend to be a little more focused on day-to-day issues rather than planning for the future – home loan repayments, savings plan and cost of living challenges are rating higher than retirement planning and super strategies. This reflects a very real gap – that many people are missing out on planning for the long term, including their retirement.

One challenge when it comes to financial advisers, is the trust gap among Australians – those who have engaged with an adviser are more likely to trust them than those who haven’t.

So how are advisers helping their clients…and what are Aussies not getting advice, missing out on?

3 ways advisers are helping Aussies feel better

1. Helping to set and achieve goals

It’s one of the most fundamental roles an adviser plays…setting clear, well-defined and achievable goals. And advisers are hitting it out of the park. The research shows Australians who have used an adviser feel a lot more organised. More of them have set clear financial goals and fewer of them haven’t got around to it, compared with Australians who aren’t getting advice.

21% of Aussies who say they have clear well-defined financial goals have used a financial adviser compared to only 9% of total Aussies.

2. Helping to ease stress…

Advisers are clearly helping people manage their stress levels more effectively. Only 16% of advised Australians feel severely or moderately stressed, compared with 30% of the general population.

…and manage daily stress levels

And almost two-thirds (64%) of people getting advice feel capable of managing daily financial stress well, compared with less than half (43%) of the total population.

3. And helping to improve overall financial wellbeing

From mortgage repayments to living costs, financial security and emergency planning, the research is unambiguous. Advised Australians feel significantly more positive about money matters and capable of handling any financial curveballs that might be thrown at them.

Improving mental wealth

The research measured seven key pillars of mental wealth – mental wellbeing, happiness, financial stress management and resilience, work/life balance, personal growth, community support and psychological richness.

And there’s a clear link between financial stress and overall mental wellbeing – 48% of Australians rate their overall mental wellbeing as good but only 22% of Aussies who are moderately or severely financially stressed say the same. And half of us are happy with our lives overall, but that jumps to more than three in four (76%) of financially secure Australians.

So, by helping Aussies get to grips with their finances, advisers can play a vital role in improving the nation’s overall financial wellbeing.

We can help you retire well

We can guide you through the complexities of retirement planning and discuss some of the innovative retirement income solutions that are now available.

Disclaimer: This information is provided by AMP Financial Planning Pty Limited (AMPFP) ABN 89 051 208 327AFSL 232 706, Hillross Financial Services Limited (Hillross) ABN 77 003 323 055 AFSL 232 705 and Charter Financial Services Limited (Charter) ABN 35 002 976 294 AFSL 234 665 Ph. 1800 021 466, all wholly owned subsidiaries of AMP and members of the AMP Group. Any advice contained in this document is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Before making any decision, you should consider the appropriateness of the advice with regard to those matters. If you decide to purchase or vary a financial product, your advisers, AMPFP, Charter its associates and other companies within the AMP Group may receive fees and other benefits, which will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. Ask us for more details. If you no longer wish to receive direct marketing, please call your adviser.
Current as at October 2024
1 AMP Financial Wellness Report 2024

Phone buzzing, emails constantly popping up, ongoing chats with colleagues, responding to meeting invites and all the while trying to work on that report. Sound familiar?

While we’ve all become reasonably proficient at multitasking in this digital age, numerous commentators are pointing to the toll the constant distractions are having on our productivity and the outcomes of our efforts. So, let’s look at the benefits of deep focus – uninterrupted time to work at your maximum potential and create quality work, faster.

What is deep work?

The notion of ‘deep work’ or an intense, productive focus, was first coined by computer science professor and author Cal Newport. Cal suggests that our online tools are making us lose the capacity for focus in a hyper-distracted world. He argues that for your brain to work at its maximum potential, you need to enter a state of focus, with no external distractions.

Multitasking as an impediment to productivity

While multitasking is an essential survival tool, it’s not great for your productivity to be in that state constantly.

When you switch between tasks – for example responding to an ‘urgent’ email while drafting a proposal – some of your attention remains on the previous task so you are still mulling over the email when you go back to your proposal. This is known as attention residue, and it impedes productivity. Research shows that it can take more than 20 minutes to get your train of thought back on track and up to speed after an interruption, which could mean if you are constantly responding to interruptions, you are never working at your full capacity.¹

It’s also been demonstrated that not only do people take longer to complete tasks when multitasking, they are also far more likely to make mistakes, so accuracy plummets when you are hopping from one thing to the other.²

Why is deep focus so effective?

Each time you practice deep focus, it leads to more effective learning. When you concentrate deeply on a single task, your brain creates pathways to consolidate and reinforce learning which means you are literally rewiring your brain to help you perform at an optimal level.³

How to dive deeper

Ok, I hear you saying. This all sounds great but how do I fit this into my already busy life when finding an interrupted block of time feels next to impossible?

Once you start to use deep flow as part of your daily routine you may find that you are accomplishing more and getting through your workload a little faster, given the productivity benefits so you’ll free up time.

It’s important to schedule and prioritise how you are spending this precious deep focus time to maximise the benefits. One way to achieve deep focus can be to schedule regular blocks of time to dedicate to important tasks that require focus, followed by short breaks.

A time management technique known as the Pomodoro technique suggests that the optimal time for concentration is 25 minutes, followed by a short five-minute break. Don’t feel that you must set a timer if that feels too restrictive for you, as you can adjust the timings to suit you and your workflow. The idea is to set aside blocks of time and impose time limits on your tasks to focus, taking breaks in between bouts of intense focus to refresh yourself.

Consider when you are at your best to undertake these important deep flow tasks – whether it’s first thing in the morning, after a bite to eat at lunch, or later in the day.

It’s also important to accept that interruptions will inevitably happen and try not to get angry or upset as that will derail your train of thought.

Finally, don’t be afraid to play around with what works for you and experiment with adding some deep flow into your work processes. You’ve got nothing to lose and everything to gain. So, what are you waiting for – turn that phone onto silent mode and dive deep!

Current as at October 2024
1 https://ics.uci.edu/~gmark/chi08-mark.pdf

2 https://news.stanford.edu/2020/10/28/poor-memory-tied-attention-lapses-media-multitasking/

3 https://psycnet.apa.org/doiLanding?doi=10.1037%2F0033-295X.100.3.363

Key points

Introduction

The US election is less than a month away. So far investment markets seem to be paying little attention to it. However, this could change as Donald Trump’s policies are very different to Kamala Harris’ with significant implications for the global economy and Australia. A Trump victory could lead to a weakening in US institutions, democracy and global alliances and a narrow Trump loss could see political unrest. Being unable to run for a third term, a second Trump presidency will lack the electoral constraints of his first term and is likely to have less “adults in the room”.

The resilient economy and shares favour Harris

Strong economic and financial conditions tend to point to a Harris victory.

• The US economy remains strong, avoiding so far the much feared recession. Even if one arrives this quarter (which looks unlikely) it will arguably be too late to impact the election in a month.
• The so-called Misery Index (unemployment + inflation) has been falling and is down on a year ago, which historically points to a victory for the incumbent party (Democrats). According to research house Strategas, it has correctly predicted 15 of the past 16 election results since 1980.
• US shares are strong – if they are up over the 3 months prior to the election the incumbent party tends to win & vice versa. This has been 83% accurate since 1928. Right now, it’s up 10.9% since 5^th August.

Of course, none of these are infallible. US shares rose 2.3% over the three months prior to the 2020 election and yet Trump lost (although there was a recession that year) and the incumbent party (with Hilary Clinton) lost in 2016 despite the absence of recession. And in this election, the cost-of-living surge and immigration blow out under the Biden Administration is an ongoing drag for Harris even though the rate of inflation has fallen and several key battleground states (which will likely determine the election under the US electoral college system) have seen economic conditions weaken lately – notably Michigan, Nevada, Wisconsin and Georgia.

But polling is very close

The replacement of Biden with Harris saw a spike in Democrat prospects, but this has faded and the election looks very close.

• Real Clear Politics poll average has Harris leading Trump by 2 points in terms of presidential voting intentions, but this is well behind where Biden was at the same point in 2020. See next chart at left.
• And the RCP poll average of battleground states has Harris lagging Trump by 0.2 points with Harris ahead in 3 and Trump ahead in 4. This is well down from Biden’s lead in 2020. See next chart at right.

Source: Real Clear Politics, Bloomberg, AMP

• The ‘PredictIt’ betting market has the Democrats only just ahead, with the Democrats down from a boost from the Harris/Trump debate & the RCP average of betting markets has Trump ahead.

Probability of winning the Presidency, Implied by betting markets

Source: PredictIt, AMP

• If Trump wins, it’s likely the Republicans would regain control of the Senate (where they have an edge as the Democrats need to defend more seats) and possibly keep the House, resulting in a clean sweep.
• If Harris wins, it’s likely the Democrats retain the House, but lose the Senate (having to defend more seats), resulting in divided government.

Key Trump policy differences versus Harris

Taxation: Trump would make the 2017 personal tax cuts (which took the top marginal tax rate to 37%) permanent (as they expire in 2025) and cut the corporate tax rate to 20% with 15% for domestic manufacturing. Harris would extend the expiring 2017 tax cuts for those earning under $400,000, provide bigger tax credits for caring, raise the corporate tax rate to 28%, raise the capital gains tax rate to 28% for those earning more than $1m and tax unrealised capital gains. Note that the corporate and capital gains tax increases will be very hard to legislate as Biden found.

Trade: Harris would basically continue current policies which have kept Trump’s first term tariffs, added some and focussed on subsidies for green manufacturing in America. Trump is threatening a much bigger ramp up in protectionism though with a 10-20% tariff on all imports and a 50-60% tariff on imports from China. This would take the average US tariff rate from around 2.5% to around 17%, a level last seen in the 1930s. In practice, Trump is likely to target countries with a trade surplus with the US (notably China, Europe and Japan), the tariffs may not get as high and it may be part of a “maximum pressure” campaign to bring production, including by Chinese manufacturers, back to the US (as occurred with Japan in the 1980s). The latter may be the case, but we could go through a lot of disruption as Trump initially ramps up the pressure resulting in a much bigger impact on share markets than seen in 2018 (where Trump’s trade wars contributed to an almost 20% fall in shares). This will likely be made worse as impacted countries respond with tariffs on US imports in retaliation.  The impact will be an acceleration in the process of deglobalisation. Trump’s inability to have a 3rd term may see him act earlier on trade and more aggressively than was the case in his first term as he will be less constrained by political considerations.

Immigration: Immigration surged under Biden making it a big issue but has been limited lately with Harris likely to continue this. Trump will aggressively curtail immigration threatening mass deportation.

Cost of living: Harris is proposing a ban on grocery price gouging, support for home buyers and drug price caps

Fed independence: Trump would seek to replace Jerome Powell, and his supporters are looking at ways to roll back the Fed’s independence.

Climate policy: Trump will likely reverse the US’ net zero commitments and the policies Biden introduced to support it and support fossil fuels (“drill baby drill”). Subsidies for green manufacturing are likely to be replaced with wider support for domestic manufacturing (eg, a 15% corp tax rate).

Regulation: Trump is likely to slash energy and financial regulation.

Budget deficit: The deficit – already huge at 6% of GDP – would likely get bigger under Trump (+2-3% of GDP) than under Harris (+1-2% of GDP).

Economic impact of a Trump victory

A Harris victory would mean a continuation of the status quo – unless she raises the corporate and capital gains tax rates. Raising these tax rates is unlikely though unless Democrats win both the House and Senate, but even then, it’s difficult to get through as Biden found. Trump would be far from the status quo though.

His policies in support of tax cuts and deregulation could help boost the supply side of the US economy via a boost to productivity (which is already good). However, on balance Trump’s policies – with higher tariffs resulting in higher import prices, lower labour force growth and potential moves to weaken the Fed’s credibility – risk adding to inflation.

There is also a risk that an even higher budget deficit, with no sign of improvement when US public debt is already very high (at 125% of GDP), will result in a market backlash (like Liz Truss saw) and higher bond yields. Furthermore, his brinkmanship and erratic policy making style is likely to add to policy uncertainty which could hamper business investment.

Much will depend on sequencing. If he runs with tax cuts and deregulation first (as in 2017) it could boost shares and the economy in say 2025, but if he runs first with sharp tariff hikes and immigration cuts it could be taken more negatively early on. In 2017 he ran with the positives first to help boost the economy, but this time around he may run with negatives first as there will be no constraint from the desire to win another election.

Finally, a Trump victory could add to geopolitical uncertainty by weakening US institutions and democracy and weakening US alliances. It could also lead to a quicker end to the Ukraine war, but with loss of territory.

Likely investment market implications

Firstly, despite the heightened policy uncertainty the election year is normally okay for US shares. Since 1927, the election year, or year 4 in the presidential cycle, has had an average return of 12%, which is also the average across all years. So far, they have returned 22%. It’s usually years 1 and 2 which are below average.

Second, the next few weeks could see increased volatility if investors start to focus on the risks of a new trade war, a hit to the US labour force and increased uncertainty under Trump. After Trump’s victory in 2016 shares soared 38% to January 2018 as the focus in his first year was on business-friendly tax cuts and deregulation but they fell in 2018 as the focus shifted to trade wars. So, Trump wins, the market reaction in the first 6-12 months will be heavily influenced by the sequencing of tariff hikes versus tax cuts.

Third, historically US shares have done best under Democrat presidents with an average return of 14.4% pa since 1927 compared to an average return under Republican presidents of 10% pa. However, the best average result has actually occurred when there has been a Democrat president and Republican control of the House, the Senate or both and the worst average return has been when there’s been a clean Republican sweep.

US Share market returns by political configuration

Source: Bloomberg, AMP

Fourth, a Trump presidency would likely mean higher bond yields (with slightly higher inflation, budget deficits and US policy uncertainty) and a higher $US (with higher global uncertainty and the impact of US tariffs).

Finally, a narrow Trump loss would likely see him challenge the result which could lead to political uncertainty adding to market volatility. Although US democratic institutions should hold as they did back in 2020.

Australia is vulnerable to a new Trump trade war

Exports to the US are only 4% of Australia’s total exports and may be spared from Trump’s tariffs as Australia has a trade deficit with the US. However, as an open economy with high trade exposure to China, Australia would be vulnerable to an intensification of global trade wars as a result of a Trump victory, particularly if it weighs on demand for Chinese exports.  An OECD study showed that Australia could suffer a 1.2% reduction in GDP as a result of a 10% reduction in global trade between major countries. Resources shares would be most at risk and the $A would likely fall. Of course, similar fears existed during the last Trump trade war, and it didn’t turn out so bad. And there would still be demand for iron ore somewhere – it just may switch from China to the US and elsewhere. Much would depend on how other countries respond and how hard Trump goes. Of course, he may not win!

Dr Shane Oliver – Head of Investment Strategy and Chief Economist, AMP

Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided.