First home buyers: Why it's finally YOUR time + The Trumps' controversial crypto coins

Hi everyone,

A bit of a slow start this morning after attending the women’s semi-finals at the Australian Open last night. What a great event the AO is and the tennis is next level.

Well, a week where global politics and financial markets were all about “The Donald”. It is going to be a very interesting four years ahead.

In this week’s newsletter:

• Donald Trump’s financial nightmare.

• How to use political power to build massive wealth.

• Super fund returns wilt to end a strong year.

• Oh dear … THIS is why we need financial literacy taught in schools.

• Construction costs rise as builders go broke.

• First home buyers: Why it’s time to make your move.

• Just how effective is the recycling of plastics?

Donald Trump’s financial nightmare

Investors are rejoicing at Donald Trump’s election as US President as they believe he will, indeed, “Make America great again”.

His determination to cut government waste, lift tariffs, increase taxes on foreign domiciled businesses and deport illegal immigrants have been seen as incredibly patriotic. But they are also being seen as a way to overhaul US government finances.

The US is spending too much and not raising enough in revenue. The US Budget is haemorrhaging at a staggering level.

Since 2020, US debt has gone from US$23.2 trillion to US$36.2 trillion - a US$13 trillion increase in five years. That’s a 57 per cent increase since the pandemic.

The US Budget deficit reached US$1.8 trillion in 2024, or 6.4 per cent of GDP (the total value of the economy). It has an interest bill alone of US$1 trillion a year.

Just to put that in perspective, the deficit as a percentage of GDP is now at the same level as World War 2 - when the US economy was spending massive amounts on defending the world against Hitler and Japan. The interest bill on government debt is now double the level of WW2.

They are staggering figures.

This is where the US Federal Budget spends and earns its money:

That ‘other revenue’ line will hopefully get a huge boost from increasing tariffs and taxes on foreign companies doing business in America. On the cost side, Elon Musk’s new ‘government waste department’ will hopefully make a difference.

And to put that US$1 trillion a year interest bill into a global perspective, that payment equals 4.6 per cent of GDP - double the next worst government’s interest bill.

Remember back to the Global Financial Crisis, we often talked about the PIGS (Portugal, Italy, Greece and Spain) and their massive debt levels which threatened the global economy. The US is currently much worse than back then.

How to use political power to build massive wealth

Prepare for a lot of unconventional decisions coming out of the White House over the next four years. This is no conventional politician. In fact, Trump is arguably the greatest political disruptor we’ve ever seen.

I’m a big fan of disruptors. They challenge conventional thinking, processes and structures. They can be great for economies, consumers and business. But disruptors need to work within the parameters of good governance, good values and good regulation.

And, in my opinion, disruptors cannot abuse their power for personal gain. So, you can imagine my surprise when Trump launched his own “meme coin” - $TRUMP.

A meme coin is a cryptocurrency that originated from an internet meme or has some other humorous characteristic. It is often used interchangeably with the term “shitcoin”, which typically refers to a cryptocurrency with little to no value, authenticity, or utility.

In other words, a meme coin stands for nothing and its value is based on nothing. What sets the price of a meme coin is the level of demand by people to invest in ... nothing. Sounds crazy but we’ve had Ponzi schemes, the great tulip mania and lots of dot com scandals.

So here is the President of the US, the leader of the free world, launching his own meme coin which is based on nothing with no intrinsic value, except in the space of a few days Trump’s personal stake in $TRUMP was worth US$100 billion. Yes, billion.

At its peak, investors were paying US$75,000 for a $TRUMP meme coin.

But then the value crashed, because Melania Trump, the President’s wife, launched her own meme coin $MELANIA. $TRUMP halved in value. $MELANIA skyrocketed and made America’s First Couple billions more.

A bit of fun or a massive abuse of power for personal gain? You be the judge.

Super fund returns wilt to end a strong year

As the sharemarket’s Santa Rally petered out in the lead up to Christmas, so did superannuation returns for the month, even though annual returns for 2024 were healthy.

According to SuperRatings, the median Balanced option reported a 0.4 per cent fall in returns in December, but 11.1 per cent for the full 2024 calendar year ... comfortably exceeding last year’s strong result of 9.6 per cent.

Over the longer term, an investment of $100,000 in the median balanced option 15 years ago would now be worth $280,237, while investing in the median growth option would now be worth $307,519. Members who invested in cash would have $141,117.

Raiz Super was the top performer in the SuperRatings Balanced Index with its Moderately Aggressive option returning 14.7 per cent over 2024. Hostplus’ Indexed Balanced option was next, returning 14.2 per cent while Colonial First State First Choice Personal's CFS Enhanced Index Balanced option took third place, returning 13.4 per cent over the year.

The Hostplus Balanced option remains the top performer over the long-term, with an average return of 8.4 per cent per annum, closely followed by Australian Retirement Trust Super Savings Balanced, with an average return of 8.3 per cent pa. AustralianSuper’s Balanced option rounds out the top three over 10 years with an average return of 8.1 per cent pa.

With shares driving most of 2024’s returns, passive investment options (where a fund tracks a specified index) have outperformed their more traditional actively managed counterparts over the year. Aware Super led the pack when assessing passive option returns with its Balanced Index option returning 15.7 per cent.

The table below displays the top 10 passive fund returns over 2024. Over five years, most of these options have been available within superannuation for a shorter length of time.

Younger members in MySuper options using a lifecycle model have also benefitted from strong share markets as these funds tend to have higher exposure to growth assets, particularly for members under the age of 45-55.

THIS is why we need financial literacy in schools

If ever there was a need for improving the financial literacy of all Australians, this week’s Salvation Army research provides alarming evidence. It found almost half of all Australians (46 per cent) are starting 2025 in debt, 3.2 million (15 per cent) don’t understand how interest works and almost one in three (30 per cent) are unable to create a household budget for themselves.

This comes off the back of an expensive Christmas and holiday period for many Australians. One where over 34 per cent of Aussies used credit cards and 17 per cent used ‘buy now, pay later’ schemes to pay for Christmas. A shocking 6.3 per cent borrowed money and 8.9 per cent sold personal belongings so they could afford Christmas in 2024.

The Salvos provide a terrific Moneycare service which is a free and confidential financial counselling service which supports thousands of Australians each year to get on top of their financial situation. In the last financial year, Moneycare provided 52,000 sessions of care to those struggling with their finances, and 27 per cent of those who reached out to Moneycare were employed.

They’ve noticed a disturbing trend where ‘buy now, pay later’ products have overtaken credit cards as the most common form of debt amongst its community members. Many are also using these schemes to make ends meet - paying for products such as groceries and pharmaceutical items.

The Salvos’ Moneycare service also has free online tools and resources, as well as free financial counsellors who you can speak to anonymously via live chat.

If you know someone who is in financial difficulty, point them in the direction of Moneycare as it’s a great first step.

Construction costs rise as builders go broke

Post-pandemic construction costs skyrocketed because of supply chain shortages of products which pushed prices up. But now that supply chains are back to normal it is builder shortages which are lifting construction costs.

According to CoreLogic’s latest Cordell Construction Cost Index, residential construction costs grew 3.4 per cent over the 12 months to December 2024, the largest annual increase in construction costs since the year to September 2023 (4 per cent). The recent uptick in the annual pace of construction cost increases will be unwelcome news for builders who are already contending with tight profit margins.

Outside of compressed margins and continued labour challenges, the construction industry is also facing a looming shrinkage in the construction pipeline. Building commencements have trended lower, with ABS data for new dwelling commencements over the year to June 2024 at 10-year lows.

These combined factors have contributed to an increasing number of liquidations, with 2,832 construction companies becoming insolvent in the 2023-2024 Financial Year, representing the greatest proportion of company collapses.

Although up over the year, dwelling approvals over the 12 months to November also remained 7.1 per cent below the decade average, suggesting this shortfall of new projects entering the construction pipeline may continue for some time.

First home Buyers: It’s time to make your move

According to Ray White chief economist, Nerida Conisbee, now is a particularly good time for first home buyers to be considering property.

House prices have slowed, and are in fact declining in many places, plus there are a wide range of first home buyer incentives at both a national and state level. Interest rates may be high but are expected to come down, potentially as early as February. Investors are pulling back as investor lending fell at the end of the year and, in some cities, the number of rental properties is declining as investors sell off.

While many first home buyers are lucky enough to be able to draw upon the Bank of Mum and Dad, many don’t. So how do you get in if you have a small deposit and a desire to get into the market?

Understand government incentives There are a lot available. They range from low deposit schemes (where you borrow with a low deposit and don’t pay mortgage insurance) to stamp duty exemptions to cash towards buying a new home. All of these schemes have eligibility criteria, some only apply to new homes (to help with housing supply) and there are often price limits for the properties that are purchased.

The range of schemes can be hard to navigate so it is worth speaking to a mortgage specialist to understand what you are eligible for.

Here are some options:

Rentvesting

Rentvesting makes sense, particularly if you have a great rental deal, if you need or prefer to be in an expensive city (e.g., Sydney) for work or family reasons, you are able to live for free with parents or family, or because you just want to be there.

While you can’t access first home buyers incentives, you can take advantage of negative gearing which can in many circumstances be far more cost effective than accessing a first home buyer incentive. And in some states, there are some incentives available to buyers regardless of whether they are buying a first home or not.

Buying with another person

Many first home buyer incentives have been adjusted to take into account that not everyone wants to buy with a romantic partner but, instead, with a friend or family member. Financially this makes sense but it is important to set the deal up appropriately to take into account such things as who is going to live in the property, what will happen if someone wants to sell and what to do if someone can no longer pay the mortgage.

Buying smaller or in a less desirable area

Your first home is not your forever home and almost every first home buyer makes some form of compromise. This could include buying a much smaller home, such as an apartment or in a less desirable suburb than the one you really want to be in. The average hold time for a first home is generally well under seven years, by which time most make an upgrade to a better home.

When should you buy?

The best time to buy is when you are ready and the earlier you buy, the easier it is to build long-term wealth and at the very least, have paid off your mortgage by retirement, if not earlier.

Many people try to wait for the ideal time to buy from a market timing perspective. This is extremely difficult and, as we have seen in recent years, even people who study the market in detail can get the outlook very wrong. It generally makes a limited difference in the long run, given how property markets perform over time.

In terms of ease of purchase however, a slower market is easier to buy in as you can take your time to make decisions. While a slow market is an easier one to buy in, it is interesting that historically, first home buyers tend to be more active in overheating markets, or when first home buyer incentives are particularly generous.

Just how effective is recycling of plastics?

I am married to a recycling fanatic. It is one of the top “discussion” items in our relationship as she wisely points out my recycling misdemeanours on a fairly constant basis.

So, you can imagine my shock at the latest annual breakdown of how plastic waste is disposed of. Only 9 per cent of plastic gets recycled globally.

Apparently the recycling process can be complicated and it's easy to misunderstand how the process works. Firstly, not all plastics that are produced can be recycled. Different additives are used in plastic packaging to make them more rigid or flexible, to add colour etc. These additives can affect the plastic's ability to be recycled.

In addition to this, the type of plastics that recycling facilities can accept also vary greatly by location meaning in certain places in the world more plastic will be disposed of using alternative methods.

Contamination also plays a significant role in plastic ending up in landfills. Plastic sent for recycling can be rejected due to non-recyclable items or food waste, which makes processing unviable. There are also economic factors that often make landfilling more cost-effective than recycling, leading to further reliance on disposal methods other than recycling.

It is also worth noting that plastic can typically only be recycled once or twice before it becomes unusable so recycled plastics will still eventually end up in a landfill, incinerator, or the ocean.

Remember these are global figures and I’d suggest developing nations are not as focused on recycling as they perhaps more concerned on raising living and lifestyle standards.

Having said that … yes dear, we must continue to be vigilant.