RBA Governor spills on a rate cut + Investor 'types' - who are you?

Hi everyone,

Reserve Bank Governor, Michele Bullock is so impressive and proved this week once again that she is the boss. When financial markets were overwhelmingly predicting an interest rate cut ... she didn’t.

But she didn’t do it in a pig-headed way or by fighting markets (like her predecessor Philip Lowe did). Rather at her press conference, she calmly and clearly explained her rationale.

But before I get to that, in this week’s newsletter:

• Clear direction from the RBA on what’s needed for future rate cuts.

• Term deposit rates drop below 3 per cent.

• Home units now outperforming houses.

• Investing in REITs: The good and bad.

• 9 investor ‘types’ … can you pick yourself?!

• Self-made or inherited: Billionaires and their wealth.

A clear direction from the RBA

On Tuesday, the Reserve Bank board defied market expectations and kept official interest rates on hold at 3.85 per cent. Markets were overwhelmingly forecasting a 0.25 per cent cut which would have been welcome relief for millions of mortgage holders looking to ease the cost-of-living crisis.

But watching RBA Governor Michele Bullock’s press conference, she was just so impressive in explaining the pause.

Basically she wants to wait for the June quarter CPI figures (to be released on July 31) because she is a bit troubled by rising building costs and prices of durable goods. The March quarter CPI (the trimmed mean version which the RBA prefers) came in at 2.9 per cent, which is only just in the RBA’s 2-3 per cent target range.

Bullock wants the CPI figures to prove they can sustainably be in the middle of the range (2.5 per cent). But she has this doubt in her mind that building costs and durable goods prices may push the June quarter CPI trimmed mean back to above 3 per cent. If that happens, it indicates to her that inflation is not sustainably under control and rates may have to go UP again.

“A lot of people focused on the headline CPI number, 2.1 per cent. But we don’t think inflation, in a sustainable way, is that low. We think it’s higher,” Bullock said.

Her view is that Australians wouldn’t have wanted a rate cut this week if a rate rise followed soon after. It would undermine everyone’s confidence.

With the June quarter CPI out 31 July and the next RBA board meeting on 11-12 August, why not wait to be certain of making the right decision?

She was very clear that if the June quarter trimmed mean CPI stayed within the target range (and hopefully gravitates closely to 2.5 per cent) then a rate cut is a certainty.

I don’t reckon you can fault her logic even though this week’s decision would have disappointed a lot of people. She did point out that unemployment is very low so most Australians have a job if they want one which helps household cash flows.

The other big concern for the RBA is the ongoing uncertainty around a tariff war. The RBA’s statement emphasised, “Uncertainty in the world economy remains elevated,” but “financial market prices have rebounded with an expectation that the most extreme outcomes are likely to be avoided.”

But the Trump-imposed 1 August tariff deadline comes the day after the June quarter CPI and before the next RBA board meeting, so all that information will be available to make a decision.

Term deposits fall below 3 per cent

While fixed home loan rates have been falling in anticipation of 2-3 interest rate cuts before the end of the year, so have term deposit rates.

While borrowers love falling interest rates, on the other side of the fence, savers hate them.

New data from the RBA shows the average bank term deposit rate in June 2025 fell below 3 per cent to just 2.95 per cent, which is a long way down from 3.35 per cent last January.

That 2.95 per cent is what the trimmed mean inflation figure was for the March quarter so term deposit investors are basically getting a real (inflation adjusted) return of 0 per cent.

The three-year term deposit rate in June was the lowest since September 2022 at just 3.05 per cent, while the one-year term deposit rate in June was 3.7 per cent - the lowest since January 2023. That’s bad news for those, mainly older Australians, who depend on income from their savings to pay the bills.

It’s more important than ever for income investors to get good financial advice and look for alternatives. A couple of months ago I wrote a story on the pros and cons of private credit funds which a lot of income investors are being attracted to with their yields of 6-8 per cent.

They can be a good option but you do need to do your homework to find the best fund manager.

Home units now outperforming houses

It was about 18 months ago when I wrote about a report from real estate giant Ray White that showed the gap between house and home unit values had widened to a record margin. At the time I discussed whether the housing affordability issues could see this gap narrow back to its historical average as home units were a much lower value entry point onto the property ladder.

I posed the question whether, at that point, apartments offered better potential future returns than houses.

Ray White has answered that question in a new report which shows Australia's apartment markets are experiencing an unprecedented phenomenon, with units now outperforming houses in the nation's three strongest markets, driven by a perfect storm of chronic undersupply and a development pipeline skewed heavily toward luxury projects.

Perth home units are surging ahead with 13.1 per cent annual growth compared to 11.6 per cent for houses, Adelaide apartments deliver 9.7 per cent against 8.9 per cent for houses, and Brisbane units edge past houses with 9.5 per cent growth.

But, according to Ray White chief economist Nerida Conisbee, this outperformance masks a deeper crisis in apartment supply and affordability.

The fundamental issue is that hardly any apartments are being built, particularly in the affordable or mid-market segments that once provided accessible housing options.

When new apartment projects do proceed, they're predominantly luxury developments targeting premium buyers, pushing median unit prices steadily upward.

This creates a vicious cycle: as affordable apartment supply dwindles, competition intensifies for existing stock, driving prices higher and making units outperform houses not through abundance, but through scarcity.

Perth exemplifies this dynamic perfectly. With units now costing $618,000 compared to $938,000 for houses, apartments appear to offer a 66 per cent discount.

Apartment prices are however growing at a faster rate. Both segments are experiencing acute supply shortages, with apartment construction particularly constrained by elevated development costs and land prices that have risen over 75 per cent since 2020.

For new apartment projects that do proceed, there is a focus on premium segments where margins can absorb these inflated costs, leaving the mainstream market undersupplied.

Adelaide demonstrates the longest-running impact of this supply shortage, with units outperforming houses since July 2024 across 12 consecutive months.

Brisbane's more recent unit outperformance, beginning in early 2025, reflects the same pattern spreading to additional markets.

Australia completed approximately 75,000 apartments in 2024, down from a peak of over 125,000 units in 2016.

Annual apartment completions have collapsed from over 97,000 in 2018 to just 58,913 in 2023, though 2024 showed a modest recovery to 64,869 units - still 33 per cent below peak levels.

This supply drought explains why units are outperforming houses despite their traditional role as the more affordable option.

With apartment construction operating at barely two-thirds of peak capacity while demand intensifies, the fundamental supply-demand equation has shifted dramatically.

How to use REITs to your investment advantage

If you’ve been following the property market lately - and let’s face it, what Aussie hasn’t - you might’ve come across something called an REIT (real estate investment trust).

REITs are a great way to get exposure to the Aussie property market – without having to fork out for a deposit. And if you play your cards right, they can be a pretty decent addition to your investment portfolio. But like anything in finance, there’s some fine print you should look at before diving in.

What is an REIT?

It’s basically a company or trust that owns, operates or finances income-producing real estate ... think office towers, shopping centres, logistics warehouses, apartment complexes. They collect rent from tenants and pass that income on to investors in the form of dividends. And the increasing (or decreasing) value of the properties is reflected in the asset backing of the trust which underpins the share price value.

You can buy units in REITs just like shares. Most are listed on the ASX and trade like any other stock, which means you can invest with as little as a few hundred bucks – not the six or seven figures you’d need to buy a block of shops outright.

REITs have been around in Australia since the 1970s, but they’ve become more popular in recent years thanks to online brokers and ETFs. Today, the listed-property sector in this country is worth tens of billions of dollars – so this is no fringe investment.

What makes REITs appealing?

For starters, REITs can be a handy source of regular income. Because they’re required by law to pay out most of their earnings (usually around 90 per cent), they can deliver higher dividend yields than many other stocks. That’s music to the ears of retirees or income-focused investors.

They’re also a way to diversify your investment portfolio. If you’re already invested in Aussie shares and residential property, REITs can give you exposure to a different slice of the property market – namely, commercial and industrial real estate.

And there’s convenience. You don’t have to worry about tenants calling you at 2am because the hot water’s gone. There are no repairs, no rates, no strata meetings. The trust manages all that – you just collect the dividends and monitor your investment like any other share.

Are REITs a ‘safe’ bet?

Let me be clear – no investment is 100 per cent safe. That includes REITs. While they are generally more stable than high-growth tech shares, they can still rise or fall depending on what’s happening with the property market and interest rates.

When rates go up, the cost of debt increases for REITs, which can eat into their profits. That’s something we’ve seen over the past couple of years ... some listed property trusts have taken a hit as investors worry about rising rates and falling commercial property values.

And then there’s the sector risk. A retail-focused REIT that owns a bunch of suburban shopping centres is exposed to very different risks than one focused on logistics warehouses or medical centres. If consumer spending slumps or e-commerce eats into bricks-and-mortar retail, that shopping centre trust might struggle.

That’s why you need to spend a bit of time looking under the hood of any REIT before investing. What kind of properties does it own? How much debt is on the books? What’s the occupancy rate? Who are the tenants, and how long are their leases?

Don’t just chase the biggest dividend yield you can find because, in many cases, a high yield can be a red flag rather than a green light.

Are REITs good value in 2025?

Right now, a number of investments analysts reckon REITs are starting to look attractive again – especially as interest rates start to ease.

After a rough run through 2022 and 2023 when rising rates spooked the market, many REITs are now trading at a big discount to the value of the assets they hold. That means you could be buying property exposure for less than the value of the underlying bricks and mortar.

And with some parts of the commercial office property market starting to stabilise there’s scope for solid, long-term returns if you pick the right ones.

Plus, if the RBA keeps cutting rates, that’s a tailwind for REITs: lower borrowing costs, higher profits, potentially better dividends.

How to get started

If you’re keen to dip a toe in the REIT pool, you’ve got a few options.

You can invest in listed REITs through the ASX – just search the ticker codes and see what’s available. Or you can invest via an ETF that holds a basket of REITs. That gives you instant diversification and can be a good option if you’re new to property trusts.

And as always, do your homework and get advice from a stock broker or financial adviser. Because while REITs can be a powerful way to build wealth and diversify your portfolio, they’re not a silver bullet. They’re a tool and, like any tool, you need to use them wisely.

9 types of investors we all know

As I often say, we tend to forget when we’re talking about markets that we are seeing the behaviours of real people. Markets are simply the platforms which allow people to trade investments.

That’s why market behaviour can seem erratic at times … because people are erratic. They panic, they get caught up in fads, they get conned by the prospect of returns that are too good to be true.

And within that horde of investors that drive markets, there are so many different types of individual personalities which adds even more complexity. I was having a laugh the other day with a friend about all the investment ‘types’ we know … that is, all the people we know between us who have grown their wealth differently.

It was a bit of fun but I wonder if you recognise any of them on this list … or can add to it?

Clairvoyant Chloe

Much like the mysterious ALDI marketing team - who just ‘know’ when you need a new vacuum cleaner, or a trumpet - Chloe has a knack for predicting market trends.

She bought an air fryer back from a trip to Germany in 2011. Now all her friends have one.

So when Chloe mentions she’s adding a sustainability startup to her portfolio, you follow her 'inkling'.

Obsessed Owen

Owen loves investing. Like, he really does. So much so that any conversation with him is restricted to financial news - only.

A tree might have fallen on his house in the recent storm, but he’ll talk about the impact on insurance company profits rather than the damage to his house when you run into him at the gym.

He’s just so excited to discuss the upcoming RBA board meeting with you! While on the spin bike, Owen listens to the Masters in Business podcast.

Play-it-safe Petra

Petra always carries a small fold-up umbrella in her handbag. She doesn’t risk it when it comes to her money, either.

Government bonds and ETFs are where she feels comfortable investing. Petra also has 10 per cent of her portfolio in gold - “Just in case there’s a cash crash,” she says.

With voluntary super contributions, Petra has built herself a nice retirement nest egg. She plans on cruising.

Tradie Tom

Tom wears steel-capped boots and parks his RAM TRX on the roof of his cliff-face house. The water views are stunning!

It's one of many properties he's built or renovated over the years, and then flipped.

Some investment 'suit’ - a different kind of ‘tradie’ - helped him to "grow his money" a long time ago.

Tom’s going to his house on the lake this weekend. “Fishing calls, mate”.

Risky Ryan

During the pandemic, Ryan invested in Peloton, a company selling exercise bikes and virtual workout classes …

He’s made some “big gains”, though mainly in meme stocks, crypto and tech startups - well, the ones which haven’t tanked, that is.

Ryan is hoping to use his kid’s education fund - which Jess, his wife, has told him he can’t touch - to invest in a new caffeinated drink company.

“It’s a winner, a sure thing,” he’ll tell her when she gets back from her ‘holiday’. He’s made dinner reservations at her favourite restaurant to discuss it.

Jess is on a wellness retreat - she picked the ‘stress detox’ package.

Ethical Emma

Emma is picky when it comes to which companies she'll 'support' financially.

Those with strong environmental and social ideologies, as well as a decent number of women on the board, are Emma's cup of tea - herbal, of course. She recently bought shares in offshore wind energy.

"100 per cent renewable," she told her nature tech business partner.

Loaded Louis

Louis lives in a six-bedroom house on Sydney's North Shore with his family and a cavoodle named Toby. His kids go to the nearby elite private schools.

Louis comes from ‘old money’ and drives a Lexus, rather than a Porsche - money isn’t for show, he feels.

His main investments are in the ASX and property, of course. But no one knows what he owns.

Louis retired at 48 to, "Spend more time with the family and my golf clubs."

CEO Cate

Cate started her first online company when she was 21. She had a genius idea which she bootstrapped. Back then she worked a day job, building her business part-time after work.

When she was able to monetise it, she left her job, later employing staff - not that that stopped her from working 90 hours a week.

Cate sold that business for an eye-popping profit. When she did, though, she had two others in the works - one that would eventually go global.

Although Cate could retire and travel the world, she’s not. “Too busy,” she says.

Tightarse Tim

Tim has made his money in real estate, but also by being a bit of a stickler. He doesn’t “waste” money on food when he can cook at home and he’ll only ever have one streaming service at a time.

Tim saves on EVERYTHING. He’ll use comparison websites to find the best deals, then negotiate even more off. He refinances regularly, budgets, doesn’t auto-renew anything (“such a scam”) and drives an EV.

Tim bought his first property at 25. He’d saved the deposit himself.

What type of investor am I?

I think I might be a mix of Owen, Cate and Tim. But definitely never a Ryan! I don’t think Libby would have married me if I was.

Can you find yourself in the list?

Self-made or inherited … how billionaires build their wealth

Speaking of investor styles, I was fascinated with this chart that studied Forbes magazine’s ‘billionaire list’ to determine whether the world’s wealthiest people built their fortunes themselves or inherited it from family.

Globally 67 per cent of billionaires are self-made and deserve all the credit for their success.

But it’s interesting how the split changes between countries. For example, in Germany only 25 per cent of billionaires are self-made with the rest inheriting their fortunes.

And the most entrepreneurial billionaire wealth builders are in Russia and China where 97 per cent of billionaires are self-made. I suppose we just have to ignore the corruption of power.

By the way, the wealth of billionaires rose an average 13.4 per cent last year.