Shares vs property: The results are in! + What Trump's crazy Canada plan would look like

Happy New Year everyone,

Hope you all had a great Christmas/New Year break. We’ve had a full household for the duration with between five and 16 people staying on any given night. Fun and chaotic. I’ve gone back to work for a holiday 😊

While we’ve been in holiday mode the economic data keeps pouring in and all sides of politics are getting into election mode. Cost of living is the number one election issue and whoever comes up with the answers will win the votes. The election has to be held before the 17 May deadline ... which is three days before the May Reserve Bank board meeting.

You are going to be bombarded with lots of election promises over the next few months and I’ll be on standby to explain what they mean for you.

In this week’s newsletter to kick off 2025:

• The jobs market stays hot … but there are signs it could it be cooling.

• Proof the residential property and rental markets have definitely turned down.

• Shares or property? Which performed best in 2024? The results are in!

• Time for a tidy up: Summer superannuation housekeeping tips.

• How to build your own financial team.

• Where would Canada rank as a 51st state of the US?

Jobs market stays hot … but!

If the Reserve Bank is to cut interest rates, the jobs market must cool to ease higher wage pressures which then feed through into inflation.

So, the strong employment growth of 56,300 new jobs created in December (more than triple what economists expected) doesn’t look great for rate cuts. Unemployment edged up to 4 per cent.

But when you realise all of that growth was in part-employment (80,000 new jobs) and 23,700 full-time jobs were cut, maybe the employment market is weakening and the RBA could cut rates.

In fact, financial markets currently reckon there is a 65 per cent chance of a 0.25 per cent rate cut at the February RBA board meeting ... they are pretty good odds.

A fall in full-time jobs and an increase in part-time employment is usually reflective of business employers being nervous about the future. Rather than committing to a full-time hiring they employ a part-timer to give them future flexibility.

But as you can see from this chart below, government (the red lines) are still the biggest employers at the moment while businesses (the blue lines) are tiny by comparison. This is a reflection of the record amount of government spending which is causing the RBA concerns. All this government spending is one of the main contributors to inflation -according to economists and the RBA - and is the reason why interest rates have had to stay higher for longer.

All eyes are now on the 29 January release of the December quarter CPI figures. If it comes in relatively low, then Treasurer Jim Chalmers may get his wish of a 0.25 per cent interest rate cut in February. But if it doesn’t, then the next RBA board meeting on interest rates isn’t until 20 May - which is after the deadline for the Federal Election.

The residential and rental property markets have slowed

After 21 months of growth which pushed values up 14.3 per cent, CoreLogic’s national Home Value Index (HVI) has finally recorded declines. After peaking in October, the national index steadied in November (-0.01 per cent) and recorded a -0.1 per cent decline in December. Monthly home value growth has now slowed since June 2024.

The slowdown has been accompanied by other market shifts. Total listings levels across the country finished 2024 at 5 per cent higher than a year ago. Selling times rose through the December quarter, up to 33 days from 28 days a year ago.

Home affordability has become a real issue for the property market. CoreLogic highlights the issue by determining that today’s 'affordable' purchase price is $513,000. This is when you use the median income household in Australia, based on 30 per cent of before-tax income spent on a mortgage, assuming current interest rates and a 20 per cent deposit.

Based on those assumptions, while the ‘affordable’ purchase price is $513,000, the actual national median dwelling value in Australia is $815,000. That’s a $300,000 difference between affordable and current values.

Not only is housing affordability improving (because of a decline in values), rent increases are starting to slow as well.

The pace of national rental growth continued to slow in 2024, with rents up 4.8 per cent over the year after surging 8.1 per cent in 2023, according to CoreLogic’s latest Quarterly Rental Review.

The result marked the smallest annual rental increase since the 12 months to March 2021 when rents rose 3.6 per cent.

This suggests that while still high relative to the pre-COVID decade average (2 per cent), the national rental market has well and truly passed the peak of the recent rental boom. This notion was further supported by the 0.4 per cent rise in rents in the December quarter, which was the smallest Q4 change in rents since 2018 (0.2 per cent).

Across the capitals, the majority of cities recorded a slowdown in rental growth over the year, led by Sydney and Melbourne, where the rolling annual trend eased from 9.9 per cent and 11 per cent over 2023 to just 3 per cent and 4.1per cent respectively in 2024.

Investing in shares versus bricks and mortar?

It is the age-old question which splits investors. We all know someone who claims property never goes down and that shares are just a form of gambling.

The right answer, of course, is that both equally play a vital role in building wealth, but they’re very different to each other.

According to property research group, CoreLogic, both shares and residential property had a good 2024 by producing strong returns to investors.

When accounting for capital gains and dividend income, the Australian equity market outstripped property in 2024, with equities up 11.4 per cent over the year, compared to 8.3 per cent growth for property.

But residential real estate continues to underpin Australia's wealth, estimated at a total value of $11.1 trillion - significantly higher than the combined value of Australian superannuation funds ($4.1 trillion) and the Australian stock exchange ($3.3 trillion).

But of course, investing is a long-term game.

Housing has outperformed equities in six of the past ten years and, cumulatively, has delivered total returns of 132.6 per cent, compared to 126.4 per cent over the past decade.

So, as you can see, both asset classes have delivered great long-term returns.

However, they are both very different asset classes with their unique pros and cons which investors need to weigh up and decide the balance which fits their own individual risk profile and investment objectives.

Anyone who vehemently argues for either shares or property over the other is, in my view, missing the point that they can sit comfortably together in any portfolio.

And, naturally, they both move along their own investment cycle. Some years, like 2024, their investment cycle moves in tandem while in other years they can do the opposite. So it’s important to understand where we are in investment cycles.

Residential property is currently off its peak and trending down. The sharemarket is at record levels but looking a bit shaky.

Here’s a breakdown of the pros, cons, and general performance comparisons to help you decide which option might be better suited to your goals.

Shares (stocks)

Pros:

• Liquidity: Shares are highly liquid - you can buy and sell them quickly on the stock market.

• Low entry cost: You can start with small amounts, unlike property investments which require a substantial upfront capital outlay.

• Diversification: You can invest in various industries and geographies, spreading your risk.

• Potential for high returns: Historically, shares in Australia have averaged returns of about 9-10 per cent per annum (including dividends and capital gains) over the long term.

• Flexibility: No ongoing maintenance or management is required, unlike managing a property.

• Tax advantages: Franking credits on Australian shares can reduce your tax liability.

Cons:

• Volatility: Shares can be highly volatile, with prices influenced by market sentiment, global events, and company performance.

• Complexity: Investing in shares requires research and knowledge to choose the right investments.

• Emotional factors: Price fluctuations can lead to emotional decisions.

Residential property

Pros:

• Tangible asset: Property is a physical asset that many people feel more secure owning.

• Leverage: You can borrow a large portion of the purchase price, amplifying potential returns.

• Rental income: Provides a regular, steady cash flow if rented out.

• Capital growth: Australian property, particularly in major cities, has experienced significant long-term growth (around 6–7 per cent per annum in some markets).

• Tax benefits: Negative gearing and depreciation can offset taxable income.

Cons:

• High entry costs: Requires a large initial investment, including deposits, stamp duty, and legal fees.

• Illiquidity: It can take months to sell a property, making it less flexible.

• Ongoing costs: Includes maintenance, insurance, property management fees, and council rates.

• Market risk: Property markets can be subject to downturns due to interest rate rises, oversupply, or economic conditions.

• Concentration risk: Unlike shares, it’s harder to diversify when investing in property.

Key influencing factors:

• Interest rates: Rising rates can negatively affect property prices but may not directly impact shares unless they influence broader economic conditions.

• Economic growth: Shares are tied to company earnings and economic growth, while property depends more on demand, supply, and borrowing capacity.

• Leverage impact: While property is more leveraged, amplifying gains or losses, shares can also be purchased with borrowed funds (e.g., margin loans), though this carries higher risk.

Key considerations:

• Risk tolerance: Shares suit investors comfortable with volatility. Property appeals to those seeking stability.

• Time horizon: Shares perform better over a long horizon (10+ years). Property might suit medium-to long-term goals.

• Capital available: Shares require less capital to start, while property demands significant upfront costs.

• Diversification: Shares allow easier diversification as property ties up a large portion of capital in one asset.

Superannuation summer housekeeping

The Super Member’s Council has shared some simple steps members can take over the summer months to ensure they are getting the maximum benefit from super. This is their great advice:

• Make sure you are being paid all your legal entitlements. Unpaid superannuation impacts one in four workers a year - costing them a total of $5 billion. Check with your super fund either via an app or contact them directly to make sure you are being correctly paid.

• Consolidate your super funds into one account. Finding lost or unpaid super is now simple using the Australian Tax Office tools.

• Make sure you are with a top performing super fund - investment returns after fees are the most important metric in measuring performance. The ATO has a useful comparison tool for super products.

• If you are financially able to, consider making extra contributions to super. A 30-year-old on average wages who salary sacrifices $20 a week into super has $67,000 more at retirement and gets a tax saving now.

Why savvy Aussies are building their own financial teams

Struggling with the 24/7 nature of managing your money? You don’t have to go it alone. Just like a brilliant footy team, having the right people in the right positions can make all the difference.

Whether you need advice on investing, budgeting, or getting ahead for retirement, building a ‘financial dream team’ around you can lock in your long-term success. Here’s how:

Start with a financial advisor

A good financial advisor is just like a coach. They’re at your side helping you create a game plan and make smarter decisions with your money. They can guide you on everything from superannuation and investments to retirement planning and tax strategies. But how do you find the right one? Start by checking out the Financial Advice Association Australia (FAAA) or ASIC’s Financial Advisers Register to make sure any advisor you’re considering is licensed and reputable. Adviser Ratings offers a Tripadviser-style Find an adviser tool where you put in your postcode and it shows all the registered financial advisers within 10kms, along with customer ratings and comments.

You can expect to pay anywhere from $2,000 to $5,000 for a comprehensive financial plan, with ongoing fees if you want to do regular check-ins. It might sound pricey at first, but think of it as an investment in your financial future - and fees can be tax deductible.

Bottom line: look for someone who really gets your unique situation and your ambitions. And remember, if their advice doesn’t feel right, there’s no harm in walking away and getting a second opinion.

Lean on a financial mentor

A financial mentor should never replace professional advice, but they can give you some handy insights and plenty of encouragement. This person could be someone in your life who’s already achieved their own financial success - perhaps a family member or friend, or maybe even a co-worker.

What sets a mentor apart is their ability to share real-life experiences. They’ve been where you are right now, and they can give you advice that’s both practical and grounded in reality.

A good mentor can be a source of inspiration and support when you need it most.

Broaden your financial knowledge by following the experts

The more you know, the easier it’ll be to make savvy decisions about your finances.

Luckily, there’s a wealth of resources out there to help everyday Aussies which I also use regularly, so I reckon you’ll find a few things to match your tastes: What to read: Your Money & Your Life: Yes, a shameless plug for my free weekly newsletter, website and TV show. Get the latest news and insights to take control of your money at every life stage. But also:

• Check out Marcus Today - this is a daily investment newsletter and website covering Australian and international sharemarkets, plus model investment portfolios to follow.

• Subscribe to The Motley Fool - a daily investment newsletter and website covering Australian and international sharemarket news and analysis.

• Read The Barefoot Investor by Scott Pape: It’s a classic, no-nonsense guide to managing your money and setting yourself up for financial security. Also, Money School by Lacey Filipich is another practical book that breaks down the steps to becoming financially independent.

• Listen to these podcasts: CommSec Market Update (a twice-daily wrap - before the market opens and after it closes) of the latest economic and sharemarket news presented by the CommSec experts. Marcus Today Market Updates - twice-daily analysis of Australian and international sharemarkets. The Money Cafe with Alan Kohler: A deep dive into Australian finance news and trends, with a conversational tone that’s easy to follow - whether you’re out for a walk or commuting to work. She’s on the Money: Hosted by Victoria Devine, this is a popular podcast among millennials and covers everything from budgeting to investing. Equity Mates: A twice-weekly podcast for those who are interested in investing. It breaks down complex financial topics into something even beginners can sink their teeth into.

Surround yourself with like-minded people 

Building your financial dream team isn’t just about hiring professionals, it should also involve surrounding yourself with a network of people who share similar goals. That could mean setting up a WhatsApp group with friends who are saving for their first home, or having a weekly coffee with co-workers who are actively trying to improve their investment skills. Whatever it may be, having a community can keep you motivated and accountable.

Being part of a group can give you a sounding board for ideas, plus the added bonus of learning from the experiences of others.

Keep your mortgage broker and accountant in the loop 

Brokers and accountants are very easily overlooked as part of your financial team, but they can actually play a vital role. Brokers can help you with loan options or point you in the right direction for the best savings accounts, while your accountant is an invaluable fount of knowledge for tax planning and making sure you’re making the most of deductions and offsets.

Just remember that your financial team can only be as effective as your commitment to working with them. And don’t forget to measure your progress. Are you hitting your savings goals? Is your investment portfolio performing as expected? Use milestones to celebrate wins and recalibrate if needed.

Building your financial dream team won’t happen overnight. It’ll take plenty of time and effort, plus a bit of trial and error to find the right people and resources. But once you’ve got a solid crew in place, you’ll be amazed at just how much easier your money management becomes. So take the time to build your team - and start 2025 with the confidence that you’re on the right financial path.

Trump’s crazy Canada plan

The Trump inauguration next week will start a wild and fascinating period in US politics. Some of the incoming President’s utterings have ranged from the audacious to the fantastical - taking control of the Panama Canal, annexing Greenland and making Canada the 51st State of the US.

It has certainly been entertaining and will continue to be. I must admit, I’ve always thought New Zealand should become a state of Australia, but my primary motivation has been for the NZ All Blacks to represent Australia 😉 

But what would the US look like if Canada did become a state? Trump is threatening to lift tariffs on Canadian imports if it doesn’t.

Have a look at where it would fit:

• Canada’s GDP would place it behind only California, Texas, and New York. However, per capita, Canada’s GDP is higher only than that of Mississippi.

• Canada’s life expectancy is 81.7 years compared to the US average of 77.

• The US has an average of seven murders per 100,000 people. In Canada, the rate is two, placing the northern country on par with Utah, Rhode Island, and New Hampshire, and ahead of only Vermont and Wyoming in homicide rates.

• If Canada were a US state, it would lead in the share of adults with college degrees, at 58 per cent, compared to 36 per cent in the US.