The dark clouds of yesteryear have given way to increased optimism. Last year despite all of the coronavirus setbacks, there was a deep V shaped recovery with both global and Australian shares rallying 28%.  The key lesson was that share markets are always looking ahead and the recovery was priced in well in advance. So for those investors who went to cash they lost twofold on the way down and lost again as share markets recovered and they remained in cash.

This leads into a discussion for the following 12 months. There was no “cliff” when job keeper came off and employment levels are better than 2019 levels. In fact it is difficult to get qualified people. Further, the Biden administration has reduced policy uncertainty and the fiscal stimulus provided by the US government has perpetuated the global recovery. Additionally, vaccines are providing a light at the end of the tunnel with the countries most advanced in vaccination and herd immunity (Israel, UK, USA and Europe) reopening up.

While interest rates remain low, it will be interesting to see how long these rates actually stay low for as inflationary trends start to break out across the US and certainly here in Australia. Australian shares and Global shares while looking stretched are still reasonable value given the low level of returns offered by government bonds. Australian shares are still paying a grossed up dividend yield of 5% versus 0.5% if you put your money in government bonds of term deposits.

What’s it all mean? Well it’s steady as she goes. There is still uncertainty and we expect that there will also be corrections and with it buying opportunities, hence why we are still holding reasonable amounts of cash reserves. But once again a diversified portfolio of different asset classes is your best form of protection.