Hot Issues
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Get that money mindset this year | A 9-step guide to getting on top of your finances in 2024
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Seven key charts for investors to watch - where are they now?
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Is ‘keeping up with the Joneses’ holding you back?
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Avoiding emotional bias in financial decision making
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Countries producing the most solar power by gigawatt hours
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How mindfulness can improve the way we work
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Falling inflation - what does it mean for investors?
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How to retire with greater confidence
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The 1% rule – tiny changes add up to a BIG difference
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Wheat Production by Country
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How mindfulness can improve the way we work
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2024 - a list of lists regarding the macro investment outlook
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How to retire with greater confidence
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The 1% rule – tiny changes add up to a BIG difference
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Australian home prices up on supply shortfall, but at risk from high rates
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Catching the kindness bug
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Helping you loosen the purse strings
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How much do we depend on China?
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Negative gearing: Time to re-evaluate your strategy?
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The threat of higher oil and petrol prices flowing from the war in Israel
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How much longer will Australian household savings last?
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Four reasons inflation may rise again... and why we think it won’t
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Managing the rising costs of raising kids
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Time to Spring clean your finances?
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Has the RBA finished rate hikes?
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3 graphs that explain what’s happening with Australian wages
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Why an emergency fund delivers peace of mind
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How do interest rates affect your investments?
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The financial literacy gender gap and what to do about it
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What the manufacturing downturn means for investors and the economy
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Will these super changes affect you?
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9 money mistakes people make in retirement
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Why the need to lift productivity
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Intergenerational Report 2023
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Oldest Buildings in the World
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The confusing economic picture
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9 money mistakes people make in retirement
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How much do you need to retire comfortably in Australia?
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How to prepare financially for starting a family
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Understanding home loans
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Peak Australian home ownership
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Your end of financial year super checklist
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Tax-deductible superannuation contributions explained
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Making superannuation downsizer contributions
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9 ways to boost your super savings
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Sell in May and go away? The worry list for shares (and the good news!)
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Can I go back to work if I’ve already accessed my super?
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Your 7-point retirement planning checklist
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Super contribution rules when you’re in your 60s and 70s
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What happens to my super when I move overseas?
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RBA Review
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Term deposit vs savings account: what’s the difference?
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How Australia’s perceptions of wealth are changing in the 2020s
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The benefits of reaching your 60s in Australia
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Understanding Lender’s Mortgage Insurance (LMI)
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Overview of the Federal Budget 2023 – 24
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Five charts on investing to keep in mind in rough times like now
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Five charts on investing to keep in mind in rough times like now
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Blue collar, white collar - how the job you do can affect your financial stress
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5 things to consider when saving for a house deposit
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How to review your direct debits and save
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Top tips on how to save money
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The RBA hikes rates by another 0.25% - are we there yet?
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How to avoid bill shock with bill-smoothing payments
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When can I access my super?
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How investment market volatility could affect your super
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Can you teach your kids to defer gratification?
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5 ways to create your own good fortune this Lunar New Year
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Seven reasons why Australian shares are likely to outperform global shares over the medium term
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Understanding fixed, variable and split rate home loans
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Should you give your teenager a credit card
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How to trick yourself into saving money
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How much super should you have at your age?
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Guide to your preservation age
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How to budget in 3 simple steps
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Review of 2022, outlook for 2023
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A 2022 Advent Calendar for our clients
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11 things to know about your super
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What is equity and how can I use it to invest?
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Shares may have bottomed
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What is the retirement age in Australia?
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Positive results from research into the value of financial advice.
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Budget October 2022-23 - Comprehensive summary
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Planning a career break?
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Federal Budget: all the key points you need to know
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Federal Budget 2022: Winners and Losers
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7 easy ways to save for the future today
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Federal Budget 2022/23 - Documents and Facts Sheets
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The quick guide to redrawing on your home loan
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Seven things for investors to keep in mind in rough times like these
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Who is winning the streaming wars
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Considerations for different retirement living options
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Reviewing your personal insurance policy
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How does the First Home Super Saver Scheme (FHSSS) work?
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Australia’s productivity challenge – why it matters and what to do about it
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The Countries that Consume the Most Beer in the World
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9 tips for first home buyers
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6 tips to reduce your debts before you retire
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How catch-up concessional contributions work
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Booms, busts and investor psychology
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Largest wind power producers in the world
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Emergency fund: What it is and how to build it fast
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Eight tips to consider in times of volatility
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State and Federal COVID-19 support---Aug 2022
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Rising home loan interest rates explained - what you need to know
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How to budget as interest rates rise
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Inflation in the 70s - baby boomer fantasy or nightmare?
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Largest natural gas produces by country from 1970-2021
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How could the latest Budget impact your tax return?
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8 indicators you may not be ready to retire
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What is an offset account and how does it work?
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How to invest responsibly and ethically.
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National property prices fall for the first time since the pandemic
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Australia’s new Government
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Is my employer paying me the right super?
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7 age pension traps to avoid
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What is gazumping and how to prevent it happening to you
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Total GDP Nominal by Country ( 1960-2050)
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Can you use your pension to retire debt free?
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Super changes that could affect you from 1 July 2022
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Your super checklist for EOFY
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9 money conversations to have with your partner
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Australian housing slowdown Q&A
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Largest cities in the world 1500 to 2100
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Federal budget 2022: Winners and Losers
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Why Australian interest rates are likely to rise and when
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Living costs for retirees rise at fastest pace in 10 years
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9 money tips if you’re having a baby
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The US Federal Reserve starts raising interest rates
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Federal Budget 2022 – Overview
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Federal Budget 2022 and YOU - Part 1
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Federal Budget 2022 and YOU - Part 2
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The escalation in Ukraine tensions - implications for investors
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Why it’s important to think about insurance ahead of retirement
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Budget smarter with the 50/20/30 rule
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What happens to my super when I die?
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DGP by country since 1800
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Tax-deductible super contributions explained
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Share market falls - seven things for investors to keep in mind
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Vaccination rates (Dose)
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Understanding insurance in your super
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How can refinancing your home loan save you money?
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2022 - a list of lists regarding the macro investment outlook
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Review of 2021, outlook for 2022
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Bull vs Bear
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How to save for retirement at every age
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Five ways you can start to bridge the super gender gap today
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5 money mistakes to avoid if you’re going guarantor
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Our 2021 Advent Calendar.
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How does a transition to retirement pension work?
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Asian Economies (1960 - 2020)
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The longer-term legacy of coronavirus
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What you should know about creating your will and estate plan
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What info is on my credit report and why does it matter?
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The worry list for shares - how worrying are they?
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Types of retirement pensions explained
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7 ways to stay active and healthy in retirement
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There’s an investor in all of us - and most of us already invest in one way or another
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World's most productive countries
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Why is Australian housing so expensive and what can be done to improve housing affordability?
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COVID relief continues for retirees
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Greenhouse gas emission by country since 1880
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How does the First Home Super Saver Scheme (FHSSS) work?
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Spouse super contributions - what are the benefits?
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China’s growth slowdown and regulatory crackdown
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Lockdowns and mental health
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Salary sacrificing into super - how it works
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Super bring-forward rules now apply to more people
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The work test and work test exemption explained
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Coronavirus continues to cause havoc globally and in Australia
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Five ways to turn down the noise and stay focused as an investor
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Considerations for different retirement living options
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Videos and other resources for our clients
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Keeping your super on track during a career break
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Your guide to the super guarantee (SG) and rate changes
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The never-ending coronavirus pandemic
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Can I go back to work if I’ve already accessed my super?
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2020-21 saw investment returns rebound
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Tax Time Checklists - Super Funds; Individuals; and Company, Trust, Partnership
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What is capital gains tax and when might I have to pay it?
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6 steps to help you feel more positive about your finances
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End of year (EOY) financial strategies
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The 2021-22 Australian Budget - Analysis
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Videos to help understand financial planning topics.
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Investing on behalf of your kids
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Super contribution caps are going up from 1 July 2021
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Protecting your loved ones
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Federal Budget 2021 - Overview
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Building a more secure and resilient Australia
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Federal Budget 2021 - Health
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The return of geopolitical risk? - what to watch over the remainder of 2021
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Relationship break-up entitlements when you're in a de facto
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What do you need to think about when deciding when to retire?
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6 steps to building good financial habits
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RBA on hold and likely to remain easy for a long while yet as full employment gets more of a look in
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More Aussies look to buy property and refinance
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A new crypto world is emerging - the non-fungible token
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Saving for your child's future
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5 tips for creating your own good fortune this Lunar New Year
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A broad range of Calculators.
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Shares have had a very strong rebound since March last year so where are we in the investment cycle?
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ATO Small Business Newsroom
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Many in the dark about retirement
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Transfer balance cap set to increase to $1.7 million
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How to rebuild your super after a COVID-19 withdrawal
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Financial wellness in 2020 - how did yours compare?
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The global economy and investment markets this year
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ASIC sounds warning around high-yield bond scams
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Is $1m enough to retire?
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How much super should I have at my age?
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Tips for parents who became the bank of mum and dad
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How to 2020-proof your finances
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Vaccination rates as they happen around the world
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2021 - a list of lists regarding the macro investment outlook
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2020 - the year that united us
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Videos and other resources for our clients
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How to review your direct debits and save
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Majority of working Aussies to benefit from personal income tax cuts
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2020 is coming to an end. Phew!!
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Review of 2020, outlook for 2021
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The right times for financial advice
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Is your home loan still right for you?
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3 golden rules that make saving for retirement easier
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How to budget for your social life in retirement
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Still The Lucky Country
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Comprehensive list of COVID-19 initiatives and packages.
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Understanding the Age Pension income and assets test
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Considerations when downsizing your home
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Ways to help reduce your debts before you retire
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How to identify (and beat) your spending triggers
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Budget 2020 - A very comprehensive break down.
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Budget 2020 - At a Glance, Overview, Outlook
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Budget 2020 - Fact Sheets
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JobKeeper extension – changes implemented
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Australia's "eye popping" budget deficit and public debt blow out
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The economics of COVID-19 lockdowns
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How mindfulness can improve the way we work
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Taking control of your personal finances in a COVID-19 world
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September update of latest COVID-19 initiatives.
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Seven reasons why the trend in shares will likely remain up, albeit with bumps along the way
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Market outlook Q&A
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Changes to super contribution rules for over 65s
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COVID-19: How long may your super savings take to recover?
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Boost your super in the lead up to retirement
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4 ways to help prepare your finances for a recession
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JobKeeper - Latest Update
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Australian economic and fiscal update
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The fiscal cliff is more likely to be a fiscal slope
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Protect yourself from COVID-19 related scams
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The economic hangover of COVID-19: how long will it last?
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How to rebuild your super after a COVID-19 withdrawal
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Market update - July 2020
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Investment options and retirement
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Extra Tools & Resources for our clients.
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The Australian economy and recovery from COVID-19
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Digital payments and online banking for older Aussies
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The coming surge in Australia's budget deficit and public debt due to coronavirus
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10 medium to longer-term implications from the coronavirus shock
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Thinking about insurance ahead of retirement
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Gifting and financial generosity during coronavirus
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Diversification - why it matters now more than ever
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The value of financial advice
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Our Website, your resources
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Light at the end of the coronavirus tunnel
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Market update
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Changes to pension drawdown and deeming rates
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Preserving retirement saving during COVID-19
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How investment market volatility could affect your super
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COVID-19: Early Childhood Education and Care Relief Package
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The coronavirus pandemic and the economy – a Q&A from an investment perspective
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Money challenges women face
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Data so large it's hard to comprehend.
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Is coronavirus driving a recession, depression or an economic hit like no other?
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Holding your nerve – why retirees fear a market plunge
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Historic $130bn wage subsidy to cover 6 million workers
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Stage 2 – Covid-19 stimulus package.
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Covid-19 Update - Small Business
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PM launches $17.6 billion virus stimulus plan
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The plunge in shares – seven things investors need to keep in mind
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Three reasons why low inflation is good for shares and property
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Can refinancing my home loan save me money?
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Expected GDP by country 2010 to 2100
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Super investment options – what’s right for you?
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Life beyond work
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Statistical picture of Australia - Update
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A resource hub for our clients.
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Market Update
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Real Time World Population Growth - Wow!!
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Dividends explained
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Start 2020 with a best snapshot of Australia.
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5 tips for green investing
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Make Australians save again
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Bushfires and the Australian economy
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Grow your super in the new year
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Australia by the Numbers
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How to create realistic goals…… and stick to them.
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5 days to get your finances in order
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Our Advent calendar for 2019
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5 reasons why I’m not so fussed about the global outlook
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Superannuation changes
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You'll be the life of the party when armed with this information!
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7 tips to improve your financial wellness
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Rebooting for retirement
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5 reasons why the A$ may be close to the bottom
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Resist today, relax tomorrow
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Market Update 30 September 2019
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How much superannuation is enough?
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All Australia's vital statistics - October 2019
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6 new financial videos
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Boost savings with compound interest
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High times for low interest rates
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Market Update - September 2019
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Will the world slip up on oil again?
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Australia by the numbers - September 2019
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Spending money in a cashless world
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Dealing with being cash poor and asset rich
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Saving for a rainy day
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Market update
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Access to more resources and tools than most websites.
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Nine reasons why recession remains unlikely in Australia
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Can I go back to work if I’ve accessed my super?
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How's Australia doing statistically?
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Protecting your super package.
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Making the most of record-low interest rates.
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Market Update 2019
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How the top 10 global companies have changes since 1998
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The longest US economic expansion ever
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When can I access my super
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Australia by numbers – Update
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How to retire early
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How to play catch up with your Super
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Inflation undershoots in Australia
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9 money mistakes to avoid in retirement
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What a financial planner does to help.
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Australia's vital statistics.
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What kind of money parent are you?
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How to save money
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Federal Budget 2019 - Overview
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How the 2019 Federal Budget affects you
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New Global growth slowing, plunging bond yields & inverted yield curves
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Women and Money
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Market Update - March 2019
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The problem with getting to 53 years of age.
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How to avoid a travel debt hangover
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Things to avoid as a newbie investor
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Budget Time - How's Australia going?
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Most older Aussies prefer home care over a nursing home
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Why growth in China is unlikely to slow too far
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10 money conversations to have when your relationship heats up
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Australia slides into a 'per capita recession'
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6 steps to get your money stuff together
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All you need to know about how Australia is going.
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Australian housing downturn Q&A
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6 ways to reduce your credit card debt once and for all
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5 life insurance questions you've always wanted to ask
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2019 a list of lists - regarding the macro investment outlook
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Part 4 - The major benefit of ‘behavioural coaching'
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How to adult—a quick guide to personal finances in your 20s
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How Australia is performing.
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The Australian economy in 2019
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Holiday budgeting tips— How to avoid a travel debt hangover
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Australia - a comprehensive run-down of our vital statistics.
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The Fed and market turmoil - the Fed turns a bit dovish but not enough (yet)
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12 ways to avoid waste this Christmas
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Rising US interest rates, trade wars, the US midterm election results, etc
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Our Advent calendar for 2018
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Responsible and ethical investing
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What are the 3 biggest living expenses for households?
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Your Adviser and Behavioural Coaching
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Stop!! Don't do a paper Budget, use our online budgeting tools instead.
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Information needed to be the BBQ expert.
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Would you like to retire by 40?
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The property cycle and the economy
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How financial advice helps create wealth.
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7 money personalities you may identify with or want to avoid
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Are shares expensive?
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How's Australia doing statistically?
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Super investment options – what’s right for you?
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Here's how to lead a happier life
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What happened to all the worries about rising inflation and bond yields? Goldilocks, tariffs, Turkey & other things
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Is it better to buy an investment property or home first?
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Nine keys to successful investing
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This information will turn you into a fireside expert.
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How Australians will use their tax return
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Lessons from the blue zones: secrets of a long life
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Trumponomics and investment markets
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Tools for budgeting, cash flow, Super and more ….
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How much super should I have at my age?
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How tax deductible personal super contributions work
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The rise of the gig economy and side gigs (thanks to technology)
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Statistics for all Australians
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Watch out for tax scams
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After the Australian household debt and east coast housing booms
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Now’s the time for tax planning
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Why it pays to contribute to your partner's super
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Australia by numbers – Update
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How to deal with financial stress – nearly 1 in 3 affected
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Federal Budget 2018 – Overview
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Your Budget
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4 components of our 2018 Federal Budget
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US China trade war fears – Q & A
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Tools to help you manage your financial position are available on our site.
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7 ways to boost your super
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Australians reveal their priority goals
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Australia by numbers – Update
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Your retirement questions answered
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How to make money by turning your unwanted goods into cash
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Our website is really our digital office.
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Bitcoin – is it really for you?
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Spread your money, reduce risk
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Love and money? It’s not about control
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The pullback in shares - seven reasons not to be too concerned
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Australia. All you need to know to be the expert.
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Australian’s love affair with debt - how big is the risk?
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5 ways to keep a cool head in a falling share market
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2018 – a list of lists regarding the macro investment outlook
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Sports lovers enjoy better financial fitness
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Where Australia is at. Our leading indicators.
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The year that was and the year ahead
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Add some extra cash to your New Year
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New year, new financial resolutions
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Our Advent calendar for 2017
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Where are we in the global investment cycle?
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Australia's vital statistics
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12 ways to enjoy summer without spending a fortune
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One in three Aussies travel without protection
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Digital payment options could see you spend more this Christmas
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If you’ve always thought property prices only go up…
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Will Australian house prices crash?
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Where are we in the global investment cycle and what's the risk of a 1987 style crash?
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Money steps for women
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Resources on our site to help you, your family and your friends.
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Australian Dietary Guidelines and healthy eating chart (PDF)
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How to retire, your way
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Prepare for retirement without missing out today
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Be the boss of your cash
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The Australian economy bounces back again
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Should you lend money to family?
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Money mistakes people make in their 50s and 60s
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Australian Dietary Guidelines and healthy eating chart (PDF)
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Eight steps to improved cashflow... and lifestyle
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Powerful Budgeting, cash flow and Super Tools available on our site.
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5 ways Australians will use their tax return this year
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Australia's leading causes of death - ABS
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The threat of war with North Korea
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Six traits of Australians living the dream
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The break higher in the Australian dollar is likely to be limited
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Money can buy you happiness, you’re just spending it wrong
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Key Economic Indicators, 2017 – updated
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Helping your kids buy a home
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From Goldilocks to taper tantrum 2.0
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What’s your debt age?
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Doing a budget is a good idea but ....
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Planning is the key to making it financially
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What to do when you come into money
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Managing your money when you move in together
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Reduce your bills with these household items
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It pays to contribute to your partner's super
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How to cope with losing independence
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Transition to retirement income streams
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The Australian economy hits another rough patch
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Watch out for tax scams
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The three core pillars of this year's budget
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Federal Budget - 2017-18 - Overview
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Federal Budget - 2017-18 - Budget documents
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Make the most of the current super caps
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Five, four, three… it’s not too late to get more in super
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Super changes are coming
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What’s your debt age?
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Australian cash rate on hold
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Super changes this financial year - Dr Shane Oliver - video
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The door is closing on super’s current caps
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Is Donald Trump's honeymoon with investors over?
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Estate planning and why you need a super plan
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What does a comfortable retirement look like?
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Give your career a health check
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Super changes from July 2017
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Changes to the Age Pension assets test
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Keep your money safe over the silly season
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Looking ahead at 2017
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Review of 2016, outlook for 2017 - looking better despite the political noise
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Merry Christmas for 2016, a Happy New Year and a prosperous 2017.
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54.2 million worries
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Five tips for happy healthy ageing
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Thinking about managing your own super?
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Sending more to the tax office than you should?
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Government pulls back on proposed changes to super
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Market Update - What to consider when investing in a low return world
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Stop!! Don't do a paper Budget, use our online budgeting tools instead.
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Oliver's Insight - Megatrends
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Value of Advice
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A growing family doesn't have to blow the budget
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Blinded by optimism
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Thinking about managing your own super?
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The investment outlook - it's not all that bad!
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What’s your biggest obstacle to financial success?
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Ageing Parents
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Should you own the roof over your head?
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Be a senior entrepreneur on your own terms!
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Brexit and other key developments
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Brexit wins
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Commentary on major issues - AMP
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Five money habits for a happy financial year
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Remember to factor in parental subsidies at tax time
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Are grandparents giving too much?
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2016-17 Federal Budget - AMP
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2016 Budget in detail
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How (and why) to talk to your adult children about insurance
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Procrastination: Just do it. Eventually.
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Why Australian property won't collapse
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The Lucky Country holding up pretty well
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Have we reached the bottom?
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The evolution of the Chinese consumer
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Retirement rolls around faster than you think
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Pressed for time?
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Changes to the Age Pension assets test
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Women are building financial intelligence
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Heirlooms no more
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Initial market falls precede stronger returns - Shane Oliver
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What exactly is income protection insurance and do I need it?
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A rough start to the year, which could have further to go
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Aged Care - Changes to Assessment of Rental Income
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A bump in the road, then a new start
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New year, new start – are you ready for retirement?
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Review of 2015, outlook for 2016 - Dr Shane Oliver
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We wish you a Merry Christmas for 2015 and a Happy New Year
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Go easy on the plastic over Christmas
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Resolutions for a wealthy future
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The Australian dollar doing what it normally does - overshoot. Dr Shane Oliver
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How to manage volatility in a low return world
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The Australian economy - more help will be needed. Dr Shane Oliver
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Insurance through my super
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Four tactics to build an investment portfolio
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The demand for global infrastructure
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Help achieve your investment goals with dynamic asset allocation
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The Power of Budgeting
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Jump retirement hurdles with a coach
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Preparing for the time of your life
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A Super Loan for all reasons
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Making a smooth transition
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Budget 2015 - some professional opinions
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Australian Government - Budget 2015
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Achieving a comfortable retirement
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From Goldilocks to taper tantrum 2.0

A bit of turbulence hits markets. 3 reasons not to be fussed.

Dr Shane Oliver
Head of Investment Strategy and Chief Economist 
AMP Capital

       

 

Key points

  • Central banks beyond the US are edging towards an exit from easy money. This is likely to cause bouts of volatility in shares and a rising trend in bond yields. 
  • However, it’s unlikely to derail the bull market in shares as any move to tightening reflects stronger growth (and profits), low inflation pressures will keep monetary tightening very gradual (as we have seen in the US) and monetary policy is a long way from being tight. 
  • An RBA tightening remains a long way away. 

Introduction

For much of this year, there has been a surprising divergence between share and bond markets with shares up in response to improving growth and bond yields down in response to weak inflation. Some feared that either bonds or equities had it wrong, but in a way it seemed like Goldilocks all over again – not too hot (ie benign inflation) but not too cold (ie good growth). However, the past week or so has seen a sharp back up in bond yields – mainly in response to several central banks warning of an eventual tightening in monetary policy. Over the last week or so, 10 year bond yields rose 0.2-0.3% in the US, UK, Germany and Australia. This may not seem a lot but when bond yields are this low it actually is – German bond yields nearly doubled. This caused a bit of a wobble in share markets. The big question is: are we seeing a resumption of the rising trend in bond yields that got underway last year and what does this mean for yield sensitive investments and shares? Since central banks are critical in all of this we’ll start there. 

Central banks turn a (little) bit more hawkish

The action over the last week or so was largely driven by a somewhat more hawkish tone from key central bankers: 

  • Fed Chair Janet Yellen is really continuing to reiterate that it’s appropriate to raise interest rates gradually. Nothing new there but comments by Yellen and other Fed officials referring to strength in share markets indicate that they don’t see share markets as a constraint to raising rates again.
  • More importantly, ECB President Draghi noted that “the threat of deflation is gone and reflationary forces are at play” and "political winds are becoming tailwinds" (presumably a reference to President Macron's pro-reform and pro-Europe election victory in France, in particular) and that monetary policy will need to adjust once inflation rises.
  • Bank of England Governor Mark Carney indicated that “some removal of monetary stimulus is likely to become necessary” if risks continue to diminish.
  • Bank of Canada Governor Stephen Poloz repeated that rate cuts have done their job and that “we need to be at least considering that whole situation [low interest rates] now that the excess capacity is being used up”.

The last three basically signalled that thought is being given to an exit from ultra easy monetary policy. In the face of such seemingly synchronised comments, it’s little wonder bond yields rose. Perhaps the most significant was the shift in tone by Mario Draghi – with overtones of former Fed Chair Ben Bernanke’s indication in mid-2013 that the Fed will start phasing down (or tapering) its quantitative easing (bond buying) program. This saw bond yields back up and shares fall around 8% and became known as the “taper tantrum”. So maybe the current episode is “taper tantrum 2.0”. 

Bonds and shares are a bit vulnerable to a correction

The rally in bonds this year had arguably gone a bit too far and positioning had become excessively long and complacent leaving them vulnerable to a rebound in yield that we are now seeing. Similarly, we have been concerned for some time that global shares are vulnerable to a correction given solid gains in most markets for the year to date and high levels of short-term investor optimism and complacency on some measures. As we have seen over the last week, worries about central bank tightening have provided a potential trigger. And this could have further to go if bond yields continue to back up sharply. 

Three reasons not to be too fussed

However, there are several reasons not to be too concerned. First, the shift in the tone of central bank commentary just matches the improvement seen in global growth and the receding risks of deflation, so it is actually good news. Global business conditions indicators (or PMIs) are strong (next chart), the OECD’s leading economic indicators have turned up, jobs markets have tightened and global trade is up. 

Global business conditions PMIs are solid

Source: Bloomberg, AMP Capital

In particular, Eurozone economic confidence readings – both for consumers and business – are strong and at their highest in nearly a decade (see the next chart). So it makes sense for Mario Draghi to sound a bit more upbeat. If growth relapses, easy money exit talk will pause or fade too – much as we have seen in the US at various points over the last four years. 

Eurozone economic confidence and GDP growth

Source: Bloomberg, AMP Capital

Second, with underlying inflationary pressures remaining weak, monetary tightening is likely to remain very gradual. There are two main forces serving to keep inflation down: 

  • Because of years of below-trend growth globally, spare capacity remains and this will constrain core inflation. While headline inflation bounced over the last year, this was largely due to the bounce in energy prices, which has not been sustained, whereas core inflation remains very subdued (at 1.4% year on year in the US, 1.1% in the Eurozone and zero in Japan). This partly reflects continuing spare capacity, which limits pricing power. As can be seen in the chart below whenever the capacity utilisation measure is around zero or below inflation tends to fall or remain soft. Of course this is a cyclical factor that will eventually fade.

Low capacity utilisation still keeping a lid on underlying inflation pressure

Source: Bloomberg, AMP Capital

  • At the same time structural factors continue to bear down on inflationincluding technological innovation – eg, artificial intelligence and robots hollowing out the middle class and along with a rising services sector weighing on wages growth, Amazon reaping havoc on retailer margins in the US and potentially soon too in Australia, and Verizon in the US moving to unlimited mobile data plans (won’t this kill the need for the NBN for most households?).
  • As a result of these cyclical and structural factors, corporate pricing power and wages growth remains weak just about everywhere. The lack of significant inflation pressure will keep central banks gradual as we have seen with the Fed over the last four years since the taper tantrum of 2013: 
  • The Fed – while Janet Yellen does not appear to be too concerned about inflation running below target (its currently 1.4% against the Fed’s 2% target) because she believes that the tight US labour market will eventually drive higher wages growth and inflation, others at the Fed have expressed concern about the inflation undershoot and so a slowing in Fed rate hikes is possible (eg, no hike in September, hike in December). There is certainly nothing in what Yellen has said pointing to a faster tightening.
  • The ECB – Mario Draghi is right to warn policy will need to adjust once inflation rises. But at this stage there is little evidence of much tick up in underlying inflation in Europe. The total of unemployment and underemployment in the Eurozone at 18.5% is about 4 percentage points above where it was prior to the GFC acting as a huge constraint on wages growth. And political risk around Italy will slow Draghi from moving too quickly. Our view remains that the ECB will announce a slowing (or taper) in its quantitative easing program later this year (from €60bn a month to maybe €30bn a month for 2018) but that rate hikes are a way off.
  • The Bank of Japan – with inflation stuck at zero and the BoJ committing last September to continuing quantitative easing and a zero 10 year bond yield until inflation rises above 2%, it’s likely years from any exit from easy money.
  • RBA – while the drag from plunging mining investment is fading and the RBA remains upbeat, soft consumer spending, slowing housing investment, high underemployment and record low wages growth are likely to prevent a rate hike for at least a year or more. So we have seen no hawkish tilt from the RBA.

Finally, even though global monetary policy has gradually tightened thanks to four Fed hikes over the last two years, it’s a very long way from tight levels that will bring the bull market in shares to an end. As such – barring an exogenous shock – this global growth cycle and bull market in shares will likely remain long and drawn out. 

Implications for investors

At the time of the 2013 taper tantrum, there was much fear that an end to US money printing would lead to a major bear market, send bond yields sharply higher (as one source of bond buying dried up) and imperil the US and global economy. In the end it was a bit of a non-event as shares resumed their uptrend and the global economy continued to recover. The same is likely to be the case with the latest taper tantrum: 

  • With inflationary pressures remaining weak and monetary tightening likely to remain gradual (and non-existent in many countries including Australia for some time) the uptrend in bond yields is likely to remain gradual too.
  • While shares remain vulnerable to a short-term correction (on easy money exit talk), with monetary tightening likely to remain gradual and dependent on a further improvement in growth it’s unlikely to become tight enough to cause a major bear market in shares any time soon.
  • The search for yield will likely continue but may fade in intensity as bond yields gradually rise. This probably means that, while listed bond proxies such as global real estate trusts and listed infrastructure may be constrained as they were initial beneficiaries of the search for yield, unlisted property and infrastructure have further to go.

Exiting from ultra easy money not the end of the world

Finally, for those who say that central banks can never exit money printing and zero interest rates – just look at the US! Over the last four years, the Fed has phased down and stopped money printing or bond buying, raised interest rates four times and announced that it will start allowing its bond holdings to run down by phasing down the rolling over of maturing bonds in its portfolio. Each of these moves have caused uncertainty but have not crashed the US bond market, shares or the economy. Other central banks are likely to follow the Fed model. 

 

 

Dr Shane Oliver

Head of Investment Strategy and Chief Economist 

AMP Capital