Donald Trump: A business man running a country?
The concepts of business are very different from those that support running a country. The President elect has made an extraordinary claim about building a wall between the US and Mexico. Infrastructure investment usually drives economic growth through employment however this piece has been touted with a different purpose. It will need policing so we can expect an increase in military might. Many of us aren’t sure we trust this man, we are concerned he may use these military resources more broadly.
Successful business always has a very strong focus in values and outcomes to benefit them. Trump has talked about diplomacy as “those who support our objectives”. Cooperative economic alliances such as the free trade agreements have been the outcome of this talk from politicians. Does a business man mean the same thing or is it about competition?
The US economy is growing unevenly with current growth benefitting the top 25% of income earners. Mum and Dad households are on incomes that have regressed 20 years and are struggling to afford health care. They aren’t spending and the top 25% don’t need many more things than they already buy. This has resulted in uncertainty for so many, that Trump has promised to address.
How the Trump presidency will play out on the world’s economic stage is currently uncertain however there is much speculation. Uncertainty exists in our world and it is our response to it that determines our future.
“Less than 10 per cent of superannuation fund members are confident they will have enough money in their superannuation to support their retirement lifestyle”, was reported by a survey from Investment Trends.
The majority of fund members were uncertain about their futures. About 25% were concerned that the balance of their super was insufficient to support their retirement life style; about 20% were nervous about their balance; and 15% lacked any confidence their balance would support their life style.
Investment Trends also reported that only 7% of superannuation members changed funds last year which is unusually low. They were surprised that more weren’t seeking better returns. However, the language above suggests most members had grave concerns and don’t believe another fund will do much more for them.
What can you do to change this for you?
Firstly, leveraging your savings by borrowing money increases the return on investment, it also increases the risk though this can be mitigated by sound advice. Money in the bank in a term deposit could earn 3% interest. A property going up in value by 3% per annum with 80% borrowed funds earns you 15% on the money you put in as a deposit. This is a huge difference.
After ten years of 3% returns on both investments the value of the cash would have increased by $34,391.00 and the value of the increased equity in the property by $171,958.19. This is a five fold greater return.
Secondly, the value of our money decreases over time as inflation erodes its value. It is hard to see this effect in the short term but many of us can remember how far our childhood pocket money stretched, or what food items, fuel or cars cost in the past. If we borrow money today and have a long term loan, we pay it back in tomorrow’s dollars which cost us less to earn.
So investing in a leveraged asset, such as property, lets us increase the value of our money through capital growth, and at the same time the value of our debt is decreasing. Both capital growth and the reduced value of our debt are stimulated by inflation.
The next part is the bit where many go off the tracks and increase their risks. They don’t get professional advice and don’t have an investment strategy as a framework for decision making. When their circumstances change, as they do over a long period of time, they don’t know how to respond.
Many also don’t do factual research on the property’s potential performance. Most businesses selling property rely on real estate tactics of excitement about the opportunity and its potential; and how few opportunities there are to chose from. This is manufactured scarcity that is not real, and poor practice for the considerations of a property purchase that is an investment.
Instead we need to consider the demand and supply for the area, the strength and longevity of the economic drivers that are focussed on that area; and seek un conflicted sources of independent information. Most of us need an advice professional to gather the information and discuss it with us in a way we understand.
Trump may have increased the uncertainty of the financial world about economic growth being shared equally. However, what we really want is to create a bright future for ourselves and our children. This is within our power and can be substantially risk mitigated through good advice and appropriate investment advice.
Original Source: Forrester Cohen International. Article written by Rosemary Johnston. http://www.forrestercohen.com.au/views/blog.html#
