A nation of landlords and fund managers

A Nation of Landlords and Fund Managers

Australia is a unique prototype for a "financialized" economy. Nowhere else in the world do residential housing and superannuation dwarf the actual productive economy (GDP) to the extent they do here.

Currently, Australian residential housing is worth $11.7 trillion, and superannuation assets total $4.3 trillion. Meanwhile, our annual GDP is just $2.6 trillion. This means housing is 4.5x larger than the entire economy!

The "Too Big to Fail" Dilemma

This concentration makes these two asset classes "too big to fail." If the housing market or the superannuation sector were to see a significant correction, it would have devastating consequences for our national economy. This incentivizes governments and central banks to keep these "bubbles" inflated through policy and stimulus.

Looking to 2050

What happens if these growth rates continue? If housing continues to grow at 7% per year, the median Adelaide home would be worth several million dollars by 2050. But for that to happen, wages would also need to skyrocket—otherwise, house-price-to-income ratios (currently around 10x) would reach levels never seen in human history.

The Implication for Investors

Because of this concentration, Australians are obsessed with property and super. But sustainability is a real question.

• Diversification is Key: If your wealth is 100% in your Adelaide home and your super (which is also likely 30% in Australian stocks/banks), you are highly exposed to the Australian economy.

• Innovative Sectors: For our economy to grow, we need investment to flow into productive, innovative sectors, not just into passive assets like land.

As your advisors, we recognize that while housing and super are the cornerstones of Australian wealth, true financial security comes from looking beyond our borders and diversifying into global markets that aren't tied to our local property cycle.

Source: https://www.morningstar.com.au/personal-finance/nation-landlords-fund-managers

If you are interested in learning more, give us a call on 08 7477 8252. Our Adelaide based advice team can help you create a long-term portfolio, to generate both growth and income for your future.

General Advice Warning:

The information on this website is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS) or other offer document prior to making an investment decision in relation to a financial product.