Dale Gillham

Buying a property is a significant financial decision for anyone that requires careful planning and preparation. With interest rates rising, Gen Z are feeling even more pressure to get into their first home, so what are the steps you need to take to buy a property.

First and foremost, Gen Z needs to stop listening to the baby boomers because they are repeatedly told how hard it is to get into the property market. But we need to change the message we are sending to the younger generation, so that they can move forward in a positive and more financially rewarding way.

Let’s get one thing straight, living in a house that has your name on the title does not give you financial security. What it does is handcuff you to a bank in the form of enforced slavery where you work hard to pay the bank, so they can make lots of money from you. But all this does is create a great deal of stress, and potentially mortgage stress, as more and more people are experiencing.

Gen Z often say they can’t afford to buy where they want to live, so they live where they can afford. Unlike the baby boomers, they also are enticed to get into debt to have everything in the house, so they live a great lifestyle. But what sort of lifestyle is that, if you are constantly worried about the pressures of paying the mortgage. However, there is a better way.

If the goal is to get into the property market and build wealth, then why not do it smarter rather than harder. Young people should invest in an investment property and have the tenant and tax man pay for the mortgage, leaving them free to live where they want to live.

If the tenant is paying $500 per week in rent and the tax man is allowing you to claim on interest payments and other costs, then even in the current interest rate environment, Gen Z won’t have to use much, if any, of their own money to fund the mortgage repayments. This leaves them free to live where they want, giving them a better lifestyle and less stress. So, how do the younger generation get a deposit together?

Start saving and aim to have a deposit of at least 20 per cent of the property value. To accelerate the process, each time your bank account gets above $1,000, use that to buy good quality blue chip shares. That’s because you’ll receive more in dividend income than the interest payable on your bank account. The other benefit is that, on average, your money will grow above inflation.

While you’re saving, start educating yourself on the property and stock market and do your research. In regards to the property market, you need to look at the best areas to invest regardless of which state the property is in. This is an investment, and you need to treat it like that.

To get ahead financially, it’s wise not to follow the herd. Having an investment property that is being paid for by a tenant and the tax man gives you far more security and less stress than buying a home to live in. Buying a property isn’t a complex process, if you have educated yourself, and with careful planning and preparation, you can make your dreams a reality.

What are the best and worst performing sectors this week?

The best performing sectors include Information Technology up over 4 per cent followed by Consumer Discretionary up over 3 per cent and Financials up over 2 per cent. The worst performing sectors include Energy and Materials, which are both down over 2 per cent followed by Utilities, which is just in the green for the week.

The best performing stocks in the ASX top 100 include Xero up over 15 per cent followed by Insurance Australia Group and Seek, which are both up over 5 per cent. The worst performing stocks include Woodside Energy Group and ALS, as both are down over 6 per cent followed by South 32, Evolution Mining and Northern Star Resources, which are all down over 5 per cent.

What’s next for the Australian stock market?

This week, the All Ordinaries Index is technically trading up for the first time in a month, but, so far, the rise has not been convincing. While caution still needs to be exercised, a strong close up on Friday would go a long way to setting the scene for what might occur in the coming weeks.

The Australian stock market is in my target zone for the low, which was between 7,200 and 7,500 points, so it is quite possible it will rise over the coming month and possibly longer. However, if the close on Friday is around the low for the week, we need to expect further falls to the lower end of my target range.

Again, it will pay to be patient and wait for confirmation as the first step to success in the stock market, whether you are an investor or trader, is to get the direction of the market or stock right. Until direction is confirmed, your risk is high, and the outcome is uncertain.

For now good luck and good trading.

By Dale Gillham, Chief Analyst

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Banks set to soar as Royal Commission ends

In the past year the financial news has been dominated by the Royal Commission into the Finance Sector, however, this is now coming to an end as the final report is due to be submitted on 1 February. Will this report cut the anchor that has held the banks back or will it be a nail in their coffin?

The Royal Commission has well and truly taken its toll on the banks as they were down as much as 30 per cent from their 2015 highs last year. To put this into perspective, as of December 2018, some of the banks where trading at levels not seen since 2012.

With dividend yields of around 6 to 8 per cent, this makes bank stocks a very attractive investment right now, although you would be wise to ponder whether the worst is behind us.

That said, while the dividend yields are attractive, they often a sign of a poor performing stock, which is certainly the case here. We also need to remember that there is a reason why the banks are down as much as they are, and there are many hurdles they still need to overcome.

So what’s in store for the Big 4 in 2019?

The first quarter trading updates for the banks will occur shortly after the Royal Commission report is released, so the banks may see some short term volatility in the next month.

If there are no real surprises from the commission, we could see a 5 to 8 per cent gain in the short term. That said, there is downside risk if the commissioner wants to make an example out of the banks, as the recommendations may significantly impact the banks bottom line. If this occurs, prices could fall to back to the lows in December.

Right now, I believe the worst is over and that the banks will continue to rise in the short to medium term. Looking at the big four banks historically, we know they have been down since early 2015, and history suggests that a decline of more than four years is highly unlikely. That said, for the banks to be in the clear they need to have a strong move up in the next 6 months in the order of 10 per cent or more.

The best time to make your decision on the banks is shortly after the Royal Commission report is released, as the change in trend from down to up will be confirmed by then and you will be able to gauge the response to the report. Remember, the big four are a longer-term investment, so there is no not need to rush.

My favourite stock in this sector at the moment is CBA, although I do like some of the second-tier banks such as Bendigo and Adelaide Bank, so I recommend sticking both stocks on your watch list.

So what do we expect in the market?

The All Ordinaries is bullish and while this statement may seem a little over confident the signs are certainly there to back this up. The market is up nearly 8 per cent in the past few weeks and the banks have moved up strongly this week along with BHP and RIO. In the past 11 days the market has only traded lower than the previous day once, which was last Monday, and we are experiencing the highest closing prices in our market over the past two months.

That said, the volatility in the past year has investors cautious and with normal volumes starting to return to after the Christmas break, we still need to be careful that the market could do anything.

The real test will come when the market trades up to 6,000 points, because if it fails to break through this level, it will mean further downside is likely. Right now things are looking good and I expect the market will trade through this level and move up to 6,200 by the end of the first quarter this year. My advice is look to the big stocks for opportunities to buy.

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