How will the weak Aussie dollar affect your finances
The heady days of the Australian dollar achieving parity with its US counterpart are looking more and more like a distant memory. And while it’s impossible to ignore the growing trend in these reports, what is a little bit more difficult to understand is what this means for your investments. We’ve taken a broad look at some of the impacts investors can expect to see from a weak AUD.
Property Values
Depending on how you’re positioned in the property market, a weak Australian dollar could have a positive or a negative effect on your investments. A weak AUD has the potential to drive property prices up, particularly in major cities like Sydney and Melbourne, as overseas investors working with currencies that are relatively more powerful see Australian property as an investment opportunity.
But, while it may be a boon for overseas investors, a weak Australian dollar makes it harder for Australians to purchase property, particularly first-home buyers. This in turn increase competition and makes it significantly more difficult for Australians to enter the property market.
Superannuation
While it’s difficult to predict the exact cumulative effect of a weakening Australian dollar on our superannuation, recent trends suggest that it may not necessarily be a negative one. Figures from research group SuperRatings showed that in 2014 super funds delivered decent gains and an average return of about 7.5 per cent, driven largely by the Australian dollar becoming weaker.
Super funds are generally leveraged across a variety of different areas, both internationally and domestically, as a means of protecting your investment and even profiting from global forces. So, superannuation funds which have made investments denominated in currencies that are stronger than the Australian dollar may stand to benefit. While this certainly isn’t something to bet the farm on, it’s interesting to consider the potential windfalls of a weak dollar in terms of super.
Investments in shares
Well, in this respect it really depends on where you’ve invested your money as a weaker Australian dollar will effect different companies in different ways. People can expect shares in companies that derive a large proportion of their earnings from overseas currencies to rise, as well as shares in companies associated with tourism like airlines, casinos and hotel chains.
By the same token though, shares in companies that generally are associated with people having a lot of free income to spend, like domestic department stores and luxury goods outlets may take a bit of a hit as the amount of free income each Australian has up their sleeve decreases.
What should I do?
While it’s easy to recognise the direction the Australian dollar is moving, it can be a little more difficult to figure out what the best course of action is, particularly for investors who are over 60. Adjunct Professor and Executive-in-Residence with the Queensland University of Technology Noel Whittaker recommends: “Even if a person is aged in their 60s, they may have 20 or 30 years ahead of them. That is why I have always recommended having a diversified portfolio which should include international shares. That will provide the hedge against the Australian dollar.”
Conclusion
By the look of it a weak Australian dollar is something we’re going to have to get used to. That being said, as long as you are aware of the opportunities and the risks presented by this you may be able to see some positive upshots. Ultimately though, we would advise you consult your financial planner or a financial advice professional before making any investment based on the strength of the dollar.
Noel Whittaker is a best-selling author, finance and investment expert, radio broadcaster, newspaper columnist and speaker. One of the world’s foremost authorities on personal finance, Noel recently released The Retirement Living Handbook. Co-authored with Rachel Lane, this handbook provides expert insight into retirement communities and is available here.
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