Welcome to the Fear and Greed daily interview. I'm Sean Aylmer. As we settle back into normal routines for 2023, the kids are back at school. It's worth taking stock of where markets are right now. This year so far has been a much better story than 2022 with equities broadly performing pretty well, especially in Australia. But can it last? Remember, this is general information only and you should seek professional advice before making any investment decisions. Chris Brycki is the CEO of online investment advisor Stockspot. Chris, I'd say you are almost a regular on Fear and Greed. Well, you were last year.

Welcome to the Fear and Greed daily interview. I'm Sean Aylmer. As we settle back into normal routines for 2023, the kids are back at school. It's worth taking stock of where markets are right now. This year so far has been a much better story than 2022 with equities broadly performing pretty well, especially in Australia. But can it last? Remember, this is general information only and you should seek professional advice before making any investment decisions. Chris Brycki is the CEO of online investment advisor Stockspot. Chris, I'd say you are almost a regular on Fear and Greed. Well, you were last year.

Yeah, I was on a few times and we talked on a whole range of different topics. So good to get back on this year.

Yeah, I was on a few times and we talked on a whole range of different topics. So good to get back on this year.

Yes, it's because you're worth listening to. Now let's jump into equities first. The ASX particularly. Been a great January, great first month of the year.

Yes, it's because you're worth listening to. Now let's jump into equities first. The ASX particularly. Been a great January, great first month of the year.

It has been. I mean, while everyone's been on holidays there's been a rocket under all markets and locally here the Aussie market's up about 5% in January. The US market, around the same. And actually the technology index in the US, which was really the one that got hammered the most last year, is up 9% in the month. So big market across all of the different share markets around the world really.

It has been. I mean, while everyone's been on holidays there's been a rocket under all markets and locally here the Aussie market's up about 5% in January. The US market, around the same. And actually the technology index in the US, which was really the one that got hammered the most last year, is up 9% in the month. So big market across all of the different share markets around the world really.

Okay, so why?

Okay, so why?

Well, I think the main reason is that people are starting to feel that inflation is slowing around the world and starting to also see a bit of a cooling in the jobs market. And they're hopeful that this will mean that central banks can adopt a bit more of a relaxed approach to raising interest rates compared to last year where they were ratcheted up very quickly. And if they do that, then that would be positive for the economy. So people are betting that central banks won't keep on increasing interest rates at the same rate that they did last year.

Well, I think the main reason is that people are starting to feel that inflation is slowing around the world and starting to also see a bit of a cooling in the jobs market. And they're hopeful that this will mean that central banks can adopt a bit more of a relaxed approach to raising interest rates compared to last year where they were ratcheted up very quickly. And if they do that, then that would be positive for the economy. So people are betting that central banks won't keep on increasing interest rates at the same rate that they did last year.

I mean, I went away for three weeks over Christmas and didn't follow the news at all and I came back, Chris, and what surprised me somewhat was that everyone was saying, " Well, Europe's not going into recession and the US might go into the recession but it'll be mild." There seemed to be real change in view on economic growth as well.

I mean, I went away for three weeks over Christmas and didn't follow the news at all and I came back, Chris, and what surprised me somewhat was that everyone was saying, " Well, Europe's not going into recession and the US might go into the recession but it'll be mild." There seemed to be real change in view on economic growth as well.

There has been. And I think, I mean, people really probably put I think too much emphasis on whether an economy goes into recession or not. Historically, it doesn't have a huge impact on the share market. But actually, a bit counterintuitively, I think a lot of investors are actually hoping that things tip over and head towards a recession because if that does happen, it makes it more likely that central banks won't raise interest rates. And really asset prices more than anything are driven by the alternative option, which is just leaving your money in the bank or in cash or in safe options. So the higher interest rates are, the worst shares look as an investment. So people really hope that markets don't keep on roaring ahead or the economy doesn't keep on roaring ahead because that's actually better for investors.

There has been. And I think, I mean, people really probably put I think too much emphasis on whether an economy goes into recession or not. Historically, it doesn't have a huge impact on the share market. But actually, a bit counterintuitively, I think a lot of investors are actually hoping that things tip over and head towards a recession because if that does happen, it makes it more likely that central banks won't raise interest rates. And really asset prices more than anything are driven by the alternative option, which is just leaving your money in the bank or in cash or in safe options. So the higher interest rates are, the worst shares look as an investment. So people really hope that markets don't keep on roaring ahead or the economy doesn't keep on roaring ahead because that's actually better for investors.

Actually yesterday I think we got those retail sales figures out for December, they were down 3. 9%. They'd fell hugely compared to what people thought and the share market actually jumped on the back of exactly what you are talking about.

Actually yesterday I think we got those retail sales figures out for December, they were down 3. 9%. They'd fell hugely compared to what people thought and the share market actually jumped on the back of exactly what you are talking about.

Yeah, it's this weird phenomenon where sometimes people are actually cheering for bad news. And particularly because the big market falls last year were largely driven by those inflationary impacts we've been seeing. And then the need for central banks to raise interest rates, anything that's going to give people more confidence that those rates are going to plateau. And that's what you've also seen since the start of the year is the bond markets have done very well. Bonds in Australia are up about 3% since the start of the year on bets that actually the RBA will continue to slow rate increases. Now that's still very much up in the air. I saw Deutsche Bank yesterday actually put out a prediction that there's still another 1% to go, from 3. 1 to 4.1, so that's higher than a lot of the other economic forecasters are predicting.

Yeah, it's this weird phenomenon where sometimes people are actually cheering for bad news. And particularly because the big market falls last year were largely driven by those inflationary impacts we've been seeing. And then the need for central banks to raise interest rates, anything that's going to give people more confidence that those rates are going to plateau. And that's what you've also seen since the start of the year is the bond markets have done very well. Bonds in Australia are up about 3% since the start of the year on bets that actually the RBA will continue to slow rate increases. Now that's still very much up in the air. I saw Deutsche Bank yesterday actually put out a prediction that there's still another 1% to go, from 3. 1 to 4.1, so that's higher than a lot of the other economic forecasters are predicting.

Yeah. So just explain that to retail investors in terms of bonds. The whole idea is if the reserve bank keeps pushing interest rates up, that's not good for bonds or to purchase bonds today, if rates in the future are going to be higher.

Yeah. So just explain that to retail investors in terms of bonds. The whole idea is if the reserve bank keeps pushing interest rates up, that's not good for bonds or to purchase bonds today, if rates in the future are going to be higher.

Correct. If you own a bond, then you are basically, and if it's a fixed rate bond, you've locked in the interest that you're receiving on that. So the more that interest rates in the open market go up, the worse your bonds are going to perform because on a relative basis the interest doesn't look very good. So you actually want interest rates to fall if you own bonds. And actually a lot of the share market falls last year I think were driven by big falls in the bond market. So I don't think anyone was anticipating in 2022 how quickly interest rates needed to go up and that caused bonds to get slammed around the world and the prices fell. But what it meant was actually the yield or what you could earn by owning those bonds actually rose quite substantially and suddenly bonds looked a lot more attractive than shares and then that cascades into leading shares to fall.

Correct. If you own a bond, then you are basically, and if it's a fixed rate bond, you've locked in the interest that you're receiving on that. So the more that interest rates in the open market go up, the worse your bonds are going to perform because on a relative basis the interest doesn't look very good. So you actually want interest rates to fall if you own bonds. And actually a lot of the share market falls last year I think were driven by big falls in the bond market. So I don't think anyone was anticipating in 2022 how quickly interest rates needed to go up and that caused bonds to get slammed around the world and the prices fell. But what it meant was actually the yield or what you could earn by owning those bonds actually rose quite substantially and suddenly bonds looked a lot more attractive than shares and then that cascades into leading shares to fall.

So I'm going to stick with bonds, we'll come back to equities and whether it's going to last, but just sticking with bonds for the moment. So is a bond or a bond fund or an ETF, a bond ETF, suddenly ... Well, not suddenly. Is it now more attractive perhaps than it was?

So I'm going to stick with bonds, we'll come back to equities and whether it's going to last, but just sticking with bonds for the moment. So is a bond or a bond fund or an ETF, a bond ETF, suddenly ... Well, not suddenly. Is it now more attractive perhaps than it was?

It's definitely more attractive. So the yield that you can earn on ... And in our portfolios we have a high quality government and corporate bond ETF that invests in a bunch of different bonds. You can currently earn about 3. 8% per year on that compared to a bit less than that just in the cash rate. And that's a lot better than a few years ago. When interest rates were zero in Australia, you could barely earn anything on a bond. So the rates do look better. The problem is that in most markets, bonds and shares move in opposite directions and so bonds provide a good cushion for your portfolio. We didn't see that last year because we're in more of an ... I would call it an inflationary bear market where bonds are actually driving shares to fall and they're falling together and we haven't seen those two asset classes move in tandem to the same extent that they are at the moment for many decades.

It's definitely more attractive. So the yield that you can earn on ... And in our portfolios we have a high quality government and corporate bond ETF that invests in a bunch of different bonds. You can currently earn about 3. 8% per year on that compared to a bit less than that just in the cash rate. And that's a lot better than a few years ago. When interest rates were zero in Australia, you could barely earn anything on a bond. So the rates do look better. The problem is that in most markets, bonds and shares move in opposite directions and so bonds provide a good cushion for your portfolio. We didn't see that last year because we're in more of an ... I would call it an inflationary bear market where bonds are actually driving shares to fall and they're falling together and we haven't seen those two asset classes move in tandem to the same extent that they are at the moment for many decades.

Stay with me Chris, we'll be back in a minute. My guest this morning is Chris Brycki, CEO of online investment advisor Stockspot. So let's just jump back to equities. We talked about what's happened, why it's happened. Can it last?

Stay with me Chris, we'll be back in a minute. My guest this morning is Chris Brycki, CEO of online investment advisor Stockspot. So let's just jump back to equities. We talked about what's happened, why it's happened. Can it last?

Look, I think there's obviously a lot of hope at the start of the year and that's why everyone's been jumping back into shares. I'm not entirely solved that it's going to last and we're going to continue to see them move up in a straight line this year. And I mean, I remember back in my early trading days in the early 2000s, the original tech wreck and how hard it was to predict markets in 2001 and 2002. Because in those two years there were three different rallies where the US share market went up by 20% and a lot of people suddenly got a lot of hope back. And then those big rallies were quickly reversed and the market made new lows. And so I think I would caution people around getting too excited and suddenly deploying all of their capital all at once. I mean, I'd certainly recommend dollar cost averaging over a period. There's a few warning signs that make me a little bit less excited about markets at the moment. One is that if you have a look at what's gone up the most this year, it's been a lot of the, I would say, higher growth and lower quality shares, the ones that really got pummeled last year, like technology. Now historically when you enter a new bull market, it's not the same sector that led the bear market down that leads the market out of that bear market. And so it's unusual to see technology, which has been the worst sector in this bear market, be the one to lead us out. So having a look at which sectors lead the market up is an interesting signal. At the moment it's not giving me a lot of confidence that we'll see this rally continue. The other one is that I think people's tempered expectation around interest rate rises may be a bit premature and actually central banks, now that markets are rallied, are probably more likely to raise interest rates rather than less likely. And that I think is underpinned by the history that actually central banks, once inflation rises above 5% in an economy, every single time that's happened in history, central banks have needed to raise interest rates above the inflation rate to get it under control. And in Australia at the moment, we know the inflation rate's just under 8%, it's 7. 8%. But our interest rates are only 3.1%. So there's a big gap between those numbers and I think that people probably aren't anticipating that needs to close, but I think it probably does need to.

Look, I think there's obviously a lot of hope at the start of the year and that's why everyone's been jumping back into shares. I'm not entirely solved that it's going to last and we're going to continue to see them move up in a straight line this year. And I mean, I remember back in my early trading days in the early 2000s, the original tech wreck and how hard it was to predict markets in 2001 and 2002. Because in those two years there were three different rallies where the US share market went up by 20% and a lot of people suddenly got a lot of hope back. And then those big rallies were quickly reversed and the market made new lows. And so I think I would caution people around getting too excited and suddenly deploying all of their capital all at once. I mean, I'd certainly recommend dollar cost averaging over a period. There's a few warning signs that make me a little bit less excited about markets at the moment. One is that if you have a look at what's gone up the most this year, it's been a lot of the, I would say, higher growth and lower quality shares, the ones that really got pummeled last year, like technology. Now historically when you enter a new bull market, it's not the same sector that led the bear market down that leads the market out of that bear market. And so it's unusual to see technology, which has been the worst sector in this bear market, be the one to lead us out. So having a look at which sectors lead the market up is an interesting signal. At the moment it's not giving me a lot of confidence that we'll see this rally continue. The other one is that I think people's tempered expectation around interest rate rises may be a bit premature and actually central banks, now that markets are rallied, are probably more likely to raise interest rates rather than less likely. And that I think is underpinned by the history that actually central banks, once inflation rises above 5% in an economy, every single time that's happened in history, central banks have needed to raise interest rates above the inflation rate to get it under control. And in Australia at the moment, we know the inflation rate's just under 8%, it's 7. 8%. But our interest rates are only 3.1%. So there's a big gap between those numbers and I think that people probably aren't anticipating that needs to close, but I think it probably does need to.

Okay. How does Australia, the local market, compare to overseas markets? And I suppose I'm going to clump those into two groups. Developed markets, so Wall Street, Europe, UK, and then emerging markets, Korea, China, Mexico, Brazil, those sorts of markets.

Okay. How does Australia, the local market, compare to overseas markets? And I suppose I'm going to clump those into two groups. Developed markets, so Wall Street, Europe, UK, and then emerging markets, Korea, China, Mexico, Brazil, those sorts of markets.

So our market, funnily enough, fits almost between the two. And I would explain it like this. In the last year, our market in Australia did much better than the US and many European markets. And that's mainly because of the sectors that are much larger in our market. So in the Aussie share market, banks and resources make up a big proportion of the overall market and they were two sectors that actually benefited from higher commodity prices, which came from that higher inflation and also higher interest rates because banks can earn better margins when interest rates are higher. So actually last year banks and resources really supported our market. And the reason our market fell by a lot less than other markets, like the US and Europe, were technology and healthcare and some of these high growth sectors were punished by the higher interest rates. So compared to the US and Europe, we did well. And if you believe that interest rates are going to continue to stay high and inflation high, you would expect our market to continue to relatively do better than those markets. And that did happen. From around 2001 to 2010, our market outperformed the US market so we could be in for a similar period to that. Compared to emerging markets, emerging markets tend to do even better than our market when there's higher inflation because they're usually even more exposed to commodity markets than we are. And yeah, historically that's been the group of markets that's done the best.

So our market, funnily enough, fits almost between the two. And I would explain it like this. In the last year, our market in Australia did much better than the US and many European markets. And that's mainly because of the sectors that are much larger in our market. So in the Aussie share market, banks and resources make up a big proportion of the overall market and they were two sectors that actually benefited from higher commodity prices, which came from that higher inflation and also higher interest rates because banks can earn better margins when interest rates are higher. So actually last year banks and resources really supported our market. And the reason our market fell by a lot less than other markets, like the US and Europe, were technology and healthcare and some of these high growth sectors were punished by the higher interest rates. So compared to the US and Europe, we did well. And if you believe that interest rates are going to continue to stay high and inflation high, you would expect our market to continue to relatively do better than those markets. And that did happen. From around 2001 to 2010, our market outperformed the US market so we could be in for a similar period to that. Compared to emerging markets, emerging markets tend to do even better than our market when there's higher inflation because they're usually even more exposed to commodity markets than we are. And yeah, historically that's been the group of markets that's done the best.

I just want to take you back to something. You mentioned dollar cost averaging. Just explain what that is. Because I think it's one of the most important parts of investing.

I just want to take you back to something. You mentioned dollar cost averaging. Just explain what that is. Because I think it's one of the most important parts of investing.

Well, I think for a lot of people it can be very tempting when you think the market's bottomed, or when you think it's going to go up further, to put all of your money to work in the market straight away. And if you're right, that's fantastic, you've done well. But in a lot of cases you can feel a lot of regret if you're too early and the market keeps on falling. So a strategy we recommend to all of our Stockspot clients when they're starting to invest, and particularly if they're a bit nervous about markets, is not putting all of your money to work immediately, but actually setting up a plan. So you might space out your investing over the next 12 months and divide up that money so every month you're investing a smaller amount and it allows you to capture any dips that happen along the way. So if the market falls, you feel a bit of relief that you've been able to buy at those lower prices. And if markets go up, at least you feel happy that you bought some before the market went up. So for me, dollar cost averaging is about reducing the amount of regret you feel in the future.

Well, I think for a lot of people it can be very tempting when you think the market's bottomed, or when you think it's going to go up further, to put all of your money to work in the market straight away. And if you're right, that's fantastic, you've done well. But in a lot of cases you can feel a lot of regret if you're too early and the market keeps on falling. So a strategy we recommend to all of our Stockspot clients when they're starting to invest, and particularly if they're a bit nervous about markets, is not putting all of your money to work immediately, but actually setting up a plan. So you might space out your investing over the next 12 months and divide up that money so every month you're investing a smaller amount and it allows you to capture any dips that happen along the way. So if the market falls, you feel a bit of relief that you've been able to buy at those lower prices. And if markets go up, at least you feel happy that you bought some before the market went up. So for me, dollar cost averaging is about reducing the amount of regret you feel in the future.

Okay, one final question. Cash on hand, just judging from what you said a moment ago, not a hundred percent sure ... I mean, you're never going to be a hundred percent sure, but you just ... There are signs that this equity rally may not last. Having money on hand, good idea is it to take advantage of those opportunities, or should you be fully invested?

Okay, one final question. Cash on hand, just judging from what you said a moment ago, not a hundred percent sure ... I mean, you're never going to be a hundred percent sure, but you just ... There are signs that this equity rally may not last. Having money on hand, good idea is it to take advantage of those opportunities, or should you be fully invested?

Well, the strategy we recommend to clients is, for everyone, you should be always having some cash set aside for short term expenses and as a bit of an emergency fund because you don't want to be dipping into your investments if you lose your job and you need a bit of extra cash to support the family or if you want to go on a holiday or something like that. So typically I would suggest three to six months worth of expenses you should be keeping in cash or in something that's easily accessible. Potentially at the moment that could be a little bit more. Because the economy is pretty volatile, we don't know what the employment situation will look like in a year or two and inflation's quite high. It might justify having a little bit more. So you've got a bit of a war chest ready to deploy if things get really bad because there'll be a time in every cycle where a lot of people are panicking and if you are the person that has a bit of cash set aside and that is able to actually deploy that, you could really set yourself and your family up well for the future because you've been able to buy at great prices.

Well, the strategy we recommend to clients is, for everyone, you should be always having some cash set aside for short term expenses and as a bit of an emergency fund because you don't want to be dipping into your investments if you lose your job and you need a bit of extra cash to support the family or if you want to go on a holiday or something like that. So typically I would suggest three to six months worth of expenses you should be keeping in cash or in something that's easily accessible. Potentially at the moment that could be a little bit more. Because the economy is pretty volatile, we don't know what the employment situation will look like in a year or two and inflation's quite high. It might justify having a little bit more. So you've got a bit of a war chest ready to deploy if things get really bad because there'll be a time in every cycle where a lot of people are panicking and if you are the person that has a bit of cash set aside and that is able to actually deploy that, you could really set yourself and your family up well for the future because you've been able to buy at great prices.

Chris, thank you for talking to Fear and Greed.

Chris, thank you for talking to Fear and Greed.

My pleasure. Thanks for having me back.

My pleasure. Thanks for having me back.

That was Chris Brycki, CEO of online investment advisor Stockspot. This is the Fear and Greed daily interview. Remember, this is general information only and doesn't take into account your personal circumstances. You should seek professional advice before making investment decisions. Join us every morning for the full episode of Fear and Greed, Australia's most popular business podcast. I'm Sean Aylmer. Enjoy your day.

That was Chris Brycki, CEO of online investment advisor Stockspot. This is the Fear and Greed daily interview. Remember, this is general information only and doesn't take into account your personal circumstances. You should seek professional advice before making investment decisions. Join us every morning for the full episode of Fear and Greed, Australia's most popular business podcast. I'm Sean Aylmer. Enjoy your day.