Rice Warner’s Personal Investments Market Projections 2017 report

Last week, Rice Warner released its annual Personal Investments Market Projections report for 2017. The report investigates how Australians invest their (non-superannuation) savings across investment markets and platforms. Overall, the report reflects on a year of strong investment market performance and an increase in total personal savings over the year of 12% (relative to an average of 6.2% per year over the past decade).

The report, which includes an in-depth market overview, commentary on underlying trends and an outline of the projection methodology, reflects that:

• Australians hold $2,575 billion in personal investments. This is an even larger savings pool than the $2,325 billion held in various superannuation arrangements.
• The 1 July 2017 tax changes caused a short-term dip in the rate of growth of personal investments, as wealthier households drew down on these investments to use the last chance to make lump sum contributions to super of up to $540,000 per person or $1,080,000 per couple. Over the longer term, the tighter limits applying to superannuation contributions will increase the importance of personal investments savings, especially for higher earners.
• Directly held investment properties (net of mortgages) account for 43% of personal investments. This is an increase of approximately 2.5% on the figure reported 30 June 2016 despite increasing concern about the property valuations becoming stretched in Sydney and Melbourne, and the potential impact that interest rate increases could have on property values.
• Despite strong equity market performance over the 2016/17 financial year, households reduced their direct equity exposure. This is reflected in a shift away from traditional equities as investors seek out other sources of return via managed funds and other asset classes.
• The market share of assets held on wrap and similar platforms increased slightly from last year and is expected to continue to grow to over 10% of the personal investments market by 2032. Much of this growth will be due to investors holding assets through these platforms rather than holding the same assets directly.
• Investment in alternative assets, including smart-beta indices and derivative products, grew over 30%. These assets are held almost entirely through wrap platforms and master trusts, and are becoming increasingly popular due to their innovative nature and diversification benefits.
• Inequality remains an issue, with the wealthiest 5% of Australian’s holding personal investments that are on average 75 times larger than the poorest 5%. This is exacerbated by the necessity for households which lack reliable income and access to credit to protect against emergencies by holding much of their limited savings in low-yielding cash.

In the context of these trends, Rice Warner expects the personal investments market to grow to over $5 trillion over the next 10 years.