Economists for years have conveyed the ‘Wealth Effect Theory’. What this theory basically means is that when people’s perceived wealth increases the more they will spend. The two key ways that people will experience increased wealth is when the share market rises and more importantly when they believe their home has increased in value.

From where I’m sitting the share market has increased by over 15% since July last year and I believe will continue to do so. The share market has had its best July for years. Further, I have been speaking with real estate agents, bankers and mortgage brokers and the key themes are that the residential property market is starting to really take off.

What people and more specifically investors are craving is income. Cash rates have fallen to all-time lows and continuing to decline. Bill Evans, the Chief Economist from Westpac Bank, expects another rate cut in August and two further rates cuts over the next 12 months. We could all be sitting here this time next year and be looking at cash rates at 2%.

So the question is where will investors look to generate greater income? I believe the two key areas are Australian shares that pay fully franked income and residential property. With cash rates and term deposit rates on the decline the income gap between having money in the bank and owning the bank is increasing. The question you must ask yourself is, will you be left behind?

wealth effect

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Thomas Jacks BCom (Acc), SMSF SpecialistTM, Adv. Dip F.S. (FP)
“I want to be able to assist clients with their investment and retirement planning by providing real strategy advice. It’s my aim to not only help my clients but to educate them by addressing the entire picture” Google Plus

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