Search by ticker code:
Generic filters

Search by ticker code:
Generic filters

Search by ticker code:
Generic filters

Reminiscence of an old codger: Leaning into equities at the ripe age of 87

Recently, I discussed with my 87-year-old father-in-law (let’s call him Fil Downunder) his high growth equity investing style in light of increasing interest rates and inflation.

“Volatility isn’t the price of admission, it’s the prize for admission”.

As a bit of context, Fil has been an aggressive equities investor for decades. As an economist, he has never made a macro bet nor had an interest in stock picking. He simply puts his money into the most aggressive equity option of a generic fund manager.

This has worked for well over thirty years, and he has no intention of changing now.

Increasing interest rates won’t dampen his appetite for equities

Fil reckons interest rates are likely to go up from here. Since the “1991 recession we had to have”, we’ve only experienced declining interest rates. Asset prices during this period typically have increased faster than economic growth. Conversely, rising rates will put downward pressure on equities, but Fil isn’t in a rush to change his portfolio.

Source: RBA

Fil and I talked about Commonwealth Bank (ASX: CBA) as an example. If you buy it today for $105, you’ve locked in a 3.3% fully franked dividend yield. That’s around a 3.2% risk premium on top of the 0.1% RBA cash rate. If the RBA increases interest rates to say 1% – as guided by the CBA economists in February – then the yield on CBA shares could increase to 4.2%, resulting in a 22% share price decline to $82. And, only the new shareholders buying in at $82 would get that 4.2% fully franked dividend yield – existing shareholders would still be locked in at the yield they bought in for.

Fil then goes on to discuss the 40c per share dividend in 1991 when CBA was listed at $7. While the yield may have been 5.7% then, the yield on cost today is closer to 50% with a 15x in the share price. His fund has owned CBA throughout that whole period.

Inflation, not hyperinflation, is manageable

Fil can afford his bread, milk, and even avocado on toast with a mortgage fully paid off. He’s not worried about the long-term impact of inflation on equities unless he reckons hyperinflation is setting in – far from where we are today.

Fil reminisced about when inflation peaked at 15.4% in 1974, and the share of income for labour (wages) started to rise while capital income (profits) declined. We’re seeing today the inflationary pressures on profit margins, which Rask Media contributor Lachlan wrote extensively about during the 1H22 earnings season.

Fil is forever an optimist, “even if wage-earners capture more of the profits, this is probably a good thing for our economy and ultimately, good businesses will find new ways to grow in any conditions”.

Source: ABS

Final thoughts

Fil has never asked for financial advice. He’s not a gambler or typically a risk-taker, and money management is not something that has concerned him. In over 20 years, for the first time, I offered him some advice: “Fil, time to take some chips off the table”.

Fil reckons he’ll still be eating avocado on toast even with a 30% drawdown. I tried to convince him that at the age of 87, with his short runway, he can’t afford the volatility, “If you worry about interest rates and inflation, then you need time to ride out these big waves”.

But his faith in the long-term compounding of equities is unshaken. “You may think my runway is short, but my capital will live on with the grandkids, so I have no intention to shift out of equities”.  Touche.

$50,000 per year in passive income from shares? Yes, please!

With interest rates UP, now could be one of the best times to start earning passive income from a portfolio. Imagine earning 4%, 5% — or more — in dividend passive income from the best shares, LICs, or ETFs… it’s like magic.

So how do the best investors do it?

Chief Investment Officer Owen Rask has just released his brand new passive income report. Owen has outlined 10 of his favourite ETFs and shares to watch, his rules for passive income investing, why he would buy ETFs before LICs and more.

You can INSTANTLY access Owen’s report for FREE by CLICKING HERE NOW and creating a 100% FREE Rask Account.

(Psst. By creating a free Rask account, you’ll also get access to 15+ online courses, 1,000+ podcasts, invites to events, a weekly value investing newsletter and more!)

Unsubscribe anytime. Read our TermsFinancial Services GuidePrivacy Policy. We’ll never sell your email address. Our company is Australian owned.

Information warning: The information on this website is published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.

The author does not own shares in any of the companies mentioned.
Skip to content