Stagflation Survival Guide

Prices keep climbing, the news feels shaky, and yet pay rises and growth do not seem to be keeping up. That uncomfortable mix has a name: stagflation. We sit down with our superannuation specialist Marco Melado to unpack what stagflation means in real life, why it can trigger job insecurity and cautious spending, and how that cycle can weigh on the broader economy.

From there, we get practical about investing in Australia when inflation stays high. We talk about “preserving purchasing power” and why simply holding the same number of dollars is not the same as maintaining what your money can actually buy. Marco explains how different assets can behave when the usual economic tailwind disappears, including the role commodities can play as inflation hedges, why gold is often treated as a store of value, and what you should consider if you are looking at gold bullion versus gold mining shares.

We also move into the decisions people are making inside superannuation and retirement planning right now: whether shifting to cash really helps, why your time frame after retirement can still be 20 to 30 years, and how to think about portfolio changes without jumping in and out of the market. We answer listener questions on switching a super pension back to accumulation, contribution caps and deductions, and improving the quality of your investments by leaning into more defensive shares such as consumer staples, healthcare and utilities.

If you want a clear-headed guide to stagflation, inflation risk, superannuation strategy and staying diversified through volatility, hit play. Subscribe for more, share this with a mate who is worried about the cost of living, and leave us a review with your biggest question about investing right now.

DISCLAIMER: This podcast contains general financial information only. That means the information does not take into account your objectives, financial situation, or needs. Because of that, you should consider if the information is appropriate to you and your needs, before acting on it. If you’re confused about what that means or what your needs are, you should always consult a licensed and trusted financial planner. Unfortunately, we cannot guarantee the accuracy of the information in this podcast, including any financial, taxation, and/or legal information. Remember, past performance is not a reliable indicator of future performance. The Rask Group is NOT a qualified tax accountant, financial (tax) adviser, or financial adviser. Access The Rask Group's Financial Services Guide (FSG): https://www.rask.com.au/fsg

Transcript

Welcome To Talk Investing

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The Talk Investing podcast and blog discusses investment advice from our previous podcasts and radio shows by Remo Greco and Marco Melado. Learn all things around retirement and investing.

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On the money.

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For our Easter Sunday edition, we have Marco Melado, our superannuation specialist. Good morning, Marco.

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Hello, Lisa. Happy Easter.

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Happy Easter indeed.

Stagflation Explained In Plain English

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What is stagflation?

SPEAKER_02 0:38

It doesn't sound like a very appealing word, does it? So stag inflation. So it's an economic term for a pretty rare period that you go through where you have inflation.

unknown 0:50

Right?

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So the prices of a complexity. And I think we're living it now.

SPEAKER_04 0:54

Yeah.

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You also have very low or stagnant economic growth. Some may argue we're already in that as well, hence the stag. So put those together, you get stagflation. So that's the term, but what does it actually mean to us? So what it means is we're paying more for things, so that's not good. We don't have the ability, though, to necessarily earn a lot more. So we're not necessarily having big wage increases coming up. We're not necessarily finding it easier to change jobs or get promoted from the government.

SPEAKER_04 1:29

Feels like there's a lot of job insecurity.

SPEAKER_02 1:31

Huge amount of job insecurity. And what does that do? That just it it it it makes you more conservative necessarily, and it it kind of stops you spending, which contributes to lower economic growth, because that's less money flowing through the economy, less goods and services being bought. So it makes us all feel uh a little less wealthy, more insecure, and there's not much we can do about it at the individual level. So that's stakeflation.

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Okay, thanks for depressing us on Sunday. You you better tell us what

What You Can Control As Investors

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to do. Trevor Burrus, Jr.

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Now, what can we do? So we can't fix that problem individually, right? Because we know that a lot of that now is being fed through higher oil prices, and that's the conflict going on. And that's you know, oil prices feeds into just about everything, right? So that we cannot control. But what can we control around how we invest? Yes. And so this can come back.

SPEAKER_04 2:23

And we can also be talking about our superannuation here, Marco.

SPEAKER_02 2:26

Yep. So whether it's investments we own personally or in superannuation, which is our long-term nest egg, if we're going to have a period of long stagflation, we really need to think about what or how different assets perform.

SPEAKER_04 2:42

And so if you think by assets in this Assets investments.

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So whether they be shares, property, commodities, fixed interest things like bonds and notes, term deposits, cash. Anything that has the ability to store or grow in value is an investment or that pays income. So if we think about a normal economic environment, we've got economic growth, everyone's feeling pretty good. Companies use that economic growth to increase their revenue, right? Because their goods and services are in demand, and so it's a really nice tailwind for them. If that tailwind is removed and we're in stagflation, we need to be really careful about the investments we choose because many won't have that tailwind. So what we want to be able to do is shift some of our investments into those that preserve purchasing power. So that means they hopefully grow in line with inflation. Right? So preserving purchasing power.

SPEAKER_04 3:41

Okay, you have to go deeper on that for me.

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Trevor Burrus, Jr.: Preserving purchasing power means one dollar today with a high inflation rate is worth less because it buys you less goods. Right. So maybe five years ago that dollar bought you a loaf of bread today, that loaf of bread's going to be a dollar fifty, we've lost purchasing power. We still have a dollar, but things are costing more.

SPEAKER_04 4:01

And so what PrayTel is would actually retain purchasing power. I can't even imagine.

SPEAKER_02 4:05

Trevor Burrus, Jr. So we've we we need to look at things like commodities. And so gold is one of them. So gold we know has been on a magnificent run in terms of price for many, many years now, despite a a setback recently. Gold is scarce. It's not that easy to find new gold. Gold is in demand by central banks, and gold is essentially considered a bit of a safe haven or a store of value. So in times like these, you find gold naturally should do very well. Other commodities like oil and copper, and we're living this now, right? The price of oil is going higher, the price of gas is going higher, there's a supply shock. There's just less of it going around, yet we all need the same amount. And so you you you tend to look at those assets as inflation hedges, they rise with inflation. What would not work? Think of a business that requires economic growth to grow. So think of something like a home builder that requires good, strong economic growth to confidently build new homes and borrow at reasonable rates. In a stagflation environment, they're gonna they're gonna suffer. It's tough. It's tough. Rates are higher, so their debt's more expensive, and you just don't have that level of demand.

SPEAKER_04 5:17

And so you're talking about investing in companies that are related to this area. You're not saying go out and buy yourself some bullion or well it's a good question.

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You could do both. So we've had lots of people buying bullion.

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Yeah.

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And that's in a sense, it's a bit easier because if you're going to buy a gold miner, there's a hell of a lot more work you have to do around the company, the mines, the operational costs, the life of the mine, who's running it. So you've got to do a whole deep analysis on the company. Buying gold bullion is really just a play on I think we're going into stagflation and gold's going to do alright.

unknown 5:51

Trevor Burrus, Jr.

SPEAKER_04 5:52

It's come off the boil, you said a little bit. So there's a little dip, so maybe you're you're saying that that's not a bad time. Because it was going up and up and up. Trevor Burrus, Jr.

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It's been going up for a very long time, and there are a range of reasons for that. Now part of part of what's going into that now is the stagflationary uh theory. If we think we're going to have a stagflationary environment, then this may present an opportunity to buy some gold because it's had quite a dip. But you have to be a believer of that. Stagflation is a spectrum.

SPEAKER_04 6:20

I mean, are we in it already? Or are you because you know how sometimes these things get called?

SPEAKER_02 6:25

Well, I think there's enough going on in the press about it to think we're probably at the beginning of it. But of course it may not last. This conflict could be over relatively quickly, and all of a sudden we have oil and gas prices settling back lower and the environment changes. So it's a spectrum. So that is not why we s that is why we don't say go and change your entire portfolio immediately, because you have to play for all uh possible outcomes.

General Advice Disclaimer And Callouts

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16 past ten on ABC Radio, we're speaking with superannuation specialist Marco Millado, and we are talking about stagflation. So the term stagflation. Anything we share here is general in nature. It doesn't take into account your personal circumstances, financial situations, or needs, but we are welcoming your questions, and they could be general superannuation related questions on 1-300-222-774 or 0437-774-774. We will continue the conversation after this.

Listener Wisdom On Saving Skills

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Marco Mulato, our superannuation specialist, you need to think about this as well. We're going to Phil here. Hello, Phil.

SPEAKER_05 7:52

Yes, good morning. Good morning. A skill I learned as a child, which has helped me throughout my life. I'm not fun as well. I played with mechano. And playing with that mechano built a whole thing on me looking at the construction differently and building things. There's nothing I can't do with play and tiling and taught me taught me that money. I've saved lots of money because rule of thumb, what it costs for the material is the cost for somebody to do it. So whatever I do, I've virtually save. But yeah, mechanism. But the other thing they're talking about money. So another skill, my parents lived in a depression, World War II in in Britain, was how to save money. Yes. And pay off things quick. And you can always buy the things later on in life, which I did.

SPEAKER_04 8:38

Phil, there's so much wisdom in there. And so, Marco, you heard about the Mecano. I mean, that was a big thing. And also this idea of passing on the skill of learning how to save. So some of those parents and I think grandparents as well. And you know, you hear extreme stories about how they um preserved things and preserved money as well, and now it's coming back, right? So we need to relearn that. So that is a great example of learning something as a kid.

SPEAKER_02 9:08

Well, of course. You know, the spend less than what you earn and try to keep debt low and minimum.

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I know that sounds really simple and simple. But you know, with our credit cards.

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We haven't needed to be in that world for a very long time. Okay. And yep, there's a whole generation that's never lived in a world other than the one we're in. So it's going to be difficult to relearn.

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Okay. Phil, thank you for your pearls of wisdom. Keep them coming, 1-300-37274. And Simon from Morwell, happy Easter, Simon.

SPEAKER_06 9:37

Yeah, hi.

SPEAKER_04 9:38

Hi.

SPEAKER_06 9:40

Look, I either way, this is a bit of a silly question, I reckon. Surely childhood is the time in which you learn all the skills that you go on to use in later life.

SPEAKER_04 9:50

Oh, don't be so reasonable, Simon. Come on.

SPEAKER_06 9:57

Um exactly.

SPEAKER_04 10:06

So that is a good point. And so do you have a specific skill though, Simon, that you think has stood you well later in life?

SPEAKER_06 10:15

I think actually, I know this one is critical personality. Oh, there's a child that they will tell you things that aren't actually true. And later on you discover that no, actually, there's a completely different answer. Where they tell you one thing one year, and then the next year they turn around and say, Oh, actually, that's not really true. It's just a fun way of explaining it.

SPEAKER_04 10:42

Oh, I I don't want you to do any spoilers on an Easter Sunday as well. So I'm gonna make sure that you don't do any spoilers of something that we may tell people that might not be true. Marco, um any comments on the things you learnt in your younger life?

SPEAKER_02 10:59

Well, I think if I reflect, it's the good old basics like work hard. And I remember a teacher telling me to always be curious.

unknown 11:09

Always.

SPEAKER_02 11:09

I think that helps because you ask lots of questions.

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Julie Julie writes, my parents taught me to make a really good but basic red pasta sauce. Julie, I love this. Onion, garlic, fresh herbs, tomato, being included in the kitchen had been beneficial to me and my family as an adult. That is a beautiful share, thank you. Anthony from Coleraine writes, Good morning, Lisa. Happy Easter. I as a young fella learnt respect and politeness, something a lot of people of today's world forget. Thank you, Anthony, as well, and happy Easter to you. Now to Marco Millardo, who is here for On the Money. We are taking your questions. 1-300-222-774 or 0437-774-774, talking about stagflation and the things that we need

Defensive Shares And Inflation Hedges

SPEAKER_04 11:56

to do. Any other tips for us there, Marco?

SPEAKER_02 11:59

Yeah, so one of the things you can do if you think we're going into this environment is look at the share component of your portfolio and start to move some of those into companies that we call a bit more defensive. And they're things like consumer staples, healthcare utilities. Because if you think about those sorts of companies, what they're doing, what they're providing for us doesn't really go away in difficult times. We all need them. And so you will find those companies tend to hold up their profits pretty well.

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We've got this question, how do I buy gold bullion? That's from where. Really?

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And it'll come up with a range of places you can visit, physically visit, and then go and buy your gold bullion. And they'll give you some story jobs. Well how do we know if it's reputable? Oh there there's only a handful of interesting looking gold shops. I think you'll know by the look of it if it's if it's got uh if it's got the goods. But there's only a handful, for example, in Melbourne that you can visit in the city and you'll buy a real gold bullion.

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Okay. This

Super Pension Back To Accumulation

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one from Louise on the money superannuation question. Is there any problem with moving pension back to accumulation if the income stream is not required? Uh and then she's got a second question. Can the risk of exceeding the bring forward cap be reduced by claiming a tax deduction on NCC personal contributions?

SPEAKER_02 13:33

So yes. Number one, uh no, there isn't a problem at all with moving your pension back to accumulation. You can do that. So what does she mean by that?

SPEAKER_04 13:42

So she's basically turned it into accumulation mode.

SPEAKER_02 13:45

So what what it looks like she has done is start a superannuation pension because she retired, for example. And so it has then been using that pension to live off. Something has happened, and she may not need that money anymore. And so you want to preserve your super balance for as long as you can, so she can turn that pension off. The balance goes back into accumulation, that's fine. What you have to be aware of is that in the pension environment, all those investments have a tax-free rate, so they can earn as much as they want and pay no tax. When we go back to accumulation, there's a tax rate that starts, and that's up to 15%. So you'll pay a bit more tax, but you won't be forced to draw that money out of your pension if you don't want to.

unknown 14:28

Okay.

SPEAKER_02 14:29

And the second question, so exceeding the caps, can we claim a deduction? Yes, you can, provided you have enough accessible income for that deduction to be deducted off. So what do I mean by that? If you're not earning anything, there's no point claiming thirty thousand dollars, for example, as a deduction, because it's not reducing any income. And so you'll just pay contributions tax for that for nothing. But yes, if you've got some income, you can do that, and that should bring you under the NCC cap.

Retiring Soon And The Cash Question

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All right, and here's Joe on 1300 22274. Hello, Joe.

SPEAKER_03 15:03

Hi, how are you going? Good morning and happy Easter.

SPEAKER_04 15:06

Happy Easter.

SPEAKER_03 15:06

Um I just wanted to ask Marco, I'm retiring at the end of the year. I don't have a massive super balance, and with all the volatility in the market, is it a good idea to transfer some of that over to cash? Um, out of sort of more speculative um areas.

SPEAKER_02 15:23

So, really good question, and everybody's thinking about this at the moment. We would start with how long you're going to be invested for. That's a really long time, right? If we're just thinking about retiring, we've got a 20 or 30 year plus time frame. I wouldn't be too concerned about holding large amounts of cash right now. I'd go for the diversified portfolio and even perhaps start to think about it this way. There's been a lot of trouble already. Prices are already lower. We're already buying at lower points than where we were two or three months ago. It's probably not a terrible time to actually be invested and stay invested, particularly given your really long time frame in retirement.

SPEAKER_03 16:05

Okay. All right. Well, thanks so much. Pleasure.

SPEAKER_04 16:08

Thanks, Joe. Taking your calls 1300-372-774-0437-774-774, going to the text line.

Oil Supply Risks And Local Prices

SPEAKER_04 16:15

Uh there was an off-air question for you, Marco. According to JP Morgan Bank, most deliveries of oil to Australia will stop on April 20th. How will this affect us?

SPEAKER_02 16:23

Boy, I mean who really knows where we are with uh stockpiles and what's coming in and out. So how it will affect us simple, it will affect us in a negative way. If we've got less oil and gas that we need domestically, it's going to be very hard to see how we can keep everything on and also without prices going pretty high pretty quickly. So we don't think we're in that position if we listen to the government. But it depends on how long this conflict goes for, because we do source most of our oil and gas from Asia, and we know that Asia relies very heavily on what goes through the Strait of Hormuz. So it is a possibility I wouldn't put it as a high probability though.

SPEAKER_04 17:05

Uh 1027, we've got time for a few more text messages

Switching Portfolios And SMSF Recontribution

SPEAKER_04 17:09

here. So Mary says, I want to change superannuation portfolios, Marco, which will require selling down my current one. Is it's a bad time with the war, or better to cut my losses from an underperformed one.

SPEAKER_02 17:22

So the I mean, this is the way we would think about this. We always generally want to cut underperformers after we've given them a while to recover if we think at the time there was recovery possible. If that's not happening, then what we want to do is cut those underperformers and start to move into just more resilient types of assets. Whether it's a good time to cut or not, remember we're selling and then we're rebuying. So the amount of time you'll have out of the market will be very, very short. Your exposure will maintain. But what we want to do is increase the quality of your investments. That's the most important thing.

SPEAKER_04 18:03

And John writes, yes or no, can I draw down and recontribute in my SMSF, please?

SPEAKER_02 18:09

Uh yes. So if you're uh if you meet all the criteria to withdraw, you can withdraw. And if you meet the criteria to contribute, you can contribute. So there's nothing wrong with taking money in and out.

SPEAKER_04 18:20

Thank you, Marco Mulato. You have a wonderful Easter Sunday.

SPEAKER_02 18:23

Likewise, thanks, Lisa.