Kuta Beach

Kuta Beach

Saturday, 15 August 2009

Net Worth Report for July 2009

At the start of this year my net worth was about $35,000. That took many many years to save up mainly because before this year I have been studying and working in a part-time job and before that I worked casually. Add to that the global economic recession and you can see why my net worth grew very slowly for such a long time.

However, in just seven months, my net worth has almost doubled to a little under $60,000. There are two reasons for this: firstly, I have a full-time job; and secondly, the stock market has been booming since the start of this year.

Although I do have portions of my wealth allocated to non-Australian stocks and various government bonds, the vast majority of my net worth is in Australian stocks, which means that my net worth is highly dependent on the resources sector and the financial sector (the two dominant sectors of the Australian economy).

The reason why I have a lot of faith in Australian public companies is because I believe that the finance and resource sectors are very important. Resources like iron ore, natural gas, and oil are essential inputs for just about any economic activity. Withholding oil from an economy is like withholding blood from a human body. The finance sector I think is also important because it coordinates the interests of borrowers and lenders. The finance sector insures that money flows around and that it ends up at the person who needs it most, e.g. to start up a business.

Ross Gittens wrote a piece in The Age called Why China is Thriving Despite the Downturn. In it he claims that the Chinese economy has decoupled. They no longer need to export to other countries because they have sufficient domestic demand. It does not matter if the US collapses because the Chinese can buy their own products. China is not fully developed yet, so much more economic growth needs to occur if living standard will be on par with that of, say, the US. As the Chinese thrive towards a higher living standard, they will need resources from Australia to build their buildings, their roads, etc.

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