Here’s what you need to know today

• Australia’s latest inflation data is out. The good news? Headline inflation stayed steady at 2.1%, within the RBA’s 2-3% target range. The bad news? Trimmed mean inflation (the RBA’s preferred measure) actually rose from 3.2% in September to 3.5% in October. (AFR)

  
  

• The Australian government passed its shared equity scheme, labelled Help to Buy, where the government will take up to 40% equity in a residential property for first home buyers allowing the house to be bought with just a 2% deposit. Over the next 4 years, it is expected to help buy 40,000 homes at a cost of $5.5 billion. (The Conversation)
  
  

• Israel and Lebanon have agreed to a ceasefire. President Joe Biden announced the deal after Lebanon, Hezbollah and Israel all agreed to its terms. While technically the deal is just for the next 60 days, all sides are hoping it can form the basis for a longer truce. (CNN)
  
  

• Independent member of Parliament Andrew Wilkie has changed his position on the social media ban for Australians under 16, calling the proposal “nonsense”. With both Labor and the Coalition supporting the bill, it is still likely to pass this week. (AP News | Sky News)
  
  

• After a disappointing COP29 Climate Conference, here’s some good climate news: Australia is on track to reach its 2030 targets. Australia has a legislated target of 43% reduction in emissions from 2005 levels by 2030, and the latest projections show we are on track to be down 42.6%. (The Conversation)
  
  

• After President-elect Donald Trump warned of 25% tariffs on goods coming from Mexico and Canada, Mexico’s President Caudia Sheinbaum warned any US tariffs would incur retaliatory tariffs from Mexico. An escalating trade war would increase inflation in both countries. (Sydney Morning Herald)
  
  

• President Biden announced plans to subsidise access to weight loss drugs for 7.4 million Americans covered by Medicare and Medicaid. This move could reduce out-of-pocket costs by up to 95% and would cost the US government US$35 billion over 9 years. Novo Nordisk shares jumped 2% and Eli Lilly shares were up 5% on the news. (CNN)

What the…?

Chinese discount platforms Temu and Shein have enjoyed a meteoric rise. But it is not just in places with internet connections and eCommerce delivery infrastructure. In Mexico, door-to-door catalogue sellers have been ensuring the Chinese platforms’ wares have been reaching where eCommerce has not. With an estimated 3.1 million people working in the catalogue sales industry, this has helped fuel Shein and Temu’s rise in the world’s 10th most populous country. (Rest of World)

Investing is a lifelong journey

Here’s what you can learn today.

This is an excerpt from our book Don’t Stress Just Invest, which last week won Best Investing Book at the 2024 Business Book Awards. Pick up a copy here.

Companies die, indexes are forever

When you next hear about someone losing all of the money they invested, listen closely to the story. Did they invest in a stock market index or did they invest in an individual company?

You might buy both of them through the same brokerage platform; they might have similar stock tickers; and they can both go up and down in price. But when it comes to the risk of losing money, individual companies and index ETFs are very different.

Individual companies often go bankrupt. And they go bankrupt for a variety of reasons—bad behaviour from a CEO, tough economic conditions or just a business that didn’t make sense in the first place. When an individual company goes bankrupt, shareholders rarely get their money back. If there is any money left over after the company has paid off its debts, we might get something. But don’t expect a lot. If there’s money left over, why did they declare bankruptcy in the first place?

So, when you’re investing in individual companies, you can lose everything.

Geoffrey West in his book Scale calculated that since 1950, some 28,853 companies have traded on the US stock market—and that 22,469 of those companies had gone bankrupt by 2009. That is 78% of companies that have listed on the stock market going bankrupt. Those don’t sound like great odds. But this is where individual companies and stock market indexes are different. 

Indexes track a group of companies. If one company in the index goes bankrupt, it gets replaced by the next company in line. Let’s say we’re investing in Canada’s TSX 60 index, and the largest company in Canada’s index—Royal Bank of Canada—goes bankrupt. Royal Bank of Canada shares become worthless and the index falls. But then the 61st biggest company in Canada gets added to the index and the TSX60 keeps going.

Every quarter companies are added to and taken out of stock market indexes so we can be sure we’re always tracking the biggest companies. That way, as companies slow down, get smaller or go bankrupt the index just keeps on going.

Even though Geoffrey West found that 78% of companies listed on the US stock market went bankrupt between 1950 and 2009, the US stock market has grown 23,249% in that time. Or put another way, despite more than three-quarters of companies going bankrupt, each $100 invested with dividends reinvested has turned into more than $200,000.

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Recent winner of the Best Personal Finance & Investing Book at the 2024 Australian Business Book Awards

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