Investors are having one of their best years since the global financial crisis started.
Share prices and superannuation fund balances have been higher in 2012, while house prices have stabilised. And although we are not at the end of the year, so far, so good. It might even get a bit better if the year finishes with a ''Santa'' rally, whereby markets rally in December in line with festive cheer.
''Despite all of the market gloom at the end of 2011 and the heightened levels of risk aversion, global sharemarkets have delivered some decent returns to investors this year,'' says the head of investment markets research at Perpetual, Matthew Sherwood.
Thanks to rising share prices, ''balanced'' superannuation investment options - where most people have their money - are higher because the typical balanced option has about half its money invested in shares.
But while investors will be pleased with the year, the positive market moves might not have much to do with better fundamentals, such as an improved global growth outlook and corporate profits. Sharemarkets are ending the year higher than they began, but it has been a rocky ride as investors remain cautious.
Markets rallied in the first four months of 2012 after the European sovereign debt crisis escalated during 2011. But the rally stalled in May after problems in Europe flared again.
Markets picked up in the second half of the year after the president of the European Central Bank, Mario Draghi, said he would do whatever it took to protect the eurozone from collapse, and the US Federal Reserve chairman, Ben Bernanke, said he would act as needed to strengthen the US recovery.
''These events stopped the rot,'' says the chief economist at BT Financial Group, Chris Caton. ''It is not a cure, but it has stabilised things.''
Investors are far from out of the woods. The result of so much central-bank intervention is that markets are generally higher, though not necessarily for reasons of better fundamentals, says the research manager at investment researcher Morningstar, Tom Whitelaw. One day it seems another peripheral eurozone country is heading for bankruptcy, and the next day there is a bailout and things are rosy again, he says.
There is not much confidence at home. Australian businesses are careful about hiring and there are concerns about job security. Consumers are rattled by higher prices for electricity and gas. Rising power costs and weak confidence are among the factors behind less spending on everyday items. This in turn cuts profits, particularly among retailers.
Without any real improvement in economic fundamentals, Australian share prices are more than 12 per cent higher this year after falling about 14 per cent in 2011. US and European share prices have also managed to climb by more than 10 per cent.
The chase for yield has been the dominant theme for the Australian sharemarket.
Worried investors have been buying higher-yielding shares as term-deposit interest rates fall. Telstra and the banking sector have led the charge. Telstra's 1.4 million shareholders will be pleased the telco's share price has risen to about $4.38 after starting the year at $3.40.
Commonwealth Bank's share price is about $61 after starting the year at about $50. ANZ is trading about $27 after starting the year at about $20, while Westpac shares are about $6 higher to $26. National Australia Bank is the laggard. Its share price is up slightly to $24.50 amid continued troubles with its British banks.
Some stocks with relatively low dividend yields have done well, such as blood products maker CSL and hospital operator Ramsay Health Care. Share prices of mining giants BHP Billiton and Rio Tinto are down sharply due to slowing Chinese growth and lower commodity prices.
November was a flat month for shares here and overseas. The main reason was investor concerns over the US ''fiscal cliff'', Caton says. This is where, if the White House and Congress fail to agree on the federal budget by the end of 2012, automatic cuts will be made to government spending and taxes will be raised, likely pushing the world's biggest economy into recession.
Caton says the uncertainty will be there for some time yet. Worries about the fiscal cliff might sniff out any Santa rally, and if the fiscal cliff deadline is not met, sharemarkets around the world are expected to go sharply lower.
The chief economist at AMP Capital Investors, Shane Oliver, says the fiscal-cliff uncertainties will continue through December and cause further gyrations in sharemarkets.
However, shares remain cheap by historical standards and interest rates around the world are very low. There will most likely be a solution to the US fiscal cliff, and the European Central Bank's bond-buying program and improved momentum in China should support profit growth in 2013.
Oliver says Australian shares are being given an added impetus by lower interest rates, which should help boost profit growth in 2013. He expects the Australian sharemarket to finish 2013 higher than this year.
Super account balances are on course to end the year much higher than they started 2012. Data from researcher SuperRatings shows that from the beginning of 2012 to October 31, the typical balanced-investment option was more than 8 per cent higher compared with 2011, when it was down 1.9 per cent.
If sharemarkets end the year strongly, the typical balanced option could even finish the year 10 per cent higher, says the founder of SuperRatings, Jeff Bresnahan. The good returns in 2012 have also made the longer-term returns look much healthier. For the 10 years to October 31, the typical balanced option has produced an average annual return of 6.2 per cent.
The government has again tinkered with the superannuation rules this year. The main change has been the lowering of the caps, or limits, of how much can be salary sacrificed into super. For the 2012-13 year, the maximum that can be salary sacrificed for all ages is $25,000. The cap was $50,000 for people aged over 50 in the 2011-12 financial year. Also, from 2012-13, those with incomes of more than $300,000 a year will have the tax on their super contributions doubled from 15 per cent to 30 per cent. About 1.2 per cent of taxpayers will be affected.
More people are starting their own superannuation funds. Tax Office data shows the number of self-managed superannuation funds (SMSFs) increased by 8 per cent as at June 30, 2012, compared with the previous year.
After falling by 3.5 per cent in 2011, most capital city property prices have stabilised. Property researcher RP Data says Sydney house prices are almost 2 per cent higher since the start of 2012 to October 31, and Sydney apartment prices are 4.4 per cent higher.
But Melbourne's property market continues to struggle. Melbourne house prices are down 2.3 per cent, while unit prices are 3 per cent lower. In the 12 months to October 31, Melbourne apartment prices declined by 6 per cent, the biggest fall of either houses or units in any of the capital cities.
Lower interest rates have not resulted in a real improvement in consumer confidence or housing market transaction volumes, says RP Data's research director, Tim Lawless.
''Until we see optimists outnumber pessimists in consumer confidence surveys, a recovery in the housing market is likely to remain precarious,'' he says.
The managing director of property researcher SQM Research, Louis Christopher, says prices among Sydney's top end are falling, which is due mostly to the weakness of the Sydney's financial-services sector. While price falls in Sydney's most expensive properties will likely continue, there should be a pick-up in price growth in the rest of the city's property market next year, he says.
In Melbourne, the ''outer-ring'' prices have been hit hardest. ''There's been a lot of stock added to the market over the last couple of years and the peak in completions is not expected until mid-to-late next year,'' Christopher says.
Vacancy rates of apartments in Melbourne's Docklands and Southbank, though falling, are about 8 per cent. A vacancy rate of 3 per cent is considered fair to landlords and tenants.
But it is not all gloom for property investors in Melbourne. Vacancy rates are less than 2 per cent for apartments and townhouses in some parts of the Melbourne's outer ring, particularly the north-east, Christopher says.
Income investors lose out on the interest rate merry-go-round
The Reserve Bank has lowered the cash rate by 1.75 percentage points since November last year as it seeks to stimulate the non-mining parts of the economy to make up for the slowdown in the mining sector. At 3 per cent, the cash rate is now the same as the GFC low of 2009.
That is good news for those with variable interest rate mortgages, with the big bank standard variable rate falling from about 7.5 per cent to about 6.5 per cent now. But those living off the income from investments have seen their income fall. Term-deposit rates have fallen about 1.5 percentage points to less than 4.5 per cent over the past two years. And most economists think that the Reserve has not finished cutting rates, though the bank does not meet again to decide until February 2013.
Despite lower cash rates, which would normally contribute to a weaker Australian dollar, our currency has remained high. A higher Australian dollar hurts our exporters by making their goods and services more expensive to foreign buyers. Normally, the free-floating Australian dollar helps balance the economy. Usually, when commodity prices fall and the Australian resources sector weakens, the Australian dollar falls, helping exporters such as in-bound tourism and education. But not this time. The reason is that central banks of other countries are buying Australian dollar-denominated investments, such as Australian government bonds, because Australia, with its AAA sovereign credit rating, is considered a safe-haven economy.
More foreign buying of Australian dollars bids up the value of our dollar in currency exchange markets.