How to make money in a dicey financial year for investors

Wise and patient investors can create profits despite today’s tough times for shares, property and superannuation.

The signs don’t look good for investors looking to make a profit this financial year.

House prices have started dropping in several cities and some respected analysts forecast 15 per cent falls over 12 months, while share prices sunk more than 10 per cent in 2021-22.

Conservative investments haven’t escaped pain either. Bonds have had their worst year in decades, and cash deposits still pay pitifully low returns despite rising interest rates.

However, wise investors can make money in times like these, financial specialists say. They simply have to be patient, and understand that short-term weakness will mean bigger long-term profits on high-quality assets.

Tribeca Financial chief executive officer Ryan Watson says he expects a portfolio of 50 per cent growth assets and 50 per cent defensive assets to deliver a return near 4 per cent in 2022-23.

“People should take the medium to long term view – the worst thing they can do is look at their investment portfolio weekly or even daily,” he says.

Here’s how to make money from Australia’s three biggest investment classes.

PROPERTY

Watson says before buying any property, do your research and know your numbers so you avoid overpaying.

“With interest rates on a steep incline, if you have a mortgage on your property you should have it reviewed immediately,” he says.

Suburbanite principal Anna Porter says investor attention is turning to Queensland.

“There are significant interest rates savings to be had, which can add up to thousands of dollars back in your pocket.”

Suburbanite principal Anna Porter says buyers are more price-sensitive today, auction clearance rates are dropping and properties are spending more time on the market, but there are still “some golden places to invest”.

Her top tip for 2022-23 is South Australia.

“Adelaide is still moving full steam ahead with properties achieving record prices and multiple offers,” Porter says.

She also sees investors turning their attention to Queensland.

“On the ground, we’re seeing a lot of interest in Brisbane, Sunshine Coast and Gold Coast as the Olympic Games fuel longer term confidence in the market there.”

Porter says many property owners cope with a price correction because they have built up equity in their real estate assets.

SHARES

Chris Conway, general manager of investment newsletter Marcus Today, says “there’s still a way that you can make money”.

“It’s the traditional way of looking at the stockmarket, rather than the steroid-driven, hyper-growth environment we have had in the past two years,” he says.

“There’s a flight to quality in the market at the moment.

“Everyone is looking for stable cash flows, solid dividends, high-quality management and businesses that are going to deliver year-in, year-out.”

Watson suggests share investors use a dollar cost averaging approach.

“This is where you invest a percentage of your funds consistently over a delayed period of time, such as six to 12 months,” he says.

Tribeca Financial CEO Ryan Watson says ignore market noise. Picture: Supplied.

“Given these very uncertain times, investing in line with the market can be a good sleep-at-night strategy. This is called index investing, and is designed to take the high highs and the low lows out of your investment performance.”

SUPER

Super fund performance reflects the moves of the assets you hold within super, typically a mix of shares, property, cash, bonds and infrastructure.

“Despite the current volatility in investment markets, ignore the noise and stick with the investment risk profile you have chosen,” Watson says.

“In a market downturn, any additional investment can provide a good return over the medium to long term. So if you have the ability to make additional deductible or non-deductible contributions into superannuation, it could be a worthwhile consideration.”

The long-term nature of superannuation helps investors harness the power of compound interest, which AMP head of investment strategy Shane Oliver describes as “magical”.

“The value of $1 invested in 1900, allowing for the reinvestment of dividends and interest along the way, would now be worth $243 if invested in cash, $901 if invested in bonds and $757,136 if invested in shares,” he says.

“If you want to grow your wealth, you should have exposure to growth assets like shares and property.”