Investing in 2023: where to put your money to combat inflation

Chasing good investment returns gains importance when you have to beat 8 per cent to stay ahead. Here are some experts’ opinions.

Making money has become harder in the cost-of-living crisis, and anyone wanting to beat inflation will have to accept more investment risk.

With wages growth of 3.3 per cent less than half the 7.8 per cent inflation rate, and deposit interest rates also well below inflation, traditional growth assets such as shares are a key target for long-term financial gains.

But investment specialists say they should only be bought by those who can stomach short-term volatility, and can diversify their money across many companies and countries.

Stockspot CEO Chris Brycki said higher interest rates had increased the need to invest, “otherwise the value of your money is going backwards”.

Mr Brycki said he believed emerging market shares offered the best investment opportunities in 2023 after “a poor past 11 years” in the shadow of the booming US stock market.

“Emerging markets like India and China tend to do well with higher inflation so could provide some inflation protection to portfolios going forward,” he said.

“Emerging market companies directly benefit from higher commodity prices.” Investors can gain broad exposure to emerging markets companies through exchange traded funds (ETFs) that spread each dollar among different stocks.

Stockspot CEO Chris Brycki says higher interest rates have increased the need to invest.

Mr Brycki said gold also had potential when there was higher inflation but weaker economic growth.

Shaw & Partners senior investment adviser Jed Richards said he liked US tech giants “that have been knocked around pretty savagely”.

“Big-name companies like Microsoft and Amazon are cheap again,” he said.

Mr Richards also directs clients’ money into bank hybrids, a mixture of stock and fixed interest investments that pay solid income returns.

“I know they are boring, but the banks are in a better position than they have been for a few years,” he said. “Banks make a higher margin on higher interest rates.”

Catapult Wealth director Tony Catt said he favoured technology-focused ETFs for higher-growth investors.

Mr Catt said when technology stocks imploded in the tech wreck in 1999 and 2000, “what didn’t go away was our use of technology”.

“Google, Apple and Microsoft didn’t go away,” he said. “Robotics, AI and cybersecurity are not going away.”

Mr Catt said conservative investors could target the bond market, which in 2022 suffered its worst year in decades.

“Back in 1994 when it collapsed 20 per cent, like it did last year, after that there were very good years,” he said.

Markets analyst Josh Gilbert from investment platform eToro said 2023 would be another difficult year for investors to navigate, because of rising recession risks.

He said investors should be cautious buying higher-risk assets that had already grown strongly this year, and should expect some “bumps in the road”.

Someone with a spare $5000 to $10,000 to invest would be wise not to invest it all at once, Mr Gilbert said.

“Markets are still seeing high volatility and uncertainty … Diversifying your portfolio is often considered a good move.”

Ben Ford helps his son Drake, 9, learn about investing. Photo: NCA NewsWire/David Swift

IN DAD’S FOOTSTEPS

It’s a case of like father, like son for Ben Ford and his son Drake, 9, with both having Stockspot investment portfolios focused on aggressive growth.

Mr Ford said his investments were diversified through ETFs containing Australian shares, international shares, gold and bonds, and it was “a no-brainer” to start his son young in the investing game.

“A diversified portfolio is less risky than trading in the share market,” he said.

Mr Ford said “any spare cash I have” would be invested this year. “I think it’s a good time to be investing.”

GROWTH INVESTMENTS TO CONSIDER

1 Technology-focused ETFs (exchange traded funds): Tech stocks were smashed in 2022 as interest rates surged. An ETF spreads your money across many stocks in an index, diversifying your investments and reducing risk.

2 Alphabet: If you want to make specific bets, targeting the world’s biggest tech giants can be worthwhile. Shares in Google owner Alphabet have dropped 40 per cent since late 2021, but analysts still see it as a global leader.

3 Amazon: Another tech giant trading at a big discount to 2021, its shares have halved in value and it has dropped from the world’s second-largest to fifth-largest company. Investors can buy shares in US tech giants through stockbrokers, online brokers and trading platforms.

4 BHP: Australia’s biggest company owns mines and other assets in more than 90 countries and is forecast by analysts to benefit from rising prices for iron ore and other commodities in 2023.

5 Treasury Wine Estates: The owner of brands including Penfolds, Wolf Blass and Lindemans has had a tough few years since 2019, including China shutting it out, but some analysts see a brighter outlook.

Penfolds owner Treasury Wines Estates has growth potential. Picture: Emma Brasier

6 Emerging markets ETFs: Investors can target countries instead of specific companies, and ETFs that focus on emerging markets including India and China are tipped to outperform in the coming years.

7 Microsoft: Another global tech giant showing share price weakness since late 2021, down about 23 per cent, Microsoft is investing heavily in artificial intelligence platforms.

8 CSL: Shares in Australia’s world-leading biotechnology giant have increased tenfold in value in the past 15 years, and analysts forecast more growth ahead.

9 Carsales.com.au: The company recently reported a rise in half-year profit, and forecast “good growth” this year, with analysts giving it a 12-month share price target 17 per cent above current levels.

10 Xero: The New Zealand-based accounting software company’s share price has halved in the past 15 months, and some analysts say it is poised to benefit from global business growth.

Source: Share analysts and stockbrokers