What to do in 2022: Here’s 20 investment ideas for the new year
Kick off the year by seeking to optimise your investments but don’t expect another bumper year like the one we just enjoyed.
As an investor, you would like to think that every year you get better. In 2022, the ability to navigate investment waters may well be much more important than the year just gone.
It’s the perfect time of the year to take a good, hard look at your portfolio settings as an investor. Here’s the 20 things you might do in 2022.
Become more cautious
History suggests that over a 12-month period if you get 14 per cent on your shares (against a long-term average of 9 per cent), and a 23 per cent price improvement on your house (against an average of 6 per cent), it does not happen two years in a row.
Find the portfolio balance that’s right for your age
For as long as anyone can remember, the rule for a balanced portfolio was that your age represented the percentage of assets you should have in defensive investments.
At 30 you should have 30 per cent in defensive assets, at 90 you should have 90 per cent. We are all living longer and investment advisers have yet to adjust their settings. Everyone has their own risk tolerance, but the chances are that defensive assets may well be too low in your asset mix.
Inflation-proof your portfolio
Inflation is now baked into the global economy, especially in the US.
In Australia, there are the first signs of wage inflation, the ultimate confirmation of an upsurge in a development that can eat away at investor earnings. Share investing has proved over long periods of time to be an inflation hedge – especially stocks that are able to control their own prices, such as companies that dominate an industry.
Miners are price takers, healthcare giants and supermarket leaders are price makers.
Avoid deposit depression
Putting money in bank deposits remains an utterly miserable investment option, where you are effectively losing money due to inflation.
The RBA has said it will not move official rates until 2023, but there is every likelihood it will be forced to lift in 2022. The returns from your cash deposits will still be hopeless, but not quite as hopeless as in 2021.
Explore cash alternatives
Until cash fully recovers to the point where it at least beats inflation, term deposit alternatives need to be kept in mind. Avoid opaque high-yield funds, but there can be good returns from well-selected, secured mortgage funds and debt funds.
Upgrade your super contributions
The amount anyone can put into super has increased. It is now $27,500 a year pre-tax (concessional) – remember, this includes whatever comes out automatically from the 10 per cent Super Guarantee Charge. On a post-tax (non-concessional) basis, you can now put in $110,000 a year.
Compare your super
In 2021, the government finally launched a comparison service where the public could take a look at how their super fund is performing. The score card is by no means perfect, but it is the only measure freely available to most superannuation savers. In its first iteration it only covered 76 funds. Next year it will expand to capture the majority of funds in the market. The tables are divided between “performing” and “underperforming”. You can access the tables through the MyGov website using your personal name and password. Go to the superannuation area and have a look!
Do you need life insurance?
It’s a question your adviser and insurance broker won’t ask. But if you are over 55 and your home mortgage is paid off and you have ample superannuation, it is worth reviewing the need for life insurance. It is possible that you can “self-insure” and save yourself an ever increasing annual bill. (In contrast, health cover becomes more essential as you get older.)
Check property rent increases
Rents are rising while overall property prices in 2022 are expected to flatten. Industry analyst price forecasts for the year ahead generally range between minus 5 per cent and plus 5 per cent. But residential rents are rising at an annualised rate of 14 per cent for houses and 9 per cent for apartments. If rents keep rising (and they should – the national rental vacancy rate is 1.5 per cent), it offers a new attraction for property investors.
Get genuinely green
It has become obvious that “greenwashing” – the exaggeration of green credentials – is rampant in our market. But it is also true that the leading green fund manager, Australian Ethical, gained 160 per cent over the year. Separately, electric car maker Tesla became the most popular overseas stock for Australian investors and gained about 40 per cent over the year (after a sevenfold gain in 2020). Keep your sceptical spectacles in place, but some of the best investments in the world are genuinely “green”.
Beware of bonds
Of course, bonds may make sense over a long period of time and individual bonds can be held until maturity. For most people though, bonds are held in composite funds often based on indices. Interest rates are now moving higher after dropping for more than a decade. The total returns in bonds were negative in 2021. Next year could be a year you can live without them.
Watch the swing back to value stocks
Growth stocks were all the rage in 2021 – think Afterpay and Kogan – but many of those stocks finished lower for the year. In 2022, rising rates and continuing Covid threats will almost certainly accelerate the move back towards defensive stocks. Watch banks, utilities and even telcos. (Telstra was up by more than 35 per cent this year.)
Take a long-term view on electric cars
The electric car boom is an indisputable megatrend in the market. On the ASX, we don’t have electric car makers but we do have battery metal stocks, including a host of lithium and nickel juniors. Meanwhile, Rio Tinto is going big on lithium and BHP on nickel. This sector is going to remain hot for years; find a way into the game.
Time your takeover responses
In the takeover fever of 2021, Afterpay and Sydney Airport were both taken out. Guessing which stocks get taken over next is impossible, but it’s worth being highly alert to timing. If you waited for the Afterpay takeover to “go through” instead of selling on the day of the Block takeover announcement, it looks like you would be selling shares at about 30 per cent below the price recorded on the day the deal was announced. Alternatively, with Sydney Airport the price has yet to hit the $8.75 due early in the new year from the super funds that have acquired the stock.
Make a call on crypto
Bitcoin may rise or fall but there is no way the wider crypto economy is going back into its box. In common with the dot.com craze two decades ago, a handful of technologies and companies may win big here. Cryptocoins are a speculation, not an investment. But it’s time to take a position – are you ready to speculate or not?
Understand the changing nature of ETFs
The number of Australians who hold ETFs (Exchange Traded Funds) is now 1.7 million. But these low-cost, once simple funds are evolving quickly. ETFs became popular because they were conservative products that mirrored existing indices such as the ASX 200. Now there is an increasing number of risky ETFs. In November, the BetaShares Crypto Innovators ETF broke all records for inflows when it arrived on the ASX. By the Christmas break it had dropped almost 30 per cent.
Is financial advice worth $3000 a year?
There are moves in Canberra that would allow finance advisers to offer niche advice, but for now most people pay advisers more than $3000 a year for advice. That means you must subtract that $3000 from whatever amount your investment portfolio grew over the year to justify the service. Advice has to be worth it to you as an investor. Check if it is.
Ask if an SMSF makes sense?
There has been a revival in the self-managed super funds sector as new investors are attracted to the concept of totally controlling their retirement investments. The issue is whether you have the time, skill, patience and are prepared to pay the fees to run your own show. The answer is easy: if you can’t beat the average return from big super, you are not winning – the average return in 2021 from big super ‘balanced funds was 12.2 per cent.
Gold … no rush
The yellow metal has regularly served as a strong defence against inflation (but not always). At the same time, bullion also faces headwinds if interest rates move higher. No wonder the jury is out just now. Gold offered good returns in recent years, but it drifted 5 per cent lower in the past 12 months. More recently, it has also faced new competition from those who believe cryptocurrencies offer a similar function as a store of value.
Assess art and collectables
Quality artworks can suit a widely diversified portfolio. It has become much more trouble to keep art in a self-managed super fund, so this might be done outside super.
Art prices are improving across the world, reflecting the wider asset boom fuelled by low rates. In Australia, the auction houses just had their best year since 2017. And with art – unlike shares or funds – you can enjoy the rare pleasure of hanging it on your living room wall.