Investing in 2022: where to put your money in a volatile world

Many investments have surged to record highs but the outlook for 2022 is more volatile. Here’s what the experts predict.

Booming investment markets have delivered Australians rich returns in 2021 and are expected to continue growing in the new year.

Despite the twin threats of rising inflation and more Covid chaos, investment specialists predict positive growth for most asset classes but warn the ride will be bumpier than 2021.

Cash and bonds are no-go zones for anyone seeking investment growth, shares are expected to do better than property, and cryptocurrency’s rollercoaster ride will continue, they say.

AMP head of investment strategy Shane Oliver said he was “most confident in Australian shares and Asian shares” leading the pack in 2022 after they underperformed compared with other stockmarkets in 2021.

Dr Oliver said Australians collectively held $250 billion of “excess savings” – about 13 per cent of the economy – and some of that would flow into investments in 2022.

“People haven’t been spending as much but have still been getting income – that’s led to a build-up of savings well above normal levels,” he said.

“There is good reason for optimism about continuing economic recovery in the year ahead.”

AMP’s Dr Shane Oliver likes Asian and Australian shares for the best gains in 2022.

However, rising inflation and interest rates will likely prevent a repeat of the 12-25 per cent growth experienced by most asset classes during 2021.

Dr Oliver said he expected Australia’s Reserve Bank to start raising interest rates in November.

Australian Shareholders’ Association director Lelde Smits said shares and house prices were expected to stay strong while cryptocurrencies would remain volatile.

“Following record stimulus and asset gains in 2021, many investors are looking to the year ahead with cautious optimism,” she said.

“Major global themes that will continue to drive investor demand in the year ahead include decarbonisation and digitalisation.

“As the world looks to transition to climate neutrality, products like electric cars and the resources required to make them will remain in demand.”

Ms Smits said it was important to spread risk and people could do this by diversifying their investments among shares, property and other types of assets.

Investors don’t need big bucks to get started - $1000 can easily be spread across many stocks and other assets using exchange traded funds or online micro-investment, or to buy a slice of a property through fractional investing platforms.

BetaShares chief economist David Bassanese said he favoured global shares over Australian shares for 2022, “with a bias to sectors with more dependable current earnings, like banks, rather than blue sky earnings potential – as most evident in the technology sector”.

“Global growth and corporate earnings remain good, so overall equity market performance should also remain relatively good,” he said.

“That said, it could still be a bumpy ride as more global central banks seek to withdraw extreme Covid-related stimulus.

Mr Bassanese said rising interest rates meant bonds would deliver a relatively poor performance.

Australian Shareholders' Association director Lelde Smits expects decarbonisation and digitalisation to be key themes.

Many forecasters have pencilled in negative returns for bonds for 2022, following an expected 3 per cent slump in 2021.

Australian Ethical head of asset allocation John Woods said volatile financial markets in recent months hinted at what was in store for 2022.

“Just as we must learn to live with Covid, investors need to learn to live with volatility again,” he said.

Mr Woods said the global decarbonisation process would require large amounts of money.

“For investors, this presents a significant investment opportunity across nearly all asset classes, regions, and timeframes,” he said.

Investors could reduce risk by reducing exposure to companies that were “less likely to do well in a world that is getting hotter”, Mr Woods said.

“Those might include oil and gas companies, or those heavily exposed to coal or more highly polluting industries.”

Mr Woods said risk could also be reduced by focusing on the long-term and using structures such as superannuation that had built in diversification, a long-term timeframe and favourable tax treatment. “If you genuinely have spare capital, superannuation is a great place for it,” he said.

FORECAST INVESTMENT RETURNS 2022

Cash 0.1 per cent

Residential property 5 per cent

Global shares 8 per cent

Asian shares 10 per cent

Emerging market shares 10 per cent

Australian shares 10 per cent

Global bonds -2 percent

Australian bonds -2 per cent

Global real estate investment trusts 7 per cent

Australian real estate investment trusts 7 per cent

Unlisted infrastructure 8 per cent

Source: AMP

Originally published as Investing in 2022: where to put your money in a volatile world