Financial Advice Blog

10 investment tips to ride out the ‘new normal’

Given elevated interest rates and inflation are forecast to flow through financial year 2025, investors are eyeing stocks, property and gold to get ahead.

Financial Spectrum’s Antony Selby was interviewed for this article by Tom Richardson at Australian Financial Review.  You can view the original article here.

Forecasts for interest rates and inflation to remain well above 3.5 per cent into financial year 2025 mean savers and investors face big challenges to protect and grow their wealth into the future.

For now, markets expect the Reserve Bank to cut interest rates just once by June 2025. The central bank’s latest forecast is for inflation to reach 3.8 per cent by December and not return to its target range between 2 and 3 per cent until the second half of 2025.

This “new normal” of higher rates and inflation means investors should obtain good risk-free rates of return in the form of high-interest savings accounts or bonds, according to some investors.

Others point to hard assets such as gold and property as a buttress against the falling value of money and inflation.

Professional financial planner Antony Selby says lingering high interest rates mean there’s nothing wrong with bagging a 5 per cent risk-free return in cash savings.

Alternatively, you could take a risk in equity markets in search of capital growth, as advocated by stock pickers who’ve built fortunes by buying and holding growth stocks through long-term cycles.

The Australian Financial Review asked five wealth management experts for tips on different ways to build wealth given the uncertain economic settings for the financial year 2025.

Antony Selby, a senior adviser at financial planners Financial Spectrum, says an allocation to high-interest savings accounts makes sense for anyone who wants to protect and grow capital. “For the first time in over a decade, investors holding cash are out of purgatory and being paid savings rates of around 5 per cent per year to be patient and selective,” he says.

Selby also says longer-dated bonds are a “good option” as they offer yields above 4.5 per cent and the prospect of capital growth. “For many clients, particularly those near or in retirement, we’re adding longer-dated term deposits and longer duration fixed interest bonds and credit,” he says. “Further rises in interest rates may still occur, but we believe most of the pain has been felt in bond markets and prices are attractive.”

At the other end of the risk spectrum, George Boubouras, the chief investment officer at K2 Asset Management, says risk-taking investors cannot beat shares in quality North American companies to grow capital. The veteran stock picker suggests exposure to three US tech stars. First, he names US computing giant Microsoft for its potential to grow sales and profit margins. “Look, it’s not that original, but it’s a market leader, and it’s the largest single holding for the GAM Global Investment Fund run by Mark Hawtin, which I really back,” says Boubouras.

Boubouras also names artificial intelligence darling Nvidia as a buy for capital growth, given it has a market-leading position in the high-tech manufacturing of computer chips required to deliver advanced internet services to consumers. “It has very high earnings growth,” he says. “The valuation may be a little stretched now, but it has earnings resilience and limited competition.”

Boubouras’ next pick is online streaming giant and household favourite Netflix as a buy. “It has the strongest business model versus its peers, an ability to pass on price rises to consumers and ongoing benefits from its crackdown on password sharing,” he says. “That has really shown up in its recent results and bodes well for the share price growth.”

Craig Swanger, the chief investment officer at Income Asset Management, says one of the biggest investment themes to profit from over the next 10 years is the clean energy transition. “Sustainable investing means more capital is chasing green deals,” he says. “But it also means that less capital is available for so-called ‘dirty’ assets such as coal. This pushes up the returns available from investments like coal producers or transporters,” Swanger says. He thinks investors prepared to hold their nose on climate risk could take advantage of ultra-cheap valuations and big potential returns to buy ASX-listed miner Whitehaven Coal.

Swanger also says an alternative way to play the investment boom in clean energy is to own lithium miners that have been knocked down to cheaper valuations over the past 12 months. “Pilbara Minerals, Liontown, or Allkem are large ASX producers of lithium deposits that will benefit from ongoing trends in the sustainable production of energy,” he says.

Romano Sala Tenna, chief investment officer at Katana Asset Management, loves gold. He says it can act as a hedge against inflation and government money printing. “I definitely think US government debt is past a tipping point and people realise they’re going to have to print money above the rate of GDP [gross domestic product] to dilute the currency and that will boost gold,” says Sala Tenna.

The Perth-based investor also says Australian residential property is a decent bet as a store of value against inflation if you take a long-term view. “Property’s reasonable, as we’re still seeing very strong net immigration and there’s serious undersupply pushing up rents, which is good if you’re an investor. We have to play some catchup in Western Australia, but over the longer term property bodes well,” he says. In Australia in April 2024 the median house price hit a record of $1.113 million, with the strongest gains in Perth, Sydney, Adelaide and Brisbane.

Like Boubouras, analysts at investment bank RBC Capital are big on the theme of artificial intelligence as a long-term growth thematic. The broker recommends ASX-listed data centre players NextDC and Megaport, as they’re likely to benefit from booming demand from US tech giants Amazon, Microsoft and Google-parent Alphabet. “Megaport operates 400-plus data centres globally and is a natural beneficiary of hyperscaler growth,” the broker said in May. Although past performance is not a reliable guide to future returns, Megaport shares are up 184 per cent on the ASX over the past five years and NextDC up 183 per cent.

In general, financial planners such as Selby say it’s important to take a diversified approach to building wealth. He adds that those closer to or in retirement should be more focused on income and capital preservation, whereas younger investors can take more risk and expose themselves to the sharemarket’s daily swings.

 

 

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