2020 was an unexpected year for most, but one thing that has remained consistent is the appetite of investors for practical investment knowledge. In this guide, we’ve gone directly to the experts to see what they are saying about 2021 and the key tips you should be considering when investing in your area of interest. In three easy to follow steps, these experts outline where they will be putting their focus this New Year, and how you might consider this in your own investment vehicle.
Skip to your investment area of interest:
No matter how you invest, it’s important to understand why you invest.
Investing in Australian Shares in 2021
Knowing how expert investors are approaching their own portfolio may give you a useful insight into strategies and approaches to research. It may help you identify opportunities, or help you decide where to start.
Analyst at InvestSmart, Nathan Bell has made a career out of analysing stocks and deciphering where to find value. He discovered value investing during his time as an accountant and has an eye for knowing where to find opportunities for strong performance as he shares in his insights below.
(1) Think small. Small-cap stocks haven’t performed as well as larger stocks that people are more familiar with and feel safer owning, particularly during challenging periods like the past year due to the panic surrounding COVID-19. Given PERs have increased way beyond historical norms to 30-60x for the best large businesses, small-cap stocks have a lot of catching up to do.
(2) Think value. The valuations of so-called ‘value stocks‘ are trading at a record discount compared to ‘growth stocks’. The potential returns from the most popular growth stocks over the next five years could be very measly at best. In contrast, some of the best resources companies are trading at record lows compared to the current market leaders.
(3) Think unpopular. While it pays to own quality over the long term, there are occasions when the reward for buying what’s unpopular is extraordinarily high. We are currently in one of those rare periods, as we’ve discussed above with examples in small companies and the resources industry. You won’t get much support from your friends by buying unpopular stocks, but it could make for an unusually profitable Christmas next year as the global economy re-opens from the COVID-induced hibernation.
If you’re looking to get started in trading Australia shares, you’ll need to open an online share trading account which you can compare below. In this article, we look at online share trading accounts with the lowest fees.
About Nathan Bell
Nathan Bell is an analyst at InvestSmart. Nathan discovered value investing after spending nine years as an accountant, including five at Deutsche Bank that ended in 2006, and has been with Intelligent Investor ever since. He is a CFA charter holder and his experience has guided our strong performance since 2011.
Investing in International Shares in 2021
Many Australian investors choose to invest in global stocks as part of their wealth-building journeys because there is a perception that there is more opportunity to be unlocked in global markets. These markets generally have more participants, and stocks often have higher market caps, meaning there is potentially more return to be generated. Investing internationally also allows Aussies to invest in household names that may not be listed in Australia.
Multi-asset investment platforms offer investors the opportunity to access stocks from around the globe. Everyday Aussies can invest in fractions of stocks from big-name tech giants such as Tesla, Amazon, Facebook and Google.
Why would investors consider only investing in Australian stocks?
There is currently a high global demand for Australia’s energy, minerals and food stocks, which means that the companies who supply these products and commodities are valuable. Some investors may choose to invest their money closer to home and back companies that directly participate in the Australian economy.
Australian shares have historically generated great long-term returns, compared to other investment choices. For example, over the last 94 years, Australian shares have delivered annualised returns of 10.7% on average, beating returns in property, bonds and cash.
Why would investors consider only investing in international stocks?
International stocks can act as an important source of diversification, improving a total portfolio’s expected risk-return profile, versus a portfolio that includes only Australian stocks. This benefit comes from holding stocks in a variety of countries, each reacting differently to market and economic conditions.
Investing in international stocks presents the benefit of accessing global industry leaders across an array of sectors such as Microsoft, Apple and Johnson & Johnson.
International investing can also provide access to industries and countries that are performing more strongly than Australia and its major industries (in the short and long term).
What are your three recommendations for investors looking for a mix of both?
- Diversify your portfolio to give it good balance, as well as limit your risk of market volatility if a country faces any extreme economic downfall.
- Do your research and keep a finger on the pulse of the news cycle. This will help you to make better-informed decisions in terms of stock and industry performance.
- Finally, invest in what you know and where your passions lie. By doing so, you are more likely to understand how they best operate. For example, if you love tech, you may decide you want to buy stocks in global companies such as Apple or Microsoft, or even local leaders such as Afterpay or Redbubble. Or, if fashion is more your thing, then you might want to consider global stocks such as ASOS or H&M, and more locally with Accent Group or Lovisa.
You can also capture these themes, sectors and interests by investing in Exchange Traded Funds (ETFs).
The table below displays some of the International Broad Based ETFs available on our database with the highest three-year returns (sorted highest to lowest by three-year returns and then alphabetically by provider name). Use Canstar’s ETF comparison selector to view a wider range of products. Canstar may earn a fee for referrals.
About Robert Francis
Robert Francis is the Australian Managing Director of multi-asset investing platform eToro. Before Robert Francis joined the world’s largest multi-asset investment platform eToro in June 2017, he was leading operations for the Exchange Traded Options desk and the International Trading Desk. Heading up eToro in Sydney, Australia, Robert is an expert in stock markets with over 13 years of experience and senior positions at CommSec and TD Waterhouse.
Investing in Property in 2021
Now that our real estate markets are working their way out of the effects of the Coronavirus Pandemic and out of Australia’s first recession in 30 years, many investors are asking what the outlook of the 2021 property market will entail. Property investment advisor Michael Yardney shares his three areas of focus for investors to make the most of property in the New Year.
1. Property Investment is a process – not an event.
Becoming a successful property investor involves more than just doing some research on the internet, inspecting a few properties and buying one.
Remember searching for a property is very different from researching the property markets
Successful investors have a long-term strategy to grow their wealth and use the correct asset protection and finance structures as well as insurances to mitigate their risks. And they get a good team around them to level the playing field.
They know who to ask for advice and understand the difference between salespeople who represent the seller and independent advice they’d get from a property strategist or buyer’s agent
2. Location will do 80% of the heavy lifting
Most of your property’s growth and performance will come from location. Some locations will outperform others by 50% to 100% over a decade with regard to capital growth and rental growth.
A lot has to do with their demographics – so look for locations that are gentrifying and hunt for lifestyle locations and destination locations where aspirational and affluent people want to live as these will outperform with regards to capital growth, because the locals will have more disposable income and be prepared to, and can afford to pay to live in these suburbs.
3. Timing the property market is just too hard.
Even the experts can’t pick the top and the bottom of the property market, so don’t even try. Look at all those forecasts made earlier this year that have proven so wrong.
Having said that I believe we have passed the bottom of this property cycle in all our capital cities and when you look back next year you’ll see that the mid-October was when our market turned around. Market timing isn’t really important to them.
On the other hand, do others do poorly in good times and even worse in bad times? Market timing seems to have very little effect on them either.
Interesting isn’t it?
Lowest interest rates for 1-year fixed home loans
The comparison table below displays some of the 1 year fixed rate investment home loan products on Canstar’s database with links to lenders’ websites available for a loan amount of $350,000 at 80% LVR in NSW, and available for Principal and Interest repayments. The results are sorted by ‘current rate’ (lowest to highest), then by provider name (alphabetically).
*Comparison rate based on loan amount of $150,000. Read the Comparison Rate Warning.
Lowest interest rates for 3-year fixed home loans
The comparison table below displays some of the 3 year fixed rate investment home loan products on Canstar’s database with links to lenders’ websites available for a loan amount of $350,000 at 80% LVR in NSW, and available for Principal and Interest repayments. The results are sorted by ‘current rate’ (lowest to highest), then by provider name (alphabetically).
*Comparison rate based on loan amount of $150,000. Read the Comparison Rate Warning.
Lowest interest rates for 5-year fixed home loans
The comparison tables below displays some of the 5 year fixed rate investment home loan products on Canstar’s database with links to lenders’ websites available for a loan amount of $350,000 at 80% LVR in NSW, and available for Principal and Interest repayments. The results are sorted by ‘current rate’ (lowest to highest), then by provider name (alphabetically).
*Comparison rate based on loan amount of $150,000. Read the Comparison Rate Warning.
About Michael Yardney
Michael Yardney is a director of Metropole Property Strategists. He is a best-selling author, host of The Michael Yardney Podcast, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog. He’s been voted Australia’s leading property investment adviser and one of Australia’s 50 most influential Thought Leaders. His opinions are regularly featured in the media.
Investing in Superannuation in 2021
Beyond the usual start-of-year reminders to consolidate your super accounts and ensure you are being paid your full super entitlements (both very important!), there are considerable benefits from looking more closely at how your super is performing and what you can be doing to make the most of it.
As a long-term investment, small improvements early on to how you manage your super can make a big difference at retirement.
1. Make sure you are with a fund that delivers high net returns
It seems simple but in 2019 the Productivity Commission found about 2 million Australians were stuck in underperforming funds.
Underperformance can cost members up to $500,000 in savings when they retire, according to the Productivity Commission. This could mean you need to work years longer to make up the shortfall.
Likewise, the fees you pay ultimately come at the expense of your retirement balance. Paying high fees could cost you about $100,000 by retirement, according to the Productivity Commission.
Look for a fund with high net returns. Net returns are the investment returns minus all fees and costs – it’s what ends up in your account so it is really all that matters.
Compare your existing super fund with others in the market to make sure it is meeting your needs. Fees and investment performance are important factors to consider. Remember long terms returns is what matters. Compare funds over at least 5 years or more. High-quality funds will often have a strong performance track record over multiple timeframes reflecting different market conditions.
By the time you reach retirement, your super will likely be one of the biggest assets you have. It is important to extract its full benefits over the longest possible period.
The longer you delay checking if you are with a good fund delivering high net returns, the longer you run the risk of losing out on those all-important early compounding returns.
If you’re comparing Superannuation funds, the comparison table below displays some of the products currently available on Canstar’s database for Australians aged 30-39 with a balance of up to $55,000, sorted by Star Rating (highest to lowest), followed by company name (alphabetical). Use Canstar’s superannuation comparison selector to view a wider range of super funds.
Fee, performance and asset allocation information shown in the table above have been determined according to the investment profile in the Canstar Superannuation Star Ratings methodology that matches the age group specified above.
2. Make sure your investment strategy is right for you
Most default MySuper products provide a ‘balanced’ portfolio that is diversified across many different asset classes that aim to deliver good risk-adjusted returns for members of any age through different market cycles.
Other funds adopt a lifecycle approach that automatically rolls you into an investment option of differing risk profiles based on your age or balance. Lifecycle options that progressively shift more of your balance into low risk, low return assets might be good for peace of mind as you approach retirement but you could lose out on significant returns from higher growth ‘balanced’ options that could make your money last much longer during the many years of retirement.
3. Make sure your investment strategy matches your needs and appetite for risk – which your fund or financial adviser can help you with.
However be wary of switching options too often – this can lead to adverse consequences – including mistiming the market and incurring costly buy-sell fees Remember super is a marathon not a sprint, history shows there will be ups and downs but generally consistent long-term growth over the life of your investment.
Consider the lessons from market downturns, such as the GFC in 2008 and COVID downturn in 2020. Many members who tried to game markets by switching investment options during a downturn tended to miss out on the rebounds, crystalising their losses.
If you have some extra money in your budget or receive a cash lump sum consider the investment benefits of using it to boost your super balance. If you are putting together a budget for the new year or get some type of windfall consider putting it in your super. It is a tax-effective way to make savings and with the powers of compounding interest a little invested in super now makes a big difference in retirement.
Top-performing industry funds have returned between 8 to 9 per cent per annum after all fees and tax over the last decade, considerably more than many other diversified long-term investment options and equities indexes. These outcomes eclipsed low-cost Australian Share ETF’s over the past 10 years with much less volatility.
Tax incentives also help to boost your savings as concessional contributions are generally taxed at a lower rate than income, and in retirement your withdrawals are tax-free.
Of course, everyone’s circumstances are different so you need to consider what’s right for you and whether you will need access to that money in the nearer term.
About Matthew Linden
As Deputy Chief Executive of Industry Super Funds, Matt Linden leads Industry Super Australia’s strategic engagement with the Federal Government, parliamentarians, central agencies, and parliamentary press gallery.
He is responsible for developing and maintaining key relationships with Senior Ministers, backbenchers, opposition and minor parties, as well as interactions with parliamentary committees and Treasury.
Investing in Cryptocurrency 2021
With the recent surge in cryptocurrencies, many investors are looking at how to make the most of this asset in their own portfolios. Investor interest in digital currencies has risen dramatically in recent months. Byron Goldberg from Luno shares his three key areas of focus for crypto investments, and beyond.
1. Do your own research, always!
As cryptocurrency and cryptocurrency investing is new to most people, bad actors often try to capitalise on this, whether that be investment scams or “traders” approaching you on Instagram or LinkedIn offering high returns. Rule: If it sounds too good to be true, it probably is! Speak to friends (or use Canstar) to get recommendations of where they buy bitcoin, stick with the most reputable and trusted names. If you have a funny feeling about a person or platform, reach out to the platform and ask for assistance from their customer support team.
DYOR also refers to doing research on the coins you wish to invest in. Like equities, each cryptocurrency has different pros and cons – so do as much research as you can before diving into a coin you’ve heard from a friend of a friend.
2. Dollar-cost average where you can.
Dollar-cost averaging (DCA) is an investment technique whereby you buy fixed amounts of an investment (eg: $1000) on a regular schedule, regardless of the price. Think of your Superannuation account. That is essentially a dollar-cost averaging investment! DCA helps you take out the emotion and fear from investing because you are more focused on a long-term investment strategy and less worried about short-term price fluctuations. The cryptocurrency market is known to be a volatile market, which often may make you lose focus of the long-term goal. How do you do it? Some crypto platforms allow you to set up recurring purchases where you can simply choose to invest each day, week or month.
3. Search for yield
Interest-bearing investments are growing more popular and robust in the crypto world. 2021 will be no different, and you can expect to see even more interest-offerings in the market. Investment funds, both locally and abroad, have started buying cryptocurrencies like bitcoin in place of buying gold. This purchasing trend is expected to grow next year, and so too is the interest in obtaining further yield by lending out bitcoin holdings. Cryptocurrency, as a fully digitised asset, means it has added functionality that lends itself extremely well to being lent and borrowed, and thus improves on traditional financial instruments, as the power lies with the investor, you, and not the bank or banking system. This is truly powerful.
As bank deposit interest-rates are diminishing worldwide, investors are seeing hardly any growth in their savings accounts or fixed-term deposit investments. This is contrasted with the high-interest rates paid on bitcoin and other cryptocurrency deposits the market is offering. There will ever only be 21 million bitcoin in existence, which means there will always be a finite amount of bitcoin available for borrowing, which puts you, the consumer, in a great position to lend your bitcoin out in return for interest. Moreso, this growing trend is even more inviting as your interest is paid in bitcoin, meaning, you may earn $50 in interest this month, but that $50 may be worth $60 next month (provided the bitcoin price goes up). This is a great way to compound your investment and increase return, as well as reduce price risk as, when you’re earning interest, you have an increased margin of safety.
About Byron Goldberg
Byron Goldberg is the Australian Head of Luno, the cryptocurrency wallet and exchange platform joining Luno in late 2019. Byron, based in Sydney, has boundless experience in the financial services sector including cryptocurrency, capital markets and insurance. Byron holds both Bachelor of Accounting Sciences & Honours in Accounting degrees from the University of the Witwatersrand in Johannesburg and is a Chartered Accountant with the South African Institute of Chartered Accountants.
Investing in Alternative Investments in 2021
1. Find creative ways to ride the wave
COVID-19 will endure as an accelerant of existing trends, most notably the tech-enabled dispersion of ever-larger segments of the economy – from work, to learning, to medicine, even to community. This presents a fantastic opportunity for wealth creation, especially where investors are willing to venture beyond a traditional 60/40 type portfolio.
Now, more than ever, private investors have access to a variety of unconventional opportunities to diversify their portfolios and gain direct exposure to these trends, be it in Australia or abroad. Seeking out ways to capitalise beyond the “[insert here] from home” or “city to regional town” thematic that dominated 2020 may assist investors in the increasingly perilous hunt for yield. For example, one could consider such options as: (a) anticipating non-obvious, second-order effects of dispersion (i.e. how will supply chains and travel/transport networks be impacted in a work-from-anywhere world?); (b) substituting traditional fixed income products for higher-yielding private debt offerings; or (c) backing local entrepreneurs who are developing new technologies and products to address our “new normal”.
2. Are you swimming naked?
While I am cautiously optimistic on the outlook for 2021, investors cannot discount the probability of materially different economic environments transpiring in an uncertain future. Specifically, the relationship between asset classes and underlying economic drivers in four scenarios should factor into portfolio allocations, including: (1) inflation is higher than expected; (2) inflation is lower than expected; (3) economic growth is higher than expected; or (4) economic growth is lower than expected.
Certain assets are biased to do well in each of these environments and so, portfolios comprising a diverse mix of alternatives are likely to generate better risk-adjusted returns with smoother, less volatile rides if the tide does go out.
3. Stay between the flags
An increasing share of abundant global capital flows are being allocated to alternatives as interest rates (on which today’s high asset prices are dependent) remain in the basement and equities continue to experience heightened volatility. Without stating the obvious, be very wary that the price you are paying for an asset is at or below its intrinsic value to avoid overreaching in the search for yield.
Another vital consideration when investing in alternatives is liquidity. Understand clearly what you’re getting and the fact that, in most cases, alternative investments have medium to long term investment horizons. Illiquidity risk may result in your inability to sell securities in order to fund other activities. This is especially important for investors seeking exposure to a specific asset class by investing in an unlisted fund. Ask yourself: What does the fund invest in? How liquid is it in good times and how illiquid in bad times?
About Mitchel Roetteler
Mitchel Roetteler is an Associate Director at Zenobia Capital, where he focuses on financing FinTech businesses through private debt markets. Mitch has extensive experience in business analytics, financial modelling and advisory to enterprises. He holds Bachelors of Commerce and Law with Honours from the University of Queensland, and a Graduate Diploma of Legal Practice from the Australian National University. Mitch is also admitted as a solicitor in the Supreme Court of Queensland.
Diversifying your Portfolio in 2021
The current state of play is that most Australian investors have significant investment and personal holdings in Australian equities and real estate due to their superannuation contributions, principal home of residence, and investment properties. This has made economic sense in the past due to tax concessions for superannuation, franking credits, negative gearing and the security that a home carries against future increase in housing.
In 2021, it is likely that Australia will enter a stagnating economy or at worst, a contracting one. Therefore, I would take a defensive position for my investments. It is important to diversify into different asset classes, invest in overseas markets and technology.
Further investment in the Australian stock market carries significant risk as around half of the market capitalisation of the ASX is highly concentrated in both the Financial (30%) and Materials & Mining (18%) sectors.
Australia’s main exports are natural resources (42%) education (8%), and tourism (4.8%). Our export sectors are significantly impacted due to geopolitical tensions with Asia (natural resources) and the COVID-19 pandemic (education and tourism). It will take time for these issues to be resolved successfully; perhaps they are already “priced in” to the market, but you need to worry about downside risk.
With this in mind, my recommendations for diversifying your investments in 2021 include:
1. Invest in high-grade Australian corporate bonds with relatively reliable positive yield spreads
Investors are rewarded with a stable income via bond coupons and protect their portfolios from significant downside risk (losses) since bond prices are historically more stable than equity prices. Australian investors can purchase the bonds of Australian corporates to foster greater innovation in Australian firms that are seeking to expand and grow and need the capital to do so. We should reinvest in our country and support Australian entrepreneurs who are creating jobs and opportunities for the next generation.
2. Technology stocks
Globally, technology is the one sector that has been able to continue to grow unabated. Technology continues to be an enabler by allowing us to still contribute to our economy and produce, despite lockdowns and work-from-home initiatives. Science and technology will be what will allow us to come out of the health and economic crisis stronger and with greater economic resilience than before. The technology sector weight in the ASX is 4.5%, though technology is important to most sectors. This is both a growth opportunity for our investments and one that can do social good. We should be proud of our world-class inventions and innovations such as technology giants Atlassian and Canva, and that we have the world-class universities and biotechnology labs to research and manufacture a COVID-19 vaccine.
3. Emerging markets
Many governments have experimented with different approaches to manage the COVID-19 pandemic. In 2020, it is clear that the optimal strategy that balanced both health and the economy was taken by the Australian, New Zealand governments and that of several East Asian countries (Taiwan, Japan, Korea, Singapore). As Australians are entering a stage where economic surprises may be unusually likely on the downside, it is prudent to protect long term retirement portfolios by diversifying internationally. This is supported by academic literature and diversifying internationally isn’t “reaching for the stars,” but given that our jobs and livelihoods are linked to our domestic economies, fully investing all our eggs in our domestic economies is in fact a highly risky proposition. We should diversify our retirement portfolios (for example, avoid home bias and perhaps earn a modest premium) in other economies internationally that will continue to grow in 2021.
About Dr Rand Low
Professor Low’s research areas are in investment management and portfolio optimization. He is a recipient of the Australia Awards – Endeavour fellowship at the New York University – Stern School of Business. His work has been published in leading academic and industry journals such as Journal of Banking & Finance, Quantitative Finance, Journal of Empirical Finance, Journal of Investing, and Journal of Risk.
Professor Low’s is a Chartered Professional Engineer and worked in control systems engineering and project management roles for Honeywell. After completing his PhD, he worked for several years for Bank of America Merrill Lynch and BlackRock in New York City.
Action steps to review your portfolio
1. Understand your complete financial position
Start 2021 by drawing up your personal balance sheet. In one column list all your assets – house, superannuation, other investments, rental properties, cars, other personal property, etc. In the next column list all your liabilities (that is, all the amounts you owe to other people) – mortgage, credit cards, car loan, student debt, etc. Be realistic with your estimates. Now, subtract the total of the second column from the total of the first column. This is your net wealth and you can now immediately see your overall financial position. It is only once you have done this that you can sensibly consider diversification.
2. Are you on track to meet your goals?
Look at your overall financial position, taking into account your liabilities and not just assets, and consider if you are on track to meet your financial goals. Assuming you haven’t yet reached your goal, how will you get there? Are your expectations consistent with reality? Yes, the stock market has performed well since the COVID induced crisis, but future returns are unlikely to match the recent strong growth we have observed. If you don’t know how to work out if you are on track with your savings consider meeting with an independent financial advisor to help with these decisions.
3. Review how your money is invested.
Make a list of how all your money is invested. What funds do you hold and how do those funds invest your money. Now look at your overall diversification – include all your assets. What exposure do you have to the stock market, bonds, and property among all the assets you own? Is this allocation consistent with your long-term goals and your risk profile? This approach lets you check for inconsistencies. For example, do you hold bonds but also have a mortgage or other debt? It might make sense to pay down your debt rather than build a bond portfolio (especially if the bonds are held outside a super fund). Now is the ideal time to review your allocations and make adjustments to ensure you are on track to meet your financial goals.
About Shaun Bond
Shaun Bond is the Frank Finn Professor of Finance in the Department of Finance at The University of Queensland Business School. Shaun has research interests in the areas of real estate finance and financial economics.