Time for a change

Published in the Herald Sun, June 2011

With fears of a fresh financial crisis looming large, Olga Galacho and Karina Barrymore asked a series of experts how to invest in tough times.

The fund manager

When everyone thinks that the sharemarket is tanking then it tells me that it is time to buy...the opportunities do not come much better than right now.

If I had $10,000 or $100,000 to invest and my outlook was five years or more, then nothing would stop me buying into great stocks like BHP, Rio Tinto, CSL, Cochlear or Wesfarmers and the banks.

Then I would simply hold them and not worry about what the market is doing because in five or more years, all these good stocks will have done quite nicely in getting me a good return.

In the short term, however, the safe haven of cash is a good option. If my outlook was for the next 12 months or less, then I think cash will be king.

I doubt property will make any moves up in that time, but rather is more likely to fall.

What I'd do is place cash in an offset account against my housing loan as it still leaves me flexibility to use this cash to invest while reducing my interest bill in a tax-effective way.

It's far more beneficial to pay less interest to the bank than it is to receive interest from a bank and then pay tax on it.

Dale Gillham is chief analyst and fund manager of Wealth Within

The share strategist

Whether an investor has $10,000 or $100,000, the basics of investing remain the same: maintain a portfolio that is well diversified across asset classes, focus on investment costs and avoid the temptation to chase "hot" investment trends.

The growing range of exchange traded funds (ETFs) allows small investors to implement these strategies as easily as large investors.

For example, investors historically could not easily gain exposure to the performance of gold bullion and be protected from exchange rate movements.

Gold is considered by some a store of wealth or a "hedge" during times of global uncertainty and inflation risk.

Today, someone wishing to invest in gold can allocate a portion of their portfolio to bullion via an ETF through a share trade with as little as $500.

It provides investors with a cheaper and simpler way to protect against (or profit from) a decline in our dollar, without the cost and hassle of setting up foreign currency accounts.

Drew Corbett is head of investment strategy at BetaShares

The banker

It's not always about the rate on offer or even the tax implications, but rather what it is that you want out of your investment and what type of access you want to your money.

Young people who have $10,000 to invest and whose goal is buying a house could look into the dedicated products on offer and the range of government incentives out there to support first-home buyers such as First Home Savers Accounts.

If you want convenient access to your funds you may want to maximise your savings through a high interest online savings account.

If you don't have a specific goal in mind, a term deposit is a secure way to lock your money away at a guaranteed interest rate for a specific term.

Do your homework to find the best term deposit rates out there. Some smaller banks are offering market leading rates for balances starting as low as $1000, for which you can get 6.5 per cent for 12 months.

If you have $100,000, your investment and savings options are much broader.

If your primary goal is to put away money for the future, consider making additional voluntary contributions to your super fund. Talk to your industry super fund as most will have financial education and advice teams.

Ian Hendey is group executive, products and distribution, ME Bank

The financial adviser

The first step for investors is to review how their existing investments are allocated. They should look at their level of debt and loan repayments, think about how close retirement is and how comfortable they are with volatility.

Investors should already have a reasonable exposure to cash as it is providing 5 per cent return with minimal risk and gives protection if there is another correction.

With the Australian dollar staying high, interest rates likely to go up and the effects of the two-speed economy cutting in, our view is the sharemarket is not going anywhere. In general we have a cautious outlook for Australian shares, except for those that pay strong dividends, and also believe US equities may still be overpriced.

For investors in a comfortable position, we have been looking at high quality US property which can be accessed through the US Masters Residential Property Fund in small or large parcel sizes.

Families should review their capacity to cover loan repayments based on interest rates increasing.

Nerida Cole is executive director (financial advisory) Dixon Advisory

The economist #1

If you are already in the stockmarket, stay put because it's too late to get out without incurring losses. The "wall of worry" is quite high and reflects difficult economic issues in Europe and the US, as well as risks associated with higher interest rates and the Australian dollar.

I think the stockmarket is going to fall further and will continue to shed value into the September quarter.

So, while now is a good time to get into the market because you can buy stocks cheaply, I wouldn't put it all in at once. I would invest in some shares now and then average in the rest of my funds over the next three to five months.

However, if you are an older investor who may not enjoy the likely volatility ahead, investing in term deposits is an alternative.

Shane Oliver is head of investment strategy, AMP Capital

The economist #2

The one piece of advice that is always applicable is "don't put all your eggs in one basket". But, for someone with $10,000, bank shares certainly offer great value - they are relatively cheap and offer high fully franked dividend yields of 6-7 per cent.

For growth-focused investors we favour the major miners - BHP Billiton and Rio Tinto - as well as consumer staples such as Woolworths and Wesfarmers.

Our view is the sharemarket may tend to go sideways in the short-term so gradually buy over time rather than make big purchases.

Those with a bit more to invest could also consider stocks such as Fortescue, Brambles and QR National.

For those with $100,000, property comes into the equation. Remember prices could be flat in many regions for much of the next year before picking up in mid to late 2012.

Also note the Reserve Bank is warning of rate hikes and we see the risk of up to two by the end of the year, but if the economy remains soft they may be delayed until early 2012.

With property prices flat, more stock on the market and some vendors committed to sell, cashed up buyers may be able to pick up bargains.

Craig James is chief economist, Commsec

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