Investing 101

Much of what keeps Australian investors up at night – and the biggest investment mistakes they make – could be avoided through a greater focus on financial literacy, especially as markets “start acting like markets again”, the private wealth manager’s directors Jamie Nemtsas and Drew Meredith said.

With a successful and orderly energy transition “far from guaranteed”, disruptive themes are set to profoundly affect financial markets for years to come, the asset manager said in a new report. Investors should act – and potentially reallocate – accordingly.

The bond market has never had great investment appeal for Australia’s self-managed superannuation funds, but with rising yields improving their proposition, some observers say the investment tide may be coming in for fixed interest.

The surge in passive investment options in recent years, along with a record of underperformance by active managers, has pushed the ongoing active-versus-passive debate to the fore. Proponents of both styles agree, though, that how each approach performs in volatility will be the key question in 2023.

The meltdown of Silicon Valley Bank is “an early step” towards a more rational market environment, according to Howard Marks, but new problems might arise from bank exposure to commercial real estate.

Although more Australian companies are paying dividends in 2023, many have reduced payouts, with the year-to-date total slightly behind 2022’s figures, according to CommSec research. The big miners are leading the cuts, while energy producers are lifting dividends to reflect record high gas prices.

Basing an investment strategy on the Goldilocks investment markets of the last 35 years gives rise to considerable risk, writes Michael Block, and now might be the time to get out of growth assets.

For those planning to invest in offshore assets, the decision whether to hedge currency exposure is an important one as movements in the Australian dollar can either erode or add value to an investment.

Dividend investing can be a good source of defensive income in volatile times, but changing fundamentals mean resources companies and banks may be the weaker play in 2023, with opportunities emerging beyond these traditional Australian dividend payers – although valuation will be key.

An emerging global supply shortfall and booming demand due to the clean-energy transition are set to support big gains in the price of copper, leaving investors hunting exposure to the few mining projects currently online.

Australia’s dividend imputation system is designed to stop the double taxation of company profits. While investing in companies that pay fully franked dividends can be tax effective, tax should never be the primary determinant of a decision to buy shares.

Dollar-cost averaging allows investors to be in the market for the good days as well as the bad. This can help reduce exposure to market declines, as recent research shines light on the difficulty of timing the market.