Where to invest $10k: David Bassanese


If you're fortunate enough in this swirling economic environment to have been able to put aside some spare cash, it may be an overwhelming proposition deciding just exactly what to do with it.

At a moment in time marked by global COVID outbreaks, war and climate change fuelling a struggling sharemarket, falling house prices and rising energy bills, we don't blame you.

Thankfully, though, there are sage and steady voices amid the noise, eight of which have lent their wisdom to this series: Where to invest $10k

buing gold

If I had to choose between gold and Bitcoin as an investment, it would be hard to go past the allure of the yellow metal.

After all, gold has been around for millennia and has been widely used as both a store of wealth and medium of exchange. It also has some intrinsic worth as both jewellery and as a handy material in the manufacture of various products, such as electronics. In short, gold is pretty to look at, highly durable and a good conductor of electricity.

That said, gold has seen fairly mixed price performance in recent years, even in the face of a post-COVID surge in global inflation.

While many thought gold should have done better given today's high inflationary environment, aggressive US Federal Reserve interest rate increases and a rising US dollar have so far kept longer-term inflation expectations in check and limited any investor stampede to gold as an inflation safe haven.

Assuming we eventually return to a low and stable inflation world, gold's upside price potential may also remain reasonably contained.

What of Bitcoin?  The main supporting argument behind Bitcoin is that, like gold and fiat currency, it could also eventually become a widely used medium of exchange (or "money") and a store of value. And like gold, the supply of Bitcoin is limited, meaning its value should rise over time as it becomes more widely adopted. But while the future upside of Bitcoin is potentially significant, it also remains highly uncertain.

As yet, Bitcoin has not been widely adopted as a form of money while its high price volatility suggests it's not yet a great store of value either.

Financial regulators are also nervously watching its development, and could try to curtail its use if its rise ever threatened their control over national monetary systems. And while the supply of Bitcoin is apparently limited, there's a growing array of other cryptocurrencies competing for investor attention.

Further, in the same way that aggressive interest rate hikes from the Federal Reserve have placed downward pressure on gold, Bitcoin and other cryptocurrencies have seen a drawdown during this tightening cycle.

Of course, time will tell how both gold and Bitcoin fare. Either way, it would not be unreasonable for investors to consider allocating at least a small part of their portfolio to both gold and/or cryptocurrencies as a source of diversification.

Where I would invest $10k

Where one would best invest $10,000 obviously depends on one's specific knowledge, time horizon and risk tolerance.  If you're risk averse and have a short time horizon, defensive assets - such as cash - seem to make the most sense at present.

This is a result of the risk of continued aggressive central bank tightening to deal with inflation, which could see returns from traditional bond and equity investments weaken further.

For those less risk-averse and with a longer time horizon, today's bout of equity market weakness likely represents a good buying opportunity, particularly among beaten-up technology companies with still higher future growth potential.

Another option for long-term investors who are willing to take on some short-term market volatility is geared exposure to the equity market, which should provide even greater returns over the long run, albeit with bigger bumps 
along the way.

Of course, whether one invests in cash, bonds or equities, portfolio diversification to reduce company-specific risks also makes sense.

This is easily achievable through a managed fund - either through an actively managed fund that aims to beat broad investment benchmarks or lower-cost passive options that at least match these same investment benchmarks over time.

Both active and passive investment funds are now also readily available on the ASX through exchange traded funds.

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David Bassanese is chief economist at BetaShares where he is responsible for developing economic insights and portfolio construction strategies. Prior to this, he was a senior financial commentator with The Australian Financial Review. David's previously worked in economic roles at Macquarie Bank, the Federal Treasury and the Paris-based Organisation for Economic Co-operation and Development (OECD).  He has an Honours Degree in Economics from the University of Adelaide, and a Master in Public Policy from Harvard University.