Paul Clitheroe reveals where he would invest $10k right now
Where would you invest $10,000? We spoke to eight finance experts to find out what they would do with such a windfall.
Investing in any climate is not easy, but the pandemic has made it challenging. The key for all of us in making a decision is risk and timeframe. So if I wanted access to my money inside a year or two, it is easy. I'd go for a term deposit.
But I am a long-term investor, so I see opportunity, as I believe we will get economic recovery. I hold a well-diversified portfolio, so with $10,000 I'd be shooting for growth.
I am a believer in the vast potential still to come with global technology stocks. An easy way for me to get exposure here is the listed Magellan Global Trust (ASX: MGG).
My other choice is hugely biased. I am chair of the small absolute return listed investment company Monash Absolute Investment (MA1).
I am already an investor, but with MA1's stellar performance over this difficult period and its recent award as the "Best Listed Alternative Investment Product" at the Alternative Investment Awards 2020, I'd split my $10,000 into two parcels of $5000 and place half with each, giving me international exposure to huge global companies in MGG and a nice contrast in MA1, with exposure to generally much smaller, dynamic Aussie companies.
Where can I invest my money other than in a term deposit?
This is such a challenging issue. Term deposits have been a safe harbour for investors for many decades. Sure, they are still safe, but the returns are getting close to zero. This is a terrible issue for safety-conscious investors and one hard to adapt to.
I'll never forget my Dad calling me in early 1990 to check if we were coping with our mortgage, which had just hit 18.75%. For those of us with mortgages back then, it was our own personal economic depression. Dad had rung to see if we needed help with repayments, which was really kind of him. We had just sold our car, so we were coping okay.
But I did have to laugh when he told me he was getting 16% on his term deposits. Sadly, we can't all win. The economic cycle will rarely favour both borrowers and lenders at the same time.
So now it is the turn of borrowers. Debt is incredibly cheap - I saw advertised rates for home loans below 2% recently. Term deposits, of course, reflect this - we are currently earning less than 1% on ours. But we need to hold a proportion of our portfolio in really safe investments, even if the interest rate is near zero.
My very public view has always been that retirees and part retirees, such as my wife Vicki and I, should hold around three years of our budgeted expenditure in safe, liquid investments. The only way to earn higher returns is to move up the risk curve and, at age 65, I am not moving up the risk curve with our eating, rates, insurance and petrol money!
Being forced to sell assets such as property and shares in a falling market is a fool's game and the only way we avoid being in that game is to have safe assets to support us through a cycle of falling markets.
When it comes to investing outside of cash or term deposits, this has to come from money in excess of my "three-year rule". Let me be very clear here. In answering the question "Where can I invest my money other than in a term deposit", it has to be money that I do not need to have in term deposits, namely my longer-term money. The only real mitigating factor to risk is time.
History shows me I can be reasonably confident of positive returns from shares, property, infrastructure and so on over five to seven years. I can become very confident over 20 years. But there is another factor that comes into play and that, of course, is income. While my shares and property may at times fall dramatically in value, the income they produce is more stable.
This means that, providing I am confident I do not need access to the capital that I can only get by selling, I can increase my income by buying these assets. An easy way to do this is to buy some high-yielding shares or a high-yield exchange traded fund (ETF). There are also many income funds available as listed ASX funds, ETFs or unlisted funds.
You can quickly get a handle on risk simply by their income projections or past income distributions. A conservative income-type fund is likely to generate 3%-4%. If it is offering huge returns, such as 8% plus, which I do see in advertisements, please take great care.
Let me make two final comments.
It is just the truth that higher returns mean higher risk. Also, and this I guarantee, if it looks too good to be true it will be.