INVESTING

Shane Oliver reveals where he would invest $10,000

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Where would you invest $10,000? We spoke to eight finance experts to find out what they would do with such a windfall.

Where would I invest $10,000? Simple. I would invest it in a well-diversified mix of Australian and global shares spread across actively managed and index funds.

I am not a stock picker. But I am a firm believer in the magic of compound interest and the best way to get exposure to that is via growth assets and not to be blown off course by short-term uncertainties and cyclical swings.

shane oliver where to invest 10k asx

Since I am already heavily exposed to the property market via the family home, I would allocate it to shares.

The short-term outlook remains uncertain: COVID-19 continues to pop up around the world, threatening lives and the economic outlook; the recovery remains of uncertain strength; the US election is a potential source of volatility; and tensions between China and the US are periodically escalating.

However, against this there has been better news on COVID-19 treatments and vaccines, economies are gradually recovering and monetary policy is ultra-easy, making shares relatively attractive - and there is plenty of cash sitting on the sidelines. All this suggests that shares will be higher on a six- to 12-month view.

But given the short-term uncertainty I would probably average into sharemarkets over a few months.

Of course, this is what I would do and it is not personal advice.

How Australia can work its way out of a recession

With the economy contracting 0.3% in the March quarter and then a record 7% in the June quarter, it has met the traditional (and rather technical) definition of a recession. This is its first since the early 1990s and the worst since the end of World War II.

The good news is that the recession is probably already (again, technically) over. The rest of Australia looks to have offset the relapse in Victoria, enabling the economy to grow again in the September quarter. And our Australian economic activity tracker, which combines timely weekly data - such as credit and debit card transactions, restaurant bookings, motor vehicle traffic, requests for directions from Apple and Google Maps and consumer confidence - is up from its April low and, after a Victoria-driven relapse, is on the rise again.

The bad news is that activity - measured by GDP and our Australian economic activity tracker on employment - has likely recovered only around half of its initial fall at best (less so for GDP) and so we have a long way to go to recover to where we were pre-coronavirus, let alone where we would be if growth had continued as normal.

Looked at another way, "effective unemployment" - that is, what unemployment would have been were it not for support measures such as JobKeeper - has fallen sharply from around 15% in May to around 9.5%, but has a long way to go to get back to the 5% of early this year.

The first part of the recovery - which came with the initial reopening in May and June, and which saw shops and restaurants reopen and people go back to more normal lives - was fast and looked a bit like a "deep V". But the remaining part of the recovery to get back to, say, 5% unemployment - such that most of us agree we have recovered - will take much longer and be rather bumpy.

It might look more like a "square root" or a "swoosh". This is because many industries and activities will take longer to recover (for example, travel and eating out or immigration) and some may never get back to pre-coronavirus levels (traditional bricks and mortar retailing or activities depending on office work).

Companies will also use the coronavirus shock to accelerate cost cutting and automation.

We have likely seen a decade of change (notably the surge in online activity and working from home) in the space of six months.
All of which means there will be a long tail of relatively high unemployment as the economy adjusts to some new, new normal.
So, to fully recover, the economy will need much more help from government.

First, record policy stimulus (in the form of support for incomes, jobs and businesses) has helped avert a worse situation, but it will have to continue in order to support demand and hence the recovery. Hence earlier tax cuts, more infrastructure spending, investment incentives, perhaps more stimulus payments and more industry assistance measures.

Second, bank and landlord forbearance will have to continue for a while yet with government supporting such measures.

Finally, governments will need to undertake structural reform, such as replacing niggling taxes, reducing unnecessary regulation and helping retrain those workers displaced by more rapid technological innovation so that it's easier for companies to start up and employ. 
History tells us that the Australian economy has recovered in the past from pandemics, depressions, wars and recessions.

Australia's better-than-most track record in managing and suppressing the virus, well-targeted and timely income support measures and lucky country good luck tells us we can do it again. But it will take time and it needs patience.

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Shane Oliver is head of investment strategy and chief economist at AMP Capital. He has a PhD in economics and a graduate diploma in applied finance and investment from the Securities Institute of Australia (now the Australian Bankers and Finance Association).
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