Where to invest $10k: Shane Oliver

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. 

High inflation has been the big surprise this year. It has driven an aggressive tightening in monetary policy and a sharp rise in the risk of recession, which has in turn driven a plunge in sharemarkets.

The good news is that it's likely to surprise on the downside in 2023. The surge in inflation has been driven by a combination of: supply-side disruptions flowing from the pandemic; strong goods demand through the pandemic that depleted inventories and then a surge in services demand on reopening at a time of limited spare capacity and now tight labour markets; higher commodity prices flowing from Russia's invasion of Ukraine; and very strong money supply growth through the pandemic.

Now there are indications that inflationary pressures are starting to top out or reverse:

• Uncertainty remains high around the war in Ukraine, but gas and coal prices may have seen their worst, and oil, metal and food prices are off their highs. 
• Measures of supply disruption are easing,   with business surveys showing falling delivery times, and work backlogs and freight rates are down from their highs.
• This is being reflected in a rollover in producer price inflation outside Europe.
• Business surveys also show - outside Europe - that input and output price inflation is off its high.
• Goods inflation appears to have peaked.
• And slower demand (or GDP growth) will lead to reduced capacity utilisation and eventually higher unemployment, which will see overall inflation, particularly for services, peak.
• At the same time, money supply growth has fallen.

This is being reflected in AMP's Pipeline Inflation Indicator, which is now pointing to a sharp fall in US inflation.

As a result, we expect inflation to fall faster than the Federal Reserve and Reserve Bank are allowing for next year, with inflation expected to fall to around 3.5% in Australia. This will see some easing in cost-of- living pressures as wages growth by then will likely have picked up to be at least in line with inflation.

It should also allow the RBA to start cutting rates by late next year, albeit only tentatively at first, and the cash rate is unlikely to fall back to anywhere near as low as the 0.1% seen in 2021.

Where I would invest $10k

I like to keep it simple and invest in a well-diversified mix of Australian and global shares using actively managed and index funds.

There is good reason for this. Five key things are essential for investing success.

First, make the most of the power of compound interest.

Second, don't get blown off by cyclical swings.

Third, invest for the long term.

Fourth, diversify, and turn down the noise around investing.

I would love to think I can pick the next best thing whether it's a market or a stock - but it's very hard.

Rising bank deposit rates and bond yields are starting to make them look more attractive but they are still relatively low.

Residential property prices, like shares, are falling and may provide opportunities over the next 12 months, but I am already loaded up in it by the family home.

Right now, there are plenty of uncertainties around rate hikes, inflation, recession and geopolitics, so shares are still at high risk of further falls.

But value has improved and next year is likely to see an easing in inflation and central bank hawkishness.

So, dollar cost averaging into shares is probably the best way to go.

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

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