The last few years have felt to many investors like someone is testing the outer limits of the old proverb-blessing-curse – “may you live in interesting times”.
You might think we’ve had our fair share of pandemic, climate and war-induced supply chain issues, inflation and looming recession. But then again, based on the trajectory of the last few years, you might be wrong.
In many ways, 2023 might prove to be the most interesting year yet. So, while it is still fresh, and resolutions can still be marked in the January column of the calendar, it may be worth looking at the best ways to future-proof yourself against financial turbulence.
The latest HILDA report from the Melbourne Institute tells us that only half of Australia’s population is financially literate, despite it being an essential life tool in these challenging times.
“Anyone looking to improve their financial and investing acumen should first understand essential financial concepts such as inflation, interest rates and debts,” said Matt Wilson, one-stop trading platform moomoo’s chief market strategist.
“Gaining a deep understanding of simple financial concepts will provide much greater confidence in tackling your ultimate financial goal, whether that be through investing in stocks, property, or seeking better ways to save,” Wilson said.
With these principles in mind, Wilson shared three investing tips to promote financial wellbeing in the year ahead.
Defeat debt
The ABS tells us that in 2022 the average household debt in Australia grew by 7.3% to $261,492 in 2022, far outweighing average household income by up to nearly 200%.
Debt can be a useful instrument to use to beat opportunity cost, but when it comes to bad debt, the less you have, the better. Particularly with the Reserve Bank of Australia giving no indication that it will be taking its foot off the rate rise pedal in 2023.
“When seeking to invest in 2023, the first thing investors need to look at is paying off ‘bad’ debt as quickly as possible – credit cards, Buy Now Pay Later debt or high-interest personal loans, as well as debts on assets that are depreciating or earning no additional income,” Wilson said.
“Bad debt will ultimately prevent you from saving and achieving your financial goals as it often lends itself to unnecessary spending and toxic repayment schemes.”
Invest in emerging themes
Wilson recommends investing regularly, regardless of the amount. If you aren’t confident enough to invest in individual stocks, exchange-traded funds (ETFs) are good choices, particularly those encompass companies supporting electric vehicle or renewable energy supply chains.
The push towards electrification in all its forms – from small devices to larger systems such as transportation and industrial processes – will continue to be the theme of the moment.
Electrification will allow renewable energy to replace more traditional fossil-fuel power sources, to reduce emissions and improve efficiency.
“There is also a huge push for larger investment funds to invest in more sustainable and environmentally-conscious companies – monitor their movements and vote with your dollar,” Wilson said.
“Lithium and rare earth mining companies have been booming as manufacturers race to lock in sources of critical minerals that are in short supply.
“Investors can look to individual stocks in the sector or purchase Exchange Traded Funds (ETFs) with a specific theme around lithium or rare earth metals.”
Read the room
While global inflation is on a rolling boil, Wilson also recommends looking into stocks that benefit from increasing interest rates – think insurance, tolls and utilities.
Finding stocks that benefit from high inflation or rising interest rates makes sense in the current economic climate.
“Stocks like insurance companies, toll roads and utility companies that can raise prices while maintaining market share are often a good place to start,” said Wilson.
“In fact, any company that can maintain market share while raising prices generally makes a good investment if the share price is not too high.
“Any company that can maintain market share while raising prices generally makes a good investment if the share price is not too high.
“If you do your own research, you’ll find there are plenty of investing opportunities going into 2023.”
Traditional stocks still valid
“Resources and energy stocks are likely to stay in high demand as the move to electrification will be slower than markets are forecasting.
“While net-zero emissions are the stated goals of western economies, the road to achieving that is not fully achievable due to the massive amounts of new infrastructure and technologies that need to be built.
“People still need to power their homes and drive petrol driven cars and trucks. Industries need reliable base load power to operate.
“This will mean traditional energy and resources will be sought after for a good while yet.
“The gap between rhetoric around net-zero and reality of energy needs will provide significant volatility around share prices in these sectors. Investors need to stay nimble rather than a 'set and forget' investment strategy.”
Monitor the major funds
“Another theme that is likely to be a driver of markets in 2023 is the push for the larger investment funds to invest in more sustainable and environmentally friendly companies,” Wilson said.
“As these funds are pressured by investors to move away from companies that are deemed to be ‘polluters’ or damaging to the environment there will be opportunities to benefit from the large amount of funds flowing into these sectors.
“Traditional power companies, like AGL for example, are having to make large adjustments and capital expenditures to transition away from fossil fuel to renewable energy.
“The cost of this transition is likely to be high and so the share prices could suffer consequently.
“Investors should monitor the investment flows of major funds to assess the near-term trends.”