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Why investors should expect modest returns this financial year

  • July 08 2021
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Invest

Why investors should expect modest returns this financial year

By Cameron Micallef
July 08 2021

Regardless of the investment type, the highs of the 2020-21 financial year are unlikely to be replicated over the next 12 months, an industry expert has warned investors.

Why investors should expect modest returns this financial year

Why investors should expect modest returns this financial year

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  • July 08 2021
  • Share

Regardless of the investment type, the highs of the 2020-21 financial year are unlikely to be replicated over the next 12 months, an industry expert has warned investors.

Why investors should expect modest returns this financial year

Following strong price gains for both shares and property in 2020-21, AMP is now predicting modest gains over the next 12 months.  

In 2020-21, the top 200 companies in Australia (ASX 200) experienced their best year since the index was launched in 2000. In fact, on the last day of trading, the benchmark S&P/ASX 200 was up 0.2 per cent to 7,313 points, capping off a financial year in which the market gained a staggering 23.9 per cent.

This was off the back of the index recording positive returns in 11 out of 12 months.

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But it wasn't just the local shares that profited, with global shares earning investors a 37 per cent lift in local current terms.

Overall, the economist noted that shares are expected to see “OK returns”, helped by strong economic and earnings growth, including low interest rates.

“While there is a risk of a short-term correction in shares, and returns are likely to slow from the pace of the last year, overall returns from well-diversified portfolios are still likely to be reasonable over the next 12 months,” Dr Oliver told investors.

According to Dr Oliver, the key lesson for investors in the year ahead is to remain fully invested as markets rebound. He also tipped that fighting the Fed or the RBA, who are setting rates at record lows, is probably not the best idea. 

“Turn down the noise – the noise around investing is now at fever pitch, making it very hard to stay focused on long-term investing, so the best thing is to turn it down,” he said.

Despite predicting modest gains for investors, Dr Oliver highlighted the risks associated with a rising market in the current economy, including inflation, peak stems withdrawal and geopolitical tensions. He does, however, believes the positives outweigh the negatives.

“These negatives have the potential to cause a correction in share markets. However, there are a bunch of positives that are ultimately likely to dominate in terms of investment markets,” Dr Oliver said.

Turning to house prices, AMP’s chief economist opined the strong growth will likely fade later in the financial year.

“Home prices are expected to rise 20 per cent this year but slow to 5 per cent next year as poor affordability, rising fixed rates, tighter lending standards and reduced population growth impact,” he said.

The strong growth in house prices is unlikely to be matched by growth in the commercial property space, according to Dr Oliver.

“Unlisted commercial property may still see some weakness in retail and office returns, but industrial is likely to be strong. Unlisted infrastructure is expected to be solid,” he said.

Finally, savers’ returns are likely to remain low as the RBA holds on record-low interest rates, while the Australian dollar is forecasted to have stronger returns due to higher commodity prices.

Why investors should expect modest returns this financial year
Why investors should expect modest returns this financial year
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About the author

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Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

author image
Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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