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Australians can still make money in 2024 despite the Reserve Bank’s aggressive interest rate hikes and fears of a recession.
Despite the pessimism, Finder investment analyst Kylie Purcell said the coming year offers possibilities that don’t require taking big risks during a cost-of-living crisis.
They range from simply keeping your money in the bank to investing in recession-proof assets, buying stocks at a low point before the market hits a record high again, and renting out your spare room during a housing shortage.
1. Invest in the Australian dollar
The Australian dollar is now recovering after a painful few months and you don’t have to be a forex trader to benefit.
The currency sank below 63 cents in early October for the first time in a year and Westpac feared it would fall further to 62 cents within weeks.
But in November, the currency recovered, rising to 66 cents for the first time since July, after the Reserve Bank of Australia raised interest rates for the 13th time in 18 months.
The unit is still below the 71 cent level at the end of January, but Purcell said the Australian dollar was likely to continue recovering in 2024, meaning it would be a better investment in the bank than US greenbacks.
Despite the pessimism, Finder investment analyst Kylie Purcell said the coming year offers possibilities that don’t require taking big risks during a cost-of-living crisis.
The Australian dollar is now recovering after a painful few months and you don’t have to be a forex trader to benefit.
“The Australian dollar is expected to rise against the US dollar after falling to 63 cents earlier in the year,” he told Daily Mail Australia.
‘If you are in the foreign exchange market, you can buy low with the AUD in the hope that it will continue to rise. Even if you are not a forex trader.
The difference between Australian and US interest rates is a major driver of the local currency.
The Australian dollar weakened for most of this year as the RBA cash rate continued to lag the US federal funds rate at 5.25 percent to 5.5 percent.
But in November, the RBA raised rates again by another quarter of a percentage point to a 12-year high of 4.35 percent, narrowing the gap with U.S. rates that last rose in July.
Australia’s inflation rate of 4.9 percent in October was still above the US rate of 3.2 percent.
The US Federal Reserve is now seen as much less likely to raise rates than the RBA.
A stronger country also means cheaper travel to the United States and many other nations, which means simply keeping your money in the bank is a good investment.
“It’s worth bearing in mind if you plan to travel to the United States or shop there, as your Australian currency could be worth more than it has been lately, which, well, isn’t far off,” Ms Purcell said.
When interest rates continue to rise, fixed income assets such as government bonds are a safer investment (pictured Premier Anthony and Treasurer Jim Chalmers).
2. Buy government bonds
When interest rates are high and the economy slows, fixed income assets like government bonds are a safer investment.
Governments issue bonds when they borrow money and investors earn an annual return, known as a yield, until the maturity date.
Yields on 10-year government bonds are now at a 12-year high of 4.63 percent.
They are also above the RBA cash rate of 4.35 per cent.
These 10-year yields are not as high as the 5.1 per cent term deposit rates offered by Judo Bank and Rabobank with terms of four and five years.
But Purcell said buying a longer-term government bond now meant an investor could lock in high returns now and earn annual returns that would not be available in years to come.
“With the end of interest rate rises, fixed income assets such as bonds look attractive again, especially high quality government bonds,” he said.
“Once interest rates go down, cash in the bank generates a lower return, so it may be a good time to take advantage of fixed-interest bonds.”
The share market has been weak this year and the Reserve Bank expects economic growth next year to slow to just 1.5 per cent by the end of this year. But the Australian Stock Exchange has recovered from a low point in October and is expected to rise in 2024.
3. Buy stocks as the market recovers
The share market has been weak this year and the Reserve Bank expects economic growth next year to slow to just 1.5 per cent by the end of this year.
The benchmark S&P/ASX200 index fell to 6,826.9 points in October, the lowest level in a year.
But since then, the Australian Stock Exchange index has recovered to 7,049.80 points.
Purcell said this was a good time to have a diversified stock portfolio, as Wall Street’s benchmark S&P500 index is already approaching all-time highs last reached in 2021, when interest rates around the world were at historical lows.
“Bull markets tend to last longer than bear markets,” he said.
‘If you enter the market at the right time, this can be a great opportunity to benefit from rising prices over a long period.
“Of course, it’s impossible to predict exactly what the market will do in 2024; the important thing is to stay diversified and invest for the long term.”
Potential rate cuts in late 2024 could also trigger a stock market rally, as occurred in 2021 and early 2022.
“Once we see interest rates start to fall again, we can expect the stock market to recover and we can expect to see a bull run,” Ms Purcell said.
Defensive stocks such as supermarkets and healthcare are considered safer against the effects of a recession and high inflation because consumers cannot avoid using these products (pictured, a Woolworths shopper in eastern Sydney) .
4. Invest in recession-proof companies
Defensive stocks like supermarkets and healthcare are considered safer from the effects of a recession and high inflation because consumers cannot avoid using these products.
Some economists fear the Reserve Bank’s 13 rate hikes so far, and another in February next year, risk pushing Australia into a technical recession for the first time since the 2020 Covid lockdowns.
‘With “If inflation and interest rates remain high, there could be a recession next year in both Australia and the United States,” Ms Purcell said.
“No one can predict how big this could be. It’s critical to stay diversified and make sure you have enough emergency cash to sustain you for at least three months.
Purcell said Coles and Woolworths shares, healthcare, food and drink and gold were solid investments during uncertain economic times.
“To profit during a recession, consider investing in stocks that tend to perform well during a recession, such as consumer staples, products that are needed regardless of the economy,” he said.
With Australia’s rental vacancy rate at a record low of one per cent, getting a housemate could help some have some extra money to cope with rising mortgage rates or increased living expenses (in the photo, a Bondi rental queue)
5. Rent your free room
With Australia’s rental vacancy rate at a record low of one per cent, getting a housemate could help some have some extra cash to cope with rising mortgage rates or increased living expenses.
More than 400,000 migrants, on net, moved to Australia in the year to September, and half of that influx included international students needing somewhere to live.
Finder calculated that on average Australia could earn $667 a month or $167 a week renting out that empty room.
“If you don’t mind living with a roommate, it’s a great way to create an additional income stream,” Ms. Purcell said.
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