2022 was a challenging year for investors. There were few bright spots and it was very difficult to make a decent return.

The RBA Cash rate started the year at 0.1% and ended the year at 3.1%.

Inflation started the year at 3.5% and ended the year at 7.3%.

One major impact of the above was the significant decrease in Australian Bond prices (fixed interest) with a loss of 8% for what has historically been seen as a conservative asset class.

This was the worst return for bonds in over forty years. 

International shares lost an average of 11.9% while large Australian shares made a small gain of 2%.

However, that gain was largely due to the more volatile resources sector and the Industrials Index dropped around 7%.

Australian smaller companies were down over 15%.

 Key messages for 2023

Inflation is not going away  however we do expect it to moderate following the significant increases in the cash rate.

However the whole point of increasing the cash rate is to reduce inflation by reducing demand – in other words lower economic growth.

So that will lead to lower profits .

The good news is that the peak in interest rates is likely getting close and while inflation is not going away it is likely to moderate from 7-8% to 4-5%.

• We expect Australian shares to continue to outperform international markets.
• Fixed interest (bonds) will have a better year.
• Residential property will continue to feel the impact of higher interest rates.
• Direct commercial property which has performed well will have more moderate returns.

We will be investing on the above basis for our clients but importantly continuing to invest in business with sustainable profits which will generate long term sustainable returns.

Our investment philosophy does not allow us to invest in the more speculative investments that we believe are more akin to gambling than investing.

Finally best wishes for Christmas and for a prosperous year to come in 2023.