Investment yields forecast to fall from 9% to 6%

Diversified investors can expect solid returns this financial year, although not as high as in 2017-18, according to a prominent economist.

AMP Capital chief economist Shane Oliver forecast that diversified funds would earn a yield of about 6 per cent in 2018-19.

By contrast, balanced growth superannuation funds returned about 9 per cent last financial year, and averaged about 8.5 per cent per annum in the past five years, Dr Oliver said.

“Returns are likely to remain okay over 2018-19 as conditions are not in place for a US/global recession,” he said.

“Solid growth, still-easy money and okay valuations should keep returns positive, but they are likely to be constrained and more volatile thanks to the drip-feed of Fed rate hikes, trade war fears, China and emerging market worries and various geopolitical risks.

“In Australia, falling home prices in Sydney and Melbourne along with tightening bank lending standards will be drags.”

Block out the noise

Dr Oliver said the last financial year had taught investors four key lessons:

1. Ignore the media – “Despite numerous predictions of disaster, it turned out okay.”
2. Be wary of crowds – “Bitcoin provided a classic reminder of this, with its price peaking at $US19,500 just when everyone was getting interested in December, only to then plunge 70 per cent in price.”
3. Don’t put all your eggs in the one basket – “While cash, bonds and some yield-sensitive listed assets had a tougher time, a well-diversified portfolio performed well.”
4. Cash is not king – “While cash and bank deposits provided safe steady returns, they remain very low.”