The year 2023 was a roller coaster ride for investors. Interest rates continued to rise through the year providing much improved returns on bank deposits. Shares and commercial property had definite strong and weak periods.
In the end the typical diversified portfolio invested across a range of shares, property, cash, fixed interest and overseas assets returned a healthy 11 per cent for the calendar year according to Lonsec Research.
January 2023 saw a good rise in the share market but that was followed by a sharp fall in February and March. April to July saw improvement as investors thought interest rates may have peaked. Alas they hadn’t, and that was realised in August.
Another period of market decline followed until the end of October. The RBA decided to raise interest rates in early November. Once again investors decided that would be the last rate increase and bid share prices up strongly until the end of the year.
The All Ordinaries Total Return index including dividends returned 13 per cent for the year. That’s more than double the rate on term deposits. It’s also much higher than inflation with the CPI rising 4.3 per cent in the year to November.
Large company shares did best with the small company index only up 7.8 per cent. Returns varied widely across market sectors with information technology companies averaging 27 per cent return while defensive healthcare and telecom stocks only made around 4 per cent.
Commercial property companies and funds traded on the share market saw some weak periods in 2023 but ended about 17 per cent ahead as confidence that interest rates are peaking returned in the final months.
Direct commercial property was one sector that did poorly. Lonsec Research estimates a loss of 6.1 per cent on average. This was due to property values being written down at June 30, to reflect the much higher borrowing costs.
There should be no further devaluations as occupancy levels are reasonable and rents are rising, with inflation in many cases.
The MSCI index of international shares provided a return of 22 per cent for the year. No-one predicted that at the start of 2023. US, German and Japanese shares were all around that level while Asian shares made 5 per cent and Hong Kong and Chinese markets lost money.
The higher interest rates boosted fixed interest with government bonds paying 4.8 per cent and corporate loans a little more. Cash, as measured by the bank bill index, earned 3.9 per cent.
With interest rates likely to decline in the second half of 2024 investment returns should be sound once again this year.