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Investing in 2021 – Comparing the Options

January 23, 2021

I don’t normally do articles like this.  But because 2020 was so bizarre, I feel like it makes sense to take stock of our options in 2021.

Ideally, things will be heading back towards some type of ‘normal’ this year and you’ll have regular savings to invest.

So let’s take a look at the different places to invest in 2021.  I’ll share my thoughts on each as well as what my plans are this year.

Note:  I’m not making predictions here, nor am I telling you what to do.  These are just ideas and commentary!


Interest rates are on the floor

Let’s start with the obvious.  Interest rates are extremely low around the world.  This affects a lot of different things.  From the cost of a mortgage, to what we can earn in a savings account, and the value of other assets like shares and property.

Now of course, you should always have some type of cash buffer or emergency fund in place, just in case.  Either to cover against job loss, unexpected expenses, or as a buffer in retirement.

But with interest rates so low, a bank account is about the last place we want to be piling up our long-term money.


Paying off debt

This topic always divides people.

Should you take advantage of low interest rates by paying off debt faster?  Or should you take advantage of low interest rates by investing as much as possible while debt repayments are cheap?

I fall in the second camp.  Well, mostly.  I think there are cases where focusing on paying down debt makes more sense.  It really depends on your situation, risk tolerance, and personal goals.

And to clarify, here I’m talking about low rate mortgage debt.  If you have any personal loans, car loans, or credit card debt, get rid of that ASAP before focusing on anything else.

By all means, if you find paying down debt the most motivating option, then do it.  And honestly, most people I talk to in real life are best suited to paying off their mortgage.

Not because it has the best return, but because that return is guaranteed, they love seeing the balance come down, and eventually, it makes life easier.

If you’re not sure what suits you best, check out this post:  Paying Off Your Mortgage vs Investing.


Investing in shares

Despite the pandemic, most sharemarkets did okay in 2020.  Here are the returns for the most common investment options…

Aussie market:  1.9% (measured by VAS)
Developed markets:  5.8% (measured by VGS)
Emerging markets:  4.2% (measured by VGE)

Depending on who you are, you either think the sharemarket is now way overvalued, or you think it looks okay compared to other options.

I fall in the latter camp.  While you can never rule out a large fall, it looks like company earnings should recover pretty well in the next couple of years (maybe even quickly surpassing the levels before the pandemic).

In my view, there’s no (realistic) reason to believe we’re in for a long drawn out recession-like period.

Governments have never responded to a downturn the way they have this time.  And they’ll adjust the flow of their spending tap depending on the economy.

As for investing in shares, the strategy of dollar cost averaging – buying shares every single month – is simple yet so powerful.

If the market is flat or goes up, you’re accumulating shares and getting wealthier.  And if the market goes down, you’re buying more and more shares for the same amount of dollars invested (which increases your future return).

For the amount of effort required (zero), I can’t think of a more effective approach to building a portfolio than dollar-cost averaging.

Going forward?  I still expect shares to have solid long term returns, despite the hiccups along the way.  This remains my asset class of choice for passive income and building wealth.


Investing in property

Aussie Property also held up well in 2020, partly thanks to banks offering mortgage deferrals.

While this might’ve seemed like a ticking time bomb at first, most of these people have now commenced their normal repayments.

All up, it doesn’t look like there’ll be the much-hoped-for property crash anytime soon.  Here’s how prices fared across the cities, according to CoreLogic data in this article.

Sydney: 5.3%
Melbourne: -1.3%
Brisbane: 3.6%
Adelaide: 5.9%
Perth: 1.9%
Hobart: 6.1%
Darwin: 9%
Canberra: 7.5%
Combined capitals: 2%
Combined regionals: 6.9%

Regular readers will know I’m a much bigger fan of shares than property.  That’s despite having invested heavily in residential property in the past.

Having said that, the numbers have changed a bit since the huge drop in mortgage rates.  Property in Australia is nearly always a leveraged bet on price growth.

But the cashflow side of things has improved, resulting in ‘cashflow neutral’ property in many cases.  I may flesh this out further in a future article.

Going forward?  The outlook for property in many states is surprisingly good.  The number of properties for sale is low, vacancy rates have fallen, interest rates are even lower, and we value our homes more than ever thanks to the pandemic.

A year or two of growth would be nice as we look to sell another property sometime in 2022.


Investing in alternative options…


People have been asking for my thoughts on crypto recently.  Probably because it’s gone up about 1,000,000% so it seems like a great place to park some cash.

The truth is, I don’t have much to say (though we are covering ‘Other Asset Classes’ in an upcoming podcast).  Investing in crypto, for me, isn’t investing at all.

Whether bitcoin goes to the moon or crashes in the next few years, I have zero interest in buying any.  None.  For the same reason I have no interest in gold, rare art and vintage cars.

My strategy is to buy assets which will produce cashflow for as long as I own them.  And importantly, that cashflow is built on fundamentals like earnings and profit growth.

Crypto and the other assets I mentioned are largely a popularity story, requiring belief and popularity for it to gain traction, with more people bidding up the price.

“But stocks move up and down based on popularity too,” you say?  That’s true.  But if my investments never have capital growth, I’ll still get a healthy long term return.

Why?  Because the income stream will keep rolling in, from the various businesses and real estate, and it will keep getting larger as earnings and rents grow over time.  So I don’t have to care about its popularity.


Peer-to-Peer Lending

This is a newer type of investment that I’ve been involved in for a number of years now.  I can only really comment on one platform – Plenti (formerly Ratesetter) – because it’s the only one I’ve used.

If you’re unaware, it’s an online platform where you can lend your savings out for 1 month to 7 years.    The platform organises the loan to match a creditworthy borrower and you receive principal and interest repayments each month.  You essentially become a bank.

If you want a proper rundown of how it all works, I wrote an article about it here.  Interest rates vary widely depending on the P2P platform and the risk of the borrowers.

I’m still earning a rate of about 8% for loans I setup a few years ago.  These days, the 5 year lending rates are around 6% per annum.

While not without its risks, this new platform interested me from the start, and it’s been simple and enjoyable to invest with.


Other strategies…

Timing the market

Since the recovery in shares began as the pandemic was at its worst, we’ve heard endless calls for stock markets to collapse again.

Mind you, these are often the same people who were saying “the worst is yet to come” when the market was already down 35%.

Honestly, there have been so many doomsday calls over the last couple of years that it’s now downright boring to hear.

Bad news gets these miserable people frothing at the mouth since they’re actively betting against the human race.  I’m sure they’re great fun to be around!

I won’t rattle on too much here, but listening to forecasts and trying to time the market has proven to be such a waste of time.  I wrote in depth about it in this article.

The line “don’t invest now!” is constantly peddled as a way to ‘protect your wealth’.  When, ironically, more often than not, this has made people poorer than if they had just continued to invest normally.

I’ve heard stories like this from a number of readers, being seduced by this waiting game before finally realising they should’ve just stuck with their long term regular investing plan.


Stock picking

Picking your own stocks seems to rise and fall in popularity depending on what’s happening.  If you pick the right stocks, you can do incredibly well.  But if you don’t, you can also do pretty poorly, leaving you feeling like you just wasted energy, time and money.

You might pick the next Tesla or Afterpay.  Or you might get burned when the company falls into trouble, runs out of cash, or turns out to be nothing more than hype and promises.

Having said that, it does depend on what your approach is.  Buying BHP won’t change your life, but it also won’t go out of business anytime soon.

Generally, I wouldn’t recommend stock picking to try and generate huge returns, purely because it’s so difficult.

Plus, the records show that only a small percentage of companies become huge long term winners.  And to be clear, it’s not obvious which companies these are in advance!

But if you have to scratch this particular itch, to try it for yourself or simply for fun, do it with a small amount of your portfolio.  Just make sure the rest of your investments are low cost and well diversified.


What I’m doing and why

The longer I invest the more convinced I am that the best investments strategies are the simplest.

Not only because it’s easier.  But because it gives you mental space and energy to focus on other things.

It also minimises mistakes, since a more complex approach means more decisions, which increases the chance of making a poor choice.

I’m sticking with buying and holding long term assets which generate earnings that compound over time.  Maybe I’ve got the investing brain of a boring old man, but that’s what makes sense to me.

As mentioned in my last portfolio update, this year I’ll be diversifying my portfolio a bit more, by adding more to our international index fund and real estate trusts.

There’s no need to chase every shiny object, anything with potential.  Being jealous or envious of those with high returns (due to luck or skill) is a sure road to misery and terrible investment decisions.


Final thoughts

2021 is shaping up to be an interesting year.  There are more uncertainties than normal.  But that doesn’t mean we shouldn’t invest.

I’m still optimistic on the long term future of Australia and the global economy.  You almost have to be.  Imagine being negative about the future of society and the economy.  How miserable would life be?!

If anybody tells you they know how this year is going to play out, they’re delusional.  The one thing we should’ve learned from 2020 is that even though we crave certainty, we can’t have it.

Will we get hit by new virus strains?  How will the vaccine rollout go?  Should we expect a strong or slow economic recovery?  Will households spend up big or get cautious?  Should governments hand out more cash or keep winding back?

All I can tell you is this:  Stick to your plan and work on your personal goals.  This gives you a sense of purpose and clarity in a confusing world.

And of course, focus on saving and increasing your investments.  After all, that’s the only way to make sure you keep progressing towards financial independence!

So, where are you investing in 2021?  Let me know in the comments below…

And in case you haven’t heard, there’s now a Strong Money Australia Facebook page (only took three-and-a-half years!)


46 Replies to “Investing in 2021 – Comparing the Options”

  1. Thanks for another great post. Was wondering what your thoughts are on VDHG ? Lately iv been thinking of converting at least 50% of my portfolio with them and the other half lics and etfs that I fancy. Mainly as a hedge against myself ballsing it up haha.

    1. Haha! I like VDHG overall, it’s good all-in-one type option. Betashares have created a similar one now called DHHF which has no bonds (100% stocks), and uses ETFs which should also be a bit more tax efficient than VDHG. Both are good though. Hard to go wrong really.

      1. Aussie shares return 1.9 %…… come on.
        Pick quality profitable high ROE lowish debt companies that are consistently growing their EPS, avoid the trash like Telstra, AMP and small mining companies, and you make 15 – 20% per annum from Aussie shares as I have down over the past decade.
        The NASDAQ and S&P500 indexes have also returned far higher than VGS for many years now. Outside of Australia and the USA, the rest of the world is not much worth investing in shares , and riskier.

        1. The US has massively outperformed other markets from 2010 to 2020. And the ten years before that it massively UNDER-performed. What will happen in the next ten years? We can’t know the answer to that.

          In terms of stock picking, most companies actually underperform the index, and picking the future winners is not as easy as you think. Certain companies and styles of investing will outperform in different environments. If you think you can keep winning, by all means go ahead, but the odds aren’t good. Given enough time, most people develop the experience and self-awareness to realise it’s harder than it seems and that an index fund is a good long term choice.

          Honestly, if you can make 15-20% per annum, you would be one of the greatest investors in Australia, and in fact, the world. Somehow I think that’s unlikely to be the case.

  2. Thanks for the article :). I really enjoy reading your posts – I’m sticking to bog-standard LIC and ETF for the bulk of the portfolio, but looking to experiment a bit more with some industry specific ETF (e.g. HACK), more international exposure (e.g. ASIA) and a shift to ethical options (e.g. ETHI). Maybe a healthcare ETF as well. I do have a little bit in Plenti as well and some play amounts in RAIZ and Spaceship. I also hold some REIT which I find don’t grow quickly but do produce nice regular dividends. Actually, now that I say it out loud, it seems overly complex. Haha!

    1. Thanks very much Gareth 🙂
      I think as long as most of the portfolio is simple, diversified and low cost, having other things that interest you alongside is fine. But having a ton of other things probably isn’t good either! And yeah, REITs would usually have less growth since most pay a generous income.

  3. Thanks for the article, interesting reading. I know you have most likely done it in the past but as i am getting closer to retirement age i am thinking at some stage when my stocks get back up in price in my SMF that i will put my money in an INDEX Fund. So far since the Crash in March 2020 i have bounced back quite well almost reaching my high prior to Covid, but still have many stocks in the negative. I Would love to hear your opinions and perhaps which Index funds are the best unless you have or will do an articel on Index Funds. Thanks

    1. The best index funds are generally the ones which are the lowest cost and most diversified. There are many which are similar and will do the job, so there isn’t really a ‘best’. I wrote about international index funds here, and a bit about Australian index funds here.

  4. Some really good and sensible thoughts here Dave! Nice post!

    It’s been disappointing to see the P2P rates capped at Pleni (Ratesetter). Like you I have a bunch of older loans rolling off which were earning around 8 per cent or so, it’s just hard to see those new lower rates as very compelling if someone’s on a pretty average tax rate.

    Probably the other way to think about these competing assets is, abstracting from the usual forecasters enthusiasm for telling us about expected 2021 returns, or returns in 2020, to think about what history tells us about the relative record of returns over longer periods relevant to people seeking FI. There, at least history suggests, equity is typically the superior performer.

    1. Cheers mate! Yeah it’s a shame, though 6% isn’t terrible considering rates across the board are now lower since we were getting 8%. Having said that, tax rate matters a lot! It’s definitely not attractive for high earners.

      Well said mate. Gotta put our dollars where our convictions are I guess 🙂

  5. As the market was tanking in March a group of guys at work started trading on Etoro, telling me “low cost indexes were boring and that Jack Bogle makes money off vanguard”

    5 months later when we all had our jobs back. They have all stopped trading and quietly tell me that they lost a lot of money doing so.

    Now the market is up high again they are all playing around with Etoro again…

    It’s painful too watch but I feel like an Amway sales man when I try to tell them about index funds, so I just ignore it these days.

    1. Your workmates sound like switched on guys so I’m sure they’ll figure it out, haha.

      Depending on the results, the two likely conclusions are: 1. The market is rigged and this stuff is too risky. 2. This is easy, I should quit my job and just trade stocks.

      I feel your frustration, but people have this bizarre need to learn on their own. The problem is, they’re looking for a get rich quick method, but you’re giving them a long term investing plan 😉

  6. Great article yet again Dave. If I can recall correctly you use self wealth??? And pump funds into VAS on the regular (DCA with a couple grand each time)???? you don’t fret over compounding brokerage fees over the years even though self wealth is cheap as chips???

    Cheers mate.

    1. Hey Paul. I have an account with Selfwealth but have been using Pearler recently, testing the platform and giving feedback (it’s a new startup, same cost, different features).

      I invest in a few different things not just VAS. But I don’t worry about the brokerage fees at all and try to invest at least $1000 at a time. One purchase per month costing $10 is peanuts, and the monthly buying keeps you engaged and motivated as you see the portfolio grow. Hope that helps.

  7. Thanks Dave,
    I so much agree with you about about Cryptocurrency. Cash is king, I invest primarily in solid, blue chip businesses like WES, COL and HVN. Businesses that I see locally selling a tangible product, fulfilling a practical need and generating real and ongoing profits with which they are able to reward shareholders with income.
    I also have money in Plenti and have been somewhat disappointed with the falling interest rates. This is what I imagine to be a consequence of near zero interest rates offered by banks on savings. This will be I imagine, having the effect of causing investors to flood the Plenti platform with money. Thereby forcing interest rates down.
    Love your attitude Dave, stay positive!
    I’m Gonna Be Richer Get The Picture.

    1. Thanks for sharing your thoughts mate. I like your tagline too 😉

      Yeah the falling rates is across the board, so Plenti will be affected by people pulling some money out of savings accounts. Like you, I enjoy thinking about the businesses and what they’re providing people each day and knowing you own a part of it. All the best!

  8. G’day Dave ,
    Great reading as uuseshhh !!! ……simple gives you no pimple !!! ….remember that folks !!! …thankyou for your cryptocurrency thoughts …( just picturing all those obsessed American crypto investors reading your thoughts!!!! Lol ????
    Loving your mindset , investment goals and thoughts on investing 2021 and beyond .

    Enjoy your freedom and happy investing!! ????????


    1. Haha, ‘simple gives you no pimple’ – never heard that one before… I like it 😉

      Appreciate your comment Jimmy.

  9. Nice article there!!
    Re: emergency fund.
    I have mainly LICs/ETFs in my portfolio of about $80k.
    Do you count this as an emergency fund? I don’t want the money in the bank and even if the market dropped by 50%, i can still access $40k within a few days notice.

    1. Pretty sure invested funds generally can’t be called emergency funds, if the market were to crash tomorrow and you had an emergency come up you’d be forced into selling and taking the hit and selling when the market was down.

      A good place for emergency funds is an offset mortgage… (where we have our $15k emergency allocated particularly as it works in effect at your current mortgage rate and especially useful if your in one of the higher tax bands ????)

    2. Further to my comment….

      If your 80k crashed 50% yes you’d have access to $40k….

      But you’d also be losing the dividend stream and to buy back you’d probably be buying in a rising market, so probably costing you more to get back to where you were.

      Keep your emergency fund totally seperate… yes I know it’s hardly worth it in a bank… but at least you’d not be forced into selling your portfolio at the worst possible time

    3. Thanks! Technically any funds you can access can be classified as an emergency fund, so you are right. But if you have no other emergency fund, I’d probably try and build one on the side. Doesn’t have to be huge, but a few months expenses is generally a good idea I feel. Depends on your personal situation though. We fleshed out a few examples in our podcast on emergency funds in case you missed it. As Mark said it’s best if you can avoid selling shares in that kind of situation, it’ll undo a lot of good saving/investing.

  10. as always great read Dave..

    we currently sit at approx 60% LICS (AFI,ARG, BKI, MLT) and 40% VAS.

    in 2021 (this month exactly) we will be adding some VGS.. to work our way eventually to something around 50% LICS 25% VAS 25% VGS

    1. Hey Sneak, thanks for reading and sharing your plans. Sounds like a good move, it’ll be interesting to see what markets do this year!

  11. Thanks not just for this article Dave but ALL the information you have on your site. I only discovered FIRE movement sometime late in 2019 but it’s really changed my life. I focused on eliminating all debts (exc mortgage on investment property), it took a while but thankfully Covid and all its lockdowns was almost a blessing in disguise for me. I have a stable job (earning USD to transfer home). 2020 I really cleared my debts (no CC debt, no personal loan, car paid off, no money owing to family…gone! I have the emergency fund in my mortgage offset account for now, about 50k) and now I need to plan and work out my investment options.
    Again, thank you! you’re site, articles and information have been an amazing help to me.

    The sense of relief and calm knowing debts are gone major life/game changer!

    I’m focusing on ETFs & LICs to get me started…. theres so much to research and make sure i’m diversifying the way I want my goals.. 🙂

    1. Thanks so much for your comment Miss M. Great to hear you’re finding the blog useful. Nice work on your accomplishments by the way! Looks like you’ve already made great progress, with more to come 🙂

  12. Hi Dave
    Great Article. You did not cover Bonds in your asset class in your list. Some say you should have a small percentage in your portfolio to help with volatility others say you are wasting your time just stick to ETFs and shares. Some say you should look at in the future when interest rates rise.
    Interested in your throughs on Bonds.

    1. Thanks Nat. I don’t think much about bonds, they’re pretty similar to a savings/offset account in my view. Very low risk, low reward. Rates are so low that we’re better off investing as much as we can tolerate in shares. We’ll be chatting about bonds more in depth in an upcoming podcast 🙂

  13. Hey Dave,
    Go easy on the “Maybe I’ve got the investing brain of a boring old man…….”. I am part of the FIRL[ate] movement and have been reading your articles for a couple of years, now also listening to the FIRE podcasts. “An old head on young shoulders” frames the above sentence with sensitivity to those of your readers that could be your parent/s.
    Keep up the great work..
    Cheers and thanks.

    1. Haha thanks for providing a better way to frame that line Glenn. It was more poking fun at myself for not being interested in many of the newer exciting things young people seem to invest in these days, not a criticism of older people at all. A good number of my readers are older and I often have more in common with them than the younger readers! 😉 Thanks for your support mate.

  14. I just refinanced my Melbourne property to 1.95% – can’t see it getting much lower than this.
    However, seems like Melbourne is down for rentals as well as purchasing. I was getting $350 per week, now empty advertised at $315 per week!
    No doubt Melbourne will bounce back, but Victorians are certainly moving up to the Sunny state.
    I agree with you, simple is the way to go, we will continue to invest every month. I have also looked into the peer to peer lending in the past, I might look into again in future.

    1. Oh that rate is so good, nice work! Yeah a bit of understandable weakness in Melbourne vs other states, but as you say, should be a short-term thing. You want to talk about reductions in rental income… I could tell you some stories from over here in Perth haha!

  15. Hi Dave

    I notice you don’t mention Super in your investment mix – I presume because you are already retired.
    I started putting more money into my Super (maxing the $25k) to get access the FHSSS Scheme. After realising I could afford the 20% deposit without the FHSSS I decided to leave that money in Super, and am still putting in an extra $15k per year. Up until this year with the new tax rates, I could earn a 22% upfront return in tax savings so $3.3k, now its a bit less at 17.5% but still $2.6k. I understand for most people the inflexibility of Super is a drawback – but personally I find having less take home pay beneficial because I have less to budget with. What are your thoughts on investing in Super vs directly in Stocks for someone in their 20s?


    1. Hey Dylandog. In my 20s, I wouldn’t put a single dollar extra into super. I’d rather have $1 million outside super at age 30 than have $5 million inside super. I can’t access the money and it gives me zero freedom. I would focus 100% on building up personal investments.

      We covered this tradeoff in a podcast not too long ago, you might want to check it out – Superannuation and Early Retirement
      For forced saving, you could always just direct debit that money out to your brokerage account on payday and leave yourself with ‘less to budget with’…

  16. Hi Dave – great article as usual! This feels like a silly question (newbie to all this to be honest) but here goes. There’s a lot of talk on buying VAS,VEU, VTS etc however they are so highly priced per share. I understand that this probably means better returns etc but I am usually only buying around $1,000 worth of shares at a time. So buying 11 VAS shares against say against 130 AFIC shares feels like I should go with the higher number of shares. Plus I like the DRP with the LICs too. What are your thoughts when investing such small amounts?

    1. Hey Jenny. Not a silly question at all. A super common question that I think we all have in the beginning. Believe it or not, the share price of different options is largely irrelevant. Let me explain…

      Company A’s shares are worth $1 each. It pays a yearly dividend of 4 cents – a 4% yield. Company B’s shares are worth $100 each. It pays a yearly dividend of $4 – a yield of 4%.

      One is no more ‘expensive’ than the other. However much you invest in each option, you’ll receive the same level of dividends on the amount you’ve invested: 4%. Don’t worry about comparing the price per share, one is just cut up into smaller slices that’s all. Just because you can buy 10 times more shares with AFIC, you won’t get 10 times the return! Think about that for a minute – your returns are based on the number of dollars you’re investing.

      Investing $1k at a time is a great starting point, and any of those options are good in my book. Hope that helps!

  17. Dave, first time reader. And I’m really impressed- thank you.
    I have a managed fund (growth, heavily diversified) via an Investment Advisor who uses an IOOF investment platform. So relatively high fees which I kind of accept because it is convenient (I don’t need to do a thing) and I assume they will manage well and deliver reasonable growth. However, I have a nagging feeling I should get more ‘hand on’ and research lower cost & high performance options.
    I’d really appreciate your thoughts or links to any ideas or starting points. Thank you!

  18. Thank you, Dave, for the article. I am new to investing, collecting information from various sources. Your thoughts help me to imagine more clearly what kind of investment portfolio I want to create.

  19. Thanks Dave for sharing your knowledge. First time reader, but really like your contents. Will check out your podcast as well.

    Don you mind sharing your recent experience with Ratesetter /Plenti? With COVID still going on, I wonder whether it has had any negative impact on the default rates? Thank you!

    1. Hi Chee. Thanks for stopping by 🙂
      I’m sure that covid has had some impact on default rates, though this is something that the credit team at Plenti monitor, and they will be doing their best to ensure that the amount coming in to the provision fund is enough to cover the expected losses from the loans being organised. No guarantee obviously, but they’ve done a good job since the beginning which is comforting. For what it’s worth, I’m not putting any new cash into Plenti right now because the interest rates on offer are too low for my liking.

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