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3 investment themes that will define the next decade

As we enter the bright lights of 2020, it’s time to start thinking ahead.

Here we take a look at 3 investment themes that I predict will define the next decade. 

A low-yield world becomes the new normal

The Australian cash rate has stayed stubbornly below 5% for more than a decade now. A record low of 0.75% was reached in October with no signs of a return to the long term average of 4.32% any time soon. Once the effects of inflation are taken into account, many low-yielding investments are returning virtually zero in real returns. The hunt for yield that has emerged over the last few years will continue into the next decade. 

Historically low interest rates and the resulting low returns on fixed interest investments such as bonds may impact retirement plans. Lower real returns mean people will require larger amounts to retire on, or will need to spend less in retirement. As a result, people may spend longer in the workforce. They may also choose a more aggressive mix of investments in retirement, such as a greater proportion of high yielding shares. 

Digital economy continues its dominance 

Digital disruption and technological innovation are common themes across industries globally. Change is inevitable, the question is whether businesses will be the disrupter or the disrupted.

In the finance industry the rise of neo-lenders such as WISR Ltd (ASX: WZR) have turned the traditional banking model on its head, aided by the digital bank friendly Open Banking regime. In the accounting world, software provider Xero Limited (ASX: XRO) has gained 2 million subscribers by automating payroll and invoicing.

The National Broadband Network is due to be rolled out in Australia by 2020, with the 5G network to follow. Greater network speeds and improved connectivity will follow, which will aid the digital revolution and provide new investment opportunities. 

Smart everything

Along with the rise of the digital economy comes the rise of the machines, as everything becomes ‘smart’. The internet of things continues to gather pace as computing devices are embedded in everyday objects, allowing them to send and receive data. This has the potential to transform the way we live and work, particularly in cities, where data can be used to control everything from transportation to temperature.

Altium Limited (ASX: ALU) is well placed to take advantage of this trend, providing software for the design of printed circuit boards that are used in most electronic devices. Altium also has no debt, a growing cash balance, growing free cash flow and dividend.

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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Altium and Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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