Where should we invest now? The last financial year produced above average returns for people holding a diverse spread of investments, and from most investment sectors. That was a surprise considering the events the year produced, especially the Middle East conflict.

Several of those issues remain a concern today meaning the outlook is far from assured.

There is no simple resolution to the US–Iran conflict. President Trump can’t find an off-ramp. His problem in that he has to answer to the voters, while the Iranian leaders don’t. They simply stamp out any dissent quickly and brutally.

Until there is a resolution oil supplies remain at risk. There haven’t been any shortages so far but reserves are reducing. Oil prices remain above pre-war levels, adding to inflation especially in Australia, Asia and Europe. The US now produces enough oil for its own needs.

Interest rates are uncomfortably high after multiple rate rises by central banks in Australia, Britain, the US and Europe. Further increases are expected here and in Europe.

Australian inflation is at 3.5 per cent compared to the 2.5 per cent target. The biggest cause is excessive government spending, as it is in other countries.

Productivity in Australia, output per worker per year, has fallen for the last five years and is down about five per cent in total. Yet wages continue to rise. This is unsustainable. Consumers are being squeezed. Harvey Norman says foot traffic in its stores is down about a fifth over the last year.

The recently announced tax changes have damaged confidence in the housing market and created uncertainty in relation to other investments.

However the outlook is not all negative. The application of artificial intelligence programs in the workplace will help productivity. It is the future, that’s obvious. The leading companies that utilise it will do well.

The building of AI data centres worldwide requires resources, which Australia can supply. Mineral prices are high and likely to remain so. Technology companies require much capital, providing investment opportunities.

Our rural sector is doing well with most agricultural commodity prices high. Recent seasons have been good, and the current one is shaping up well.

We are likely to see one more interest rate hike before rates plateau. Markets will soon start to anticipate rates falling next year.

The best approach for investors is to be diversified, hold a spread of investments in many areas. That should earn reasonable returns regardless of what eventuates. It doesn’t pay to be too pessimistic. Things usually work out better than most expect.