With some of the recent economic uncertainty settling down abroad and with our super funds returning double digit returns it is interesting to see battle weary investors continue to seek investment safety in the form of cash. The hoarding of cash is common however as interest rates have been falling (and along with it cash and term deposit rates) many retirees will need to reassess their strategy as they search for a reasonable income on their investments.
What happens when the 4.0% per annum (based on a 3 month deposit) just doesn’t produce enough to live off anymore? There seems to be a tipping point for most investors and this is reflected in the recent outstanding performance of high yield stocks such as the banks, Telstra, Wesfarmers and Woolworths to name a few..
Buying bank shares (rather than investing in a bank term deposit) will produce a gross income of around 9.3% per annum. This is an increase of over 100% but in buying the shares you will also need to be comfortable in accepting the volatility that comes with owning those shares.
I think the tipping point for a lot of retirees arrived some time ago and the lure of doubling your income has been enough to tempt many back to the share market. With the recent rate cur fresh in our minds, a softening economy and talk of the RBA cutting interest rates further in the coming months we may see even more of a shift from cash to higher yielding shares.
What if you still don’t want to invest in shares but want to boost your overall investment income? Only recently we have seen almost $4 billion worth of bank notes issued on the ASX mainly by the Big 4 banks. These can be used to help boost your income returns with only a relatively small increase in risk. Remember though as soon as you withdraw your cash or term deposits or your bank account you are taking ‘some’ risk.
Australian bonds have traditionally been only accessible in parcels of $500,000 which cuts out most retail investors and even if you could afford them it would be almost impossible to achieve any sort of diversification. Recent offerings by the Big 4 offer current returns of between 5.90% and 6.20% per annum.
It is growing increasingly difficult to achieve a reasonable return from cash and term deposits and, whilst they still play an important part of a diversified portfolio, more and more retirees are turning to the share market and/or bonds and income notes to assist them in meeting their income needs in retirement.
Knight Financial Advisors Pty Ltd is a Corporate Authorised Representative of Sentry Wealth Management Pty Ltd (AFSL 227 748) ABN 77 103 642 888. The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances and objectives. We recommend you obtain professional financial advice specific to your circumstances.
