The Reserve Bank’s cut to their Official Cash Rate to a record low of 1 per cent signalled the likelihood of lower rates for longer. While a bigger drop than forecasters expected, the Reserve Bank Governor, Adrian Orr, downplayed concerns that depositors will be hard hit by this latest rate cut, arguing that investors need to put their money to work better.
While lower interest rates may bring some comfort to home owners with a mortgage, it was not greeted so enthusiastically by bank term deposit investors who have seen bank deposit rates decline and can be expected to not only decline further but remain low for the foreseeable future.
Over the past months I have had many conversations with investors concerned at the impact of a prolonged period of low bank deposit rates which will force many to rethink their investment strategies.
Low risk is not no risk
A reliance on bank deposit returns has left such investors highly vulnerable to falling interest rates.
My advice to investors, who till now have relied on a low risk bank deposit or bond strategy, is to consider a more diversified investment portfolio with a mix of different investment types. This strategy is not only aimed at achieving better returns than bank deposits, but it also means you are not as exposed to the risks associated with one investment type. By holding a mix of shares, property, fixed interest and cash, the investor is set up to challenge whatever economic weather prevails.
Presuming you are now keen to realign your investment strategy towards a fully diversified investment portfolio, we suggest you discuss your individual needs with a financial adviser who can tailor an investment portfolio to meet those . Your adviser will take the time to understand your circumstances and priorities and work collaboratively with you to identify - and improve the probability – of you achieving your financial goals.
To review your current investment approach and portfolio, contact the Findex Wealth Management team.
An Adviser Disclosure statement is available on request and free of charge.