This strategy may less attractive following the
Reserve Bank of Australia’s (RBA )
recent cut to the official cash rate.
The RBA ’s rate cut of 0.50%, investors are likely to
see reduced returns from their term deposits and cash savings over the coming
months, and potentially longer. This is likely to concern many investors, particularly those who are relying on their
money to fund a retirement that could last up to thirty years or more.
The main issue for cash investors, as interest rates reduce, is that their money becomes less effective at
protecting against inflation.
Term deposits and cash
savings generally don’t keep up with inflation over time, so the purchasing
power of your money could reduce. This
might mean that you don’t end up with the money you need to achieve your
financial goals.
For that, you generally need some exposure to growth
assets such as property and shares. While they are more volatile than cash, they offer the potential for higher returns over the long term.
Often investors have
this perception that investing in growth assets is inherently risky, but these days
there are investment options that allow cautious investors to earn competitive returns,
yet still be well-placed to take advantage of opportunities that arise as
markets recover.
For example, many
superannuation funds offer a viable alternative to term deposits in the form of
conservative investment options. Importantly, your money remains within the superannuation environment, which is a
tax effective way of saving for retirement.
By investing
conservatively through superannuation or your pension you get the safety you’re looking for as well as a tax-effective return.
Superannuation earnings are taxed at a maximum of 15% and earnings on pension
assets are tax free.
Of course, super is only
suitable for retirement savings as your money cannot be accessed until you meet
a condition of release such as permanent retirement, but there are also
non-super options.
Other conservative
investment options can include defensive
share funds that target high regular income with lower volatility than the
overall sharemarket. This approach helps to provide better capital protection
should the sharemarket fall.
These options may be
welcome news for investors who are concerned about volatility but keen to get
more out of their investments. Everyone’s
situation is different so it’s important to get financial advice that’s
relevant to your specific needs and objectives.
Ultimately, the right
strategy will come down to how much money
you need to enjoy your retirement,
how long you have to invest it and
how much risk you are willing to take.
A financial adviser can help you
understand the various strategies available to reduce the impact of volatility
whilst still focusing on growth opportunities and quality returns.
For further information
contact Hugh Kilpatrick from RIadvice-RetireInvest on 03 94671 0080.
*Hugh Kilpatrick is an Authorised Representative of
RI Advice Group Pty Limited ABN 23
001 774 125, AFSL 238429. This editorial does not consider your personal
circumstances and is of a general nature only. You must not act on the
information provided without first obtaining professional financial advice
specific to your circumstances.
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