Financial advisers should tell clients concerned about the impact of record-low rates on their savings to consider at least five alternative investments to cash.
The Reserve Bank has kept the official cash rate at a historic low of 2.5% and the cash rate is expected to remain static until next year.
Term deposits have been popular since the GFC, particularly among cautious investors as they are seen as a “safe” option, says AMP Capital retail and corporate business director Craig Keary.
"Since the GFC, however, the RBA has cut the official cash rate by about half. In conjunction with the change to the government guarantee on deposits in 2012, which reduced the appeal of deposits for banks, this has resulted in rates for term deposits falling sharply,” he says.
"While the RBA has left the cash rate steady today, it could be some months before rates move upward again and give investors with cash holdings some relief.”
Financial advisers should speak to their clients about regularly reviewing their portfolio to snap up opportunities available to them in this low-interest rate environment, suggests Keary.
For investors wanting more growth, AMP has identified five alternative investments which should see investments increase even if interest rates rise next year.
The five investments are:
‐ Corporate bonds: A good stepping stone for those wanting to move back into investing but without the volatility of equities.
‐ Australian real estate investment trusts (AREITs): Lower debt levels and a renewed focus on the underlying business make AREITs an attractive option.
‐ Unlisted commercial property: Attractive yields and is resilient to overvaluation trends.
‐ Listed and unlisted infrastructure: Strong long-term yield underpinned by investments such as toll roads and utilities where demand is relatively stable.
‐ Equities: The potential to provide higher returns over the long-term. Australian equities are offering attractive income through dividends, which also offer potential tax benefits.