Finding growth in a low interest rate environment
Over the last 12 months, economic conditions around the world have slowed. In Australia, low growth and low inflation have left many investors searching for good investment returns, so we look at how you can maximise your investments in this difficult environment.
The inflation challenge
Inflation has been a concern for several years, and we’ve repeatedly fallen below the Reserve Bank of Australia’s (RBA) target 2–3% band. The RBA’s successive cuts to the cash rate in recent months are designed to steady economic growth and ensure long-term price stability and full employment, but this has mixed fortunes for investors.
When cash isn’t king
When you’re retired, you typically have a lower-risk investment portfolio to reduce your exposure to volatile market movements. While cash has a role to play in offering a potential safe haven, it has its drawbacks when interest rates are low.
When the RBA reduces the cash rate, banks, building societies and credit unions usually follow with a cut to interest rates, which has a negative impact on any money invested in savings accounts and term deposits. Based on current1 interest rates, you would be receiving a rate of return that’s lower than inflation – meaning your money is actually going backwards compared to the price you pay for everyday goods and services.
The secret to building a successful portfolio
We expect returns over the next decade to be lower but we believe strong population growth and a continued infrastructure boom will support long-term growth in the Australian economy.
To find a return above the cash rate, you may need to explore alternative investment opportunities, which can mean accepting more risk and more volatility. But it doesn’t mean putting all your hard-earned retirement savings at risk. Spreading your money across a range of different investments both reduces risk and balances out returns.
We diversify our portfolios by focusing on areas like international markets, property assets and infrastructure investments, and over the past decade, returns from a balanced portfolio like this have been positive for generating sustainable retirement outcomes.
Know what’s right for you
An investment strategy isn’t ‘set and forget’. With a continually changing investment landscape you need to feel confident that your strategy suits your financial goals.
A financial planner can help you ensure your investment portfolio is on track to help you to achieve your retirement goals.
1 RBA cash rate of 1.0% as at 31 July 2019