AMP Capital has identified five alternative investments to cash for investors concerned about the impact of record-low interest rates on their savings.
The Reserve Bank has kept the official cash rate at 2.5%, a historic low. AMP Capital expects the cash rate to remain static until next year.
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Craig Keary, director and head of Retail and Corporate Business at AMP Capital, said: "Term deposits have remained popular since the Global Financial Crisis (GFC), particularly among cautious investors. They were seen as a safe option, producing stable returns and lowering exposure to fluctuating financial markets. 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. 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. For those investors who seek more growth, we’ve identified five alternative investments that will help them better achieve their investment objectives now and even if interest rates rise in 2014."
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.
"All investors should review their portfolio regularly to ensure it is providing the returns they require for their lifestyle and retirement goals, in line with their risk appetite. Those who are invested in cash but who are seeking greater growth or are interested in adding more diversification to their portfolio should speak to their financial adviser about the other opportunities that are available to them in this low-interest rate environment," Mr Keary said.
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