For Australians who rely on cash savings to fully or partially fund their lifestyle, the past few years have been challenging. Since 2011 the official cash rate has tumbled from 4.75% down to 0.1%, and it’s putting a serious squeeze on household incomes.
Ten years ago, an investor with $500,000 in a 12-month term deposit could have earned a return of 6.05% to generate an annual income of $30,250. Fast-forward to 2021 and that same nest egg is likely to earn an average of 0.3% in a similar deposit, producing a meager annual income of just $1500.
Chris Andrews, chief investment officer and deputy CEO of La Trobe Financial, whose 12-month term account has taken out Money’s Best of the Best award for mortgage-backed credit funds in each of the past 12 years, says he hears daily from investors regarding the challenges of today’s low-rate environment.
Sarah Harding, financial planner and principal of Sydney-based WY Advice, adds: “Retirees are among those most heavily impacted by today’s environment of very low-interest rates.
“I have met with retirees who have substantial volumes of cash earning very little interest in bank accounts. They want to earn better returns on their money, but they aren’t comfortable taking on the higher risk of sharemarket investing as they don’t have previous experience, and they are keen to protect the value of their capital.”
The solution can lie with mortgage-backed investment funds, or what used to known as mortgage trusts.
Esta historia es de la edición June 2021 de Money Magazine Australia.
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