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.
This story is from the June 2021 edition of Money Magazine Australia.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.
Already a subscriber ? Sign In
This story is from the June 2021 edition of Money Magazine Australia.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.
Already a subscriber? Sign In
An outrageous, beautiful monopoly
Telstra's mobile business is a cash machine with few competitors, giving it the highest returns in the world.
Drop the anchor to judge value
Buying and selling decisions should be based on where a stock price is going, not where it has been.
Powering the AI boom
Beyond the software and chipmakers, where will the energy come from?
Get into life
Tucked inside super are products that can protect you from life's inevitable uncertainties.
Paths to home ownership
Taking the road less travelled can sometimes deliver unexpected benefits.
Sold! Quick ways to add value
Small, strategic changes can have a big impact on the look and feel of your home. And get you a better price on auction day.
Money lessons the kids need to know
Your children can learn a lot from your past money mishaps. Here are eight financial conversations I have had with mine.
Property-investing rules: are they likely to change?
The pressure for the government to curb the tax benefits of tax concessions, such as negative gearing and the capital gains tax discount, is unrelenting. Most recently, independent senators David Pocock and Jacqui Lambie proposed five options for paring back investment property tax concessions, with savings to the Federal budget of up to $60 billion over the next decade.
What's love got to do with it?
A rollercoaster of emotions could be driving poor crypto behaviour.
Are we ready to be cash-free?
Saying goodbye to our piggy banks too soon could leave small businesses in the dark when problems arise.
