You needn’t settle for less!
Interest rates have never been so low. It’s great news if you’re young, starting out on the property ladder, have saved hard for a deposit, and can live within your means.
As someone at the tail end of the baby boomers, I remember starting work with the Housing Corporation lending department back in the late 1970s. We were offering lower mortgage rates than banks, which were around 15%. We still had clients from the State Services Commission days who had loans that were fixed for life at 3%. Look where we are now. They might not be for life, but current fixed rates are similar.
And you know the flip side. Many retirees have funds in term deposits at rates of 3-4% which are rolling off at maturity with reinvestment rates now 1% less. If you’re waiting for things to “go back to normal”, don’t. The world has changed and “normal” has too. Never say never, but it’s fair to say it’s unlikely that deposit rates will get to double figures again any time soon.
With low interest rates, what’s the alternative?
Diversifying your investments with a mix of different assets like shares, property, bonds and cash may provide you with better returns than bank deposits over the medium to long term. And these days, you can expect to be retired for a lot longer than in the old days when interest rates were higher, but life expectancies were lower, and your money didn’t have to last as long. Now that the KiwiSaver Scheme is open to everyone, including the over 65s, you can achieve that diversification.
This week the Reserve Bank Governor said he is concerned that investors will look at high risk investments while bank deposit rates are low. Adrian Orr told TV1’s Q&A programme on Monday 12th August: “It’s time to have proper conversations and not be sold duds around high risk investments that aren’t justified by the returns. So, all of this talk about us having learnt and being responsible as financial advisers – time to step up.”
Remember, while you shouldn’t be taking on unnecessary risk in chasing higher returns, you may do better than the bank with a diversified portfolio that includes thoroughly researched investments. A good adviser can help you make sure that your retirement is something to look forward to and enjoy.
Author: Sue Richards
Wealth Management Adviser
Sue’s objective is to work with her clients helping them to achieve their financial and lifestyle objectives by offering a tailored investment and financial advisory service.
She has over 30 years’ experience in the Financial Services industry, having worked in both New Zealand and the United Kingdom.