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Tips to finding a middle ground between equities and term deposits
With record-low interest rates and a volatile sharemarket, mature Australians looking to protect their assets while maintaining their income are being driven to fixed-income products, an industry expert has said.
Tips to finding a middle ground between equities and term deposits
With record-low interest rates and a volatile sharemarket, mature Australians looking to protect their assets while maintaining their income are being driven to fixed-income products, an industry expert has said.
In a conversation with nestegg, Chi-X’s CEO Vic Jokovic, explained how fixed-income products, including ETFs, can help investors navigate these uncertain times.
“There’s certainly a theme at the moment with heightened volatility in equity markets that some would say are fully priced while cash rates are at all-time lows,” he said.
“So, investors are looking for a middle ground between the term deposits and the volatility of share rates,” Mr Jokovic noted.
According to new research by Rainmaker, assets of fixed interest and cash exchanged traded products (ETP) grew 30 per cent in the 12 months to end September 2020.
“Fixed interest is in the spotlight as it is an asset class that has been growing for the past few years at the same rate as the overall ETP market,” said John Dyall, head of investment research at Rainmaker Information.
“Part of the reason is that term deposits interest rates are so low now that investors, retirees and their financial planners are desperately looking for alternatives that will satisfy their income and investment objectives.”
'Everyone can benefit from a fixed-income product'
Mr Jokovic pointed out that while every Australian looking for a liquid product can benefit from a fixed-income product, the current demand is largely coming from older Australians.
“There’s no doubt the greater demand is from retirees and others who are far more dependent on cash deposits, term deposits for their retirement income, but it applies to every investor who wants to hold money in a more liquid asset,” he explained.
Mr Jokovic highlighted that while the need for such a product is greater today in a low interest environment, he does not expect it to become the ‘new norm’ over the longer term.
“In the short to medium-term, there’s an impetus for it. If we have a return to a higher rate environment, then perhaps not with term deposits achieving what a lot of these investors want, which is a reasonable return on their cash deposit, which they are not getting at the moment.”
“In essence, they are getting no return on their cash deposits, so probably short to medium term, but not the new norm,” Mr Jokovic concluded.
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