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Hi Team,

For most of our adult lives, our financial comfort and security is heavily influenced by bank interest rates. Australia’s economic culture is based on home ownership and bank mortgages, so any change to interest rates has a significant impact on our disposable income, our household budget, and our general well-being.

“The official interest rate is like gravity, it ultimately pulls the returns from all forms of savings and investment down towards it.” Ben Bernanke

For several years those lucky enough to own a home or investment property, have been basking in the sun of super low interest rates. But unfortunately bank rates cannot remain at 2% for ever and with inflation clouds building up on the horizon, there’s a looming feeling that everything is about to change.


“Worry is the interest paid in advance on a debt you may never own.” Jonny Bowden

So what should we be thinking about regarding protecting our savings and long-term investments over the next few years??
 

1. Pay off your credit cards as quickly as you can. Credit card interest rates are always the first to increase and the hardest to pay off.
2. Cash is king. Having some cash savings is always a good idea (it is safe, flexible, and immediately available), but cash deposits earn the lowest rate of interest. So now is a great time to shop around and lock in the best possible rates for your cash savings.
3. Focus on “total returns”. Most investments attract income as well as capital gain. Try to have investments that return both good interest/dividends as well as capital growth over time.
4. Diversify your investments. The old saying of “don’t put all your eggs in one basket” will always be true, so you should try to invest in several different asset classes (i.e., Aust & international shares, real estate, fixed interest deposits, managed funds etc).
5. Pump up your super. “Superannuation is like a retirement gift from the government.” Although the gov’t always keeps changing the rules around super, it will always be one of the best investments of your life. So, try to take advantage of the gov’t incentives and tax breaks by putting as much money into super as comfortably possible. The earlier you start maximizing your super contributions, the bigger the retirement gift!
6. Understand the risks. Always do your homework and find a good financial adviser. There is risk involved in every form of investment. The higher the risk the greater the returns and this will always be true.
7. Doing nothing is not an option!

“Nobody can predict interest rates or the future direction of the economy. Dismiss all such forecasts and concentrate on what’s actually happening to the assets you own.” Peter Lynch

PS: this email is not investment advice, just good general knowledge.

As always, thanks for reading,
Stay safe and say well informed.
David.