Bank Deposit Investors Require New Investment Strategies

November 21, 2019 at 3:24 PM

Deano’s Comment

The Reserve Bank has recently cut its Official Cash Rate to a record low of 1 per cent and has signalled the likelihood that lower rates will continue for a while yet. While a bigger drop than forecasters expected, the Reserve Bank Governor, Adrian Orr, downplayed concerns that depositors will be hard hit by this latest rate cut, arguing that investors need to put their money to work better.

Investors Agree
While lower interest rates may bring some comfort to homeowners with a mortgage, it is  not greeted well by bank term deposit investors who have seen bank deposit rates decline with the expectation that they will continue to decline further in the foreseeable future.

Over the past months I have spoken with my business clients, who are investors, and who are concerned about the negative impact that a prolonged period of low bank deposit rates will have on their future income. They have been forced to rethink their investment strategies.

Advisers Agree
I have also spoken with Financial Advisers and their advice to their investors, who until now have relied on a low risk bank deposit or bond strategy, is to consider a more diversified investment portfolio with a mix of different investment types. This strategy is not only aimed at achieving better returns than bank deposits, but it also means investors are not as exposed to the risks associated with a single investment type. By holding a mix of shares, property, fixed interest and cash, the investor is set up to challenge whatever economic weather prevails.

If you are thinking about realigning your investment strategy towards a more fully diversified investment portfolio, you could discuss your individual needs with your financial adviser, who could tailor an investment portfolio to satisfy you.

Your adviser should take the time to understand your circumstances and priorities and work collaboratively with you to identify your financial goals and put in place an investment portfolio aimed at improving the probability of you achieving them.

Ask for their Adviser Disclosure statement which will be available on request and free of charge.

Business Investment with Business Brokers
Of course, investing is all about what level of risk you are willing to be exposed to. One strategy that some of my clients have undertaken is to work closely with myself and an experienced business broker to buy a business as a going concern then I work with them to develop the business systems, marketing, resources and finances to operate more efficiently so that it earns them a significantly better income. We also work on setting up systems designed to enable them to eventually remove themselves from the day to day running of the business to free up more of their time to pursue additional business interests to grow their investment portfolio.

Personally, by mitigating risk as much as possible, I have chosen to become a shareholder only in those businesses that I have developed the business plans for. I also look for opportunities to start new businesses, or buy into one, aiming for a significant level of income above that currently offered by interest on bank deposits. If you would like to discuss this strategy further, please contact me.

For More Information

If you would like more information about this subject, please call me on 021 2717 043 or go to Contact Us on our website www.DaltonPlan.co.nz and type in your request.




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