Australian investors, particularly SMSF Trustees will continue their growing thirst for yield based investment opportunities as official interest rates have continued to fall. This trend is set to follow those in foreign investment markets where low rates have impacted conservative investors with a high cash concentration.
“It’s not only the Australian central bank that’s cut its interest rates this year, 45 central banks globally have all cut interest rates this year [a move] which is basically turning on the liquidity taps. And I think this will stimulate a phenomenon that has existed post-GFC (global financial crisis) globally…[that will see] Australians moving their portfolios, particularly SMSFs for example that tend to have a 20 per cent allocation to cash, as they start to realise that the returns on cash are being eroded by inflation,” Fidelity International recently said in an advisor briefing.
Fidelity recognised this pattern of behaviour had been witnessed among overseas investors but said “it’s new for Australians in that cash no longer generates positive real returns.”
“So I think this behaviour will be accelerated.” predicted Anthony Doyle, Investment Specialist with Fidelity International.
With regard to reduced official cash rates in Australia, Fidelity International suggested the RBA decision to lower the official interest rate to 0.75 per cent may not stimulate the economy like the RBA hopes, particularly when it comes to consumer based spending and consumption, which represents more than 50% of the Australian economy.
Instead, many Australians will see current economic conditions as an environment in which they will keep their heads down and take the opportunity to maintain current spending habits and instead use the low rate environment to reduce their mortgages or other household debt at a faster rate.
For SMSF Trustees, this will see a continued hunt for yield based investments such as the 12% on offer via the CFMG Land & Opportunity Fund, while traditional conservative investors may wish to direct their disposable income or ‘investable cash’ towards debt reduction.