The investment industry is unanimous in saying the next five to ten years is unlikely to show the same gains as the last decade, which have produced the highest rolling ten-year returns ever. In addition to this, because of the widespread use by central banks using ever-lower interest rates to stimulate their economies and recover from the Global Financial Crisis (GFC), we now have the lowest interest rates in modern economic history (see graph). Term deposits and savings accounts cannot provide the support they used to, making life difficult for anyone living off interest.
Generally, when interest rates decline, the underlying asset (say) a government bond issue, goes up in value, because it pays more than the new ones. This is how bond managers make a large part of their gains. As fund managers hold large amounts of them, even Conservative and Balanced funds have shown excellent returns. This has been amplified by the simultaneous high performance of share markets and benign inflation. This “perfect storm” has provided KiwiSaver and managed fund investors with a bonanza. These halcyon days are coming to an end though. The use of cash and bonds in investment strategies has become questionable.
Now it’s more important than ever to get the right advice, from a qualified Financial/Investment Adviser. Investors may need to spend more of their capital going forward, but they need to know the best way to manage that. They may need to utilise their property assets too, which adds another dimension to the problem. A Financial Plan, taking all your objectives and resources into consideration, will provide a strategy to get you though this lean period.
At SBA, this service only costs $250 plus GST. That’s a small investment for a great return. Contact [email protected] for more information.