LOW INTEREST RATES,
BUYING OPPORTUNITIES IN THE
SHARE MARKET WHEN GLOOM
AND DOOM OR FEAR IS A FACTOR!
The Reserve Bank of Australia has held cash interest rates at 0.25%. The Reserve Bank Governor Philip Lowe has previously indicated that this is the effective lowest rate for Australia and that rates will not be raised until the bank makes “sustainable progress” towards its goals for inflation and full employment.
Given very low interest rates expected for the medium term, which is an estimate of three years, what options do you have? Low interest rates at 0.25% DO contain risk. Other investments for income can involve listed property trusts which contain rent from commercial office buildings, small and large shopping centres which contain supermarkets and boutique markets and retail. They historically pay income of 4% – 6% with tax benefits. Australian shares in mining companies generally pay lower dividends of approximately 2% – 3% but can provide more growth. Australian healthcare and medical company shareholdings can pay 2% – 3% dividends and more growth returns. IT and telecommunication companies can pay 4%– 6% with varying growth. Banking shares in Australia have historically paid very high dividends which is likely to reduce for a period but should still be better than 0.25%.
Residential rental property generally provides rental income before expenses of 2% – 4%. This will vary with the price and location of the property, the type of tenant and rate of vacancy of the property. Bricks and Mortar real estate is long term, being 7 – 10 years which is needed to recover the significant purchase costs such as stamp duty, legal expenses, bank fees and finance charges.
Commercial (office and shops) and Industrial (factory) properties pay higher rental income of 5% – 6%, are longer term and contain business tenant risk.
Believe it or not there is a lower risk averse way to invest in uncertain times! It is called dollar cost averaging or investing a step at a time. The easiest way to do this is through the use of shares or managed funds and investing SMALL amounts of money regularly. This process averages the price paid for a direct share investment or a managed fund over a period of time. This happens when you invest a small amount at set intervals. No one has a crystal ball or the ability to foretell the future so adopting a ‘scientific approach’ puts the strategy on a lesser emotional basis.
Behaving like a flock of sheep is following the herd and often happens when the market looks safe. BUT, buying when the market is low, and sentiment is low but recovering is often when profit is made. Some improvements and profits have already been made in the current climate.
Yes, you need to ‘swim against the tide’ and do so on a regulated basis. We provide a disciplined strategy and guiding hand.
Please give us a shout to find out more.