Since the Global Financial Crisis (GFC), Australian investors have moved away from the volatility of shares to capital stable investments, like government bonds and term deposits. But while cash might seem like a ‘safe’ option, there’s a real risk of investors losing money.

Central banks around the world have eased monetary policy to stimulate investment and economic growth: since 2011/2012, the cash rate has nearly halved to 2.25% as the RBA cut rates. As a result, term deposit rates have also fallen sharply, while at the same time Australian bond yields are at near-record lows.

Part of the goal of this strategy by central banks is to promote inflation and protect against crippling deflation…and yet as inflation forces the cost of living higher, a higher income is needed to maintain the same lifestyle. So while relying on cash and fixed-income assets might have helped to avoid the volatility of the share and property markets, in recent years it has meant lower income while the cost of living goes up.

To protect against the risk of inflation outpacing income returns, it’s important to have the right mix of defensive (eg cash) and growth assets (eg shares and property). This provides room for capital gain and income growth, and can potentially produce enough income to meet or exceed the rising costs of living…particularly for those looking to invest for 12 months or longer.

Value of $100,000 invested since 1979

Want to find out more? Speak to Elston today on 1300 ELSTON or email info@elston.com.au