Take more control of your cash
Published in the Daily Telegraph, January 2015 by Dale Gillham
Investors generally look for low risk investments that generate income, but is this a wise strategy in today’s market?
Before you decide to park your money in cash in 2015, there are a few basic truths you need to carefully think about.
The first is that right now you would be lucky to make something above the inflation rate, which simply means your real return, once the inflation rate is subtracted, is close to zero as inflation is likely to be between 2.5 to 3 per cent.
Why give your money to a bank when you get so little back?
This money is your hardearned cash minus a hefty chunk for the tax man. The money you have needs to work hard for you because you worked hard for it. Your cash, sitting in a bank, is working hard for others, and not you.
So how can you get more for your investment dollar?
After March, banks may be asked to increase their level of assets versus the value of funds they lend.
Some investors think the banks may offer a higher return on cash? I believe this is unlikely with so much cash around, and with talk bank returns will be squeezed they may have less to pay you.
This brings me to my second truth. Like most people, you probably can afford to be a little more active with your investments.
Think about how active you are on a scale of one to 10, with 10 being very active and one being you prefer watching grass grow.
If you answered from zero to five perhaps it’s time to start taking action. The reality is that very few can afford to fall asleep at the investment wheel.
Active investors look to a better return by considering risk, regardless of the amount invested.
Think of risk as a big arrow that swings from left to right, and when the arrow points to the left, risk is low, meaning it’s time to be fully invested in growth type assets like shares, when the arrow points to the right, risk is high, so it’s time for cash.
When the GFC hit, risk went too high but investors failed to act as they didn’t see the signs until it was too late.
If we compare the risk that existed then to now, the risk dial is pointing back towards the left.
Not being active cost many people a lot during the GFC?
Not being active now could cost you a lot in the future.
As an active investor, your investment time frame can be what you want it to be; short, medium or longer term and you don’t necessarily have to take higher risks.
Just remember that the shorter the time frame, the more knowledge you will require to invest.
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