Front of mind for many investors at the moment is “the chase for yield” (with “yield” being the “income return on an investment”).
Current low interest rates mean investments that previously offered higher rates of financial return no longer do so. There is strong consensus that low interest rates are likely to be a feature of the global investment landscape or some time to come. 
Arguably those who will be experiencing this chase for yield the most are retirees and particularly those baby boomers closing in on retirement. And with barely a day going by without government or other bodies talking about the need to make further cuts or add new restrictions to the Aged Pension and other social security benefits, the pressure to be financially self-sufficient in retirement is only going to increase. This doesn’t mean, as some commentators have observed, that investors have to now take on greater and unnecessary levels of risk to achieve or maintain the levels of yield that they had been used to or expecting. However, now is a good time to conduct an overall reassessment of the different options that do exist when it comes to the chase for yield.
Term deposits and bonds
Term deposits retain their typical attractions – security and a pretty well guaranteed return. Many types of bonds, particularly government bonds, share similar characteristics, although when considering bonds it is important to be aware of the differing level of security and income attached to different type of bonds. Generally the lower the security rating the higher the return.
Security can vary from the most secure (government although that’s not universal), through corporate and exchange traded bonds with a range of security ratings from AAA all the way to what are commonly known as junk bonds. High Yeild or Junk Bonds are unarguably a riskier investment than AAA rated bond, although they do offer potentially much higher yields.
Investors seeking access to a range of bond types would do well to consider investing in them via a managed fund, thereby gaining the benefits of; manager expetise, diversification and access to a broader range of investment options than are available to individual investors. Falconer Advisers are experts at working with clients to decide upon the best types of managed funds to meet their financial needs.
As part of a diversified portfolio it is always wise for certain investors to maintain a percentage of term deposits and bonds but it may be time to review the proportion of your portfolio allocated in this way, especially as term deposits lock away capital for extended periods of time, thereby hindering your ability to more flexibly and agilely respond to changes in the market.
When considering term deposits or bonds in the current financial climate, it is important to consider whether such investment options offer sufficient returns to meet your immediate and longer-term financial needs for yield.
Property
In the current climate, investing in property, whether it be by individual purchases or via property managed funds, is well worth considering.
Individual owners of property have access to guaranteed income streams via rent, minus the costs associated with owning the property. Owners can also depreciate certain assets within the property.
Similarly, investors in property via managed funds also have access to a rental income stream and numerous other potential financial benefits. For a detailed discussion of some of the options available for investors to add property to their portfolio, see our April 2016 blog Investing in Property.
Shares
At times of low interest rates, and the lower returns associated with these rates, investors understandably start to look more closely at growth assets such as shares, with their potential to pay higher returns compared to defensive assets such as cash, term deposits and bonds.
With the chase for yield encouraging more investors to consider entering or expanding their interest in shares, there is the risk that this increased demand will drive up the price of certain stocks. There is also the fact, as we all know, that the share market can be subject to periods of volatility.
But, over time, the share market usually performs well and now may be a very good time to review the percentage of your overall diversified investment portfolio devoted to shares. There are good signs in the Australian share market which has posted gains for the last five consecutive weeks and has the S&P/ASX 200 trading at levels not seen since August last year.
Of course, investors do not need to limit themselves to the Australian share market, with many international options well worth considering.
To find out more about the chase for yield and how to position yourself towards the front of the field, call me on 03 6234 2233 or email glynn@falconeradvisers.com.au.