Don’t panic about war talk

Forget the phoney election “class warfare” grabbing the headlines, with Billy claiming this and Malcolm claiming that.

There’s a bigger, more important, war erupting. Generational warfare. An economic one. And your side, like many a child’s football team, was decided at birth. The year of your birth is your battle line.

Falling interest rates mean warfare on an ageist level. There are always winners and losers in the money game. And even if you’re deaf, you can hear the winners cheering and the losers, well, moaning.

With low interest rates, as the saying goes, you can please some of the people some of the time and … the rest will just whinge incessantly.

Xers understand what low interest rates mean, don’t they? It means that monstrous mortgage, that albatross flapping above you, is somehow just a little less scary each month.

Xers can save a little more. Finding money for school fees should be marginally easier. Some might get ahead a little, by saving, or bulking up the redraw account.

Or, we can do what the Reserve Bank wants us to do and blow the savings on being good little consumers, pumping money back into the economy to help it grow.

But we also know that this is simply a moment in time. What the RBA giveth, the RBA is sure to eventually taketh away. Some Xers will remember the pain of higher interest rates in 2006-07.

Overall, lower interest rates are, generally, pretty good for us goofy, mid-life, Xers.

But have you read all the whining about interest rate cuts? From the Boomer generation who so benefitted by gazillions from the once-in-a-lifetime asset price boom from the 80’s.

I know all Boomers didn’t benefit equally from rising asset prices. Those who are living off the falling interest rates on the cash component of their savings and super will be suffering.

So, here are your tactics, by generation. We’re not trying to kill each other. So, if we all act in our own best interest, no-one needs to get a “Dear John” letter.

Gen Y/Millenials

Save hard and take a risk. Interest on savings has been reduced to sod all, even in online savings accounts. Save smarter. It’s a many-headed beast.

For at least some of your savings – particularly if buying a house is on the agenda – get a portion of those savings into shares and property. They’re more risky, but are better long-term performers.

Returns on cash are now sub-3 per cent. After tax and inflation, interest rates provide negative returns. If house prices rise, you’ll be chasing your tail. Do a risk profile (there are plenty of free ones available online) and see if you can handle putting more into shares and property.

Gen X

Your offset and redraw accounts are your friends. Home loan interest rates are between 4 and 5 per cent. Money in offset/redraw accounts are saving that amount, allowing you to own your home sooner. But even better, the earnings are tax free.

But it shouldn’t stop you taking some higher risk – getting more of your money in investments and super into shares and property

Boomers

Boomers, the eldest of you started hitting the official retirement age about 4-5 years ago. You are beginning to live off your savings and investments, but the majority of you are still working.

Falling interest rates are tough. But put some thought into fixed interest and bond investments. They are the Mark Waugh (the Afghanistan, the forgotten war) of investing.

Fixed interest are a misunderstood asset class in Australia. Slightly higher risk than cash, but will generally provide far better medium to long-term returns.

Retirees

You are, literally, living off your savings. Your working life is over. Again, consider adding some bonds/fixed interest investments to your portfolio.

If cash is returning in the high 2 per cent mark, the average bond investment is returning somewhere in the 4 or early 5 per cent mark.

*****

We don’t get along. We never will. It’s a generational thing. But that doesn’t mean that we have to be at war all the time.

For the benefit of the children! The grandchildren! The inheritance you want to give us Gen X and Gen Y young’uns! (Okay, possibly not.) For yourselves! Consider some smarter investment options.

They’re out there.

Bruce Brammall is the author of Mortgages Made Easy and managing director of Bruce Brammall Financial. E: bruce@brucebrammallfinancial.com.au.