Post Covid investing for your cash

Bruce Brammall, The West Australian, 1 February, 2021

Once upon a time, saving was fun. Put money into the bank and get a warm glow each month when your interest arrived.

Remember then? When banks actually paid interest and helped you grow your savings?

It’s been forever since that happened. Saving money now comes down to you not spending.

Thanks to Reserve Bank interest rate cuts, most savings accounts pay 0.1 per cent or less. Even “high interest” online accounts only manage to get above 1 per cent by short-term bonus offers, or strict conditions around deposits and spending.

Is cash still king?

Yes and no. Cash, or savings, allows you to buy stuff. It’s better to have it than to not have it.

But if your real aim is to grow your wealth, you’re not going to get satisfaction with the folding stuff.

You need to look elsewhere. If you’re holding excess cash now, time to consider alternatives.

Australians snapped shut their purses for a good portion of last year, as we prepared for an economic crisis. Savings levels skyrocketed.

The most stupid place on earth to hold cash is your wallet. There, it can’t do anything (except get stolen by Mrs DebtMan or the DebtKids). It can’t earn interest, save you on your home loan, or earn you more money. Cash in your wallet is literally going backwards via inflation.

A savings account is the second worst. After tax and inflation, it’s still going backwards.

That leaves offset and redraw accounts. There, you’re probably saving the equivalent of about 3 per cent, tax-free.

But it’s still not sexy. Safe, yes, but not sexy.

Those who hoarded cash for the apocalypse that didn’t quite happen, now need to start thinking about what to do with it.

Spend it in 2021 to make up for lost time in 2020? Sure, but maybe this is your best opportunity to start a portfolio, or add to it.

The four main investment options are cash, fixed interest, property and shares.

We’ve said enough about cash. Fixed interest – loans to governments and big corporates – will likely provide slightly higher returns than cash and deserve a place in most portfolios.

Property and shares are where the most interest will be.

When markets reacted to Covid-19 in February and March last year, real estate investment trusts (REITs) were smashed 48 per cent, as shops fell empty and businesses sent employees home to work.

It was a much harder belting than what happened to share markets, which were down around 36 per cent by March 21.

Both property trusts and the Australian share market had substantially recovered by the end of the year. Australian shares finished 2020 up about 1.8 per cent, while property was down around 4 per cent.

When it came to their international equivalents, international shares were up 10.7 per cent and property was down 13.1 per cent.

If you’re ready to invest, I would still always recommend a diversified portfolio, after taking into account your attitude to risk (that is, do a risk profile).

However, there are plenty of experts out there who are prepared to go out on a limb.

The consensus seems to be this: the stocks that had monster years last year, are unlikely to repeat their success.

Tech stocks were the big winners, as shoppers were forced into online shopping. Are consumers now completely sold on online shopping, or will they return to the malls?

Many pundits believe malls and offices will make up some ground, as people return to work and normal shopping.

Banks were smashed, as they “helped” out borrowers (and the economy) by offering mortgage deferrals. Had they not, and property markets collapsed under a tide of selling, they might have been in real trouble. Many tip they are primed for a recovery.

Just don’t forget diversification. Australia’s share market has underperformed international markets over the last 10 years, so not being diversified has cost investors dearly.

If you’re off to invest and want to do it yourself, best of luck. If you don’t know what you’re doing and don’t have the time to invest in research, you know what to do – see a financial adviser.

Bruce Brammall is the author of Mortgages Made Easy and is both a financial adviser and mortgage broker. E: bruce@brucebrammallfinancial.com.au.