Where's best to invest when interest rates are in the doldrums

What's the best option?

The Reserve Bank of Australia left the cash rate at 1.5 per cent this week, and experts and economists remain divided on whether or not it will continue to hold for the longer term.

Despite the division, though, the experts largely believed that shares were where you should invest your hard-earned dollars during this current low-rate landscape.  

Finder asked the pros how they’d advise someone to invest $10,00, and 28 per cent said investing in shares was best, while putting the money into a savings account came in second. 

“Low savings rates means it can be difficult to earn an attractive return on some investments, so savers need to review their options to decide on their investment pathway,” says Graham Cooke, insights manager at finder.com.au.

“This could mean researching returns on different investments like shares, high-interest savings accounts, property, or self-managed super funds (SMSFs), and it may also mean finding out how to minimise investment risk through strategies like diversification.” 

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Respondents to the Finder survey also listed buying foreign currency, gold, opening a term deposit account, and paying down debt as viable options in the current environment.

As Bruce Jackson, publisher and general manager of well-known financial site, put it in a newsletter following the rates decision, “The bottom line is you’re going to have to take on some level of risk in order to generate a decent return on your money”.

He predicted the cash rate would remain between 1.5 and 3 per cent into the 2020s and said although investing in the stock market could be risky, shares were the best bet. 

“The stock market is volatile. That’s one of the reasons why I suggest you regularly invest money into shares – it helps smooth out the inevitable ups and down of the markets,” Jackson said. “Also, always keep a decent cash balance, and never invest with money you’ll need over the next three to five years. ”

Jackson acknowledged that investing in property could also off nicely, but noted the downsides.

“Unlike property, the buying and selling costs for shares are very modest, around $20 per trade,” he said. “The stock market is also very liquid. If you need the money, you can sell some shares with the click of a button. Try doing that with your investment property!”

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The survey from finder.com.au polled 34 financial experts and economists, and 88 per cent said the RBA’s next move on rates would be upward.

But Ross Greenwood, Channel Nine’s business and finance editor, pointed out that the RBA’s hands were somewhat tied when it comes to interest rates, even though the experts’ focus was on a hike. 

“The RBA, in many ways, is stuck with interest rates,” he wrote in his latest newsletter. “It can’t push rates up … that’ll hurt the economy [and] it can’t cut … because that will fuel Sydney and Melbourne house prices.”

Where will you invest?

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