Best ways to invest your money as rates fall

THE volatility in the Australian economy has left many people scratching their heads on how to reap decent returns on their hard-earned cash.

The Reserve Bank’s decision to slash the cash rate to a record low of 0.75 per cent, combined with falls to the ASX 200 last week by more than 2 per cent, non-existent wage growth and rising costs of living makes it a tough time to grow your cash.

But property prices in Sydney and Melbourne are slowly rebounding and experts explain there are still ways to get decent returns on your money despite the cash rate heading towards zero. BANK DEPOSITS

Economists including AMP Capital’s Dr Shane Oliver have forecast another two cash rate cuts in the coming months — on Melbourne Cup Day and in February — which would bring it down to just 0.25 per cent. This is likely to turn savers away from stashing their cash in the bank as deposits rates crumble — figures from financial services firm Canstar show the maximum rates sitting at just 1.8 per cent for $10,000 in an “at-call” savings accounts.

“If they want security for their deposits then they should stay with bank deposits,” Dr Oliver said. MORTGAGES

Dozens of financial institutions announced they would cut interest rates on most of their mortgage products and some variable rate loans are now as low as 2.74 per cent.

On a $300,000 30-year mortgage this means borrowers are paying $1274 per month, but for those who tip in extra repayments they could significantly scale ahead. By increasing repayments by $200 per month, they could shave $30,700 in interest costs and cut six years off the loan.

Mortgage Choice broker Chris Howitt said he regularly explained to borrowers why their rates were not lower.

“Even if rates go down to zero they will never be zero on a mortgage,” he said.

“Banks are really good at offering specials for new customers but those on existing loans are missing out.” SHARES

The benchmark share index ASX 200 reached a record high in July at 6875.5 points but as history shows it remained volatile.

It plummeted 2.3 per cent last Thursday and wiped $75 billion from the value, but AMP Capital’s Dr OIiver said despite this the market was “up 15 per cent year to date”.

“The Australian sharemarket provides a dividend yield of around 4.5 per cent and once you add in franking credits it’s above 5.5 per cent,” he said.

“That income flow is quite stable if you have a welldiversified portfolio.”

Six Park’s Ted Richards urged investors to “set up a diversified portfolio depending on your risk profile”.

Exchange-traded funds also remain a popular way to invest with exposure to international markets through the ASX. SUPER

Throwing extra contributions into super is another option to grab decent returns, but remember funds are locked away until retirement age.

The Australian Institute of Superannuation Trustees’ chief executive officer, Eva Scheerlinck, said with interest rates at all-time lows it was the perfect time to fatten super savings.

“Given that some of the top performing profit-to-member funds returned between 7 per cent and 9.9 per cent in the 2018-19 financial year, adding a little bit to super now can make a big difference to the amount of money you have when you retire,” she said.