2017 is starting off as the year when many commentators believe interest rates will go up, but does this mean it’s time to invest in cash over shares or even property?
At Financy HQ, we’ve ask the experts where you should be putting your money in 2017.
George Lucas, CEO Acorns Grow Australia.
“Selecting an investment is not just based on performance but also goals. With every investment there is a risk. Cash carries the least risk, mainly due to the current government guarantee.
“If you’re saving for a short-term goal, that is six months or less, or need assurance that what you save is there when your goals need to be met – such as holding the deposit for a house until you find the right house – then cash is going to win out over the risker and more costly to buy and sell asset classes like shares and property.”
Cathryn Gross principal at Twelve Wealth
“Where to invest is something that each person needs to decide for themselves. It will be driven by their risk appetite, the plans they have for life and how much cash they have behind them.
“My rule of thumb when investing is to always have an emergency cash account that can fund a couple of months of living when you are young. So there is always room for cash in your investment portfolio.
“After this, what you have in cash will really be about your goals.”
Are there rules or time frames for investing in cash, shares or property?
Lucas: “Yes. The shorter the time frame then the less risky and less costly buy/sell spread the asset.
“So short-term should be in cash or conservative assets like fixed income. Due to the cost involved, residential property is always a long-term goal, which is more than five years.
“Equities (shares) are more a medium to long-term goals. It is possible to construct low risk equity portfolios that meet medium term goals and more risky aggressive portfolios for long-term goals.”
Gross: “Shares and property are growth assets. You need to have a five to ten year time horizon for your investment as both asset classes can have periods of poor performance but will outperform cash over the longer term.
“Property can be illiquid and has large transaction costs, so should not be viewed as a short-term investment.”
What’s the outlook like now for cash, shares or property?
Lucas: “The returns for cash are expected to remain low for at least the next 12 months. The return on shares and property are expected to be higher.
“Residential property is a suburb by suburb proportion, so it is always hard to make a call where individual house prices may go.”
Gross: “I think that rising interest rates are unlikely to be great for property especially if we don’t see wage growth.
“When rates rise, people borrow less and this leads to them being able to pay less for property…its as simple as that.
“But I don’t think we will see huge price falls. I just don’t think the next 40 years for property investors will be as good as what the last 40 years have been for property.
“I think low interest rates and relatively high franked dividends, which are those paying more than 5 per cent across the ASX200, will be good for shares.”
SugarMamma.TV’s Canna Campbell explains how to know when or if you should be investing in cash over shares.