Ask An Advisor

Hello and welcome back to Ask An Advisor.

It’s been a busy week at EM HQ. Bryce is in a war with the major banks, we had two founders pitch their start-ups to us, we had the monthly team darts competition, and we got a bunch of free movie tickets to giveaway (see below).

As always, we appreciate your ongoing support.

Have a great day!

- Bryce and Alec

PS. Want to join us for the advance screening of the new comedy Dumb Money? It’s next week! We have free tickets to giveaway. Get your Dumb Money free tickets!

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The week’s question

"I'm in my early 30's, and with interest rates higher than they have been for most of my investing life, what investments or assets usually perform well when interest rates are high? What should I be thinking about if rates stay where they are and savings accounts look pretty good at 5.5%?!""

- Brooke Sade, Blue Mountains, NSW

This week’s advice

This week’s advisor is Nathan Lear, from Hewison Private Wealth. Here’s what he said in response to Brooke’s question:

It's important to note that the relationship between interest rates and various investments is complex, and other factors, such as economic conditions, inflation, and global events, also play a significant role. Additionally, individual investment strategies should be based on your risk tolerance, financial goals, and time horizon.

Rising interest rates mean that investors are compensated with higher income on fixed interest investments. This not only extends to savings accounts, but also other types of fixed income investments, such as term deposits, bonds, corporate credit, capital notes and private lending investments such as secured first mortgages. In the current environment, we are seeing very attractive risk adjusted income returns on many fixed income investments.

When interest rates rise, this can put downward pressure on asset prices like shares and property and some longer dated fixed income investments, such as bonds, as capital flows to newer issue debt providing more attractive interest rates to investors. With interest rates rising sharply over the past 12 months in Australia, arguably a lot of this is already priced into investment values.

While the interest rate on your savings account may be much more attractive than it was say a year ago, keep in mind that inflation in Australia is still running at around 6% per annum. Therefore, if you are receiving less than this from a fixed interest investment such as your savings account, then your real return (adjusted for inflation) is negative.

I would only suggest keeping enough cash to cover your short-term expenditure requirements.

If you have capital that can be put towards longer term investments, I would suggest a diversified approach across the major asset classes such as shares, property and fixed interest where a higher return can be targeted.

In any case, before making any investment decisions, it's a good idea to consult with a financial adviser who can take your specific situation into account and provide personalised guidance.

About Nathan

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Keep learning

Podcasts

This week on Equity Mates Investing we covered the RBA’s decision to keep rates on hold, the QANTAS saga, a $52 billion IPO, Ren’s mentored session and ESG investing. It was jam-packed, and a lot of fun. Tune in here.

Online courses

The Rask Value Investor Program with Equity Mates, is Rask’s full online investor training complete with stock market valuation templates, Excel downloads, investing checklists, case studies and hours of HD video.