THIS week a term deposit came up for renewal. While that is not earth shattering news, it does give me the opportunity to share my thoughts on the role of interest bearing investments in a portfolio.
I always make a diary note for a week prior to maturity because the banks, being sneaky, give you as little notice as possible so you don't have time to shop around. To make it worse, the renewal letter, when it finally comes, usually includes the clause "this will be renewed automatically at the bank's current rates if we do not hear from you".
You can bet that the "current" rate is never as much as you can obtain on the open market.
The key element in any successful negotiation is knowledge, so I start by researching what rates are available by looking at newspaper advertisements, and by strolling down the street looking at the best offers displayed on billboards outside the financial institutions.
I then go to www.ratecity.com.au where the going rates are displayed..
Armed with this knowledge, I talk to my friendly bank manager and negotiate an outcome we can both live with.
My preference has always been to stay short, preferably no more than six months, because I would hate to be locked out of the market due to a cash shortage if property or shares started to plunge.
You also need to consider what other investments are available. There are currently property syndicates offering around 10% per annum, and blue chip shares yielding 7% franked. Carefully chosen, they could be a good addition to any portfolio.
When planning your own asset allocation, consider both your goals and your attitude to risk. If you are retired, certainly keep at least three years planned expenses in cash so you are never forced to dump quality assets when the markets are having their inevitable hiccups. Just be aware that rising life expectancies mean you may well live till 90. Unless you are very wealthy, keeping all your money in cash could almost certainly guarantee you will live longer than your money.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: email@example.com.
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