Ten years ago, conservative investors could rely on cash and fixed interest to generate an income and preserve capital. But the story’s very different today. With interest rates stuck in the doldrums, and inflation chipping away at the dollar’s buying power, many accountants are looking for ways to help their clients.
Is finding the right advice partner one way to help solve the conundrum for clients? Elston Wealth Advisor Damon Bensein thinks so. We sat down with Bensein to chat about how Elston is helping clients to manage the risk as they look to boost investment returns.
Q: Why do many clients currently feel like they’re going backwards?
Interest rates have declined for such an extended period that if you’re sitting in cash, the returns or lack of returns are definitely giving you a headache. That’s because if you’re relying on returns from cash or bonds to fund, for instance, your lifestyle into retirement, that lifestyle is being compromised. The other problem is that as interest rates have declined, living costs have risen. So, for many clients, it’s a double-edged sword.
Q: Is sitting on cash a safe strategy?
Cash is a defensive asset ‒ and it has a role to play in a diversified portfolio. But if you’re sitting on a lot of cash, because you think that’s the way to avoid risk, you might need to think again. When you compare just cash with, say, a balanced portfolio of shares, property and cash over the past few years, the gap is pretty sobering.
Q: What alternatives does a client have?
We believe it’s worth considering alternative investment strategies. Here it’s about determining what assets a client requires, then assessing what asset allocation is needed to derive a return over a long period.
The key, on this front, is to work to deliver a return that will provide for the client’s requirements from an income perspective, but also keep pace with the higher cost of living.
At this point, you can then determine the proportion of assets you allocate to growth and the proportion you allocate to cash and fixed interest that will derive the required income.
The other piece of the puzzle is making sure clients get their tax structures right, think about capital gains tax implications and take advantage of franking credits.
Q: In Elston’s view, is the cash conundrum here to stay?
We believe so. We don’t see the cash conundrum going away any time soon. Also, we know many clients are liquidating assets ‒ particularly property at the moment ‒ so for many accountants it could be the perfect time to partner with a firm like Elston. As a leader in wealth and asset management, and an approach to risk that aligns with many accountants, we’re good people to talk to.
Find out more
To learn more about how you can grow your business with Elston, contact Peter McVeigh on [email protected].