The Reserve Bank of Australia (RBA) has cut the targeted cash rate by 1.50% in the last year (as at October 2012).
Before taking into account the most recent rate cut of 25 basis points (bps) that occurred in early October 2012, the average online savings account rate offered had dropped 1.30% compared to the RBA cuts of 1.25%. The average for term deposit rates (all terms) had only dropped 0.55% compared to the RBA cuts of 1.25% over the same timeframe.
Term deposits are commonly used by retirees to fund their income requirements; however, there is a dilemma associated with term deposits and their ability to provide income given the decline in rates and the fact that they do not provide capital growth, which is that the amount invested initially does not grow during the life of the term deposit. We believe a multi-asset portfolio can provide consistent returns that are in excess of those on offer from term deposits over a long time frame.
Comparing the performance of a term deposit with that of a multi-asset portfolio, the chart below shows that a one-year term deposit roll-over strategy with a $10,000 deposit made in 2000 would have a value of $15,825 as at the end of August 2012. The multi-asset income portfolio would have a value of $21,507 as at the same date. This means that the term deposit focused strategy would have underperformed the multi-asset income portfolio by more than $5,500 over this period.
Comparing a multi-asset portfolio to a Term Deposit
* Multi-Asset Income Portfolio is the Goldman Sachs Income Plus Wholesale Fund.
Source: Goldman Sachs Asset Management.
Past performance is not a reliable indicator of future performance.
As at 31 August 2012.
Source: Goldman Sachs Asset Management.
Past performance is not a reliable indicator of future performance.
As at 31 August 2012.
Indices:
The Australian All Ordinaries Index has moved down decreasing -12 points (or -0.2%) since closing last Friday to 10:45 am today.
The rest of the world as measured by the MSCI index decreased -20 points (or -2.2%) in A$ from closing last Friday to end of trade Thursday.
The Australian All Ordinaries Index has moved down decreasing -12 points (or -0.2%) since closing last Friday to 10:45 am today.
The rest of the world as measured by the MSCI index decreased -20 points (or -2.2%) in A$ from closing last Friday to end of trade Thursday.
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