Many Happier Returns

If you want to prosper in a time of historic low interest rates, don’t tie up your funds in a bank account, writes Money magazine founding.

- Pam Walkley

Record low interest rates are great if you’re paying off a mortgage or trying to reduce debt, but for those who need to live off investment income, including retirees, it’s been very hard.

Leave your money in the safety of a bank account – where deposits up to $250,000 are guaranteed by the federal government – and your spending power goes backwards. But the alternative, putting funds into shares and other types of investments, incurs more risk.

Having different types of assets, including cash, is the key. Diversifying your sources of income will help to buffer the risks involved.

Retirees not wanting to erode their capital too quickly should consider having some funds in the share market, particularly dividend-rich Australian stocks. It’s important to remember share investing is not short term and you need to use money that you can lock away for at least three to five years.