Investors must embrace diversification
Falling interest rates and inflation has reignited the call to diversify away from solely cash-based products.
According to David Bryant, head of Australian Unity Investments, there also needs to be a major rethink of what a 'safe haven' asset class is.
"While all available research shows that investors have been focused on cash as the best safe haven to protect capital, falling interest rates are making such a strategy increasingly unsound," he said.
Cash products, such as term deposits, should always form part of a balanced diversification strategy, he said.
"They (cash products) may offer surety of capital being repaid on a due date but the cost can be considerable, and this together with other factors shouldn't be ignored by investors," he said.
According to Bryant, if an investor had deposited $10,000 in a one-year deposit in June 2008, and reinvested maturity proceeds along the way, this would have increased in value to $12,519 by June 2012.
This compares to investing the same amount in Commonwealth Bank shares over the same period where the value of the investment would be worth $18,819, including franking credits.
"There is currently a notable degree of optimism in the main growth asset classes that investors should factor into any portfolio rebalancing," he said.
"While there is still volatility in equity markets, and although markets are experiencing frequent falls, there appears to be the beginning of an underlying trend upwards," Bryant said.
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