10 - July

Four tips to get ahead in a reducing interest rate environment

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Interest rates in Australia are currently at record lows. The Reserve Bank has dropped the official rate to just 1%. Some analysts are tipping that rates may be cut even further if the economy doesn’t pick up before the end of the year.

Lower interest rates are great for borrowers, but not for cash investors in products like term deposits. It begs the question: how can you get ahead in a low or reducing interest rate environment?

Here are four tips to help you do that.

Tip 1 – Get ahead on any loan repayments you have

If you have a variable rate loan on your home or a car, your repayments will most likely have dropped along with the interest rate drop. But it’s smart to keep your repayments at the same level, so you can pay off your debts sooner.

After all, if you could afford your repayments before interest rates dropped, you’ll still be able to afford them. And keeping your repayments at the higher level on a home loan will help you to build up your equity and get ahead if interest rates rise again in the future.

Tip 2 – Invest in non-cash assets
Non-cash assets like shares or property are alternative investment options to consider. They can both potentially provide you with both capital growth and income opportunities. The share and property markets in Australia have long-term historical growth trends, although there are also times when both markets experience short-term declines or flat periods.

Shares and property can also potentially provide you with income (in the form of share dividends or rental income generated from investment property tenants).

Whatever investments you choose, it’s important to have a balanced portfolio to minimise your risk. There’s an old saying that ‘you shouldn’t put all your eggs in one basket’. It’s especially true in relation to investments. In other words, your investment portfolio should include a mix of asset types. It’s an investment strategy known as diversification.

Tip 3 – Consider switching to a fixed rate home loan
Interest rates are unlikely to stay low forever, and home loans are long-term commitments. So it can be a smart move to lock in a low fixed rate, especially if you’re planning on starting a family in the future and your income or expenses are likely to change accordingly.

Tip 4 – Refinance to get rid of any high-interest rate debts you may have
Some types of finance have higher interest rates than others, like credit cards and personal loans. Home loans on the other hand have lower interest rates. You can take advantage of lower interest rates by consolidating all your high-interest loans into a refinanced home loan.

How we can help
At TGFS Financial Planning, we help our clients to navigate the low-interest rate environment and to tax-effectively plan their financial future. We take the time to understand their individual goals, needs, and objectives so we can provide each of them with tailored financial solutions.

Contact us today on 1300 755 521 to find out how we can help you!

TGFS Financial Planning is an Authorised Representative of Consultum Financial Advisers Pty Ltd. ABN 65 006 373 995 AFSL No 230323 (Consultum). This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial adviser and seek tax advice from a registered tax agent. Information is current at the date of issue and may change.

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