Online Savings Accounts Increasingly Getting Worthless. What's The 2nd Least Risky Financial Instrument?

DeafMutePretender on 09/05/2016 - 17:19
Last edited 10/05/2016 - 21:23

OzBargain Open-Book Exam.

Fill in the blanks.

<Savings/Investment Products Risk Tier>

Risk-free
Online Savings Accounts/Term Deposits
(assuming Government doesn't steal it Greece/Argentina style)

2nd Least Risky Product
>

Low to medium risk
"Blue Chip" Shares
Super

Medium to high risk
Shares
Property

High risk
Foreign Currency Exchange
Small Business Entrepreneurship
Shorting the housing market/subprime securitized loans
"Put it all on black, champ" Gambling

Nigerian risk/Financial Darwinism risk
Nigerian "Prince"
Multi-level "Marketing"/Pyramid Scams
Loaning money to your friend, Sheila/Bruce who promises you he/she will pay you back. No, really.

Financial

Comments

    • Repi on 11/05/2016 - 20:42
      +1

      Can I get a little professional advise to? What do you think about the Crowdfunding for Kidman Station or something similar?

      • baggyred on 12/05/2016 - 10:22

        No idea - haven't even looked at it

    • mskeggs on 12/05/2016 - 19:11

      Tell the Cypriots that cash is risk free.

      In general the longer you intend to hold an asset, the less risky it is.
      Do you mean that a long term holding for an equity, for example, will average out returns?

      • baggyred on 13/05/2016 - 13:59

        Nothing in life is risk free - which is why i used the inverted commas. However cash and in particular the US 90 day T-bill is accepted as the "risk free" rate of return.

        With regards to holding and asset - yep - in general the longer you hold an asset (property, share portfolio) the less volatility you have

        As an example - take the all ords, in the past 50 years there have been about 14 calendar years of negative returns - so 2 out of every 7 years. Pretty common occurence (despite what the media says). Hold for 5 years and only once has there been negative total returns (buying just before the oil crisis in the 70s). Hold for 10 years and we are yet to see returns fall below 5% annually.

        No of course there are always individual assets (General Motors, Babcock and Brown etc) that don't - but on a broad scale, the longer you hold an asset, the less volatility there is.

        • mskeggs on 13/05/2016 - 15:25

          I agree with this approach, and one would hope that after a while even in a negative year your investment would be substantially ahead overall.
          It brings up the question of market timing. One of the beauties of the super system is the enforced dollar cost averaging so you buy more when prices are cheap.

        • baggyred on 13/05/2016 - 15:49

          @mskeggs:

          Market timing is dumb luck and not a reliable/repeatable investment strategy IMO

    • mrjames on 14/05/2016 - 10:34

      Is it a viable strategy investing small amounts in miners which are at the lowest possible value (.001) in hoping that there is a price move in the future? As a move up to .002 would double your money.

      • bluedufflecoat on 14/05/2016 - 13:01

        Highly illiquid. It's only worth as much as a person would be willing to pay for it.

  • [Deactivated] on 11/05/2016 - 20:44

    Buy some old classic cars, zero tax and you get to drive it around. resell in 10/20 years time. don't exactly make anymore of them so valve will go up..

    • OzTightArse on 11/05/2016 - 22:30

      Indeed classic cars and art are recently becoming more popular as safe haven. There is a reason that wealthy people hoard them, I'm sure it's not to stare at every single day :)

    • Cluster on 11/05/2016 - 23:17

      My employer has a Porsche 356. He bought a nice example at auction and guess what? He too plans to drive it every now and then, and then sell it for a profit. Problem is a lot of other doctors are thinking the same too. The other problem is the car is unreliable (hey, it's old and they don't build them like they used to… they build them far better now). Something is breaking down on a monthly basis and repairs and parts are not cheap.

      • oldrocker on 12/05/2016 - 10:25

        The more they break down the more valuable they become…. that's the classic car! LOLOLOL

    • MrMcHairyHead on 14/05/2016 - 13:47

      But you have to pay insurance that whole time.

      • [Deactivated] on 14/05/2016 - 14:04

        I have an old classic that costs around $60 a year to insure with shannons… it's much less as it doesn't get driven that much

  • Thenarrator on 11/05/2016 - 22:11

    term deposits

  • dandandan on 11/05/2016 - 22:39
    -1

    Do some investigation/research on bank hybrids, whether subordinated debt issues or convertible preference share issues etc and see if they are suitable. The risks of investing in bank issued hybrids will be the possibility of non viability of banks. Your research will uncover recent scare campaigns by people like Christopher Joye suggesting the CBA Perls 8 issue was a dud, mainly I would say as he runs a cash style fund that can't compete along with companies like FIIG securities. Issued at $100 CBAPE paid a margin of 5.20% over the 90 day BBSW, however as they are a floating rate instrument and the BBSW is closely related to the cash rate the overall return has slightly dropped however the issue margin does not change, which is 5.20%. This is a franked instrument so these are fully franked returns. These instruments are not without risk or volatility look at CWNHB and CWNHA for risks involved outside bank issues. All instruments are ASX listed and these are their asx codes. Majority of these securities have long maturity dates however have call dates anywhere from 5-8 years where the issuer may redeem the security at the issue price however there has been older issues that have gone into a perpetual status on a low 1-1.5% margin and trading well below their issue price of $100 redeemed at $80. NABHA is a current example of a perpetual issue. These are complex instruments, all with varying terms however worth doing some research on. The most recent issue have been AMPPA, MQGPB and CBAPE, all issued at $100. CBAPD is another recent issue that did not and does not trade near to the issue price however that was a lower margin issued security and a large issue. These securities will trade like a bond where lower issued securities will fall in capital value if a higher margin security is issued. In comparison to bank shares the capital fluctuation are a lot less.

    • JimB on 12/05/2016 - 14:54

      I use to recommend hybrids to clients.

      I found they have many of the downsides of the companies offering it, but little upside.

      I prefer to recommend the ordinary bank shares offering the hybrids especially as the yields on the banks similar if not more than the hybrids. You also get the capital growth opportunities too.

      • dandandan on 13/05/2016 - 15:16

        You don't invest in a Hybrid for capital growth though and in a diversified portfolio you will not have all your funds in bank shares. Investing into bank shares at this point of the cycle, you would want to have a high conviction that banks will be able to maintain their dividends when they are under increased margin pressure and have increasing levels of bad and doubtfuls. There is a reason why banks currently trade on high fully franked yields.

        With Hybrid's, you have a set margin and the BBSW margin which will fluctuate in line with the cash rate, so you are not going to see a large drop in capital values of bank Hybrids, like the ordinary bank shares, if the bank reduces its dividend.

        • JimB on 16/05/2016 - 09:59

          Yup, we purchased Hybrids for the dividends.

          But I have found that the risks of Hybrids not worth it even the low interest rate environment, as yields on the ordinary shares are still attractive even if they are cut by 10-25%.

          We had clients who had the CBA PERLS III which matured, I didn't find PERLS VIII attractive enough to switch over.

          I'm still filthy about NABHA that I bought for clients over 5 years ago, they are down 20% capital wise and down 12% over the past year, however we're retaining them for dividends, but I'm not buying more at this stage. I can see their attractiveness income wise.

          My dealergroup doesn't rate Hybrids as Fixed Interest, but Aussie Equities. But a Managed Fund investing in Hybrids are FI.. very odd.

          Anyway horses for courses.

        • dandandan on 16/05/2016 - 20:59

          @JB1:

          Ever heard of a yield trap….so capital prices on bank shares will not fall if dividends get cut?

          It's not odd, it's more like your dealer group simply does not understand these instruments and possibly you, please explain how a Hybrid is equity?

          Maybe also look at a call date and see the call date history.

          NABHA was listed in 1999, 5 years ago?

        • JimB on 17/05/2016 - 11:59

          @dandandan:

          The current bank prices has already factored in dividend cuts already.

          I don't believe that Hybrid is equity, more fixed interest, so I don't agree with my dealer group. I said it's odd that they see it that way.

          What so hard to understand that I bought NABHA 5 years ago?

        • dandandan on 17/05/2016 - 16:03

          @JB1:

          3 of the 4 didn't cut their dividends and they are still below their share price peaks, so I don't think it's factored in yet. I believe there will be dividend cuts so we'll see what happens then.

          Apologies NABHA, I misread and thought you bough them in the float.

  • frostman on 11/05/2016 - 22:46
    +1

    LOL banks currently paying ~2% for a term deposit. In 1 year, that's barely making ends meet with the inflation rate hovering at 1.5% to 1.7%.
    You might aswell stash the cash under your pillow, given at $20,000, in the term deposit, you would have made around $80-$100 after 12 months… ROFL
    You're better off buying and selling Selfie Sticks.

    Also I wouldn't consider property to be Medium risk, I'd call it a high. Most of the cash flow from property is from overseas foreign (Asian investors).
    The developers know this hence why at the demo rooms, an entire property is sold out before the hole is dug. Problem is, when Australia tightens the purse on offshore lending, or security/fraud cheques (dirty money), things could sway. Even a bad gambling year can change things lol

    An option: buy and sell things, cars, precious metals, stamps, magazines, Batman cards, etc

    • Cluster on 11/05/2016 - 23:23
      +3

      "LOL banks currently paying ~2% for a term deposit. In 1 year, that's barely making ends meet with the inflation rate hovering at 1.5% to 1.7%.
      You might aswell stash the cash under your pillow, given at $20,000, in the term deposit, you would have made around $80-$100 after 12 months"

      2% is not much, but I'm sure you would agree that 2% is better than 0%.

      Example: First Bank Of Pillow. Deposit: $20k. Maturity: 12 months. Withdrawal amount: $20k. Risk: Fire, theft.

      Any Australian Bank: Deposit: $20k. Maturity: 12 months. Withdrawal amount: $20.4k. $400 profit. Risk: Virtually zero

      Take tax off the $400 and you're left with $300 for the average Australian worker. Which is worth more, $0 or $300? Discuss.

      • oldrocker on 12/05/2016 - 10:16
        +2

        My favourite bank……….First Bank Of Pillow ….. lolololol….

      • frostman on 12/05/2016 - 11:14
        -4

        Any Australian Bank: Deposit: $20k. Maturity: 12 months. Withdrawal amount: $20.4k. $400 profit. Risk: Virtually zer0

        Virtually zero? You honestly think that money in the bank has a zero risk?

        Have you seen what happened to Greece? And before you start nagging about Australia being much safer, what would be the answer had you interviewed a few Greeks 4 years ago and asked them about their perceived risk of money in the bank, they would have said, 0

        Another issue is that Banks under law, can freeze your funds whenever there's suspicion

        Another risk is that during a curfew or martial law, or any shuffle in the status quo , you can't waltz into a bank, (these things are happening worldwide)

        • Cluster on 12/05/2016 - 17:12
          +4

          "Virtually zero? You honestly think that money in the bank has a zero risk?"

          In Australia, yes. In any bank anywhere in the world? Depends on location. And I said "virtually" zero risk, not "zero risk".

          The average Greek interviewed 4 years ago would not have said the risk to their savings is zero, considering the first bailout package was approved in April/May 2010 (6 years) and a second bailout was approved in mid 2011 (five). I think the average intelligent Greek would have worked out by then that something wasn't quite right with the economy.

          It's a question of relative risk. Keeping $20k in a pillow case in your home in Australia places that money at far more risk than placing the same in a local bank. That degree of risk may change however, if for example that $20k was earned on a drug deal or money laundering. In that case a pillow may be the better option.

          I'll leave it as an exercise for the reader to find out when was the last time a major city in Australia was under martial law.

        • frostman on 12/05/2016 - 21:17
          -5

          @Cluster:

          And I said "virtually" zero risk, not "zero risk".

          WTF does "virtually" mean then? you either say Risk is 0, or there's an element of Risk.

          The average Greek interviewed 4 years ago would not have said the risk to their savings is zero, considering the first bailout package was approved in April/May 2010

          You get the concept, ok 9 years ago, 10 years ago,…ask George Taerkasousas if he thinks his money in the bank was safe, and he'd be responding in the same manner as yourself. The threat of not being able to access an ATM for 3 months, or having a $100 limit/day would have been non-existent

          I'll leave it as an exercise for the reader to find out when was the last time a major city in Australia was under martial law

          You must have been raised in a cabbage patch. I work for a large company that on a yearly basis, we get to work from a BCP (Business Continuity Site) for 1 day in the event a threat of terrorism or natural disaster shuts down our office. Should we all ask the CEO, "Hey Mr CEO, when was the last time ABC consultancy had been 100% shutdown in need to invoke a BCP? never? so why spend $2,000,000 a year renting out office space used once a year?

          Grow up

        • Cluster on 13/05/2016 - 00:06
          +1

          @frostman:

          "WTF does "virtually" mean then? you either say Risk is 0, or there's an element of Risk."

          "virtually": adverb
          1. for the most part; almost wholly; just about:

          Simply put, I'm saying the risk of a bank taking your money and running away with it is very low. Much lower than say, a friend or relative finding out about your stash of cash and helping themselves to it.

          "The threat of not being able to access an ATM for 3 months, or having a $100 limit/day would have been non-existent"

          That is true. However, we live in Australia and the main gist of the thread was about looking for a safe place to park money that also delivered a safe return. Maybe you're privy to information about a looming Australian bank collapse, bail-in, mass freezing of accounts, or such?

          "You must have been raised in a cabbage patch"

          Very mature. Anyway, you gave the example of martial law and not me.

          "I work for a large company that on a yearly basis, we get to work from a BCP (Business Continuity Site) for 1 day…."

          And that is relevant to Mr and Mrs Smith keeping $50k in a bank and wanting it to be safe and get some sort of return, in what way exactly?

          We don't live in a binary world where everything is either yes or no, 'with us or against us'. Having a backup for critical operations is just good common sense. Now, back to Mr and Mrs Smith. My position is that they can put their money in the bank and be confident in retrieving it when required. Sure, there's a tiny possibility of the bank collapsing or a bail-in eating their funds, but is this something they should worry about given current circumstances?

          "Grow up"

          I'm glad this debate is being conducted in a mature manner.

        • frostman on 13/05/2016 - 09:16
          -1

          @Cluster:

          Simply put, I'm saying the risk of a bank taking your money and running away with it is very low. Much lower than say, a friend or relative finding out about your stash of cash and helping themselves to it.

          This is why the below devices come handy.

          https://en.wikipedia.org/wiki/Safe

          And that is relevant to Mr and Mrs Smith keeping $50k in a bank and wanting it to be safe and get some sort of return, in what way exactly?

          It's an anology to your concept where since AU hasn't experienced an economic meltdown shutting banks, a curfew or social imbalance, then you can bet your freckles it'll never happen

        • jellykingdom on 13/05/2016 - 09:39

          @frostman: I'm not sure you can compare the Greek economy and banking system to Australia. Our banks are some of the largest in the world and extremely well regulated, our economy is literally an order of magnitude larger, they had high levels of debt and had been lying about its deficit figures to join the Euro, and had major problems with tax evasion which was causing revenue issues.

          That is not to say that nothing can ever happen, but you're not comparing apples with apples

    • iforgotmysocks on 12/05/2016 - 10:01

      ROFLCOPTER LOLOLOOLOL

  • Hirolol on 12/05/2016 - 00:11

    Im a newbie in shares and just want to test the water.
    Maybe invest $100-$400, nothing big.
    I checked commsec but minimum is something like $500 per trade.

    Which bank am i best to buy shares with with low minimum spend?

    Thanks in advance!

    • frostman on 12/05/2016 - 08:07
      +1

      Even if CommSec or eTrade allow it, Investing $100-$400 in bank shares is worthless. you get around 4 shares / $100, so you know what I mean (with the exception of CBA)

      You either need to increase your investment, or go with an ASX200 with a smaller share price.

    • bluedufflecoat on 12/05/2016 - 09:59
      +3

      I think online brokerage fees start at $19.95, so you'd immediately lose 20% of your $100 investment if it was so small.

      • Hirolol on 12/05/2016 - 12:10

        Hi
        Thanks for the reply.
        What i meant was which broker is best to use?

        • NigelTufnel on 13/05/2016 - 14:38
          +1

          I think what he's trying to say is if your investment is only small, then shares are a bad investment no matter the broker. You have to pay broker fees for each transaction which are generally around $20. Some are $15, but even that basically means that, if you're investing only $100, it will actually cost you $115 for that purchase.

          You'd have to be very lucky to pick a good stock to make money any time soon off that, as the stock would have to go up 15% for you to make any money from selling it (assuming no fees to sell the stock). Even if it goes up a massive 30%, you've only made $15 off the investment…
          The lower the fees as a % of the purchase, the easier it is to make money, this is not easy with small investments.

          If you instead invest $1000, the stock only has to go up 1.5% before you're in profit territory.

        • Baysew on 13/05/2016 - 15:03

          @NigelTufnel:

          Even if it goes up a massive 30%, you've only made $15 off the investment…

          And selling, would incur another fee of $15.00, so you would have just broken even.

    • pandamonster88 on 12/05/2016 - 13:04
      +1

      This is relation to the brokerage fees. Commsec has free brokerage for the first 10 trades as an introductory offer.
      https://www.commsec.com.au/homeoffer?icid=90002-public-home-eqcdia-offer\

      As the other posters have said, 100-400 is insignificant to make any gains from blue chip stocks. Gains can be found in small caps if you do your research and bet correctly.

    • frondono on 14/05/2016 - 10:22

      two words the dao

  • Bnjam3 on 12/05/2016 - 00:26
    -2

    Nothing better having a cold one after a long day …

  • [Deactivated] on 12/05/2016 - 03:57

    With home loans offered around 3.75% and dropping. Possibly this is a much better time for bundling your savings with a large aggressive loan, and buying investment properties. Rather than trying to earn from dropping bank account rates.

    I hope this point is not too obvious, I am too lazy to manage rentals after seeing friends doing it for years.

    • jellykingdom on 13/05/2016 - 09:41

      Yes its time to act risky with rates so low.

      Previously, it made sense to simply do things like pay down your mortgage because the gains were large (when the interest rate was say 5%, you were essentially earning yourself 7%-ish because the money you save from not paying interest is like tax-free income)

      But now is the time to be borrowing more of it

  • oldrocker on 12/05/2016 - 10:30

    How about Licenced Investment Companies (LIC's) on the ASX… e.g. Absolute Equity Performance (AEG) ? Wilson Asset Management (WAM)?

    Get in at a low price maybe?

  • [Deactivated] on 12/05/2016 - 11:45
    +4

    Don't change your risk profile.

    Whenever the economic environment is as it is now. A lot of money is being squeezed into the poor speculative investments due to people changing their risk profiles. After some time something will explode and the mugs take the hit having bought at the top.

    Those who switch to more risk and then back after they lose, lose big time with no chance of recovery. If you want to choose a high risk asset, even if you lose 30-50% of your capital, you are either forced to stay in it for the long term or to take a heavy loss. Switching back to low risk after losing 30% like in the GFC is going to take forever to recoup especially at a reduced low risk returns profile.

    If you want to switch to a higher risk profile, best to do it during the recession when you haven't lost much because you are already in a low risk instrument.

    • muncan on 12/05/2016 - 13:15

      What about keeping your principle in cash (ie. 'high' interest savings), and investing the interest earnt in a higher risk category?
      A casino could quickly turn 3% return into 6% (or 0%).

      • [Deactivated] on 12/05/2016 - 14:40
        +1

        I don't know how to respond to this but the reasoning would be along the lines of, are they choosing to gamble because of the RBA's decision? Is the low interest rate environment enough to tip that person to gamble because of their other predispositions? I'm not going to say if it's right or wrong, but sadly people do choose this option…

        I'd rather just go to a restaurant and have a several good meals instead of losing it at the tables.

        It's basically the same thing, if one cannot afford to lose, but requires a higher return. That's just going to end in tears. If someone is a low risk investor who cannot handle the heat, eventually even if it's going up, when there is a crash they will panic sell out and potentially never get back in.

        We also have to consider statistically there are assumptions which apply to a casino scenario with fixed odds versus "perceived" favourable/unfavourable odds when in more opaque markets.

    • outlander on 14/05/2016 - 11:25

      For the same thing josephchi said but in a rap form watch this

  • ignitemusic on 12/05/2016 - 12:50

    Buy Whisky and Whiskey.

    Start with a nice bottle of Karuizawa

  • [Deactivated] on 12/05/2016 - 15:08

    Try Ratesetter

    • TaekKucing on 12/05/2016 - 20:12
      -1

      Education always be the good investment.
      A lot of money to be made in financial markets. There are abundance of profit opportunity Everyday.

      Invest your time to study and practise

  • Hotpotcorn on 13/05/2016 - 11:31

    chinese stock market
    commodities

    • congo on 14/05/2016 - 12:43

      Heard that the Chinese stock market isn't doing so well.

  • geoffs87 on 13/05/2016 - 15:33
    -4

    I've got a Longines Legend Diver & an Armani faceless watch
    LLD is worn almost every day
    $2,500ish… not from oz
    29
    Male
    Banking

    average income
    what should i have for dinner?

  • frondono on 14/05/2016 - 10:20

    Id look at investing in cryptocurrency if I was you

    primarily bitcoin & ether

    if you have ether, then I'd invest in the dao.

  • mrjames on 14/05/2016 - 10:36

    Buy cigarettes before the excise increase, sell after for 12% profit

    • Bargaingeek on 14/05/2016 - 12:28

      that 12% goes to the government

  • Herbse on 14/05/2016 - 10:42

    I'm surprised no one has brought up the Acorns Australia investment company/app. People have been getting some okay returns and a great intro to the scene.

  • mskeggs on 14/05/2016 - 11:11

    Good article in today's SMH about this subject http://www.smh.com.au/business/the-economy/investor-returns-…

    • vetopower on 14/05/2016 - 12:16

      Important albeit depressing article. Indicates that a recession is more likely than not coming in the future (low interest rates pushes record borrowing followed by either inflation kicking in and causes people to default or bubble pops as investors get scared — either way recession) and we all have to do our best to prepare for it.

  • peterpeterpumpkin on 14/05/2016 - 12:03
    +1

    If you're "investing" in the secondary capital market you're just a glorified gambler betting on (mostly) already profitable companies. If you want to feel like a real (wo)man and call yourself an "investor", put all your savings in a biotech startup promising to save the world and watch your money burn. Then start again with just the shirt on your back.

  • congo on 14/05/2016 - 13:09
    1. Offset Account
  • peterpeterpumpkin on 14/05/2016 - 21:46

    I suppose you could add peer to peer Lending (e.g. https://www.societyone.com.au) to the list.

    • ucd12345 on 16/05/2016 - 10:19

      SocietyOne is currently restricted to institutional lenders. RateSetter seems to be the only real p2p option at the moment, please correct me if I'm wrong!

      From the SocietyOne website:

      Who can invest?
      Our platform is currently open to Sophisticated or Wholesale Investors.

      Sophisticated Investors require a certificate from their accountant advising the investment entity/controller of the entity has either net assets of $2.5M+ or has earned gross income of $250,000+ over the past two years. For more information please visit http://www.asic.gov.au

      • peterpeterpumpkin on 16/05/2016 - 18:36

        Thanks for that. I never looked into it. Well that cuts out a large chunk of OzBargainers…

        Ratesetters apparently has 100% in returns thus far. I've always hated how credit cards make stupid and desperate people fall further into debt. But it still feels bad charging interest to someone who I trust will have the money in the future. It's chronological discrimination :)

Login or Join to leave a comment
Login Join