24 August 2020

    Negative rates dead ahead

    A negative OCR is on the way for NZ

    David McLeish

    Head of Fixed Income

    Email David
    David McLeish

    Head of Fixed Income

    Email David

    The Reserve Bank of New Zealand has made it clear, a negative Official Cash Rate is now on the cards. This means even lower bank deposit rates ahead. It’s important to make sure your investment strategy is well positioned for this. Getting smart with your cash and ensuring your portfolio includes exposure to high quality property and shares are all part of being match fit for the world we are heading towards.

    We have been warned. A negative Official Cash Rate (OCR) is likely on its way for New Zealand. The phrase negative OCR appeared nine times in the latest Reserve Bank of New Zealand monetary policy statement. The press conference following the statement further emphasised it with the Governor highlighting that New Zealand banks need to be ready for negative rates by December this year.

    Unless something significant changes, it is a matter of if, not when, short-term interest rates head into negative territory.

    A negative OCR does not necessarily mean a negative rate on your bank deposit, this remains unlikely for now. But make no mistake, the interest your money will receive in the bank is heading even lower than it is today, and we expect it to stay that way for some time to come.

    Lower interest rates pose challenges for all savers and investors. Saving your retirement nest egg is getting harder. We have commented on this challenge before. But it remains, in my view, one of the biggest issues we face, as investors, and it’s getting more pressing by the day. This is the time to evaluate your longer term investment strategy.

    Get smart with your cash

    Many of our clients have savings, typically cash on call at the bank or on term deposit, and a long-term investment portfolio through KiwiSaver or managed funds. Low interest rates make even keeping up with inflation in the savings component of your wealth increasingly difficult.

    An actively managed fixed income strategy, like our Income Fund, may be an attractive tool in the fight to combat lower interest rates. The Income Fund invests in a wide range of near-maturity fixed income investments, is well diversified, and therefore sits at the low risk end of the investment spectrum. The benefit of diversification and the Fisher Funds active management style has meant the Fund has generated stable returns that are very competitive with term deposits over time.

    Making your money work even harder is important as we head towards a negative OCR.

    Investing not saving

    The mix of your savings and investments is something else that might need consideration. For some, having a little less in the bank and a little more in a long-term, diversified portfolio could enhance your returns over time. Having a good mix of high quality property and shares alongside fixed income can also help smooth out the natural ups and downs of investment markets.

    This does need to be done in a considered way though. A clear long-term strategy is likely to be increasingly important over the coming years. Our team can help you understand what that might look like for your personal circumstances.

    The latest Reserve Bank monetary policy statement has set the clock ticking on negative rates. Time to look at your investment strategy and be prepared. We are here to help

    Investing with Fisher Funds

    If you have any questions about our investment processes or wish to find out more about managed funds please get in touch on 0508 FISHER (0508 347 437) or via email. We also have a handy online Investor Profile Questionnaire that will allow you to find an investment strategy that works for you.

    If you are ready to invest, you can apply online, starting from as little as $100 per month.

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