At our Annual General Meetings for retail and wholesale investors in August, PMG’s Investor Relationships Manager, Ben Cant, shared insights on the evolving investment landscape with his message: “Cash is Cooked.” As term deposit rates fall, and with further cuts to the Official Cash Rate (OCR) anticipated by the end of the year, investors face important decisions about how to best position their portfolios.
Here are three key takeaways from Ben’s presentation and why it may be time to rethink your approach:
1. Term deposit rates are falling – time to reassess your strategy
The Reserve Bank of New Zealand recently cut the OCR to 5.25%, and further reductions are expected. This has caused term deposit rates to decline, impacting income for those relying on cash investments. Ben highlighted forecasts from Mark Lister, Investment Director at Craigs Investment Partners, who expects term deposit returns to drop by up to 2% over the next two years, in turn, reducing investor’s income from term deposits by 25-35%.
For investors relying on term deposits, this trend signals a critical need to reassess their strategies. While term deposits have long been considered safe, the shrinking income and reinvestment risks in a declining rate environment mean that cash investments may no longer provide the risk-free returns they once did.
2. Seize the opportunity in growth asset valuations
As term deposit rates fall, growth assets like commercial real estate are becoming more attractive. Currently, these assets are well-valued, but that may change quickly as the market adjusts to lower rates. Ben emphasised that investors should look beyond short-term market volatility and consider the longer-term benefits of growth assets.
Investing in growth assets can help capture value from the current market conditions and position your portfolio for future gains. A balanced approach that includes both cash reserves for security and growth assets for long-term potential can help protect against the erosion of purchasing power due to inflation. By taking a proactive approach, investors can capitalise on lower asset prices and lock in attractive yields.
3. Long-term income and growth potential
PMG’s funds offer the potential for greater returns than cash in the bank today, thanks to the unique benefits of commercial real estate and the tax advantages of the PIE (Portfolio Investment Entity) structure. With unit prices at all-time lows, and the potential for growth in income as interest rates continue to fall, now may be an excellent time to invest, enhancing income and positioning your portfolio for future growth.
Commercial property funds provide an accessible way to invest in high-quality real estate, offering diversification and risk management that individual property ownership often lacks. The PIE structure also offers tax efficiencies, allowing investors to pay tax based on their Prescribed Investor Rate, capped at 28%, potentially leading to significant savings over time.
The opportunity cost of holding cash is increasing. Investors should explore options that preserve wealth and strategically position assets for future growth. Ben’s message was clear: while term deposits have served investors well in the past two years, the current environment calls for a more diversified approach. By considering commercial real estate, you can protect your income, diversify your portfolio, and set the stage for long-term, sustainable growth in value over time.
Disclaimer: The information in this article is of a general nature and was current as at 5 September 2024. It is not intended to be regulated financial advice for the purpose of the Financial Markets Conduct Act 2013, and does not take your individual circumstances and financial situation into account. PMG does not provide financial advice on whether or not an investment in one of its funds is right for you. Please seek advice from a licensed financial advice provider before making any investment decisions.
With a range of investment funds to suit New Zealanders of all ages and stages, it's easier than you may think to invest. Give one of our knowledgeable pmg Investor Relationships Managers a call for a no-obligation chat, or visit our FAQ page.
To start investing with PMG, register your contact details via phone or email. Alternatively, make an enquiry via our contact form and we’ll have someone from our Investment Relationships Team meet you.
Watch PMG’s history video to learn more about our approach to commercial property investments, along with the five funds within the company. We encourage you to speak with a friend or family member who knows us, and we also recommend you chat with a Financial Advice Provider for specific advice to suit your unique situation.
Look through our current investment offers to find the right PMG fund to suit you. After downloading, carefully review the associated Product Disclosure Statement(s) for the offer(s) you’re interested in. Investing with us is straightforward – either apply online using our secure and confidential investor portal, via the printable form on each fund page, or reach out to your local PMG office to fill out the relevant paperwork.
Our lines of communication are always open. If you have any questions, reach out to your local PMG Investor Relationships Manager. Whether it’s a general catch up or discussion around the latest developments with your investment, we’re here to help.
