Investors in their early retirement years should look to high yield domestic equities despite market volatility, according to research from State Street Global Advisors (SSgA).
The asset manager has found that investors who opted for a high yield Australian equity strategy over the past 10 years would have achieved better returns than those who retreated to term deposits during unstable markets.
“While the security of cash may be tempting, it is critically important for investors in their early retirement years who no longer earn a salary to have some element of capital growth in their portfolios,” SSgA head of SPDR ETFs Amanda Skelly said.
“Investors who want their retirement savings to last for 10, 20 or even 30 years need to maintain their exposure to capital markets so they can keep pace with inflation and benefit from longer-term capital growth.”
Research found that investors who placed $100,000 into domestic shares paying sustainable dividends in June 2002 would have been $37,700 better off by June this year than investors holding an average term deposit.
A high yield strategy would have generated dividend income of $85,600 (including franking credits) in the 10 years to June 2012 compared to a term deposit which would have generated interest income of only $52,900.
“The figures suggest that investors who retreated to the security of term deposits during the market volatility of recent years may have been better off allocating funds to a higher yield equity strategy,” Ms Skelly said.
With further interest rate cuts expected by the Reserve Bank of Australia, SSgA have said that cash deposits are also likely to become a less attractive income-generating option in the short-term.
