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Ask Paul: Our money is going backwards in term deposits

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Q: My wife and I are in our mid and late 70s and we have sold our home, which was getting too much to maintain at our ages.

We are both age pensioners and now have about $50,000 in shares with dividends of about 5.2%, plus about $450,000 that is currently invested in term deposits, which struggle to reach deeming rates. We now live in a rented apartment with a superb lifestyle.

Can you please suggest a better investment plan for at least some of our funds considering our life expectancy? All of our term deposits are inside 12 months in time and about 75% of the funds are held in government-guaranteed bank term deposits. – Kevin

A: Hi, Kevin. First up I am delighted to hear that your lifestyle is superb!

With both of you in your mid to late 70s you have plenty of life in front of you, so unless you both have a serious health issue, your investment approach can be for the medium to long term.

With investments of some $500,000, I feel that $50,000 in growth investments such as shares and the rest in a term deposit paying around 2.7% needs a re-think.

Sure, shares will have ups and downs but the dividends are likely to be twice those of a term deposit. Things are clearly going well for you, so I can’t see much point in changing if you were to lose sleep over it.

But I would be inclined to consider something like $200,000 in shares and $300,000 in term deposits. The risk on your portfolio would go up but so would your income, and over time it is realistic to expect better overall returns.

Written by Paul Clitheroe

Paul Clitheroe

Paul Clitheroe AM is a respected financial adviser and Money’s chairman and chief commentator. He is chair of the Australian Government Financial Literacy Board, and author of several personal finance books which have sold more than 600,000 copies. Email Paul your question (must be 150 words or less).

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