However, experts say that by looking beyond traditional investments of cash and shares, you can can still generate solid, regular income.
The trial is to ensure maximum returns are not your sole focus and that you have spread the risk across a number of assets, Sydney financial advisor Brenton Tong says.
“At various points in your life, you’ll need access to money. If you need to sell investments to fund this, you need to be certain that you’re selling at the best possible time to make a profit.
“Since it’s not possible to plan this in advance, many people run the gauntlet and hope that their investments have gone up by the time they need to cash them in.
“Instead of taking this approach, keep your cash flow needs separate to your investment decisions,” Tong says.
“If you need $50,000 in two years, make sure you know where the money is coming from without having to sell something at the last minute. That way, if the market is poor, you’re not forced to sell at a loss,” Tong says.
Making a long-term plan, with an expectation of making adjustments when required, should be the main focus of a retiree
Anyone nearing retirement should bear in mind that generating higher returns always comes with greater risk, says Brendan Ryan of Later Life Advice.
“Making a long-term plan, with an expectation of making adjustments when required, should be the main focus of a retiree,” Ryan says.
Tong agrees. “We’re in a turbulent economic environment and it’s hard to know what’s around the corner,” he says.
“Take out some of the guesswork and use an online calculator to understand how long your money is going to last. Watch what you’re spending with as much effort as you would put into chasing better returns,” Tong says.
When it comes to shares, make sure you can hold onto them for at least 10 years, possibly longer.
And while commercial property is producing strong returns, its best to stick to larger, diversified portfolios of properties, Tong says.
“Residential property can still give returns over 5 per cent, depending on where you buy, but don’t fall into the trap of buying the property down the street because you understand the area. Just because it’s where you live, doesn’t make it the best suburb in which to invest,” he says.
When deciding how to invest, consider how much risk you’re willing to take, how much income you need, and the cost of investing.
Investment options to consider in a low-rate environment include:
Listed investment companies (LICs)
Listed investment companies are traded on the Australian Securities Exchange (ASX).
Investors are paid dividends when the company performs well.
Each LIC has a manager responsible for handling investments, so make sure you assess their performance. Investors exit by selling their shares.
Exchange traded funds (ETFs)
These offers investment returns tied to the performance of a share index or other underlying asset.
They offer diversification at a low cost and greater transparency than traditional managed funds.
Annuities are investments that provide a guaranteed regular income for your lifetime, regardless of how investment markets perform or how long you live.
You invest some of your super or savings with an annuity provider, which gives you guaranteed, regular payments for the rest of your life.
A corporate bond enables a company to raise money to fund its business activities.
One the company receives your money, they issue a bond, which is in effect a promise to pay you interest at regular intervals and then repay the money down the track.
These products suffered during the Global Financial Crisis but, when chosen carefully, can provide regular income payments and stable returns.
Like most investments, the track record of the person managing the money is trial.
Real estate investment trusts
Similar to a managed fund, REITs are actively managed funds consisting of investments in property.
Investors can earn a share of the income generated by tenants and capital growth without purchasing an entire property.