From our Chris:
The cheapest borrowing rates since before the birth of Jesus have synthetically lifted the value of interest rate sensitive sectors such as property…But do you want to bet your life savings on the boffins in Martin Place, who failed to foresee the 1991 recession and the global financial crisis?
You can get a 4.7 per cent dividend yield on Australian equities or a 3 per cent to 4 per cent gross rental yield before transaction costs, fees and taxes on Sydney and Melbourne property. You might even capture more if you can bank some capital gains.
Yet punting all your savings on these investments could severely damage your retirement prospects if interest rates are one day forced to mean-revert back to observed trends since the advent of non-commodity-backed fiat money in the 1970s.
I wouldn’t worry too much a bout mean reversion in the cash rate but real rates are certainly a potential problem as the business cycle goes “pop”. It is a time of wealth preservation and patience as we wait for the bust.
