Warning about seniors’ sharemarket investment push

SENIOR Australians tempted to risk their retirement savings in a booming sharemarket are being warned to be careful about overexposing themselves.

As savings account interest rates sink below 3 per cent, company dividends are paying 4-5 per cent — plus tax benefits and strong recent capital growth — and financial experts have noticed a rise in older people heading into shares.

Their move has contributed to the 15 per cent rise in share prices since mid-December, led by big gains from income-paying stocks such as Telstra and the major banks.

However, for some people the extra risk may not be worth the extra return. No companies are immune from falling financial markets. During the global financial crisis our biggest bank — the Commonwealth Bank — more than halved in value, although it has almost quadrupled its share price in the six years since.

One Investment Group executive director Justin Epstein said low interest rates on bank deposits meant retirees might find it challenging to generate “acceptable returns in the foreseeable future”.

He said his firm had seen a number of people taking on extra risk, turning to shares and property assets — without thinking about what might happen when interest rates ultimately rose or property tenants defaulted.

“It’s an increasing problem and I get calls from investors that are asking ‘where can I put my money?’. They are just not happy with the returns they capture and have concerns about how they are going to live on that money long-term.”

“These investors are at risk of exposing their capital, and it is often questionable whether the sometimes marginal increase in return is justified.

“There’s a lot of property spruikers at the moment. Make sure you can trust the people you are giving your money to.”

Mr Epstein was also concerned that some self-funded retirees were looking to overseas markets, which carried currency exchange rate risk, without seeking expert help.

Macquarie Private Wealth division director Paul Kirchner said there was “definitely more interest” in shares among seniors.

“Some people have been slow and are now saying ‘with my term deposit at 2.9 per cent, what’s out there?’’’ Mr Kirchner said low interest rates would remain, and we probably would not see a rate rise “for a considerable time”.

“People waiting for 5 per cent in the next year have zero chance.”

The sharemarket’s strong recent rise has prompted several analysts to warn stocks are overvalued at current prices, although most advisers say shares should form part of people’s investment portfolios because their growth and dividends guard against rising inflation.

Roe Financial certified financial planner Tim Lindsay said people made more money owning bank shares than putting cash in bank deposits “but the shares are starting to look a little overpriced”.

Mr Lindsay said shares, property trusts and infrastructure investments were among the growth assets that retirees could own, as long as they did not overdo it.

“They understand term deposits and cash rates are going down so they need to look at alternate sources so the total return is at least beating inflation,” he said.

“You need to make sure your money is spread around, in Australia and overseas,” he said.