Today if you invest into a term deposit in any of our major banks, you will receive about 3.55% (before tax). By the time you pay tax, the amount left is under 3%. This is a pretty safe investment but not very profitable. The banks happily borrow your money, and then on-lend it, to make a profit. This is something the banks are pretty darn good at, so why not share in the profits? That is, buy shares in any of the main banks.
For example, ANZ is selling today for AUD$26.79 per share. Morningstar has a fair value estimate of AUD$36.00 per share. Also, ANZ is paying a dividend of around 7% (before tax).
On top of this, the New Zealand dollar is at around NZD$0.94 against the Australian dollar. If our dollar falls, ANZ shares (in New Zealand dollar value) will go up, as the shares are on both stock exchanges.
Even if the share doesn’t go up and the New Zealand dollar stays the same as today, you are still going to earn twice the return that you would in term deposits.
In life, nothing is guaranteed and everyone’s situation is different. WealthDesign specialises in individual personalised advice – so if you want to talk about investing smart, give me a call.
John Barber
WealthDesign – a life well planned