As New Zealand prepares for a second wave of Covid-19, the prospect that the Official Cash Rate (OCR) will fall below zero is now an increasing possibility. A Negative OCR would be part of the RBNZ’s monetary package intended to help stimulate the economy in the wake of uncertainty, but such a decision will turn New Zealand’s financial world upside down. ANZ chief economist Sharon Zollner describes it as turning “money into a hot potato”. Although it is unlikely that the banks will charge a fee for having your money in a savings account, it would mean very little return if any.
Bank term deposits have always been considered low risk, but when your bank term deposits are offering zero returns what are the options to make your savings grow but minimise your risk?
Diversification – why it matters more than ever: a diversified investment portfolio of various assets that earns the highest return for the least risk. A typical diversified portfolio has a mixture of shares, fixed income, property and cash. It works because these assets react differently to the same economic event.
The goal of diversification is not to substantially increase performance or guarantee against losses. Diversification does, however, have the potential to improve returns for whatever level of risk you choose to target.
Achieving your long-term goals requires balancing risk and reward. Choosing the right mix of investments and then periodically rebalancing and monitoring your choices can make a big difference in your financial outcome.