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Friday, March 2, 2018

Shaken, not stirred


Which brings me straight to the subject: bonds (and term deposits) versus shares. Which are riskier at a time when we live longer and our retirement savings have to last us for almost as long as our working lifespan?

A picture is worth a thousand words and the above chart compares cash deposits with industrial shares over 37 years. The example shows $100,000 invested in both industrial shares and term deposits in 1979, with all income from both investments spent and not reinvested. After receiving interest payments every year, a term deposit is still $100,000 after 37 years whilst shares, in addition to the income received, are now worth $1.9 million. The chart speaks for itself.

Personally, I didn't have a lazy hundred thousand dollars to put into the share market in 1979, neither ten years later, but I "joined" the chart in the late 90s. Again, instead of buying shares in the S&P 200 Industrials Index, I did pick a few losers. However, I am still happy I didn't put my money away in "safe" cash deposits but made the market's volatility my fickle friend.

Today's term deposits pay 2.3%. Compare that to the very healthy 5% in dividends (plus franking credits) paid by the likes of BHP and the banks, even while their prices have been dropping for the past few days.

I'm shaken but not stirred.